Intuitive Surgical Gets CE Approval For New Device But Near-Term Uncertainties Remain

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ISRG: Intuitive Surgical logo
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Intuitive Surgical

Surgical robot maker Intuitive Surgical(NYSE:ISRG) has received CE approval for its da Vinci Xi surgical system, which will allow the company to sell it in the European Union and some other countries such as Norway, Iceland and Switzerland. The da Vinci Xi system already has FDA approval for sale in the U.S., which it obtained in April this year. [1] [2]

The approval is certainly positive news for the company, but it failed to impress the market as the company’s stock closed flat at around $405 on Wednesday. We believe that it is too early to comment on its impact on sentiment or sales of its da Vinci systems, which have declined drastically in the last couple of quarters. In the first quarter this year, total revenue declined about 24% year-over-year (y-o-y) to $465 million and sales of its da Vinci systems declined about 59% from the prior-year quarter to $106 million on account of sluggish growth in U.S. procedures. Net income dropped about 77% y-o-y to just over $44 million in the same period.

There are several factors which have impacted Intuitive Surgical’s performance in the past few quarters – concerns over the efficacy and cost effectiveness of its da Vinci surgical robot system, changed institutional capital-spending priorities because of the Affordable Care Act in the U.S., and negative publicity due to increasing liability lawsuits against the company. While improved access in international markets is likely to help the company counter weak institutional/hospital spending in the U.S., concerns over cost-effectiveness, adverse events and rising liability lawsuits will continue to weigh on its performance in the near term. However, we expect the CE approval to help the company stabilize sales of its da Vinci surgical system in the long run.

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We currently have a price estimate of $455 for Intuitive Surgical, which is around 10% ahead of the market price.

See our full analysis for Intuitive Surgical

The da Vinci Xi System

The da Vinci Xi system is an improved version of the older da Vinci Si model and allows wider use of the device, according to the company. The new robot’s arms are thinner and have greater maneuverability compared to existing models, which the company believes should reduce the chances of interference between the arms during procedures and enable smoother operation. It also boasts a better imaging system with 3D and high-definition visuals. Intuitive believes that better mobility and ease-of-use will allow a greater number of surgeons to perform complex surgeries using the robotic system than before. Therefore, it is targeting this minimally invasive surgical device towards doctors who perform complex procedures, while it will continue to market the Si system for other less complicated procedures.

The company also received FDA approval in April for a device called da Vinci Sp. The da Vinci Sp system is designed specifically for single-port surgeries such as urology procedures, as opposed to the multi-port usage of the Xi system. It is relatively smaller in size and is aimed at faster and cost-effective procedures using a high-definition camera and a couple of instruments. The company stated in its Q1 earnings call that it does not intend to commercialize the da Vinci Sp system and it would be sold as part of the da Vinci Xi system.

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Notes:
  1. Press Release, Intuitive Surgical, June 25 []
  2. Intuitive Surgical Gets FDA Clearance for Robotic Surgical System, WSJ, April 1 2014 []