FDA’s Warning On Power Morcellators To Impact Intuitive Surgical’s Procedure Volumes

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The U.S. Food and Drug Administration (FDA) recently issued new guidance to warn patients about the use of laparoscopic power morcellators in hysterectomy (removal of the uterus) and myomectomy (fibroids) procedures. Power morcellators have been found to increase the risk of spreading unsuspected cancers in women being treated for fibroids or undergoing a hysterectomy. FDA has issued Immediately in Effect (IIE) guidance recommending manufacturers to put specific safety statements on these products, which clearly state that the use of power morcellators may “decrease the long-term survival of patients” and that they should not be used in certain groups of patients. Incidentally, this group covers most of the women undergoing such procedures. [1]

While the FDA warnings are good for patients who will now be able to take informed decisions regarding their surgical procedures, it is a matter of concern for Intuitive Surgical. Until recently, the surgical robot maker used morcellators for an estimated 10% of its robotic hysterectomies (benign cases) and 20% of non-robotic laparoscopic hysterectomies. In fact, Intuitive Surgical was a significant contributor for growth in morcellator sales post-2005 when it was first approved to conduct hysterectomy procedures.

The IIE guidance issued by FDA is likely to significantly impact patients’ choices against the use of power morcellators, which will impact Intuitive Surgical’s hysterectomy procedure volumes. Since hysterectomy procedures account for about 30% of all surgeries performed using the da Vinci system in the U.S., it could be difficult for the company to achieve its goal of 8-9% procedure volume growth in 2014, which is likely to put pressure on its top line performance.

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We currently have a price estimate of $455 for Intuitive Surgical, implying a discount of about 10% to the market price.

See our full analysis for Intuitive Surgical

Old Issue, New Warning

This is not the first time the FDA has raised concerns over the use of power morcellators. It issued a statement discouraging their use in April last year, showing concern over the increased risk of uterine sarcoma with their use in hysterectomy procedures and removal of fibroids. Subsequently, several patients complained that the product caused the spread or upstaging of cancer, resulting in an advisory committee meeting and inquiry on the subject within the FDA in July. The recently issued warning is an updated version of the April communication and stresses the urgency and serious nature of the problem. However, it is also important to note that FDA did not put a complete ban on the product, likely due to its important role in removing uterine tissue in some cases. ((FDA April Communication, April 17 2014)) [2]

The Road Ahead For Intuitive Surgical

In addition to the FDA’s guidance on power morcellators, the fact that there are still some concerns about robotic surgery and the da Vinci surgical system certainly does not indicate that Intuitive Surgical has reached the end of the road. Of course, there is immense scope for improvement in terms of the cost-effectiveness and versatility of its machines, but that also suggests that there is a lot of opportunity for growth in robot-assisted surgery in general, and Intuitive Surgical in particular. With continued research and innovation, Intuitive Surgical can expand the utility of its da Vinci surgical system beyond the presently prevalent general surgery, gynecology, urology, thoracic and colorectal procedures.

A greater number of procedures generally means a greater number of instruments and accessories, as well as a shorter replacement cycle. Therefore, the number of procedures directly impacts the company’s revenue. Despite the lukewarm sentiment in the last year, Intuitive Surgical reported a 10% increase in procedures last quarter and also adjusted its procedure growth forecast from 5-8% to 8-9% for full-year 2014. The total number of procedures performed  in 2013 was 523,000.

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Notes:
  1. FDA Communication, Nov 24 2014 []
  2. Reports to FDA over laparoscopic devices spur inquiry, FDA, July 8 2014 []