Intuitive Surgical Maintains Its Growth Momentum With Strong Growth In Procedure Volumes

Intuitive Surgical (NYSE:ISRG) posted strong Q4 2015 results as the number of da Vinci units sold grew 15% year over year to 158.  There was healthy growth in the instrument and accessory revenue as well.  Driven by a 15% increase in the number of procedures word wide, the company was successful in continuing the growth momentum after an exceptionally strong Q3 2015. Though da Vinci systems are in the early stage of adoption outside the U.S, Intuitive saw strong revenue growth of 27% year over year from the international procedures driven by the global adoption of da Vinci prostatectomy procedures.

For this year, the key priorities outlined by the company are: 1) expanding the application of da Vinci systems to general and thoracic surgery; 2) expanding Xi line of systems and commercializing Sp product line; 3) driving organizational capabilities in European and Asian markets; and 4) assisting customers to maximize the comprehensive value of their programs. Intuitive is also likely to benefit from the suspension of the 2.3% medical device tax exemption on device sales for a period of two years by the U.S government. ^[1]

Snapshot of Intuitive Surgical’s fourth quarter performance:

• Non-GAAP revenue increased by 13% year over year and 15% sequentially to reach $677 million
• Procedures grew by 15% year over year to 177,000.
• 158 da Vinci systems placed during the quarter, compared to 137 in the year-ago period
• Non-GAAP net income and EPS were $147 million and $5.89, respectively.

Our price estimate of $500 for Intuitive Surgical is 10% below the current market price. However, we are in the process of updating our model in light of the recent earnings release.

Intuitive Surgical Focussing On Markets Outside The U.S

For 2015, Intuitive saw 26% growth in revenues from procedures outside the United States, driven by the increased adoption of da Vinci surgical systems for prostatectomy procedures, kidney procedures, malignant hysterectomies and colorectal resections. Given the positive response for da Vinci systems worldwide, the company is striving to optimize manufacturing, design and supply chains to decrease its costs and expand its footprint in the global markets at a faster rate. Despite the high growth of procedures outside the U.S, the systems shipped outside were only 198 out of the 492 systems shipped in total. This can be attributed to the fact that the market for da Vinci systems outside the U.S is in early stages of adoption and is constrained by government regulations. However, Intuitive claims that global evidence of cost effectiveness for the use of da Vinci surgery is emerging, and the company can see increased adoption for its systems in emerging markets such as India and China, where cost plays an important factor.

Intuitive Determined To Commercialize daVinci SP System And Improve Imaging Systems In 2016

Intuitive Surgical announced FDA clearance for da Vinci Sp back in April 2014. ^[2] However, the company has waited to commercialize the product as it has worked to make it fully compatible with the da Vinci Xi systems, which have broader set of capabilities.  This having been accomplished, Intuitive aims to release the da Vinci Sp product line for clinical use in 2016.

Designed for single-port innovation, the da Vinci Sp systems have a 3D HD camera to deliver high quality images of the surgical site at the console. Also, the system has two more degrees of freedom than the da Vinci single site instruments. With the commercialization of da Vinci Sp Systems, the company aims to target new procedural segments such as colorectal, transoral and transanal segments of surgeries. If Intuitive is able to successfully commercialize the da Vinci Sp system in 2016, the company stands a chance to improve its gross margins as the daVinci Sp systems can have increased price points than the da Vinci single site, owing to the broader set of capabilities provided by the former.

Going ahead, the company also plans to invest in improving the imaging systems used in the da Vinci systems. While the camera in the da Vinci systems have the capability to send images to video monitor to guide doctors during surgery, improvements in the technology will provide doctors better visuals and more control of the surgical site, resulting in increased adoption for the systems.

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1. Medical Device Tax Suspended For Two Years, AAMI, December 2015 [↩]
2. Intuitive announces FDA clearance for da Vinci Sp, Press Release, Intuitive Surgical [↩]