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Intuitive Surgical (NASDAQ:ISRG) is scheduled to release its earnings for Q3 on October 17. The company’s stock has seen remarkable growth over the past few years, but has been going through a rough patch this year. It reported dismal earnings in Q2 as U.S. hospitals became reluctant to purchase its flagship robotic-surgery system, the da Vinci Surgical system. The decline in sales came after a series of negative reports about the safety and cost-benefits of these systems (read: Intuitive Surgical Disappoints On All Fronts).
We believe that the company’s revenue growth is likely to remain under pressure in Q3 as well, because several of the concerns about the da Vinci systems still persist. Our price estimate for Intuitive Surgical’s stock is currently $442, nearly 15% above the current market price.
Concerns About da Vinci Systems Weigh On Sales Growth
Intuitive Surgical has been marketing its da Vinci system mainly on the premise of lower costs. However, a comprehensive study conducted by Columbia University earlier this year suggested that surgeries performed using this system may actually cost significantly more than standard minimally invasive procedures, and without any major benefits. According to the study, using da Vinci costs a significant $2,189 more per procedure over laparoscopic hysterectomies; despite the cost difference, the rate of complications and length of stay were similar in both procedures.  The American Congress of Obstetricians and Gynecologists also echoed these research findings, and has questioned the lack of clinical data to demonstrate the efficacy of robotic hysterectomies over cheaper laparoscopic procedures. 
Since the study became public, Intuitive Surgical has been seeing a decline in hysterectomies being performed through its systems. Health insurers are seemingly reluctant to approve hysterectomy procedures performed with the systems. Since U.S. hysterectomies constitute nearly 30% of total procedures for da Vinci (~150,000 hysterectomies vs. ~450,000 total procedures in 2012), concerns have affected sales of the da Vinci system in the U.S. Continued procedure growth is required to make the system financially viable for hospitals as the average initial cost of the system is relatively high (ranges from $1 million to $2.3 million per system).
There could be a further decline in sales if the company fails to address the U.S. FDA’s demands. The FDA slapped the company with a warning letter a few months back and sought certain changes to be made in the system. The management has mentioned that these demands are addressable and being worked on.
- Robotically Assisted vs Laparoscopic Hysterectomy Among Women With Benign Gynecologic Disease, JAMA, Feb 20 2013 [↩]
- Robot Surgery Isn’t First Choice for Uterus Removals, Bloomberg, March 16 2013 [↩]