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Intuitive Surgical Faces Setback for Warning Letter (Revised)

ISRG ANGO BABY CRY

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Intuitive Surgical, Inc. (ISRG - Analyst Report) continues to face troubles due to its rudimentary robotic surgical systems. Despite the company’s continuous efforts in making robotic-assisted surgeries superior to conventional ones by several promotions, recent incidents raise doubts about the robotic surgical technology.

An information released by U.S. Food and Drug Administration (FDA) on Dec 3 regarding a warning letter issued by ISRG on Nov 19 mentioning certain problems about their da Vinci robots turned the stock red.  The letter stated that da Vinci instrument arms may experience abnormal friction, causing the device to suddenly stall and make an imprecise surgical cut. As a result, the company will inspect 1,386 da Vinci systems worldwide, which FDA defined as Class 2 recall.

Shares of Intuitive Surgical started trading at a very low-level of $367.49 yesterday, a 1.4% decline compared to the day before. However, they settled down at a higher level of $370.68 at the closing (still reflecting a fall of 0.6%), thanks to the comments by renowned journalist Herb Greenberg, who negated the investor sentiment driving the selloff.  

Several reports have revealed that patients suffered complications or injuries owing to the robotic-assisted surgeries. According to a study conducted by Johns Hopkins researchers and published in The Journal for Healthcare Quality in September, 174 injuries and 71 deaths were reported related to da Vinci system surgeries.

However, it seems that Intuitive Surgical is lagging somewhere in its efforts to promote robotic-assisted surgery as an alternative to conventional surgery. In the third quarter of the year, ISRG sold 54 less da Vinci Surgical systems compared with 155 systems in the prior-year quarter. As a result, revenues from its Systems segment plunged 32% to $159 million in the quarter.

ISRG generates revenues from da Vinci systems as well as disposable instruments that are replaced after each procedure. da Vinci system uses robots, cameras and a remote-control console to perform gall bladder removals, hysterectomies, cardiovascular operations and prostatic surgeries.

Intuitive Surgical is going through a rough patch this year. Although the company’s earnings of $3.99 per share beat the Zacks Consensus Estimate in the third quarter of the year, it fell 10.5% from $4.46 per share in the third quarter of 2012. Revenues in the quarter dipped 7% to $499 million, missing the Zacks Consensus Estimate of $527 million.

Over a year, ISRG shares lost 29.7%. The Zacks Consensus Estimate earnings rose 3.2% to $16.23 for 2013 but fell 1.7% to $17.02 for 2014 over the last 60 days. Currently, the stock has a Zacks Rank #3 (Hold).

Some better-ranked stocks that worth a look in the medical instruments industry include CryoLife, Inc. (CRY - Snapshot Report), Natus Medical Inc. (BABY - Snapshot Report), and AngioDynamics Inc. (ANGO - Analyst Report). Both CryoLife and Natus Medical carry a Zacks Rank #1 (Strong Buy) while AngioDynamics carries a Zacks Rank #2 (Buy).

(We are reissuing this article to correct several misstatements. The original article, issued Thursday, December 5, 2013, should no longer be relied upon.)
 

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