Seeking Alpha
Long/short equity, newsletter provider, valuentum
Profile| Send Message|
( followers)  

Shares of Intuitive Surgical (NASDAQ:ISRG) plunged in trading Thursday afternoon, but recovered much of the loss Friday morning after the FDA announced it was launching an investigation into issues arising from use of the da Vinci systems. The FDA sent surveys to several hospitals, and it is looking to determine whether a rise in incident reporting from robotic surgeries is an issue with the system, the patient, or the surgeon.

From initial reports, it appears that few of the issues have originated from robotic malfunction, but rather from user error. We also think it's important to note that Intuitive Surgical hasn't experienced any increase in the already small death rate. While it appears the firm is being honest in this assertion, the issue with da Vinci brings to light a more philosophical question in the medical devices (and pharmaceutical) space.

The most important part of the Hippocratic Oath that doctors take is "Primum non nocere," a Latin phrase that translates to "do no harm." It is a serious question the medical space has increasingly had to deal with, as healthcare innovations and windfall profits come to the forefront. The da Vinci is generally seen as a non-invasive alternative surgery, but complications arising from the machine could put surgeons at odds with adopting a new system when the traditional form of surgery has worked just fine for a number of years. Not only could this prevent the da Vinci from expanding its procedure base, but it could also create resistance from potential new customers. The high cost of da Vinci machines becomes harder to justify if the system really isn't an improvement over the existing methods.

We certainly have yet to see any ill-effects from Citron's bearish research report on Intuitive Surgical's sales, which advanced 23% in the most recent quarter. We also don't see the FDA inquiry leading to much additional negativity, especially since it's the FDA's job to regulate the safety of medical devices. Possible FDA intervention is a risk, but not a large one, in our view.

At this time, we remain confident in holding shares of Intuitive Surgical in the portfolio of our Best Ideas Newsletter, but we'll be monitoring the situation to see if new system sales growth decelerates meaningfully. We think pushback against the efficacy of da Vinci machines is unlikely, but it could be a devastating headwind if it does surface, hence why the name commands just a small position of our portfolio.

Source: Will The FDA Crush Intuitive Surgical?