Intuitive Surgical May Soon Face Headwinds Due To Non-Intuitive Data

| About: Intuitive Surgical, (ISRG)

The "da Vinci" robotic surgical system has become a popular device with patients and surgeons, and a necessity at hospitals that want to attract both. The robots and their maker, Intuitive Surgical Inc. (NASDAQ:ISRG), have also recently attracted the scrutiny of U.S. regulators, who are probing the company. The da Vinci surgical system and related products generated about $2.2 billion revenue for Intuitive Surgical in 2012, with the staring price of each machine costing about $1.5 million.

The current issue began after the Food and Drug Administration ("FDA") asked surgeons at numerous hospitals to identify complications with the da Vinci machines. The responses are bringing a discussion regarding whether the robotic surgeries are really worth the extra cost up front, though the topic has existed amongst hospital administrators for many years.

Last month, the Journal of the American Medical Association may have added fuel to the fire when it published an article that analyzed data from hysterectomies performed between 2007 and 2010, and concluded that "robotically assisted and laparoscopic hysterectomy had similar morbidity profiles, but the use of robotic technology resulted in substantially more costs." This research report may have also contributed to the FDA's decision to probe Intuitive Surgical. The study found that a robot assisted hysterectomy for benign circumstances cost $2,189 more than without the robot (based on average costs across 441 U.S. hospitals for 264,758 procedures).

The FDA is looking into whether a rise in incident reports is a true reflection of problems with the robots or the result of other issues. Adverse event reports sent to the FDA comprised serious complications. Problems included bodily damage such as uterine injury during gynecological surgeries, burns and pieces of the machine breaking and falling into patients. Many of these instances were quickly resolved, often during the same surgery where they occurred, but the occurrences are concerning enough to cause a probe.

Intuitive Surgical's robots and the procedures for their usage are designed with significant redundancies aimed at reducing injurious occurrences, but these redundancies come at a price. While safety is clearly an important matter, a question must also exist as to whether the machines are safe enough to justify the added expenses. Further, the JAMA study indicates that the added expense may sometimes generate no greater safety profile.

The FDA may conclude that though the robot is worth using in some situations, that the added expense is not justified in others, and possibly that the machine should be restricted from certain procedures altogether. It is also quite possible that the review might identify that a part of the machine requires re-design or recall and substitution due to it potentially contributing to a significant portion of the incident reports.

A large part in the rise of these machines as part of the hospital landscape is that patients are seeking out robotic surgery. This is because hospitals market their ownership of the machines as something that makes them better than competing facilities without the robots. See examples of billboards for medical facilities that are touting their ownership of a da Vinci robot:

Beyond patients, many surgeons are also eager to work at facilities where they can train to operate the robots. The allure of training with the newest and best technology may also be strongest amongst more capable surgeons who might already have a lesser likelihood of injurious results than their peers. If such is true, then a reduced occurrence of injury with the da Vinci robot may not be because of the robot, but instead because the surgeons who generally use them already have an above-average likelihood of completing procedures without complication.

This possible distinction between the average user of a da Vinci robot and the broader spectrum of surgeons might contribute to a performance record that is being attributed to the machine. Moreover, if contributing to the safety record, the data from such a distinction would be incredibly difficult to parse out. Most patients do not care whether it is the surgeon or the robot who makes a procedure safe, so long as it is safe.

When using the da Vinci robot, the surgeon sits at a console that is akin to the type one might see at a video arcade. The controller is usually at least a few feet from the patient and often in an adjacent room, with the surgeon viewing the patient through a high-definition display, and a three-dimensional camera providing the surgeon with video of the procedure. The surgeon manipulates the robot's arms, which have various surgical tools attached to them.

An added benefit of this system is that the machine could also be operated more remotely. This should be beneficial in situations where an individual requires a procedure immediately, but no qualified surgeon is close by. The procedure could still be performed by a surgeon at another facility with a robot, theoretically located anywhere, so long as its console is connected to the robot at the treating facility.

Of course, there are concerns that the machine can malfunction, and especially when used remotely. Beyond the potential for the Internet connection to lose link, or components to the device to fail, such as the camera, display or an arm, there are other potential limitations that he robotic surgery may have that are difficult to quantify. For example, surgeons will often probe around and feel for problems that are not visible. The surgeon's inability to get such tactile responses may not only limit their ability to identify certain issues, but also contribute to the causation of accidental injuries that would have otherwise not occurred.

Because of the potential for the machine to fail, part of the failsafe system is to have another surgeon in the operating room as a back-up. If the procedure goes well, then the surgeon in the operating room is truly redundant, unless needed for performing some sort of tactile probing that is not doable through the machine. Nonetheless, a redundant surgeon is a significant added expense to a procedure.

The debate over the extent of proper use for the da Vinci robot is far from over. While the robot is undoubtedly beneficial for numerous procedures and situations, what appears to be the case is that its scope of use has been extended beyond that due to the cool-factor that makes both patients and surgeons prefer it. Similarly, facilities have become almost obligated to obtain the machines in order to compete for business, and especially at the higher end, where patients have the income to choose more expensive options that they believe are also better.

While the usage of robots in surgical procedures is likely to continue increasing over time, it now appears that the speed at which usage grows may slow due to headwinds, including budget conscious decision makers and a potential wave of data indicating the machines are not as beneficial as previously thought. These risks could cause ISRG to decline in the coming months, as the value added by these robots is more thoroughly analyzed.

Further, ongoing government scrutiny of the da Vinci robot may prompt some hospitals to refrain from making purchases of the reasonably expensive device until determinations are made. This could cause ISRG and analysts that cover the company to reduce near-term sales estimates.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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