Intuitive Surgical Declines as Revenue Misses Estimates

Intuitive Surgical Inc. (ISRG), the maker of a $1.5 million robotic surgery system, fell the most in three months after third-quarter profit declined on lower sales of its devices and related equipment.

Revenue decreased 7.2 percent to $499 million, missing the average estimate of $525.9 million from 18 analysts compiled by Bloomberg. Sunnyvale, California-based Intuitive sold 101 da Vinci robot systems compared with 155 a year earlier, according to a statement yesterday.

Intuitive is facing scrutiny over the marketing, cost effectiveness and safety of its devices. Bloomberg News reported in February that U.S. regulators were surveying surgeons about the robots after a rise in adverse events reports. In July, Intuitive received a warning letter after an inspection found it hadn’t adequately reported product corrections and patient adverse events in some cases.

“Da Vinci sales are unlikely to turn around unless Intuitive conjures up data showing that the system actually improves patient outcomes,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business in Ann Arbor. “Its past success was based on anecdotal claims and assumptions that robotic aids had to be better than unaided surgeons. Now, potential buyers want real evidence.”

Intuitive fell 5.7 percent to $376.52 at the close in New York, the biggest single-day decline since July 19. The shares have decreased 34 percent since the report of the Food and Drug Administration’s doctor survey.

Injury Lawsuits

In a regulatory filing today, the company said it’s defending about 50 product liability lawsuits brought by patients who allege injures linked to robotic surgery.

“Claims brought to our attention by plaintiffs’ attorneys, which contain allegations of patient injury, are required to be investigated and in most cases are reported to the FDA,” Intuitive said in the filing. “This has led to increases” in adverse event reports to U.S regulators.

Robotic operations haven’t been proven in randomized trials to offer significant health benefits compared with standard, less-invasive surgery and multiple studies show they can cost thousands of dollars more. The growth of the procedures has been fueled by marketing from doctors, hospitals and the company, including television and radio advertising, promotions on doctor and hospital websites and YouTube videos, Bloomberg News reported in an Oct. 8 story.

Profit Report

Third-quarter net income decreased to $156.8 million, or $3.99 a share, from $183.3 million, or $4.46, a year earlier, the company said yesterday.

Intuitive said full-year sales will be in the lower half of its July forecast of unchanged to 7 percent growth. While the company in January predicted annual sales growth of 16 percent to 19 percent, it revised the estimate in July after reporting that second-quarter sales of the robot systems had declined from the previous year.

U.S. hospitals used robot-assisted surgery in more than 350,000 operations last year. The robots help perform hysterectomies, gall bladder removals, prostate cancer treatment, and many other soft tissue operations. Half of general surgeons plan to add robotic systems within two years in response to general demand, according to a JPMorgan Chase & Co. survey reported Oct. 3.

The number of surgical procedures using Intuitive’s device rose about 16 percent in the third quarter from a year earlier, the company said in its statement.

“Our third-quarter results were impacted by the same pressures we faced in the first half of the year -- namely, moderating growth in benign gynecology, combined with changing hospital capital spending priorities associated with the implementation of the Affordable Care Act,” Chief Executive Officer Gary Guthart said in the statement.

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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