Intuitive Admits Downbeat Quarter after New Model Launch

Posted in Medical Device Business by Stephen Levy on April 9, 2014
da Vinci Xi Surgical System
The arms of Intuitive Surgical's da Vinci Xi Surgical System, as shown on its website.

Few, it seems these days, are happy with Intuitive Surgical.

Following on the heels of the debut of its latest Da Vinci Xi robotic surgery offering, the Sunnyvale, CA–based Intuitive has released preliminary first-quarter results that are less than inspiring. Share prices, which peaked at just over $540 in the days following the Xi's launch, are down more than 15 percent as of the market close on April 9. So investors aren't happy.

Revenue for the first quarter of 2014, the press release says, is anticipated to be down 24% at approximately $465 million, compared with $611 million for the first quarter of 2013. It would have been better, Intuitive said, but for $26 million it has set aside for its trade-in program for customers who recently bought the now-outdated Si model.

Intuitive said it sold 87 systems in the first quarter of 2014, compared to 164 a year earlier. US sales fell to 45 from 115, meaning that 42 of the systems were sold outside the United States. This compares with 49 in the first quarter of 2013.

And then there are those pesky lawsuits. Plaintiffs aren't usually happy, or they wouldn't be suing. Intuitive says it entered a pre-tax charge of $67 million to reflect estimated costs of settling a number of product liability legal claims. These stemmed from alleged complications from surgeries performed with the Monopolar Curved Scissors (MCS) instruments that were the subject of a recall in 2013, and with a first-generation MCS tip cover that was the subject of a market withdrawal in 2012. But these settlements represent just the tip of the lawsuit iceberg.

Benjamin Davies, MD, associate professor of urology at the University of Pittsburgh School of Medicine, goes beyond merely “not happy.” Those “expected to pay for and use the new machines are pissed off,” he says in an article for The Street.

“The first problem with Intuitive's new robot is simple. It doesn't work with my current robot,” Davies continues. “That's right. My 'old' $2 million machine became last week completely incompatible with all the goodies that this new sexy, flashy techno-elitist robot is supposed to deliver. Of course, Intuitive had promised vertical integration as a cornerstone policy of its surgical machines, but sadly, that is not the case. None of the advances of the new Da Vinci Xi machine can be translated to the Da Vinci machine I have.” So other owners of the old Si system also aren't happy.

Reuters reports that Northland Capital Markets analyst Suraj Kalia told told the news service,“Based on our assessment, there exists at least a 40 to 50 percent unused capacity in Da Vinci systems installed the United States; and even higher outside the US.” He also said the newest version of the system would serve to only stratify an already saturated market.

However, Reuters continues, other analysts believe that while underutilization exists, the expanded capabilities of the new Xi system could revive Intuitive's prospects by allowing the machine to be used for more, and different, types of surgeries.

Stephen Levy is a contributor to Qmed and MPMN.