A Second Chance to Buy Intuitive Surgical

This article also appeared on The Motley Fool.

On Feb. 28, a few minutes before closing, a single research paper sent Intuitive Surgical (NASDAQ: ISRG) tanking from the $570ish range to under $500. The widely circulated paper concluded that overall outcomes in hysterectomies using Intuitive’s Da Vinci robot were no better than laparoscopic surgery — and that the robot option was more expensive. Read the paper here. Critics of the paper say its authors did not consider faster recovery times.

When that fall happened, I doubled my exposure to Intuitive Surgical. The next day, the stock recovered, but not to previous levels. Then last week, Intuitive found a new source of criticism — the president of the American Congress of Obstetricians and Gynecologists — causing the stock to go even lower, into the $450s. However, there are plenty of surgeons holding opposing views in favor of robotic surgery, as evidenced by this response from a group of OB/GYNs.

Keep in mind that all this hullabaloo is limited to hysterectomies, one area in which a non-robotic, minimally invasive laparoscopic option is available to compete with Intuitive’s robosurgeons. Also, the robot doesn’t perform the operation all by itself; it’s a system to give doctors more fine-grained control and better visibility from a much smaller incision. In short, DaVinci’s system is just a better way of performing laparoscopic procedures.

In any case, this is the future, and even though the robotic option is more expensive now, that’s the price for new technology. In most cases where the robot is used, it is a better, less invasive option with faster recovery times. The use of the Da Vinci system is only expanding, and will continue for a while as more surgeries are approved to be performed using the system, and more doctors and hospitals obtain the system and get trained in using it.

So why were investors so spooked? In its Q4 2012 conference call, Intuitive said that OB/GYN and general surgery were responsible for most of its growth, and benign hysterectomy was amongst the largest individual contributors to its procedure growth. Also, hysterectomies accounted for 80% of GYN procedures. So a slowdown in adoption of the robot for GYN procedures could put a dent into the growth of the company.

The da Vinci robot is a general purpose surgical robot and even if GYN growth slows down other procedures will eventually lead to growth. In my opinion any impact will be temporary.

The other robots from Mako (NASDAQ: MAKO) or Hansen (NASDAQ: HNSN) are special purpose robots. Mako’s is only for bone related issues such as Knee and Hip resurfacing or replacement. Hansen’s are specifically for catheterization and use intra-vascular surgery.

So take this chance to acquire the stock of a fast-growing company with no real competition representing the future of surgery under $500.

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