While many of the year's momo stocks are broken and struggling, Intuitive Surgical (ISRG) is an exception. This is a long time trader favorite, with the fundamental question being what are the expansion possibilities over and above the bread and butter prostate (cancer) surgery utilization. IBD notes that recently the company was granted FDA approval to use the robot (da Vinci) for gall bladder surgery… of course the more uses for the machine, the better for Intuitive. This is one of the few companies with the elusive "razor and razor blade" model….
Technically the stock is testing old highs from mid November – how it acts at these levels should hold the key for the action soon after.
- Intuitive scored a nice win on this front this month when it received the Food and Drug Administration's nod to market its Single-Site Instrumentation kit for laparoscopic cholecystectomy procedures, the surgical removal of the gall bladder. The Single-Site set of instruments and accessories allow the da Vinci Si model to work through a single incision rather than three incisions. Single incision surgery is aimed at minimizing trauma to patients by reducing the number of ports required to enter the body.
- Intuitive plans to start a controlled rollout of the instrument set in the U.S. while it continues rollout in Europe, where clearance was received in February. Collins Stewart analyst Tao Levy sees a lot of potential with the Single-Site set of instruments initially helping surgeons with gall bladder removal and eventually being used in procedures in other areas, such as urology and gynecology. Levy says gall bladder surgeries can already be performed with the da Vinci, but it wasn't going to become a targeted procedure, given that most are already performed laparoscopically, or minimally invasively. "However, with the Single-Site, gall bladder removal would be a new target opportunity for the da Vinci system in the U.S., driving incremental revenue," he said.
- In the U.S., roughly 400,000 gall bladders are removed annually in an inpatient hospital setting, and an even more if you count an outpatient setting, says Levy, citing a survey summary in the National Health Statistics Reports' Oct. 26, 2010, edition. He figures Intuitive could capture $1,200 per procedure. If Intuitive captures 1% to 2% of the U.S. gall bladder market in the next 12 to 18 months, it would add 20 cents to its earnings per share on an annual basis, he estimates.
- Les Funtleyder, portfolio manager for the Miller Tabak Health Care Transformation Fund, says he doesn't see a lot of potential for the Single-Site in gall bladder procedures, which is "well served" with regular laparoscopic surgery. "I think the Single-Site in other indications is probably more important," he said. "We think it will be a long-term driver." He says Intuitive's Single-Site instruments could be used as a tool in most any indication where it would be an improvement over regular laparoscopic surgery, a procedure which could involve as many as four or five sites.
- The da Vinci surgical system consists of a surgeon's console, or consoles, a patient-side cart and a high-performance vision system. It translates the surgeon's natural hand movements, which are performed on instrument controls at a console, into corresponding micro-movements of instruments positioned inside the patient through small incisions, or ports. It's the No.1 option for minimally invasive hysterectomies in the U.S., the No. 1 surgical treatment option for U.S. women diagnosed with gynecologic cancer, and is chosen by more U.S. men than any other treatment for prostate cancer surgery, says the company's website.
- Meanwhile, Intuitive has been faring handsomely with its current lineup. Third-quarter profit surged 43% to $3.05 a share, smashing views. Sales rose 30% to $446.7 million.
- Intuitive's da Vinci systems sell for $1 million to $2.3 million, depending on configuration and geography. It generates recurring revenue from its instruments, accessories products and from ongoing system service.
- During the quarter, Intuitive sold 133 da Vinci systems, up from 105 a year earlier. Total systems revenue was up 25% to $199 million. (razor) Sales of instruments and accessories surged 38% to $176 million. (razor blade)
- Thomson Reuters analysts see full-year earnings rising 25% to $11.86 a share. They forecast a 19% gain in 2012.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog