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Is Intuitive Surgical in Trouble?

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Intuitive Surgical (NASDAQ: ISRG  ) shares took a nose dive Thursday, falling 11% in the closing minutes of trading in reaction to a Bloomberg article that exposed an FDA inquiry into a rise in adverse event reports related to the use of Intuitive's daVinci robotic surgery system.

On the surface, the reaction to headlines of an FDA inquiry seemed merited. After all, essentially 100% of Intuitive Surgical's revenue is derived from sales of the daVinci robot, instruments used for conducting surgery with the robot, and maintenance contracts. However, after absorbing the facts, fears of immediate FDA action appear to be misguided.

According to Bloomberg, in January the agency sent a survey to doctors focused on two main topics: the training received for performing procedures on the daVinci, and what procedures they felt were most appropriate.

The timing of the inquiry is also quite interesting. In late December the first of a series of negative research reports by Citron Research noted that inadequate training was one factor leading to some of the adverse patient outcomes. While its unlikely that the FDA would admit it, I'm inclined to think that these widely circulated reports were, at a minimum, taken into consideration before conducting the survey.

Adverse events are an inevitability in surgery, robot or no robot. After all, despite years of education and training, surgeons are still human, and as we all know that means they're fallible. While a rise in reported adverse events was cited as the FDA's motivation, the agency appeared hesitant to use language suggesting that the increase was disproportionate to the growth in procedures being performed. That's a good thing for Intuitive.

Shares of the company are rebounding this morning in response to yesterday's late day overreaction. As of 8:30 a.m EST, the stock had returned to around $555, down only 3% from its levels prior to the sharp drop. That level of decline seems more merited given the new uncertainties around this inquiry. I wouldn't expect much upside potential for shares in the near-term until more details emerge.

Are stories of this demise greatly exaggerated?
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Related Tickers

9/27/2016 4:00 PM
ISRG $720.19 Up +12.95 +1.83%
Intuitive Surgical CAPS Rating: ****