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Does Intuitive Surgical's Pain Spell Doom for MAKO?

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Earlier this week, shares of MAKO Surgical  (UNKNOWN: MAKO.DL  ) fell 5% after fellow robotic-surgery specialist Intuitive Surgical  (NASDAQ: ISRG  ) pre-announced disappointing quarterly results.

Specifically, shares of Intuitive set a new 52-week low, plunging as much as 18% after it told investors to expect second-quarter income of around $160 million on revenue of $575 million. For those of you keeping track, that's significantly lower than consensus estimates, which called for net income of $177.7 million on sales of $630.4 million.

So what happened? According to Intuitive CEO Gary Guthart, overall procedures last quarter rose 18% from the year-ago period, but the company was disappointed "with respect to [its] capital sales in the U.S."

Of course, my fellow Fools wasted no time chiming in to tell you not only what was probably behind Intuitive's plunge, but also how you should think about responding to the pullback. As a result, and because I largely agree with my colleagues' opinions in this case, there's little need for me to write a largely redundant article on the topic.

Guilty by association?
That said, many MAKO Surgical investors -- myself included -- remain unsettled given Intuitive's weak numbers.

After all, as fellow Fool contributor Sean Williams astutely pointed out, while Intuitive's operations are still running firmly in the black, MAKO is still striving to achieve its first profitable quarter as it builds a stable of established RIO surgical systems across the globe.

Remember, multiple core system sales misses are the very reason shares of MAKO Surgical are currently trading more than 70% below their highs set in early 2012.

Luckily, after MAKO turned in a solid quarter in May, which even managed to slightly exceed analysts' expectations, the company was finally able to reassure investors that they might actually understand where they are on the adoption curve. If you recall, that nerve-wracking lack of clarity was one of the primary reasons fellow Fool Brian Stoffel told us last December that MAKO would no longer remain a part of his 2013 portfolio.

Why MAKO may come out unscathed
Of course, I've maintained faith in the company since then, especially considering MAKO's cash burn is slowing as it slowly sells more systems. Better yet, per-site system utilization has remained healthy, which indicates the hospitals that have already purchased the expensive robots are continuing to put them to good use. 

What's more, it'll take a whole lot less to move MAKO's revenue needle than Intuitive needs to sustain its torrid pace of growth. For example, MAKO's most recent report outlined the sales of just five RIO Surgical Systems, while Intuitive sold 164 of its da Vinci Surgical Systems last quarter alone.  If that sounds like a lot... well, it is. In fact, Intuitive's first quarter system sales were higher than MAKO's entire installed RIO system base so far at 161 units.

So, while the uncertain economic environment surrounding domestic health care may be having significant negative ramifications that prevent Intuitive from maintaining its incredible growth rates over the short term, it's difficult to simply project those negative effects over to MAKO Surgical's comparatively young business.

Intuitive's results, no matter how bad they might seem on the surface, will still, in all likelihood, show that hospitals have at least some money reserved for these kinds of capital expenditures. If MAKO is properly focusing its efforts on the right hospitals, there's no reason it shouldn't be able to put up solid system sales numbers a few weeks from now.

In addition, Intuitive's da Vinci robots have been the subject of much criticism, as the company defends itself from more than 20 civil lawsuits alleging negligence in properly training the surgeons who use its robots. Though Intuitive recently won the first of those lawsuits after it was proven that the company was not responsible for the damages, it's hard to deny that the residual effects of that uncertainty could still be hurting Intuitive's sales.

In the meantime, MAKO's recent legal wranglings this year have consisted of not only legally neutralizing its patent-violating competition, but also successfully defending itself against meritless shareholder lawsuits stemming from the previous precipitous drop in its share price.

And, while it's tempting to say Intuitive's legal woes have tainted the robotic surgery market as a whole, MAKO has also been showing off a plethora of recent clinical research that touts the improved accuracy and decreased pain levels that can be achieved using its own robotic system in assisting orthopedic surgeries.

Foolish takeaway
Now, don't get me wrong; this certainly doesn't guarantee MAKO will post a fantastic quarter in stark contrast to Intuitive Surgical's results.

I'm just saying that investors need to remember that, while Intuitive and MAKO are both involved in robotic surgery and both rely on hospital spending to keep their lights on, it doesn't mean that Intuitive's troubles directly dictate what will happen to MAKO Surgical's business.

That said, even if MAKO does post another bad quarter as a result of the unpredictable economic climate, they still had $71 million in cash with no debt on their balance sheet at the end of March. If Sean's assertions about Obamacare uncertainties lasting through the first or second quarter of next year are correct, then MAKO's gradually slowing cash burn should afford them the ability to sit tight until things pick up again.

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12/31/1969 7:00 PM
MAKO.DL $0.00 Down +0.00 +0.00%
MAKO Surgical CAPS Rating: ****
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