I must disagree with my Foolish colleague W.D. Crotty's reading on Intuitive Surgical's (Nasdaq: ISRG ) low insider ownership. Getting a medical device through development, testing, and FDA approval is a long and expensive task. The costs usually run into the hundreds of millions of dollars. Additionally, the time from start to approval is measured in years.
Pharmaceutical giants like Merck (NYSE: MRK ) and Pfizer (NYSE: PFE ) have existing products that generate cash to pay for those incredible R&D costs. As a start-up, Intuitive had no existing cash cows. It had two choices to raise that money -- the debt market or the equity market. It was able to raise it via the equity market because of the tremendous promise and potential of its da Vinci surgical system. As a result, its balance sheet is pristine, with less than $2,000,000 in long-term liabilities. Sure, its insiders own less of the company as a result. Low insider ownership certainly beats the kind of crushing debt that routinely throws airlines like United (Nasdaq: UAUA ) -- another capital-intensive beast of an industry -- into bankruptcy.
Remember, too, the value proposition behind the price tag for Intuitive's da Vinci and its robotic-assisted minimally invasive surgeries:
- Faster recoveries.
- Lower risk of infection.
- Better physician control.
I'll agree with W.D. that Intuitive Surgical's shares don't look cheap. World-changing companies like those profiled in David Gardner's Motley Fool Rule Breakers rarely do. Then again, Microsoft (Nasdaq: MSFT ) never really looked cheap until late 2005. By that time, though, the early investors had already been well rewarded.
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