Intuitive Channel Checks (ISRG)
I've spend a fair amount of time lately trying to keep up on the news for Intuitive Surgical (Nasdaq:ISRG) -- this should be a pivotal year for them as their new system (the da Vinci S) gains customers and they expand the breadth of surgeries for which the da Vinci is commonly used. They'll be reporting their first quarter results two weeks from today, but with the price declining (perhaps thanks to Cramer once again jumping out?) and my constant temptation to buy more of this one, I hate to wait for the company to tell me how the marketplace is accepting their products.
It's hard to keep track of the number of new Da Vinci S systems Intuitive Surgical is selling, in large part because lots of newspaper and PR editors seem to think the S is a typo -- generally, you can guess that any ISRG robot purchased for more than $1.3 million this year is an S type, but unless they specify I can't be certain.
Thankfully, owning these robots is usually a competitive advantage for hospitals, and they like to brag about it. I've included links where they were available, but I pulled a lot of these articles from non-free web sources. I think these quotes and news items call attention to the demand for ISRG products, and the advantages of robotic surgery:
"Robert Carey, a urologist and robotic surgery expert at the University of Miami, is joining a local practice in part to use the newly upgraded robotic system, considered the most advanced on the market" -- Sarasota Memorial's newly purchased Da Vinci S, March 21.
"Between the demand and opportunity for heart surgery and lung surgery and what (the urologists) can do with prostate surgery, we had a backlog of cases waiting for the robot," Dr. J. Michael Smith said about Cincinnatti Good Samaritan purchasing the S as their second robot, on March 17.
Evanston Northwestern Healthcare got a da Vinci S as their first robot -- “My preference in the pelvic area and the prostate is to use the robot, because the area is a very small working area,” Johnston said. “We are looking where we are going as opposed to just feeling. We are doing a lot finer surgery and our whole goal with this is sparing the nerves,” according to Dr. William Johnston.
Spectrum Health in Grand Rapids, MI is the first in that city with the S -- “With this technology, Spectrum Health surgeons will raise the bar on performing complex procedures in a more timely, precise manner,” executive Matthew VanVranken said. “For example, cardiac surgery including bypass and valve surgery can be performed with smaller incisions and less pain. This less invasive approach means patients have less risk of infection, recover faster and return to normal daily activities more quickly.”
Pinnacle HealthSystem in Harrisburg got a system at the end of February -- "This is my next step in my striving to make things easier for the patients," Dr. Christine McCarty said. She plans to use the system initially on about 20 percent of her bypass patients, according to a Patriot-News article.
And Burbank has the new system, too, as of the March 12 LA Daily News: "With four arms wielding graspers, scissors and forceps, the new robotic surgeon at Providence Saint Joseph Medical Center could be the sidekick for Doc Ock, the evil, tentacled cyborg from the 'Spider-Man' comics. But this $1.5 million machine will try to save lives. 'We're the good guys. We'll be helping Spider-Man,' said Dr. Raymond Schaerf, a thoracic and cardiovascular surgeon who next month will be the first the medical center to perform a surgery using the machine on a cancer patient. 'This will be another episode in how we're advancing. ... We're going to be able to do a better job. We're all excited.'
But beyond just selling the machines, both the original and the S, we need to see the types of procedures grow. Cardiac surgery was the first intended area for da Vinci and Prostate the first real area where da Vinci gained dramatic market share (20% and growing quickly) ... but new areas are needed to continue this growth. I've been looking for evidence of this expanded breadth of surgeries lately, too -- some of those above specify non-prostate applications, which is great. Here are some more:
Ochsner Medical Center, formerly Summit Hospital, is now offering robotic-assisted surgery and is the first to do so in Baton Rouge -- they're offering only gynecological surgery at this point, according to the Baton Rouge Advocate.
(Gynecological surgery might be the real bombshell financially -- it's a dramatically larger market than prostate surgery, largely because it was approved by the FDA less than two years ago, and is just now coming into it's own for ISRG)
On April 2, according to a Press Release, "The West Clinic Center for Gynecologic Oncology announced that gynecologic oncologists M. Patrick Lowe, MD, and Todd D. Tillmanns, MD, recently performed the first robotic-assisted hysterectomy and pelvic lymphadenectomy (lymph node dissection) for the treatment of endometrial cancer in the mid-South."
According to another Press Release, "George DeNoto, MD, chief of laparoscopic surgery at North Shore University Hospital (NSUH) in Manhasset, has carefully perfected a surgical technique on robotic colon surgery that has mystified other U.S. surgeons for years. Through the use of the da Vinci surgical robot, Dr. DeNoto is the first surgeon in this country to successfully perform a totally robotic sigmoid colon resection using this technique."
Or this snippet from the March 14, 2006 Press-Enterprise, which reported on the fact that people were so excited about Loma Linda's da Vinci that they had a naming contest for children (they named it "Billy"): "Initially, the da Vinci was used exclusively by Loma Linda urologists for performing minimally invasive laparoscopic prostate surgery. Since then, applications have expanded to include hysterectomies and kidney repair, with programs developing for colorectal cancer and heart valve, pediatric and general surgery. Surgeons at some hospitals already are employing it for esophageal and lung cancer procedures, as well as closed-chest coronary bypass and gastric bypass operations.
On that front, I think things will work out well in the end if insurance companies are rational -- and there's some evidence that progress is being made. I read a Modern Healthcare article that mentions City of Hope, a heavy da Vinci user, and makes note of the way they're making money using the expensive robotic system.d I hope this is the way that other hospitals are trending in their negotiations with insurance companies:
"Chief Executive Officer and Chief Medical Officer James Miser, a pediatric oncologist, saw that if he stuck with the per diem compensation offered by most of his payers, he'd either lose money on each procedure or have to keep patients much longer than was good for them. 'Most of our costs-about $15,000-are incurred on the first day' for robotic procedures, he says. With a per diem, the hospital wouldn't usually break even until the seventh day. Instead, he's persuaded most of his payers to front-load their payments so that they always cover the surgical costs if the hospital commits to getting the patients home in a couple of days. 'We had to work hard to sell that particular carve-out, but it's good for the patients and the payers and for us,'' Miser says. ' We make money on most of the patients with most of the payers.' "
So that's the ticket for Intuitive Surgical:
I think it's probably wiser to wait for their earnings release, since we know taxes will have more of an impact this year and we expect the sales to slow briefly while hospitals decide between the da Vinci and the more advanced and expensive da Vinci S -- but I'm not sure how patient I'll be, and I'm still mindful about the fact that this past earnings announcement was the only time the stock has gone down after earnings in the last year (thanks to their conservative guidance). If it turns out over the next six months that they were lowballing the guidance, which is how it looks to me, there's no telling where the price will go.
It's hard to keep track of the number of new Da Vinci S systems Intuitive Surgical is selling, in large part because lots of newspaper and PR editors seem to think the S is a typo -- generally, you can guess that any ISRG robot purchased for more than $1.3 million this year is an S type, but unless they specify I can't be certain.
Thankfully, owning these robots is usually a competitive advantage for hospitals, and they like to brag about it. I've included links where they were available, but I pulled a lot of these articles from non-free web sources. I think these quotes and news items call attention to the demand for ISRG products, and the advantages of robotic surgery:
"Robert Carey, a urologist and robotic surgery expert at the University of Miami, is joining a local practice in part to use the newly upgraded robotic system, considered the most advanced on the market" -- Sarasota Memorial's newly purchased Da Vinci S, March 21.
"Between the demand and opportunity for heart surgery and lung surgery and what (the urologists) can do with prostate surgery, we had a backlog of cases waiting for the robot," Dr. J. Michael Smith said about Cincinnatti Good Samaritan purchasing the S as their second robot, on March 17.
Evanston Northwestern Healthcare got a da Vinci S as their first robot -- “My preference in the pelvic area and the prostate is to use the robot, because the area is a very small working area,” Johnston said. “We are looking where we are going as opposed to just feeling. We are doing a lot finer surgery and our whole goal with this is sparing the nerves,” according to Dr. William Johnston.
Spectrum Health in Grand Rapids, MI is the first in that city with the S -- “With this technology, Spectrum Health surgeons will raise the bar on performing complex procedures in a more timely, precise manner,” executive Matthew VanVranken said. “For example, cardiac surgery including bypass and valve surgery can be performed with smaller incisions and less pain. This less invasive approach means patients have less risk of infection, recover faster and return to normal daily activities more quickly.”
Pinnacle HealthSystem in Harrisburg got a system at the end of February -- "This is my next step in my striving to make things easier for the patients," Dr. Christine McCarty said. She plans to use the system initially on about 20 percent of her bypass patients, according to a Patriot-News article.
And Burbank has the new system, too, as of the March 12 LA Daily News: "With four arms wielding graspers, scissors and forceps, the new robotic surgeon at Providence Saint Joseph Medical Center could be the sidekick for Doc Ock, the evil, tentacled cyborg from the 'Spider-Man' comics. But this $1.5 million machine will try to save lives. 'We're the good guys. We'll be helping Spider-Man,' said Dr. Raymond Schaerf, a thoracic and cardiovascular surgeon who next month will be the first the medical center to perform a surgery using the machine on a cancer patient. 'This will be another episode in how we're advancing. ... We're going to be able to do a better job. We're all excited.'
"The medical center recently became the first hospital west of Texas to purchase the second generation da Vinci Surgical System, according to its creators, Sunnyvale-based Intuitive Surgical Inc."
But beyond just selling the machines, both the original and the S, we need to see the types of procedures grow. Cardiac surgery was the first intended area for da Vinci and Prostate the first real area where da Vinci gained dramatic market share (20% and growing quickly) ... but new areas are needed to continue this growth. I've been looking for evidence of this expanded breadth of surgeries lately, too -- some of those above specify non-prostate applications, which is great. Here are some more:
Ochsner Medical Center, formerly Summit Hospital, is now offering robotic-assisted surgery and is the first to do so in Baton Rouge -- they're offering only gynecological surgery at this point, according to the Baton Rouge Advocate.
(Gynecological surgery might be the real bombshell financially -- it's a dramatically larger market than prostate surgery, largely because it was approved by the FDA less than two years ago, and is just now coming into it's own for ISRG)
On April 2, according to a Press Release, "The West Clinic Center for Gynecologic Oncology announced that gynecologic oncologists M. Patrick Lowe, MD, and Todd D. Tillmanns, MD, recently performed the first robotic-assisted hysterectomy and pelvic lymphadenectomy (lymph node dissection) for the treatment of endometrial cancer in the mid-South."
According to another Press Release, "George DeNoto, MD, chief of laparoscopic surgery at North Shore University Hospital (NSUH) in Manhasset, has carefully perfected a surgical technique on robotic colon surgery that has mystified other U.S. surgeons for years. Through the use of the da Vinci surgical robot, Dr. DeNoto is the first surgeon in this country to successfully perform a totally robotic sigmoid colon resection using this technique."
Or this snippet from the March 14, 2006 Press-Enterprise, which reported on the fact that people were so excited about Loma Linda's da Vinci that they had a naming contest for children (they named it "Billy"): "Initially, the da Vinci was used exclusively by Loma Linda urologists for performing minimally invasive laparoscopic prostate surgery. Since then, applications have expanded to include hysterectomies and kidney repair, with programs developing for colorectal cancer and heart valve, pediatric and general surgery. Surgeons at some hospitals already are employing it for esophageal and lung cancer procedures, as well as closed-chest coronary bypass and gastric bypass operations.
" 'In the last year, we've been able to get our robotic surgery program off the ground and have done 71 patients,' said Dr. Herbert Ruckle, chief of urology and professor of surgery."
The Chicago Daily Herald reported on kidney removal in a four year old boy at Advocate Lutheran General Hospital in Park Ridge: "'Since he hears us talking about it all the time, he just says he had robots in his stomach,' his mother, Veronica, said at a news conference Thursday. 'I expected him to be in bed for two weeks, but he was up and running around in three days. Now, he has more energy than before.' Lutheran General is one of about a dozen Chicago-area hospitals that use the $1.5 million da Vinci ... The hospital has had the machine for nine months, and doctors sometimes decide to use it for minimally invasive adult surgeries, including gynecological or colorectal procedures."From the Winston-Salem Journal in North Carolina, "The da Vinci system is typically used for urological and cardiothoracic surgeries. Dr. Lawrence Nycum said that the hospital performed one of the first gynecological surgeries in the state using the device in January. 'It's the sort of thing where you have to lead, follow or get out of the way,' he said."
And the third thing to watch for Intuitive, in my opinion, is reimbursement rates. I think patient demand will continue to drive hospitals to buy the systems, and great results will drive them to continue expanding the types of surgeries they perform using the system (along with, of course, more trained doctors demanding it, and more need to increase surgical volume to justify the robot purchases in some cases)."Chief Executive Officer and Chief Medical Officer James Miser, a pediatric oncologist, saw that if he stuck with the per diem compensation offered by most of his payers, he'd either lose money on each procedure or have to keep patients much longer than was good for them. 'Most of our costs-about $15,000-are incurred on the first day' for robotic procedures, he says. With a per diem, the hospital wouldn't usually break even until the seventh day. Instead, he's persuaded most of his payers to front-load their payments so that they always cover the surgical costs if the hospital commits to getting the patients home in a couple of days. 'We had to work hard to sell that particular carve-out, but it's good for the patients and the payers and for us,'' Miser says. ' We make money on most of the patients with most of the payers.' "
So that's the ticket for Intuitive Surgical:
- Patient and doctor demand drives more installations.
- Dramatic success in prostate surgery is followed by advances in cardiac, gynecological, gastric bypass and other major surgical areas, which drives surgical volume and increases recurring revenue from instruments and training.
- And Insurance companies begin to better reward hospitals for using these devices, thanks to lower post-surgery costs associated with shorter hospital stay, less chance of infection, and much less of a need for blood transfusions.
I think it's probably wiser to wait for their earnings release, since we know taxes will have more of an impact this year and we expect the sales to slow briefly while hospitals decide between the da Vinci and the more advanced and expensive da Vinci S -- but I'm not sure how patient I'll be, and I'm still mindful about the fact that this past earnings announcement was the only time the stock has gone down after earnings in the last year (thanks to their conservative guidance). If it turns out over the next six months that they were lowballing the guidance, which is how it looks to me, there's no telling where the price will go.
Labels: ISRG
This article posted by One Guy @ 4/13/2006 11:36:00 AM 0 comments
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