Thursday, December 20, 2012

Intuitively obvious?

I hold no grudge against Intuitive Surgical, even though I think its marketing campaign to promote the use of its DaVinci surgical robot was overly clever in securing sales for a device with unproven clinical effectiveness.  How successful?  Well, sales growth has been in the range of 45% per year.

But there is an immutable law of health care finance:  "No one wins big for long."

Starting a few months ago, I heard of people who were selling the stock short, expecting its value to fall because the market for its surgical robots had become saturated.

Then, in April, reports emerged of product liability lawsuits being filed against the company.  This story summarizes one such lawsuit:

The lawsuit, filed by Gilmore McCalla, alleges that the death of his daughter, Kimberly McCalla, was caused by the surgeon’s mistakes during her hysterectomy, as well as by flaws in the robot’s design, such as badly-insulated surgical arms and overly-strong electrical current that can connect with healthy tissue. The da Vinci allegedly burned one of the woman’s arteries and her intestines. She died two weeks after the surgery. The lawsuit also claims that Intuitive Surgical did not give hospital staff adequate training on the robot’s use.

Citron Research gave its point of view on December 19:

Imagine a medical company with a single product — one which lacks any clinical data proving medical efficacy superior to other conventional treatments … or in case of one of its major applications, little to no advantage over no treatment at all.

Now imagine that same company’s product under a host of lawsuits that range from patient death after “routine” surgery, to a man defecating out of his penis.

Worse, imagine this one company being sued in the past  four weeks by some of the biggest name tort attorneys in the United States. Now imagine this company has a $21 billion market cap and a lofty forward P/E.

Citron believes that Intuitive Surgical’s stock price will soon suffer. The da Vinci robot-assisted surgery device is a solution in search of a problem — but one hell of a marketing machine.

Now, look how the stock market has reacted:

In health care, no one wins big for long.

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