Intuitive Surgical Anticipates Slower Growth, Increased R&D Spending In 2017

Intuitive Surgical beat expectations with double-digit growth in procedures on the da Vinci surgical robot platform in 2016’s fourth quarter (Q4), but senior executives warn that sales growth could slow down in 2017, due to anticipated changes in hospital spending and increased market competition. CEO Gary Guthart stated that the company also would be increasing R&D spending, which could affect gross profits.

Intuitive shipped 537 units in 2016, compared to 492 in 2015. Factoring in trade-ins and system retirements, the base of installed da Vinci systems grew from 3,597 to 3,919, according to a press release. According to Guthart in an earnings call, growth was “healthy” across most geographic markets, especially in China, Japan, and Korea. Growth in procedures on da Vinci topped out at 15 percent for the quarter — 13 percent in the U.S. and 23 percent outside the U.S.

While system placement and procedure growth trended higher in Asia, analysts at The Pantograph pointed out a 12 percent decline in placement in Europe. Guthart addressed the issue at a recent JPMorgan conference, said analysts, claiming that it was an issue of having the “right clinical data” for the individual payer communities and that the problems are “solvable.”

In October, Guthart told analysts that Intuitive Surgical was looking to expand the da Vinci platform’s capabilities by increasing in-house R&D and executing a series of partnerships, licensing deals, and tuck-in acquisitions.

“We’re facing future competition, and we want to have the ability to expand and to deal with competition,” said Guthart, adding that additional growth opportunities would present themselves as more companies jump into the market.

Intuitive recently signed a partnership with Dextera to co-develop a surgical stapler intended for use with a surgical robot. A joint venture with Fosun Pharmaceutical aims to develop robotic-assisted medical devices, contributing up to $100 million to the partnership.

During the earnings call, Guthart said that Intuitive Surgical will continue looking for ways to diversify the da Vinci system and expand its indications. R&D spend will increase  in 2017 to address costs of developing key items in the company’s pipeline, including the da Vinci SP (“single port”) and a diagnostics platform. The SP is a robotic system for more minimally invasive transoral or transanal procedures in confined surgical spaces.

Intuitive will pursue regulatory approvals for multiple indications for the da Vinci SP, including head and neck surgeries, urology, and colorectal procedures. Guthart added that early responses to the system had been “very positive,” and the company anticipates an investigational device exemption trial to begin in the first half of 2017

Analysts at Motley Fool anticipate that “uncertainty and volatility” could affect hospital budgets and spending, affecting sales of pricey surgical robotics that require extensive professional training. Following the recent U.S. election, that uncertainty is expected to increase.

Guthart addressed potential tumult caused by an ACA repeal, saying, “We don’t have a crystal ball, but so far the early indications are that [sales and installations] will remain stable.”