Monday, April 7, 2014

I am often amused by the "expertise" of Wall Street analysts.  It's particularly instructive to compare the first one below, a person who hopped on the bandwagon driven by the company, compared to the second one, who retained a more rigorous standard of review.

The first analyst said this:

Shares of ISRG are up today following the announcement that the FDA had cleared the newest version of the company's surgical robotic system, the da Vinci Xi, for sale in the United States. According to the company, the da Vinci Xi Surgical System has broader capabilities than prior generations of the robotic system and can be used across various minimally invasive surgical procedures. Importantly, the company noted that the system has been optimized for complex, multi-quadrant surgeries. ISRG will begin marketing the Xi system immediately and intends on seeking regulatory clearances in major markets around the world.

We think that the approval timing for the da Vinci Xi is perfect as ISRG's largest trade show, the Society of American Gastrointestinal and Endoscopic Surgeons (SAGES), starts this week in Salt Lake City, Utah. The SAGES annual meeting is oriented toward minimally invasive surgery and last year drew in nearly 2,500 surgeons. A new da Vinci system won't be a panacea for all that ails the company -- pressure on system sales, pressure on procedure volumes in dvH and dvP, confusion about the risk/benefit of robotic surgery, to name a few -- but there will be new upgrade revenue to factor in going forward.

A key feature of the da Vinci Xi surgical system is the overhead boom architecture which allows for enhanced manipulation of the four arms of the robotic system to achieve anatomical access from virtually any position. The robotic arms can even be disconnected and reconnected in 1-2 minutes for better repositioning during the surgery. Moreover, the Vinci Xi is designed to accommodate the Firefly fluorescent imaging system. While the FDA has yet to approve Firefly for use with the Xi, ISRG said it plans to seek clearance for the imaging technology. 

The second analyst said this:

Given the near-term headwinds facing the company, we are hard pressed to get constructive on ISRG until we have greater clarity on adoption trends for the new system, as well as visibility for a next-generation single-site system. Thus, we maintain our HOLD rating and $423 price target.

Shares of ISRG surged following the announcement that the company received FDA approval of the da Vinci Xi Surgical System, reflecting investor sentiment that a new product cycle may help reaccelerate the anemic growth plaguing the company over the past 18 months. While the new system should help the company re-engage potential customers who do not yet have da Vinci, and could also drive an upgrade cycle at some existing customers, we do not believe that the Xi system represents a panacea for below average procedure growth trends. Indeed, we note that the Xi system 1) is an incremental improvement over current iterations that was designed to improve access and ease of use, i.e. not a next generation single-site system; and 2) does not mitigate the cost effectiveness debate that is at the core of the growth deceleration in the overall business over the past 18 months.

We believe that prospective data showing efficacy, safety and cost effectiveness would be the most significant catalyst to growth in this evolving healthcare environment. Additionally, ISRG is launching Xi without the advanced instruments currently found on earlier versions of da Vinci – Firefly, vessel sealer, and stapler – which could limit adoption in the near term.

This last paragraph seems to suggest that what the scientists said in 2008 is still understood to be the case [emphasis added]:

Radical prostatectomy is an effective form of therapy for patients with clinically significant prostate cancer; however, outcomes are highly sensitive to variations in surgical technique. Because of the risks of perioperative complications and urinary and sexual dysfunction, which appear to be as great with robotic-assisted prostatectomy as with any other technique, patients with low-risk cancer, especially those >60 years, might be attracted to more conservative alternatives, including active surveillance, radiotherapy, and focal ablation.


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