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Oct 23

Intuitive Is Upbeat on Long-Term, Cautious on Near-Term – Medical Device and Diagnostics Industry

Medical device companies continue to grapple with near-term uncertainty as COVID-19 rages on, impacting some regions more so than others. This uncertainty was apparent during Intuitive Surgical's third-quarter earnings call. The surgical robotics pioneersawsignificant variability in procedure growth and new system placement pipelines by region.

"While the pandemic has created near- and mid-term uncertainty in the form of competing healthcare priorities and economic stresses, I have high confidence in the need for high quality, minimally invasive surgery and therapies in long-term," Intuitive Surgical CEO Gary Guthart said during the call."To deal with the current and future stresses on the healthcare system, payers, hospitals, and surgeons are looking for solutions that improve outcomes, decrease in hospital resource consumption, and lower total cost to treat. In other words, the core pillars of the quadruple aim we had set as our goal many years ago."

Intuitive installed 195 new surgical robotics systems during the quarter, which is significantly weaker than the 275 installs the company saw in Q3 2019, but an improvement over the 175 installs seen in Q2 2020. That's a 29% decrease year-over-year, and a 10% increase from last quarter.

CFOMarshall Mohr provided additional color regarding procedure trends the robotics company has seen in recent months. Overall, Mohr said, Intuitive's robotics procedures recovered gradually during the third quarter, exiting the quarter at around 90% of pre-COVID levels. However, he noted, the extent and pace of recovery varied by market.

The U.S. market did experience broader adoption across multiple robotics procedures led by general surgery. For example, Mohr said, Intuitive saw significant year-over-year growth in bariatric procedures, but that growth was partially offset by reduced diagnosis of conditions such as prostate cancer, which impacted procedure volumes in those areas.

Philip Kim, head of investor relations at Intuitive, pointed out that bariatric procedures may have benefited from some patients prioritizing weight loss during the pandemic because obesity has been identified as a COVID risk factor.

"While total worldwide procedure rates have improved, it is possible that resurgences of COVID-19 like those currently being experienced in parts of Europe and the U.S. could negatively impact da Vinci procedures," Mohr said."In addition, delays in diagnosis and treatment of underlying conditions could also negatively impact da Vinci procedures."

Guthart did note that hospitals seem to be doing a better job of handling concurrent needs of COVID and non-COVID patients compared to the early days of the pandemic.

"I think they have protocols that they feel good about," Guthart said."I think they have access to resources and things like PPE that early on they didnt. That gives us some comfort that, barring a massive influx, they can manage both [sides] of patient need."

He also said hospitals are showing a clear interest in minimally invasive surgery and in Intuitive's robotics products. But that doesn't necessarily give the company or its investors any more visibility into the next few quarters.

"What the weather does, what the COVID pandemic does, I think, it is harder for Intuitive to have direct insight into," Guthart said.

This lack of insight made some medtech analysts hesitant to issue a "buy" rating on Intuitive.

"While we continue to believe that the long-term thesis for [Intuitive Surgical] remains intact, the lack ofvisibility into near-term trends makes it hard for us to recommend shares at the current valuation," noted Ryan Zimmerman, a medtech analyst at BTIG. The firm maintained its "neutral" rating on Intuitive's stock.

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Intuitive Is Upbeat on Long-Term, Cautious on Near-Term - Medical Device and Diagnostics Industry

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