Health Care Costs Are Getting Squeezed, So Why Invest In Expensive Surgical Robots?
At a time when cutting health care costs is a top priority, does it make sense to invest in a company that makes expensive surgical robots? Especially if a big medical study just indicated few if any health benefits of such costly technology, at least when used for one very popular procedure? For many investors, it does if the company is Intuitive Surgical (ISRG).
Intuitive Surgical, maker of the da Vinci Surgical System, is still a beloved stock despite some bad publicity recently. A major study of 264,758 hysterectomies found no difference in complication rates of patients that underwent robotically-assisted surgeries compared to laparoscopic procedures, which are also minimally invasive. Slightly more – 25% compared to 20% -- of patients who underwent the non-robotic version stayed in the hospital more than two days. The cost of the robotic procedure ran roughly one-third higher than laparoscopic surgery.
Da Vinci surgeries are like laparoscopy in that doctors manipulate surgical tools through small incisions with the help of imaging technology. In robotic surgery – and Intuitive hogs this market – the doctor sits at a console and manipulates surgical tools inside the patient by making movements that robotic arms mimic. Da Vinci systems aid in a wide variety of operations, including those involving the cardiovascular system, prostate and gall bladder, but gynecological surgery has been a particularly strong growth area for the company. The company has cited other studies that report less scarring and blood loss, as well as fewer complications and shorter hospital stays, when its da Vinci system was used. Revenues have soared in recent years and are projected to gain by another 17% this year.
The Journal of the American Medical Association published the damning study results on Feb. 19. Investors barely blinked - see its stock chart. The share price was 3% lower by Feb. 25, which was only slightly worse than the decline in the overall market (see the S&P 500). Goldman Sachs upgraded the shares to a buy a few days later, joining several investment houses that had reiterated outperform ratings on the stock in recent weeks. The shares trade at a forward price-earnings ratio of 38 (and a trailing PE ratio of 35), indicating few worries about an imminent profit squeeze.
All those backers are looking at a huge market for surgery and betting that robotic versions will become the standard of care in a growing number of procedures. Health care costs, it seems, are an issue for another day.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.
More From YCharts