Intuitive Surgical investors have faced a rocky year with the company?s stock prices fluctuating in response to its very public trials and tribulations. Most widely publicized were a scathing report from controversial short?seller Citron, an open FDA investigation into the merits of the company?s da Vinci robot and, now, a Washington state jury?s decision to rule in Intuitive Surgical?s favor over allegations of negligent training practices.
Most amazing? In the face of so much adverse scrutiny, Intuitive has managed to sustain growth for its investors more consistently than most other robotics stocks. At a cost of about $1.1 million to $2.2 million per machine, the company generated around $2.2 billion in revenue last year.
Return on invested capital (excluding goodwill) has averaged 150.9% during the past three years, and experiments are underway to expand the range of the da Vinci’s robotic procedures from urological and gynecological operations to head and neck surgery.
Despite evidence that there are cheaper and just-as-effective non-robotic techniques for common operations such as hysterectomies, patients have latched on to the fact that successful da Vinci surgeries will allow them to recover and leave the hospital sooner than traditional methods. Not only is this is a key benefit for patients seeking less invasive procedures, but hospitals can expend fewer resources post-operatively as a result of the faster turnaround.
The rash of lawsuits involving Intuitive Surgical numbers at least 26, however, the quantity of adverse-event reports received by the FDA is relatively small (70 deaths have been reported informally since 2009) considering the number of procedures administered (approximately 500,000 in 2012 alone). Media coverage has been relentless, begging the question: would there be so much doubt if the surgery were not in itself a major–and somewhat foreign–technological leap forward in the eyes of the public?
And that is one reason that the recent verdict in Washington state is such a positive outcome for Intuitive. A group of independent citizens was not convinced that the technology in itself was harmful to the patient, nor that the recommended number of proctored da Vinci surgeries (two) was clearly insufficient.
?It [the verdict] proves that Intuitive was able to convey the message to the jury that this machine is not horrible, and that their company is not the cause of all of these problems. Just the fact that they were able to get that message across shows that the remaining plaintiffs may not face such an easy time in terms of having an emotional appeal,? says Andrew Keisner, an Associate at Davis & Gilbert LLP.
Speculators anticipate that the outcome of the Fred Taylor suit will encourage some plaintiffs to seek an early settlement rather than risk losing to Intuitive. Looking at the specifics of the case, though, it seems there may have been more than average evidence of the surgeon?s culpability in the events that led to the patient?s death. Evidence in the remaining cases against Intuitive could be more damning or at least less muddy.
?Although there are differences within the cases, one thing that is fairly consistent is that throughout almost all of them the claims are both device malfunction and negligent training,? says Keisner.
At least one case leveled against the company specifies that ?the device is defective in that it relies upon the use of monopolar energy to cut, burn and cauterize tissue, whereas safer methods are available such as bipolar energy and ultrasonic energy, which would substantially reduce the risk of complications.? Also, that he device has ?inadequate insulation for its arms, allowing electrical current to pass into tissue outside of the operative field.? In similar cases, the plaintiffs also point to Intuitive?s use of aggressive marketing tactics allegedly designed to intimidate doctors into adopting the systems.
Regarding claims of insufficient training, Keisner says that the required number of assisted surgeries recommended seemed low to him too, at first. In his own discussions with medical professionals, however, the doctors who had used the machine indicated that Intuitive Surgical?s da Vinci system was, in fact, very intuitive.
?Intuitive has invested a lot of capital and research into building a device that doctors can just pick up and use and have make sense to them in kind of the same way that you or I can pick up a smart phone and it makes sense,? he says.

The same doctors, Keisner says, also attested to the fact that some standard surgical instruments create sparks similar to those that wary patients have seen in Intuitive Surgical?s video recorded procedures, and that the burning risks are not any different than those that accompany many other standard procedures.
Interestingly, Intuitive did recently release an urgent notification regarding potential insulation failures in one of its da Vinci surgical instruments. According to the notification, “micro-cracks” in some models of Intuitive’s monopolar curved scissors can cause leaks that “may create a pathway for electrosurgical energy to leak to tissue during use and potentially cause thermal injury.”
The company defended its decision not to recall the product from the market. It stated that no deaths had been linked to the instrument defect and determined that the risks of device removal before a replacement could be offered outweighed the risks of leaving the existing product in the field. Intuitive’s statement went on to claim that a replacement product would be available in two to four weeks.
Lawsuits aside, what many investors may be holding their breath over is the result of the FDA?s open investigation. If the FDA places restrictions on the device?s potential uses, it could have a detrimental impact on sales, and erode patient confidence.
The adverse event reports originally sent to the FDA outline serious complications, including damage to ureters and bowels as well as instances when instruments broke off from the robot and fell into patients. Reports also cited burns to various organs or vessels, most repaired during the surgery itself.
As part of their official probe, the FDA asked surgeons at key hospitals to list the complications they may have seen with the machines. The doctors were also surveyed on which surgeries the robots might be most and least suited for, and asked to discuss their training, according to copies of the survey obtained by Bloomberg News.
The outcome of the FDA assessment will be crucial, but most bets remain on Intuitive Surgical for the long haul. The fact remains that the influence of the latest technology has, indeed, attracted patients and surgeons to the hospitals that purchase da Vinci systems. With time, and the invention of more technological safeguards to address potential defects, da Vinci procedures will most likely continue to progress towards ubiquity.
Seeking Alpha estimates that the company has already cornered 13-15 percent of the U.S. laparoscopic surgery market with sales more than tripling since 2007. Injured plaintiffs and interested media may be speaking out, but, for now, it’s numbers like those that are doing most of the talking.