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Intuitive Surgical, Inc. Message Board

  • isrg_investor isrg_investor Dec 8, 2005 7:55 PM Flag

    40 units in Qtr. 4

    The current market cap of ISRG indicates the presence a substantial group of investors/ speculators who believe that ISRG is about to experience exponential growth. This is usually depicted by an "S-curve" growth scenario where in the early stages (up until now) market penetration increases steadily and then, for a period of time (hopefully now or in the next 6 months) market penetration increases at INCREASING rates, after which the RATE of increase begins declining quarter after quarter.

    Without this type of growth scenario happening, ISRG cannot deliver the unit sales growth necessary to sustain its current $4 billion market cap, let alone increase it. My estimates of unit sales and profit margins might be very far off the mark (probably are, there is not much to go on at this point), but one thing is clear, to justify current market cap levels and provide room for stock price appreciation, within the next few years ISRG must be selling thousands of machines per year, not hundreds.

    If ISRG DaVinci is the "category killer" folks on this board think it is (and I am getting more and more confident that it indeed is), then this is roughly the time where the S-curve growth scenario is going to occur.

    I have no idea if the poster who said he heard that ISRG is sold out for the 4th quarter has accurate info or if he is yanking our chain (actually, his posts "feel" legit); however, I find the post consistent with the fact that ISRG SHOULD be blowing out the 4th quarter if it indeed has the product we all think it has. I guess my belief is that a 40 unit 4th quarter, with an end of year backlog, would not be an incredible development, it is a NECESSARY development to validate the value of the company and lead the share price higher.

    Best luck to all longs. I have placed my bets on your side. :)

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    • Thanks for the link, mauser. I love the part where he admits the secondary offering was a mistake! I've been saying that forever and people on this board have actually argued with me. Well now they can argue with Lonnie!

      micro

    • One man's greed is another man's desire to be prudent. How often do most of us use the word "greed" when a situation applies to us? I think their instrument use limitations are just smart business. As the CEO stated "medical markets are very costly to serve" and that purchases of da Vinci are a big capital expenditure and make revenues lumpy. . They need a stable income to pay all the expensive support personel that have to be there each day whether many systems have been sold that year or not. And they need to be sure that they don't get sued for a flawed product, so they need to clean and inspect often. This is exactly what's done with aircraft, something else that you are trusting your life to. If potential customers think ISRG is too "greedy" they don't have to buy the system.

    • Dom,

      sounds like you are conflicted between your surgical self's desire for the best patient treatment at the lowest cost and your investor self's desire for what is best for the company.

      I think the electonically expiring razor blade thing is simply a fig leaf for the concept of a royalty per use fee on top of the capital equipment sale. AS an investor, I can't argue with the concept, and it has been done successfully in the past (e.g., VISX).

    • About ISRG desire to have a larger revenue
      stream from disposables.

      Having little or no knowledge of the actual
      equipment, and considering the profitability of ISRG (which I love), this appears to be greed.

      I seem to remember something about killing the goose which laid the golden eggs.

    • Dan,
      I agree it was the hook.
      I dont know if they improved on it, but I am pretty aggressive with it and never had a problem.

      >>How would you recommend controlling the number of uses of an instrument with a finite lifetime? Asked another way, what is the probability of failure that you would tolerate for an instrument when you have it inside of a patient? 5%? 1%? .1%? ?%?

      The answer to this lies in what is the potential danger.
      For example, if its a scissor and the problem is getting dull, then it wouldnt matter.

      If its an instrument breaking apart, then it would have to be low. The problem though, is that cases used is a very poor indicator of the wear and tear on an instrument. Type of case, how much experience the surgeon has, and other factors are important.

      I think most instruments can go much longer than 10 and would be fine.

      >> If you take all the instruments off the machine for 15 minutes to reposition the robot, it counts as 2 uses.
      This sounds like a bug. Have you talked to them about this case?

      They told me about this actually. I just thought they wanted us to use more disposables

      Dom

    • Dom - thanks, I appreciate your candor. How would you recommend controlling the number of uses of an instrument with a finite lifetime? Asked another way, what is the probability of failure that you would tolerate for an instrument when you have it inside of a patient? 5%? 1%? .1%? ?%?

      I found >30 adverse events reported to the FDA between 2002 and 2003 regarding their cautery hook. Here's the link -

      http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfMAUDE/Results.cfm?start_sear
      ch=21&SearchString=cautery%20hook&SearchYear=B&ProductCode=&KNumber=&PMANumber=&
      Manufacturer=&BrandName=&EventType=&ReportDateFrom=&ReportDateTo=&PAGENUM=10&Key
      _Count=66


      >> If you take all the instruments off the machine for 15 minutes to reposition the robot, it counts as 2 uses.

      This sounds like a bug. Have you talked to them about this case?

      Dan

    • I just listened to a 11/02/05 speech given by Lonnie Smith. He said safety of the system was design criteria #1. He also said the early designs weren't very reliable.
      A good bit of the reason for limitation on tool use was to give the company a recurring revenue base. He said that was one thing he learned from the failure of Computer motion. Another thing he learned from that failure was not to ask laparascopic surgeons what they wanted, because what they really wanted was mostly a status quo . He also said that Computer Motions patents pretty well dominated cardiovascular robotic surgery, so their patents were nice to have. He said that he had to swallow his pride to buy Computer Motion, and that a secondary they made was a mistake. (Admitting mistakes and ability to overcome pride are two great things in a CEO.)
      He compared the spread of da Vinci to a virus- the more people have it, the more people get it. And it might take 20 or 30 years to completly spread through surgery. (my thought is that eventually people will consider huge incisions, and jaw and chest splitting to be a relic of the barbaric past, much like bleeding patients). his speech is at http://edcorner.stanford.edu/podcasting.shtml
      He also said 46% of revenues from recurring sources, and that "the internet is the most powerful tool we have" in promoting the system. Word of mouth is a geometric process, but it works best not in an emergency, but when people have time to think about alternative treatments. In the beginning they were technology looking for an application, and they found it in prostatectomies. In a large part that's because impotence and incontinence were such feared side effects and they had published papers showing da Vinci caused less of this. (Since patient's don't have such a deep rooted fear of complications in other operations there might be a slower uptake.)
      My comments are in ( ) , the rest are from Mr. Smith

    • Dan,
      You know me, I am no spin.

      >> About 3 years ago, Intuitive had problems with their cautery hook, where it would break off or separate from the instrument - typically only after a couple of uses. The forces you surgeons put on the tip from pulling/tugging at tissue, and the wear of the electrode and dielectric material from the cauterizing current made 10 uses appear unobtainable back then (so I have been told).

      This is typical of most companies.
      Other than cancer, my other specialty is stones.
      There was a really good ultrasonic device for large stones that was non-disposable and would break eventually. They came out with the next generation that was similar, but semidisposable.
      Guess what, it wasnt as good as te other and we had to replace it much more often.

      I am pretty sure the piece you are talking about is not the hook, but another device. Either way, its not important, every piece including the sterile connectors have limited uses. The software prevents you from using it more than the allotted case even if its in perfect shape.

      Not only that. but if you put an instrument on and dont use it, it still counts as a use. The same as if you use an instrument for 10 hours and abuse it.
      If you take all the instruments off the machine for 15 minutes to reposition the robot, it counts as 2 uses.

      >>From what I have been able to gather, the use figure was set to keep you, the hospital, and them out of trouble.
      I call that an excuse.

      >>Now, a hypothetical PSA question for you: Suppose you have a patient you performed a dVP on 15 months ago. His 3, 6, & 9 month PSA readings were all < 0.05. His 12 month PSA is 0.11 and his 15 month PSA is 0.15. What do you recommend?

      Tough question. Depends on the path report, ie gleason score, margins, extracapsular extension.
      Also depends on patients age and health.

      It doesnt have to be recurrent cancer, but I would order a prostascint scan at some point, probably wait until 0.25 though.

      Dom

    • While I don't see veterinary utilization of the daVinci becoming a major market, it certainly could be a source of additional sales. Remember that animals can't be operated on and then told to let their wounds heal; they will tease them and tear at them and render the operation useless. A non-invasive operation with the daVinci will have applications not only for pets but could also prove to be useful in treating zoo animals and animals in the agricultural sector. Some of the largercompanies cited in the reference message might be interested in the system.

      I'd like to add my "wow" here to the article from the Abramson Cancer Center of the U of P.on mouth and throat operations. this demonstrates conclusivly that the daVinci has a wider scope of surgical applications than those generally discussed.

      And,please, Tradenfish and Eagledung, tell us that you are OK.

    • Very few vet clinics do more than $1 million annually in sales. Operating margins are typically between 15%-20%. Most are mom-and-pop type businesses that lack sophistication (on a relative basis) and financial resources. About 24,000 vet clinics nationwide and the top two (Banfield of PetSmart and VCA of VCA Antech) account for less than 1,000 of those.

      Off-topic, but I've held VCA Antech (WOOF) since April, and the stock has been on a huge run. 75% of sales are the clinics, which are very good businesses, and 25% of the sales are lab services, which have operating margins of about 40%. So the revenue mix is 75/25, but the profit mix is more like 50/50. The stock has really held its own despite struggles by PETM and PETC, I think as people realize this is a much better business than pet retail. It might be a big expensive here, the company is in the sweet spot. IDXX is the other competitor on the lab side, and they are up 50% since April. Same with PETS. MWIV is pure-play distributor that's up 50% since IPO in August. Lastly, Webster (leading distributor) is part of PDCO (Patterson Dental), which has really been struggling of late.

      Bottom line -- lots of ways to make money on companion animals.

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