Intuitive Surgical And Higher Costs

It can be very tricky (if not pointless) to try to tie a specific move in a stock to a piece of news. I wonder, though, if the downward move in Intuitive Surgical (Nasdaq: ISRG) late this week was due at all to a piece in this week's New England Journal of Medicine.

In a Perspective piece penned by Dr's Barbash and Glied, they highlighted the higher costs of robot-assisted surgery. A gastric bypass done with the DaVinci, for instance, costs $2,900 more, while a robot-assisted prostatectomy (far and away the most common robot-assisted procedure) may carry a premium ranging from $400 to $4,800.

All in all, the authors assert that robot involvement bumps procedure costs by $1,600 on average, or $3,200 if amortization of the purchase price is included.

The piece then goes on to speculate as to whether hospitals buy these devices more out of medical need, or to appease tech-loving surgeons and/or to get a marketing advantage on rival hospitals. Further, there are a few discussions of the overall costs and consequences to the health care system should robot-assisted procedures become more common.

All in all, and I do not wish to impugn the authors' motives or speak for them, it seems as though their position is that surgical robots are an unnecessary cost and not really all that good for the healthcare system.

Here is the kicker, though...

What about the patient outcomes? This cost analysis did not seem to incorporate the advantage of shorter recovery times, less pain/discomfort to the patient, and better overall outcomes. Now, if I may be so bold, it is ridiculous to assess only the cost of a procedure and not the complete "all in" cost of hospital stay, medications (for pain), lost work to recovery, and so on.

I am not hugely positive on Intuitive Surgical's stock right now (I think it is worth about $305). It will go down as one of my all-time greatest missed opportunities, and I still regret not buying it more than a decade ago in the single digits. My employer at the time, Piper Jaffray, banked one-time rival Computer Motion and I knew the sector really well. Unfortunately, it seemed like a "career-limiting move" as a junior analyst to go buy the stock of the company we DIDN'T like.

Anyways, my feelings about the stock aside, I hope this piece in the NEJM does not end up carrying much weight. I applaud the work that the doctors did in collecting the information, but I think their analysis is lacking and I would like to see a broader analysis of cost v. benefit for robot-assisted surgery. In the meantime, I think ISRG and DaVinci are here to stay and I certainly would not sell the stock over that article.