UPDATED: Intuitive's stock price plunges after FDA warning letter spooks investors
Intuitive Surgical's ($ISRG) share price plunged more than 13% in extended trading after the company disclosed July 18 it had received an FDA warning letter, adding to the cracks beginning to form in its da Vinci surgical robot track record.
The stock price listed at $363.91 in pre-market trading on July 19, down a whopping 13.6% from its $421.47 closing price at the end of trading on July 18. It had gained a healthy amount at the end of trading, in the wake of Intuitive's generally positive 2013 second quarter earnings release.
But as Bloomberg reports, the company's stock price went into a spiral after CEO Gary Guthard disclosed Intuitive's July 17 warning letter during an analyst conference call held late afternoon to discuss second-quarter earnings. Regulators inspected the company in April and May, after which they cited Intuitive for not adequately reporting device corrections to regulators or patient "adverse events." (Regulators detailed their initial concerns in a Form 483 issued earlier this year, which generally precedes a formal warning letter.) Additionally, the FDA faulted Intuitive for not documenting the need for surgeons using the da Vinci system to sometimes have to scrape instruments against each other during a procedure in order to clean them. This causes arcing and injured some patients, according to FDA concerns detailed in the story.
An Intuitive spokeswoman told Bloomberg that the issues cited with the FDA are "addressable" and that the company will continue working with regulators to solve the problem.
But investors are watching closely to see if company obstacles become more widespread. As The Wall Street Journal reported before Intuitive's earning release, some hospitals and surgeons have said they are more heavily scrutinizing their use of da Vinci products in the wake of controversies over their safety and price tag (an average $1.55 million apiece). Experts are questioning da Vinci's benefits compared to standard hysterectomy procedures, for example, versus the extra cost of the machine and procedure.
Observers predicted that Intuitive's stock would take major hits if its growth momentum slowed any more, the article noted. The new warning letter against the company pointed to a "growth momentum" risk, and investors reacted accordingly.
While 2013 second quarter results are generally good, there are signs of trouble. Sure, second-quarter revenue hit the $579 million mark, up 8% from the $537 million figure generated by the company over the 2012 second quarter. But analysts had expected much higher than this, The Wall Street Journal notes. And net income reached $159 million ($3.90 per diluted share), a moderate rise from $155 million in net revenue a year ago ($3.75 per diluted share).
Broken down, it's more of a mixed bag.
Second-quarter systems revenue for 2013 dipped 6% to $216 million, versus $229 million over the same period last year, as the California company sold fewer da Vinci Surgical Systems, a trend it blamed in part on hospitals cutting back their spending. But more da Vinci surgical procedures and greater demand for new products bumped instruments and accessories to $265 million, an 18% jump over $224 million in revenue generated during the 2012 second quarter. Service revenue also enjoyed a double-digit jump, thanks to a greater installed base of the company's surgical robots.
Spencer Nam, an equity analyst at Janney Montgomery Scott, noted to The Wall Street Journal that this was the first time since mid-2009 that Intuitive sold fewer da Vinci systems than it did in the previous year.
When Intuitive released its preliminary second-quarter results a week ago, Guthart said in a statement that the company was "disappointed" in its performance during the quarter but remained confident in the value Intuitive's products offered. Meanwhile, the company's stock closed July 18 at $421.57, up nearly 1.5%, after some wild fluctuation during the day.
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Editor's note: This story has been updated to include details about Intuitive's warning letter and investor response to that news.