Robotic-assisted surgery-focused Intuitive Surgical Inc. revealed its second-quarter results late July 21, with worldwide Da Vinci procedures falling about 19% vs. the same period of 2019. Driven by this decline, second quarter 2020 instruments and accessories (I&A) revenue fell by 20% to $461 million, vs. $579 million in the second quarter of 2019.

And while COVID-19 was the main culprit with this decline, analysts still saw hope as the company exceeded their expectations.

As Wells Fargo’s Larry Biegelsen noted, the company saw revenue of $852 million, which was down 22.5% year-over-year. Still that figure “exceeded our estimate by $347 [million] and consensus estimate by $181 [million] driven by intra-quarter recovery in procedure volumes, higher net system placements, and lower impact from the customer financial relief program.”

Urology, thoracic steady

During a call on the results, CEO Gary Guthart acknowledged the decline in procedures, but noted that urology and thoracic procedures proved resilient. Gynecology, meanwhile, saw the greatest decline.

“We've seen hospitals with adequate supplies of staff, PPE and physical resources return to above 90% of pre-COVID procedure run rates over a few months period,” he continued. “Recovery above this number is dependent upon the intensity of COVID in the region, patient's comfort to return to the hospital, availability of testing and patient outreach.”

During the call, the Sunnyvale, Calif.-based company discussed its new extended use program, through which it plans to introduce an updated set of certain Endowrist instruments for use with Da Vinci X and Xi with 12 to 18 uses vs. the current 10-use instruments. The plan is to introduce the instruments in the fourth quarter while lowering the prices of products typically used in lower acuity procedures.

“Our extended use program has been years in the making, and its timing is fortuitous relative to COVID,” Guthart explained. “The program will negatively impact our near-term revenue, but not substantially impact our gross margin for affected instruments."

Marshall Mohr, the company’s executive vice president and CFO, provided a little more color. "For example, had the extended use instruments been available and the lower instrument pricing been in place for all of 2019, revenue for 2019 would have been $150 million to $170 million less than reported, and I&A per procedure would have been 7% lower,” he explained.

Still, BTIG’s Ryan Zimmerman had questions. "Given hospitals' current financials, the push for improved economics makes sense longer-term, but we wonder: Why launch now given the competitive delays at Medtronic (MDT, Buy, $102 PT) and Johnson & Johnson [J&J] (JNJ, Not Rated)?,” he asked in a note.

With that said, Zimmerman wrote that he loved the potential of robotic surgery in the long term. Further, he sees the company as "the clear leader in the space with new product cycles, sustainable growth even in the midst of COVID, and strong operating leverage in outer years.” Still, in part due to growing expenses, "we would wait for shares to come back down to a more attractive entry point.”

Biegelsen also highlighted Intuitive Surgical’s leadership position and the delays seen by its competitors. "We believe valuation will begin to look more reasonable as the pandemic subsides and as recent initiatives such as the Extended Use program drive further upside potential to estimates,” he added.

Medtronic, J&J

During its fourth-quarter earnings call in May, Medtronic plc CEO Geoff Martha spoke about his company’s soft tissue robot, noting that “our ability to finalize the system in preclinical testing has been delayed,” as a result of the pandemic.

At the time, Biegelsen asked if the company had more details about the delay in the surgical robot. Bob White, executive vice president and president, Minimally Invasive Therapies Group for Medtronic noted that engineers had to work remotely, thereby limiting access to the hardware and the robotic systems itself. In addition, surgeons and operating room staff have not been able to travel and participate in lab testing. Finally, there was an issue with the availability of external partners and sites to conduct some of the testing.

“Our team is looking at every single, creative way to expedite our work related to the program, and we're seeing some amazing creativity,” White said, while adding that he was not able to offer timelines.

Separately, in June, Toronto-based Titan Medical Inc. and Medtronic said they had inked a development and license agreements to advance the development of single-port robotic-assisted surgical tools. A separate agreement gives Medtronic licensing rights to certain Titan intellectual property.

Earlier this month during its second-quarter earnings call, J&J CEO Alex Gorsky noted that his company is working to create a high-value, differentiated general surgery robotic platform, incorporating elements from surgical robotics startups Verge Surgical and Auris Health Inc.

Following talks with the U.S. FDA, the company opted not to pursue the 510(k) route with its general surgery solution and will initiate first-in-human studies in the second half of 2022.

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