Intuitive Surgical Plunging after Negative Pre-Announcement (ISRG)

In a pre-announcement Monday evening, Intuitive Surgical ISRG said that it expects to report net income of $160 million and revenue of $575 million--a catastrophic miss versus analyst expectations of $177.7 million and $630.4 million respectively.

The company developed the da Vinci Surgical System which allows a surgeon to make tiny incisions where small instruments are inserted for control by the surgeon. Although it’s called a robot, the surgeon retains complete control.

It’s supposed to be minimally invasive and can move in a more precise manner than the human hand. The company says that about 1.5 million surgeries have been performed using the system and according to the release, the number of surgeries is up 18 percent.

The company will still show year over year net income growth of 3 percent and 6 percent growth in revenue but that’s where the good news ends.

Chief Executive Officer Gary Guthart in the statement, “While we are disappointed in our performance this quarter, particularly with respect to our capital sales in the U.S., overall procedure performance was solid in a difficult environment.”

The release goes on to provide reasons for the slow growth. First, budget crunches are forcing hospitals to cut back on purchases. The company sold 143 systems totaling $215 million compared to 150 totaling $229 million one year prior.

It also said that the system was being used less in benign gynecology procedures because of reduced hospital admissions and more conservative decisions by insurance companies.

What the company failed to mention were the lawsuits filed where patients alleged they were injured during surgeries with the device. It also failed to mention that U.S. regulators were surveying surgeons about the use of the system after 70 deaths were reported since 2009 and a rise in adverse events was reported in conjunction with the system.

Then there are the doctors who question the need for the machine. Robotic surgery costs significantly more than traditional surgeries and doctors point out that there is a lack of large-scale studies to prove the benefits of the system.

All of this has caused the stock to plummet more than 17 percent in early trading Tuesday and 30 percent since late January.

Disclosure: At the time of this writing, Tim Parker had no position in the equities mentioned.