Does the Robotic Surgery Industry Need Obamacare to Succeed?
Intuitive Surgical plunged by almost 6% today after reporting disappointing results in its third quarter. Yet, with Obamacare's health-insurance exchanges opening to enrollees for the first time as of the beginning of the fourth quarter, the natural question for investors is whether the Affordable Care Act could actually lead to a turnaround for the distressed robotic surgical device maker, and to potential success for MAKO Surgical and its acquirer, Stryker .
Overall, Intuitive Surgical's results made it clear that the stock has fallen from its past high-growth trajectory. Revenue dropped more than 7%, falling well short of expectations, and helping contribute to a roughly 15% decline in net income. A closer look at Intuitive Surgical's results reveals that systems sales were the big culprit, with a 54% drop in the number of units sold leading to a 32% drop in revenue from the segment. By contrast, consumables like instruments and accessories gained ground, as did services revenue.
MAKO Surgical won't report until next month, but it hasn't seen quite the same level of damage as Intuitive Surgical. For its part, sales of 10 RIO Systems, and nine total hip arthroplasty applications, helped push overall revenue up 19%. It also saw an increase in surgical procedures that pointed to wider adoption of the devices.
Why Obamacare is important
As Intuitive Surgical CEO Gary Guthart noted, hospitals have been less willing to make the large financial commitments necessary to purchase Da Vinci systems. In part, Guthart blamed the mismatched timing of Obamacare's restrictions and potential benefits as causing the short-term sales disruption.
As Fool contributor Keith Speights noted earlier today, hospitals already have to deal with some of the downsides of Obamacare on their businesses, including cuts in Medicare reimbursements and penalties for failing to meet certain readmission guidelines. But only now that Obamacare exchanges are opening will hospital companies see if the promised increase in covered patients -- and the consequent decrease in uncollectible losses from uninsured patients -- will pay off for hospitals' bottom lines.
For Intuitive Surgical to return to growth, and for MAKO Surgical to build on its recent success, they need hospitals to be more willing to spend on high-priced robotic systems. If Obamacare successfully leads to higher profits for hospitals -- which their share prices have largely taken for granted as being inevitable -- then it should help MAKO and Intuitive Surgical in the future.
Separating winners from losers
Obviously, there's no guarantee that both Intuitive Surgical and MAKO Surgical will share the same fate. The two robotic systems target different procedures, and concerns about Intuitive Surgical's efficacy don't automatically translate to the same conclusions for MAKO Surgical's RIO systems.
But one thing is certain: Obamacare is having a huge impact on the health-care industry right now, and trying to predict its impact on companies throughout the industry is harder than ever. If the program succeeds in getting more people covered, and putting hospitals in a better financial position, though, it at least boosts the odds that MAKO Surgical and Intuitive Surgical will start getting more system purchases. More than anything, that's what Intuitive Surgical, in particular, needs in order to turn its poor recent results around.
Get the whole story about Obamacare
Sales of robotic surgical systems are just one secondary impact of the most transformative health-care reform most people have seen in their lifetimes. Do you know all the ins and outs of the Affordable Care Act, and what it means for you? If not, we're here to help: The Motley Fool has compiled a special new report filled with Everything You Need to Know About Obamacare. This report is a free offer from us to help you get educated on this important subject. Please click here to access your free copy.
The article Does the Robotic Surgery Industry Need Obamacare to Succeed? originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Intuitive Surgical. The Motley Fool owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.