Bloom Could Come Off Intuitive Surgical's (ISRG) Rose as Lawsuits Fly - Citron

December 19, 2012 12:51 PM EST
Get Alerts ISRG Hot Sheet
Price: $656.75 -0.2%

Rating Summary:
    22 Buy, 10 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Famed short selling website Citron Research went after Wall Street darling Intuitive Surgical (Nasdaq: ISRG) Wednesday, causing a swift 4 percent downdraft in the stock.

Citron claims the company's popular da Vinci robotic surgical device has been sold using "fear" and the "medical arms race" meme. Meanwhile, weak evidence of surgical value and the botching of "routine" surgeries has lawyers taking notice, which the firm believes will take the company down a few notches.

Citron notes five new data points over the last four weeks that Wall Street is not paying attention to:

  • Three new highly credible lawsuits over hysterectomies with bad outcomes have been filed – in addition to six really ominous ones from earlier in the year

  • Large insider sales. Within the last month, Chairman Lonnie Smith sold shares from options exercise (not 10(5)b) netting over $50 million, a rather large percentage of his recently apportioned stake

  • Peer criticism – a number of recent articles summarizing from highly credible, recent studies that highlight the gap between the company marketing materials' claims and full scientific disclosure of the true risks and differentials in medical outcomes. This gap creates the basis for legal challenges to the company due to inadequate disclosure of the risks of bad outcomes.

  • Further skepticism about the true cost/benefit of robotic surgeries

  • Indications of loss of morale and sharp erosion of confidence in management and
    oversaturation coming through the sales force.

    Citron claims there is a "severe vacuum of real scientific evidence that the da Vinci is of any clinical benefit when the full arc of costs and outcomes are weighed."

    The firm also talks about recent lawsuits describing disastrous results from "routine" surgery, including a cases were: one patient's intestines were hanging out of her vagina; another was uncontrollably passing urine out of her vagina, while two "routine" hysterectomies resulted in death of the patient, with apparent damage caused by the da Vinci device

    Over the short term, Citron believes the stock can drop to $350/share and then to $250/share over the next 18-months.

    The full report can be found here

    Shares of ISRG last traded at $529.10, down 3.2%

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