Monday, October 09, 2006

Calls of Note Part 1

- Wachovia is positive on Intuitive Surgical (NASDAQ:ISRG) following Robotic Surgery Symposium. According to the firm both podium presentations and conversations with clinicians at the symposium in Chicago last week supported firm's thesis on ISRG. The symposium, which focused mainly on cardio-thoracic and general surgery, was attended by over 160 surgeons from a wide range of specialties. Many surgeons at hospitals with installed da Vinci Systems indicated that their hospitals are nearing purchases of second or third systems to support additional usage.

Adoption of da Vinci continues to build in prostatectomy (one speaker expects 40% penetration by the end of 2006, ahead of management guidance of 35%), hysterectomy (firm confirmed their market size estimate of 250,000 complex-benign and cancerous cases), and bariatric surgery (where the learning curve with da Vinci is 5 cases vs. 42 for laparoscopy). All of these procedures benefit from the extreme precision that da Vinci provides.

Hitachi's second generation robotic prototype was discussed in a presentation. This device is MRI guided with its use limited to tying knots in sutures thus far. It has just entered the regulatory approval process in Japan but remains years behind ISRG both in terms of capabilities and regulatory approval. Another competitor offers a robot-assisted catheter system but this is perhaps more complementary than competitive.

Wachovia believes that continued adoption of da Vinci in hysterectomies and bariatric surgeries will support increased system and instrument sales for the next few years. For Q3 2006, they expect ISRG to handily beat consensus revenue and EPS targets and would continue to be buyers of ISRG.

Valuation Range: $120 to $132

Notablecalls: ISRG watchers, spot anything new in the note? I sure didn't. Expect a small pop following the comments. Just because ISRG is a former mo-mo play.

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