Lawsuits Mount for Intuitive Surgical, but Analysts Remain Upbeat

At the same time that many stock analysts are predicting a rebound for Intuitive Surgical's fortunes and therefore the price of their stock, the beleaguered company's court calendar continues to fill.

The Courthouse News Service says their database now contains more than 80 lawsuits involving the da Vinci robot, including "at least 76 product liability lawsuits, several lawsuits from its insurers and a securities fraud class action..." This is up from the 50 cases the company reported in its October 2013 10-K filing with the Securities and Exchange Commission.

We have previously reported how Gary Guthart, Intuitive president and CEO, continues to defend his company saying that despite adverse events and FDA issues including at least 52 Enforcement Reports (recalls) in the past two years, surgery with the Da Vinci system is still far safer than conventional open surgery.

And then there are the analysts. The Motley Fool's Dan Carroll says, in a March 18 video report, "Intuitive looks like a long-term winner." Zacks gives the stock its #3 "hold" rating, and Forbes sees about a 5 percent upside.

Yet there are numerous causes for concern. First, there are the many product liability cases due to injuries and a widely reported 71 deaths allegedly caused by the Da Vinci system. These include 4170 Adverse Event Reports we found listed on FDA's MAUDE database as of March 25 without even delving into archived files.

Intuitive's own insurers are filing cases alleging the company hid the number and severity of the legal claims filed against it. The first case was filed by The Illinois Union Insurance Co. in November 2013 in the US District Court for Northern California, then Navigators Specialty Insurance Co. made similar allegations. According to the court calendar, both the Illinois Union and Navigators Specialty cases are scheduled for an "initial conference" with the judge, Jon S. Tigar, on April 23.

And shareholders are up in arms as well. Suits have been filed by the Public School Teachers' Pension and Retirement Fund of Chicago and the City of Birmingham (AL) Relief & Retirement System, among others. These actions allege that, among other things, Intuitive Surgical made false statements about the da Vinci system's safety and misled FDA and shareholders about by grossly underreporting and misclassifying defects that were injuring and even killing patients. They also claim that due to the company's concealment of the problems with the system, the stock's share price was artificially inflated but then crashed when the troubles came to light.

In documents filed in the Northern California district court, the City of Birmingham suit alleges that Guthart; Marshall Mohr, CFO; and chairman and former CEO Lonnie Smith engaged in "unjust enrichment and breach of fiduciary duty" to the tune of some $113 million in insider trading.

Meanwhile, The Wall Street Transcript quotes J.P. Morgan analyst Tycho Peterson as saying, "There are some subtle signs that things could be moving in the direction of a new system launch."  He said the company filed for a trademark on a new system and that finished goods inventories went up last quarter. We aren't analysts, but when finished goods inventories go up, isn't that usually because they're not being sold?

Stephen Levy is a contributor to Qmed and MPMN.