3 Reasons to Sell Intuitive Surgical

Source: Intuitive Surgical.

I'm going to attempt something a little odd today, Fools. Even though Intuitive Surgical (NASDAQ: ISRG  ) makes up 6% of my real-life holdings, and I wrote just last week about why I'm holding my shares, I'm going to be giving you three reasons to consider selling the stock today.

Why am I doing this?

Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we are just deluding ourselves.

It got me to thinking about how I don't write enough about the risks of owning the stocks I own. So, though I don't plan on selling my Intuitive Surgical stock anytime soon, I think it's healthy for me to practice and model this behavior.

1. Questions from the medical community
Earlier this year,  the Journal of the American Medical Association came out with a paper questioning the benefits of using Intuitive's da Vinci surgical robot in hysterectomies. Specifically, it found that complication rates for procedures performed robotically stood at 5.5%, while traditional methods had a rate of 5.3%. This was not deemed a statistically significant difference, but given that the da Vinci procedure was much more expensive, JAMA pointed out that the benefits of the da Vinci might not outweigh the costs.

Those worries were echoed a month later by the president of the American Congress of Obstetricians and Gynecologists. His basic argument, which can be read in full here, was that while there were certain benefits of robotic surgery, there were other methods that were cheaper and equally effective from an outcomes perspective.

As hysterectomies and other gynecological procedures make up just less than half of all those performed in 2012, major changes in hysterectomy protocol could significantly change Intuitive's revenue streams.

2. No room left for growth
As it stands today, urological (mainly prostatectomies) and gynecological (mainly hysterectomies) procedures make up about 70% of all da Vinci procedures. As the da Vinci has continued to gain acceptance in the medical community, it is becoming more commonplace to have robotic surgery for these two operations.

Source: SEC filings. 

But my investment in Intuitive is bigger than that. The da Vinci is the only widely accepted robot for soft-tissue operations in the medical community. Currently, doctors are experimenting with the da Vinci in cardiothoracic, as well as head and neck procedures. I believe that the continued success of Intuitive's stock -- though not necessarily the company itself -- hinges on the ability to further implement daVinci in other procedures. But that is no sure thing, and a failure to continue that expansion would lead me to consider selling.

3. Legal issues
Finally, with any company, but especially medical companies, legal issues can arise. As Intuitive states in its annual report: "Product liability and negligence claims...could be expensive, divert management's attention and harm our business." 

This risk was front and center last month: A jury had to decide if the company was liable for a patient's eventual death after having a prostatectomy. The claim was that Intuitive had done a poor job training the doctor who performed the operation.

In the end, the jury sided with Intuitive, as the doctor had been warned by Intuitive not to attempt the particular operation he was doing before gaining more experience. But there's no guarantee that the company will win future cases. And once a defendant wins a claim, there's no telling if that will just be the start of opening the floodgates.

What's a Fool to do?
As I said, I've already decided to hold my shares. To be honest, at this point, I'm not considering buying new shares. I'm no doctor, and I'm curious to see what the effect of the JAMA article may have on hysterectomies in coming quarters.

If you're interested in getting a second opinion, Intuitive Surgical expert Karl Thiel believes a visible path to long-term growth persists. Will Intuitive capitalize, or be crushed by unforeseen pitfalls? His report highlights all of the key opportunities and risks facing the company -- and includes a full year of ongoing updates as key new hits -- so be sure to claim your copy by clicking here now.