Intuitive Surgical Inc. (NSDQ:ISRG) and Cardica Inc. (NSDQ:CRDC) agreed to integrate Cardica’s micro-cutter technology for Intuitive’s da Vinci robotic surgery system and for Intuitive to pick up a 3 percent stake in Cardica.
With revenues from one licensing and development agreement on hold, Cardica went out and inked a similar pact August 17. Cardica executives have spent more than a year looking for ways to expand use of its linear cutter staplers — endoscopic devices that form inter-locking lines of “nails” in a zipper pattern, rather than with sewn sutures — beyond its current indications for cardiac procedures. The $12 million deal also sets up additional selling features for Intuitive’s increasingly successful da Vinci surgical system, which incorporates high-vision tools with robotic mechanics designed to mirror a surgeon’s natural hand movements.
Cardica has financial as well as strategic motivations for expanding its potential customer base. In a separate announcement, the company said total net revenues during the three months ended June 30 fell 50 percent from year-ago levels, to $1 million. Product sales also declined, sliding from $1.2 million during Q2 2009, as $815,000 in development revenues from a licensing agreement with Cook Group Inc. evaporated. The companies scrapped work on a vascular closure device and suspended development of a device designed to seal holes between chambers of the heart.
Under the new agreement, Intuitive gains exclusive global rights to sell da Vinci systems fitted with Cardica microcutters for general surgery via a royalty-bearing license slated to pay Cardica about $10 million. Intuitive also purchased 1.25 million shares of Cardica stock, worth about $2.1 million at its $1.66-a-share closing price on Tuesday. The deal did not include Cardica’s vascular anastomosis applications, which are already being marketed by the company in the U.S. and Europe under its PAS-port and C-Port product lines.
The collaboration between the companies dates back to at least early 2008, when they jointly hosted a seminar on robotic surgery at the annual meeting of the Society for Thoracic Surgeons. During a conference call yesterday with analysts, Cardica CEO Bernard Hausen declined to discuss specific terms of the deal, including potential royalty payments, but said product income from the new partnership was unlikely to have a material impact on its financial results over the short term.
Hausen also acknowleged that the deal could eventually pit Cardica and Intuitive against industry heavyweights such as Covidien plc (NYSE:COV) that are also starting to market surgical stapling tools. In response to a question, he said his firm likely can match other would-be rivals on price and may have the upper hand with respect to performance.
“We believe we have a major advantage in the design features of our microcutter,” Hausen said, checking off attributes including its smaller size, flexibility and “staple-on-a-strip” platform, which allows surgeons to fire staples multiple times without removing the device from the patient.
Future partnerships between the firms, or between Cardica and other companies, on additional product lines also are possible, Hausen said, again declining to elaborate. In all, the company holds 82 U.S. patents, with the latest — an anastomosis tool capable of moving in two directions relative to the handle — assigned Aug. 3.
Second-quarter results were of another order for Intuitive, which crushed year-ago comparisons and blew through analyst expectations for the quarter, posting a $89 million profit during the three months ended June 30 on $351 million in revenues.
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