Intuitive Surgical warns of risks on Obamacare repeal, NAFTA withdrawal, Brexit

Intuitive Surgical (NSDQ:ISRG) last week warned of the risks posed to its business by the geopolitical shifts of the past year, including the likely repeal of Obamacare, the U.S.’s threatened abrogation of the North American Free Trade Agreement and Great Britain’s pending exit from the European Union.

Uncertainty around Obamacare repeal

In its annual report filed Feb. 3, the robot-assisted surgery market’s leading player warned that a repeal of the Patient Protection & Affordable Care Act, enacted in 2010, “could have a negative impact on the demand for our products.”

“Any changes of, or uncertainty with respect to future reimbursement rates, or changes in hospital admission rates could impact our customers’ demand for our products and services, which in turn could impact our ability to successfully commercialize our products, or could limit or eliminate our spending on certain development projects. These changes could have a material adverse effect on our business, financial condition, results of operations or cash flows,” the company wrote in the filing. “We are unable to predict whether other healthcare policies, including policies stemming from legislation or regulations affecting our business may be proposed or enacted in the future; what effect such policies would have on our business; or the effect ongoing uncertainty about these matters will have on the purchasing decisions of our customers.”

That said, Obamacare poses its own set of issues, Intuitive said, including the push toward value-based healthcare and a 2.3% top-line tax on U.S. medical device sales. Intuitive said the medical device tax cost it about $17.o million in 2015, the last year it was in effect; the levy is on a 2-year moratorium and is likely to be permanently repealed even if Obamacare’s repeal is delayed. A refund due to the medical device tax moratorium added $7.1 million to Intuitive’s gross profits last year, the company said.

“The taxes imposed by the PPACA and the expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to us, lower reimbursement by payors for our products, and/or reduced medical procedure volumes, all of which may have a material adverse impact on our business, financial condition, results of operations, or cash flows,” according to the filing.

Leaving NAFTA, border taxes pose another risk

Intuitive also said that the proposed departure from NAFTA (and the withdrawal from talks about a Trans-Pacific Partnership) and potentially higher border tariffs also increase the uncertainty.

“We manufacture a majority of the instruments we sell in Mexico and any legislation enacted that impacts the relationship between the U.S. and Mexico and/or the continuity of NAFTA could adversely affect our operations and financial results. If enacted, any legislation taken by the U.S. federal government that restricts trade, such as tariffs, trade barriers, and other protectionist or retaliatory measures taken by governments in Europe, Asia, and other countries, could adversely impact our ability to sell products and services in our OUS markets,” the company warned.

Brexit, strong dollar could raise costs, complexities

The June 2016 vote in the U.K. to leave the European Union adds another layer of uncertainty for Intuitive, which has its overseas headquarters in Aubonne, Switzerland.

“As a result of the referendum, it is expected that the British government will begin negotiating the terms of the UK’s future relationship with the EU. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the UK and EU countries and increased regulatory complexities,” the company said.

And the continued strength of the dollar against foreign currencies “could make our products less competitive and/or less affordable in [outside-the-U.S.] markets,” Intuitive said.

“If we are unable to meet and manage these risks, our OUS operations may not be successful, which would limit the growth of our business and could have a material adverse effect on our business, financial condition, result of operations, or cash flows,” according to the filing.

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