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Intuitive Surgical Inc. | A moat in robotic surgery | WELL

Company description

Intuitive Surgical Inc. is an American corporation that develops, manufactures and markets robotic products designed to improve clinical outcomes of patients through minimally invasive surgery, most notably with the da Vinci Surgical System. The da Vinci surgical system was one of the first robotic-assisted, minimally invasive surgical systems cleared by the Food and Drug Administration (FDA). Today, a family of da Vinci systems is used by surgeons in all 50 U.S. states and 66 countries around the world.  The company is part of the Nasdaq 100 and S&P 500[1]. 

Striving to make surgery more effective and less invasive 

The company strives to make surgery more effective, less invasive and easier on surgeons, patients and their families.  The da Vinci systems are computer assisted surgical systems that help surgeons perform minimally invasive surgeries by controlling the device from a console. The system has multiple arms that are used to hold operating tools to perform the surgery, along with an endoscopic camera, which enables the surgeons to look inside the body with a 3-D view.

The da Vinci System has been designed to improve upon conventional laparoscopy - by providing surgeons with superior visualisation, enhanced dexterity, greater precision and ergonomic comfort. 

For the patient, a da Vinci procedure can offer all the potential benefits of a minimally invasive procedure, including less pain, less blood loss and less need for blood transfusions. Moreover, the da Vinci System can enable a shorter hospital stay, a quicker recovery and faster return to normal daily activities[2].

The global surgical robots market

The global surgical robots market is estimated to grow at a Compound Annual Growth Rate (CAGR) of almost 14% to $17 billion by 2025[3]. This growth will likely be led by higher demand for minimally invasive procedures. It is estimated that over one million surgeries were performed using da Vinci systems in 2018, and over six million since its launch. Every 36 seconds, a surgeon performs a minimally invasive da Vinci machine procedure. There are 43,000 da Vinci surgeons, with over 4,400 da Vinci machines in all 50 US states and on 6 continents[4].

Currently, Intuitive has a market cap of approximately $60bn. Its 5 surgical systems help surgeons perform a multitude of surgeries in the broad categories of Abdominal, Colon, Gynaecological, Heart, Neck, and Head[5].

Ageing population and growth drivers

The ageing population trend is a boost for Intuitive. The year 2030 is a pivotal one for the U.S. Throughout the nation's entire history, the number of children under the age of 18 has been higher than the number of individuals aged 65 or older. But in 2030, that will change, according to the U.S. Census Bureau.

Older adults tend to require surgery more often. Researchers have been raising alerts about this for quite a while because of concerns about potential surgeon workforce shortages. A study published in the Annals of Surgery medical journal in 2003 concluded that "the aging of the U.S. population will result in significant growth in the demand for surgical services." This fact alone should drive higher demand for Intuitive Surgical's da Vinci robotic surgical systems[6].

Intuitive’s most-performed procedure - full or partial removal of the prostate is the top urology procedure in the U.S. and the top overall procedure using da Vinci outside of the U.S. The average age of men diagnosed with prostate cancer is 66, according to the American Cancer Society. The aging of the baby boomers in the U.S. and across the world should increase the number of prostatectomies performed using da Vinci[7].

Hysterectomy was by far the most common gynaecology procedure performed with da Vinci on women. The average age of women who have a hysterectomy is younger than you might think at 42 years old. And millions of millennial women will reach that age over the next decade[8]. 

Colorectal procedures are also a prime growth driver. Many of these procedures relate to colorectal cancer. The average age at the time of diagnosis of colon cancer is 68 for men and 72 for women, while the average for both sexes at the time of diagnosis of rectal cancer is 63. Baby boomers should push the number of colorectal procedures performed by da Vinci systems higher in the coming years[9]. 

An incredible 71% of Intuitive Surgical's revenue comes from recurring sales of instruments, accessories, and services. Long-term ageing demographic trends are highly likely to make Intuitive Surgical increasingly profitable in the coming decade. Increasingly more customers are also choosing to lease systems rather than purchase them. This boost affordability to many smaller and medium sized hospitals globally[10].

A moat in robotic surgery 

Intuitive Surgical enjoys a huge advantage in robotic surgery. Medtronic remains behind schedule with launching its robotic surgical system that will rival da Vinci. Intuitive can sell its long track record of performance and safety that new entrants won't be able to claim for years to come. In the meantime, Intuitive continues to invest heavily in research and development[11].

Intuitive Surgical received FDA clearances for two new systems in the first quarter: its Ion platform focused on lung biopsy (using a tiny robotic catheter), and its IRIS augmented reality system, which targets aiding surgeons before and during surgery using a 3D image of a patient's anatomy. FDA approval was also granted to use the daVinci Single Port for a specific type of neck surgery[12].

The company's innovative new technology should open up new areas of use for robotic systems. Intuitive is accelerating its efforts to expand outside the U.S. 

The da Vinci surgical systems have seen strong growth in the recent years with sales exceeding $1.1 billion in 2018, reflecting a growth of over 21% over the prior year. According to Trefis analysis, this can be attributed to an overall increase in demand for the robotic surgical procedures, given its advantages to both surgeons and patients[13].

[1] http://www.annualreports.co.uk/HostedData/AnnualReports/PDF/NASDAQ_ISRG_2018.pdf | Annual Report, 2018

[2] https://www.ncbi.nlm.nih.gov/pubmed/18439499 | June, 2008

[3] https://www.fool.com/investing/2019/04/22/part-of-intuitive-surgicals-business-model-is-evol.aspx | April, 2019

[4] https://finance.yahoo.com/news/intuitive-surgical-buy-dip-121732385.html | April, 2019

[5] https://finance.yahoo.com/news/intuitive-surgical-buy-dip-121732385.html | April, 2019

[6] https://www.fool.com/investing/2018/07/25/the-long-term-trend-that-makes-intuitive-surgical.aspx | July, 2018

[7] https://finance.yahoo.com/news/intuitive-surgical-buy-dip-121732385.html | April, 2019

[8] https://www.fool.com/investing/2018/07/25/the-long-term-trend-that-makes-intuitive-surgical.aspx | July, 2018

[9] https://www.macrotrends.net/stocks/charts/ISRG/intuitive-surgical/revenue | March, 2019

[10] http://www.annualreports.co.uk/HostedData/AnnualReports/PDF/NASDAQ_ISRG_2018.pdf | Annual Report, 2018

[11] https://www.fool.com/investing/2018/07/25/the-long-term-trend-that-makes-intuitive-surgical.aspx | July, 2018

[12] https://www.massdevice.com/intuitive-surgical-wins-fda-clearance-for-robotic-assisted-lung-biopsy-system/ | February, 2019

[13] https://www.forbes.com/sites/greatspeculations/2019/03/27/intuitive-surgical-upside-if-da-vinci-systems-reaches-25-share-in-global-surgical-robots-market/#4f9837b94fac | March, 2019

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