Motley Fool Ranks Robot Surgicals - Robotics Business Review

Sandeep Gupta, Motley Fool, claims that the most important metric to focus on in the US is the growth of general surgery. Intuitive Surgical’s (ISRG) ability to expand into this market, he writes, will likely be the most important driver of long-term growth.

It’s still very early, but initial interest in Intuitive’s single-site product for general surgery appears strong. As Intuitive’s management stated, the device is already in more than 200 U.S. hospitals.

Gupta cites new procedures, including general surgery, colorectal, and thoracic surgery, that will continue to gain traction in the near term. Intuitive’s FDA-approved EndoWrist vessel sealer and EndoPath power stapler should drive further adoption.

Going forward, he expects revenue per procedure to increase as newly developed innovative tools should alleviate pressure from less expensive general surgical tools. Strong procedures growth should drive up utilization, thus making a case for hospitals to purchase additional systems.

Continued success predicted for Intuitive

The impact of robotic surgical procedures for low-risk patients (which comprise 50% of the surgical population) remains an unpredictable story for both investors and analysts. However, Gupta is inclined towards the successful, long-term thesis for the company to remain intact given the company?s past performance.

Soft tissue and bone surgery

Mako Surgical (MAKO) is a medical device company which markets its advanced robotic arm solution and orthopedic implants for orthopedic procedures in the U.S. and internationally. Although Gupta sees a huge difference between soft tissue surgery and bone surgery, he believes the strong growth prospects of Mako could be used to further show the growing demand of robotics based surgery.

The table summarizes the expected EPS growth (earnings per share growth rate ratio) of Mako, Zimmer, Stryker, Covidien, and Intuitive:

Zimmer and Stryker have good presence in hip and knee replacement markets and thus, compete with Intuitive. The basis of inclusion of these companies is to show the overall demand. Clearly, both MAKO and Intuitive robotics-based medical companies, have impressive expected EPS growth on an absolute basis and relative basis.

Though optimistic about the strong long term growth prospects of both the companies, Gupta prefers Intuitive over Mako for the near term investment given the better visibility over near term catalysts like adoption of single site procedures.

Going forward, he expects robotic surgery to continue to become the standard of care across a variety of indications as hospitals and governments continue to strive for better outcomes at lower costs. Uncertain development of hospital capital budgets and macro environment may lead to volatility in near term and provide a more attractive entry point.

But the heat is on

The stakes are getting higher. During the most recent Mako Surgical conference call, CEO Maurice Ferre noted that they have ?gained increasing attention from competitors.? So the heat is officially on … and this at a time when Mako’s sales have stumbled.

Motley Fool?s Erik Eason reports that Most of Mako’s competitors provide only implants and tools for traditional orthopedic surgery. They are large, well-established companies that support a variety of surgical disciplines; but none build surgical robots — not yet at least.

Top on the list are privately held Biomet, DePuy Orthopedics — a subsidiary of Johnson & Johnson, Smith & Nephew, Stryker, and Zimmer Holdings. Three of the five (Biomet, DePuy Ortho, and Zimmer) are neighbors in Warsaw, Ind., a little-known mecca of biomedical device technology; Stryker is nearby in Kalamazoo, Mich.; while Smith & Nephew hails from London.

All five of them design, fabricate, and distribute medical implants and surgical devices for a wide variety of traditional medical procedures that partially overlap in an intriguing patchwork. For example, Biomet fabricates products for joint orthopedics (think bone implants for knees, hips, and shoulders), spine, bone repair, skull and jaw, and arthroscopy.

DePuy Orthopedics focuses only on joint orthopedic products, leaving the spine, sports medicine, neurology, and trauma to its cousin DePuy divisions in Raynham, MA. Smith & Nephew mixes the two with products for joints, spine, bone repair, as well as wound, trauma, and endoscopy. Lastly, Stryker’s Reconstruction Division specializes in products for joints and arthroscopy, leaving neurology, endoscopy, and surgical navigation systems to cousin divisions.

>The quality of robotic surgery is significantly superior to traditional methods.

— San Francisco Surgery Center (surgical study, 2012)

As you can see, these are highly diversified manufacturers for whom Mako poses a threat to only one portion of a much larger business; but that threat has finally reached a crescendo that they can no longer ignore, and they are taking direct counter action. Collectively they are attempting to dissuade Mako’s customers with “counter-marketing efforts,” as Ferre tactfully described them.

Their objective is to convince the customers that the traditional surgical methods are just as good as that performed by the robots and costs a lot less. Eason tabs it: “a deliberate smear campaign to defend their turf.”

However, Mako’s 70-plus ongoing studies — most recently from the San Francisco Surgery Center — are revealing that the quality of robotic surgery is significantly superior to traditional methods.

Perhaps even more important to the paying customers (hospitals, surgical centers, and insurance companies), the total medical cost per surgery, including rehabilitation, is coming in substantially lower. Customers aren?t yet buying because there simply aren?t enough surgeons today using Mako’s expensive robots to provide the required return on investment.

New robotic upstarts enter the market

Coming up from behind Mako are nascent competitors introducing their own robotic surgery systems. Chief among these is privately owned OmniLife Sciences, which acquired Praxim’s APEX surgical robot for total knee replacement–which is in direct contrast to Mako’s focus on the partial knee replacement market.

This is a critical distinction. Mako believes there is a vast underserved market for partial knee replacement. These are potential patients who forego the highly invasive total knee replacement surgery and choose to live with the pain and mobility impairment. So Mako is pursuing what it believes will ultimately be the biggest slice of the knee-replacement pie.

Mako is still clearly concerned, and well it should be. OmniLife, as well as several private medical practices, is offering what Ferre described in Mako’s recent conference call as “early stage development of potentially competitive technologies.”

While OmniLife has a lot of catching up to do in this struggle for robotic dominance — with only 1,000 surgeries performed versus Mako’s 17,000 (2,600 in 2Q2102) — it does have the advantage of capitalizing on Mako’s expensive marketing and proof-of-value studies.