April 29, 2011      

Since March, Tamer A. Ghanem, M.D., Ph.D., has performed nearly two dozen surgeries using the da Vinci Surgical System. Many of those procedures resulted from the fact that Detroit’s Henry Ford Hospital, where Dr. Ghanem is a resident surgeon, is among a small number of medical facilities pioneering the device’s use for so-called TransOral Robotic Surgery (TORS), a tumor removal procedure approved by the Food and Drug Administration in January 2010.

As Ghanem describes it, “The use of the da Vinci robotics device allows us to be more precise and to access hard-to-reach areas, minimizing blood loss, patient discomfort, and speeding the recuperation process.” In the case of small, contained tumors, he says, the TORS robotic surgery potentially eliminates the need for the patient to undergo radiation therapy. Alternatively, the patient may need smaller doses of radiation, which would reduce side effects such as fatigue and loss of taste.

Those benefits are among the reasons parent company Intuitive Surgical Inc. (ISRG, recent price $328) trades at roughly 35 times earnings, significantly above the 19-times-earnings multiple of similarly priced Apple Inc. Last spring, Intuitive’s stock flirted with $400, before sliding to below $260 at the onset of 2011. In a move some might see as an indication of upside potential to come, company officials this February announced a $400 million stock buyback program to be funded from its more than $1.6 billion in cash or cash equivalents.

The buyback announcement came just days after the Sunnyvale, Calif.-based company delivered what a headline in TheStreet.com described as a “blowout quarter.” According to the TSC article, revenue climbed “21% year-over-year to $389.3 million in the December period, beating a consensus estimate of $370 million. The company cited ‘continued robotic procedure adoption and higher da Vinci Surgical System sales’ for the revenue growth.”

A Nascent Field
That growth comes from a company a scant 16 years old. Indeed, it was only in 1999 that Intuitive debuted its robotic laparoscopic surgical system, utilizing technology developed for the U.S. Army during the 1980s by SRI International.

Intuitive’s da Vinci Surgical System falls into the class of what are called robotic interventional systems; that is, teleoperated robotic systems designed to perform minimally invasive surgery (MIS). Such systems are controlled by the surgeon, from a distance. With most MIS techniques, a few small, strategically placed incisions are made in the patient. Surgeons insert long-handled instruments into the body, using flexible and finely controlled fiber-optic camera-tipped wands or endoscopes to observe their work.

Today’s da Vinci Surgical System consists of four components:

  • An ergonomically designed surgeon’s console
  • A patient cart with four interactive robotic arms and intuitive motion control
  • A high-performance, 3D vision system with magnification
  • Patented EndoWrist instruments that provide seven degrees greater range of motion than the human wrist

Current da Vinci systems now allow two surgeons to operate simultaneously. The surgeons access the target anatomy via the EndoWrist instruments, which make 1- to 2-centimeter incisions (about the size of a dime) into the effected areas. The small incisions are used to introduce miniaturized instruments and a high-definition 3D camera. The surgeons, meanwhile, sit at the da Vinci console, viewing a magnified, high-resolution 3D image of the surgical site while controlling the operation.

In fact, one benefit of the da Vinci system is its ability to alleviate fatigue surgeons may experience during lengthy operations. While seated comfortably, they manipulate controls similar to a video game’s joystick, as da Vinci responds to commands in real time, translating the surgeon’s hand, wrist, and finger movements into precise movements of miniaturized instruments at the patient-side cart.

Expanded Uses
Until recently, da Vinci was most commonly used for prostate operations. And though there’s no independent confirmation, Intuitive Surgical claims that in 2009, some 86 percent of the 73,000 prostate surgeries performed on American men utilized a robotic device.

Meanwhile, the da Vinci system’s ability to precisely deploy thin, pointed instruments has led to its use in other surgeries as well. In the case of tumor surgeries, the system’s high-resolution 3D camera enables surgeons to “virtually” get much closer to the tumor than might be possible via other methods.

“Robotics has transformed urology and OB-GYN, and now it’s transforming head and neck surgery,” observes Ghanem. He admits to being initially skeptical about performing robotic-assisted surgery. Although there was a learning curve, Ghanem says learning to use the da Vinci robotics equipment was straightforward, like learning to drive a car. He now describes the experience as being akin to “virtual reality.”

Besides neck and throat operations, the da Vinci system is used in cardiac valve repair and gynecological as well as bladder augmentation procedures.

Such efforts could be key to Intuitive’s continued growth. Brian Orelli, a commentator on the financial Web site Motley Fool, notes that the company’s Q4 2010 revenue growth comes largely as a result of a 35 percent increase in the number of procedures performed by Intuitive’s installed base of 1,752 machines, which cost from $1.4 million each. In order to continue growing the number of da Vinci procedures, Intuitive Surgical must expand “into other types of surgeries,” Orelli writes in a February 8 post. “Gynecology makes up nearly half of the procedures performed on a da Vinci, but eventually Intuitive Surgical will saturate that market like it did with prostatectomies.”

While expanding da Vinci’s uses, Intuitive has also moved aggressively to consolidate its top-rank position in the robotic surgery space. In 2003, the company merged with Computer Motion, the developer of the competing Zeus system, which Intuitive phased out over time. In 2005, another competitor, Integrated Surgical Systems, ceased operations.

Then in 2009, Intuitive Surgical acquired the assets of NeoGuide Systems, which was developing technology for natural orifice transluminal endoscopic surgery. The technique involves passing an endoscope through a bodily orifice such as the mouth, thus avoiding any external incision.

Because robotic-assisted surgery is fairly new, there are relatively few studies that attest to its superiority over hands-on surgeries. However, as Robotics Trends first reported in August 2009, the results of a multi-institutional database survey of 405 patients who underwent robotic-assisted surgery for endometrial cancer between April 2003 and January 2009 suggest that it is at least equivalent if not superior to traditional surgery or traditionally performed laparoscopic surgery in several areas, according to Patrick Lowe, M.D., lead author of the study. Lowe is also the director of the robotics and minimally invasive surgical program for the Division of Gynecologic Oncology at Northwestern University’s Feinberg School of Medicine.

Results of the study were in line with previous smaller studies and found short operative times, minimal blood loss, decreased length of hospital stays, a dramatic reduction in surgical complications, and reduced recovery times for those women with endometrial cancer who underwent robotic surgery. A 2010 survey by the Montreal Jewish General Hospital’s Lady Davis Institute for Medical Research reached a similar conclusion: “Robot-assisted surgery dramatically improves outcomes in patients with uterine, endometrial, and cervical cancer.” Moreover, the study results published as a series of articles in late 2010 in The Journal of Robotic Surgery and The International Journal of Gynecological Cancer found that because of fewer post-operative complications and shorter hospital stays, robotic procedures also cost less. One of the study’s authors, Dr. Walter H. Gotlieb, head of gynecologic oncology at the JGH Segal Cancer Centre and director of surgical oncology at McGill University, summed up the benefits saying that following some procedures, “the majority of our patients need nothing stronger than Tylenol.”

If future research corroborates these results, Intuitive’s impressive numbers will no doubt draw competitors from Asia and elsewhere. While the company’s North American competitors, which include Cardiorobotics, Titan Medical, and Hansen Medical, are small in comparison, a major push by Intuitive’s biggest competitors Hitachi and Toshiba, which each possess nearly double the U.S. company’s market cap, could crimp sales, especially within the Japanese market, currently the world’s second largest for robotic surgery.

Intuitive did receive difficult-to-obtain approval from the Japanese regulators in late 2009 to market da Vinci there. Also, standing in the way of these Japanese giants in the United States and other markets outside of Japan is Intuitive’s huge installed base of machines, not to mention the considerable regulatory hurdles all new entrants must surmount before their devices receive approval. Add one more hurdle to that mix, namely the gargantuan task of convincing surgeons to adopt a new device in place of one with a lengthy track record.

In fact, one of the biggest obstacles to Intuitive’s growth may be surgeons’ reluctance to switch from hands-on techniques to a robotic device. One downside Ghanem and his fellow TORS surgeons face initially is the loss of tactile sensation when they’re cutting out a cancerous tumor. As Ghanem explains, a malignant tumor feels different from healthy tissue; it’s firmer and has a different consistency.

However, advances in haptics, the science of imparting touch sensation to device control, along with an increasing focus on remote surgery by the military and others, should eventually sway opinions among surgeons toward the robotics options. Even now, some see the clear view of an operation afforded by the da Vinci system’s optics as a game changer. “What I lost in tactile sensation,” says Ghanem, “I made up in the da Vinci’s 3D magnification and visual acuity.”

The Bottom Line
Intuitive Surgical Inc.’s formidable cash reserves and large installed base make it the leader in robotic surgery. The company likely will benefit from a recent Canadian study touting the benefits of robotic surgery, such as reduced recovery times and less patient discomfort. The company has moved to consolidate its leadership position by acquiring competitors. The key to future growth will lie with increasing the number of procedures its da Vinci Surgical System can perform. A key indicator of its ability to compete globally will be Intuitive’s sales in Japan, where it will face entrenched competitors Hitachi and Toshiba. Going forward, evolutionary technological improvements, in areas such as imaging and in the da Vinci system’s controllers to impart tactile sensation to surgeons operating the device, bode well for the future of robotics surgery and for the da Vinci system in particular.