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Intuitive Surgical Idea Proposal (ISRG)

Intuitive Surgical Idea Proposal (ISRG)
 

Are hospitals open to new entrants in the robotic-assisted surgery market or will they stick with Intuitive Surgical’s industry-leading da Vinci system? How long will the COVID-19 slump impact Intuitive Surgical’s procedure and system revenue?

Report Available: June 25, 2020

 

Blueshift’s ongoing research found the suspension of elective surgeries due to COVID-19 negatively impacting ISRG’s procedure and da Vinci system lease volume which accounts for 70% of its total revenue. With surgeries now resuming, the question is how long will it take for ISRG to recover. At the same time, the da Vinci system which has more than 5,500 installed robots and has faced limited competition to date, is facing new challengers. The da Vinci has become the standard of care in the soft-tissue or general surgery robotic-assisted surgery space. ISRG’s success and the prediction for increased use and adoption of robotics has led to significant R&D and M&A by rivals in hopes of offering hospitals a choice of robots and capturing some of the market.

 

Observations

  1. ISRG reported solid Q1 results despite a COVID-19 related slowdown. ISRG reported EPS of $2.69 and revenue of $1.4 million, beating the consensus forecast of EPS of $2.54 and revenue of $1.04 million. The CDC and Surgeon General’s late Q1 recommendation to suspend elective surgeries to aid in the fight against the coronavirus led to a significant decline in da Vinci procedure volume and postponements of system placements. ISRG declined to provide guidance due to the uncertainty related to the COVID-19 outbreak.
  2. In 2018, the robotic-assisted surgery market’s annual revenues were about $98 billion. According to GlobalData, revenue will nearly triple to $275 billion by 2025. The rate of adoption of surgical robots by hospitals and surgery centers continues to grow. General surgery procedures using the da Vinci system increased about 18% from 2018 to 2019. These impressive revenue and procedure rates have motivated large established medical device companies like MDT and JNJ and small innovators like CRM Surgical to invest heavily to break into the space.
  3. ISRG has built a wide moat that must be navigated by the competition in order to compete in the robotic surgery space. ISRG is expanding its installed base, increasing its procedures, and showing impressive recurring revenue.
  4. MDT, a leading medical device company, wants to get in on the robotic surgery trend. In September, MDT introduced its much-awaited Hugo RAS (Robot-Assisted Surgery) system. The company claims Hugo is more flexible and cost-effective than systems currently on the market. Hugo was scheduled be tested outside the U.S. starting in early 2020 and MDT would submit for CE Mark and U.S. IDE later in the year. However, these plans are now delayed due to remote work and other disruptions caused by COVID-19.
  5. JNJ has been actively pursuing both an R&D and M&A strategy to bring a soft-tissue surgical robot to market. At the close of 2019, JNJ acquired the remaining stake in Verb Surgical following its collaboration with GOOGL’s Verily. In Feb., JNJ acquired surgical robotics pioneer Dr. Fred Moll’s Auris Health and its FDA-cleared Monarch platform. The Monarch is approved for use in performing lung biopsy procedures. JNJ intended to reveal its robotic and digital surgery plans at a Medical Device Business Review Day on May 13, but that was postponed due to COVID-19.
  6. CRM Surgical, a private company, is the developer and manufacturer of the Versius surgical robotic system. The Versius received CE Mark approval in March 2019, and is competing with the da Vinci outside of the U.S. CRM Surgical has sold systems in India and the UK. However, it is not cleared for sale in the U.S. The company has an impressive list of investors including ABB Technology Ventures, Cambridge Innovation Capital, Zhejiang Silk Road Fund, and GE Healthcare.
  7. A 2017 FDA-approved surgical robot, Senhance System produced by TRXC, offers a prime example of the challenges companies face in trying to break into the robotic-assisted surgery market. During its Q2 2019 earnings report, TRXC had to tell investors that its Senhance robotic surgery system “failed to consistently live up to the high expectations of physicians using Intuitive Surgical’s devices.” In Q3, the company reported a total of 24 systems sold worldwide since the launch of the program and only one system in the U.S. In an effort to improve sales, TRXC installed new C-Suite leadership, laid off 39 employees (18% of its total workforce), and committed to a relaunch of the Senhance System focused on building user support and increasing procedure numbers. During TRXC’s Q1 2020 earning call, the company said it installed three new systems and expects to meet its goal of installing 20 new robots in 2020, despite setbacks due to COVID-19.

 

How are da Vinci elective surgeries trending? How long will it take for da Vinci surgery volumes return to pre-COVID levels? Are hospitals with soft-tissue robotic surgery programs experiencing increasing demand? Are hospitals without robotic surgery programs interested in adding robotic surgery programs? Will hospitals and surgery centers remain loyal to the da Vinci? Is there interest in considering competitive soft-tissue robotic surgery systems? What emerging robotic system is generating the most interest? Is surgical robot pricing a concern? How will having competitive products influence pricing? Is this increase in competition threatening ISRG? What is ISRG doing in response? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Hospital administrators, Surgery centers, Medical robotic sales channel, and Industry specialists.  

 

Companies: Intuitive Surgical Inc. (ISRG),  Johnson & Johnson (JNJ), Medtronic plc (MDT), TransEnterix Inc. (TRXC)

 

Research Begins: June 8, 2020

 

To see other ideas Blueshift Research is currently working on, please click here.

 

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