Intuitive Surgical: Replacing The Unscalable Human Being

Andy Kessler recently said in an interview:

It is doctors that are the problem with medicine. Why? Because they are human (after all), and humans don't scale, they get more expensive. The trick is to embed their knowledge and expertise in silicon and software and algorithms and deliver it cheaper every year.

After reading that, I instantly thought of among my favorite momo's, Intuitive Surgical (ISRG). About one-fifth of doctors not using Intuitive's DaVinci device said they would like to but did not have practical access to a DaVinci device despite the hospital having a machine. Piper Jaffray analyst Timothy B. Nelson said this suggests potential future sales.

Valuation is definitely lofty, but the company continues to beat analyst estimates and at $1 million per machine, the company only has to sell 1,000 Da Vinci's to do a billion in sales. With that kind of potential, I'm buying and holding until the story fully unfolds.

ISRG 1-yr chart:

Disclosure: I may be long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security.

Comments

[borisb:]

each 40,000 in procedures earns them $1 in eps.
there goal is to be the standard on all complex surgical
procedures. which would be about 2 million of the
US total of about 18 million + surgical procedures.

Since they are second generation laproscopy
they should have rapid uptake. US Surgical
and J&J had broken the ice 15 years ago.

Killer application #1 is US procetamy. with possible
100,000 a year. Killer application #2 is US
hystertomy with 600,000 a year, 300,000 complex.
I assume just as much for foreign. with that
i have a fairly solid long term eps model of $20
that doesnt include killer application #3-#5.

2006 Jul 26 06:04 PM