Seeking Alpha
Research analyst, value, healthcare, tech
Profile| Send Message|
( followers)

Summary

  • Robotic surgery, with clear benefits for patients, is rapidly expanding in many medical centers worldwide.
  • Medical robotic technology has still some risks.
  • A number of companies are vying for this lucrative market.

In the operating theaters of hospitals around the world, one can marvel at the innovative robots that are gradually being employed to perform surgical procedures. Once the domain of science fiction, robots are slowly but gradually replacing humans in more complex jobs than painting car frames or packaging goods. Like computer systems in the 70s, these robots tend to be large and bulky and very expensive. The most advanced of these machines currently used in about 2000 medical centers around the world is the da Vinci, made by Intuitive Surgical (NASDAQ:ISRG).

Courtesy - Mako

Courtesy - MAKO, Copyright 2013

The benefits

There are some evident advantages, such as less bleeding, the reduction of post-operative pain, fewer re-admissions to hospital and faster recovery thanks to high-precision surgery. For example, a clinic in Switzerland, La Source, has reported a reduction in the average days of hospitalization from 10 to 6.

Robotic arms are more precise and steady, and can reach areas of the human body that a surgeon would find difficult, resulting in a decrease of damage in areas of the body surrounding the area being treated.

The disadvantages

But the cost of these machines can still be prohibitive for many medical institutions, and the operation does on average last about one hour longer, which excludes the use of robots in emergency operations.

There have been reports of failures of the da Vinci robotic arms during operations, although there have been no reports of injury to patients as a result of such failures or of power cuts. You can read the full FDA report on the da Vinci robot here.

At a hospital near you

Currently, robots are used not only in laparoscopic surgery, in urology, visceral surgery, the prostate, and even some tumors, but also hip and knee operations. The future trend seems to be the construction and use of small and cheaper machines that can perform a limited number of dedicated operations.

There are a number of companies that are going to compete for a slice of the lucrative medical robotics market. Let's look at some performance figures.

Intuitive Surgical

Market capitalization $ 16 billion.

Intuitive has one product for sale, the da Vinci. Its end-of-2013 results were less than encouraging for investors, with the total number of units sold down 12% from the previous year, offset by an increase in service revenue and consumable revenue. Unit sales in the US have decrease by 28%, whereas international sales have increased by 42%.

More worrying for Intuitive are a series of lawsuits being brought against the company after several mishaps were reported to the FDA. In the vast majority of cases, the patients were not harmed, but among the reports were several injuries and some deaths, according to a study published in The Journal for Healthcare Quality. Intuitive is a defendant in about 50 lawsuits alleging product liability, according to the SEC filing, and a website has been set up for those wishing to claim against the company.

(click to enlarge)

Table 1. Source of data: Morningstar

Revenue continues to increase together every year with free cash flow, however in 2013, there was a slowdown in revenue increase of only 3.9% due to the higher cost of goods sold.

Intuitive's share price, $ 423, one-year change -13%.

Covidien Plc (NYSE:COV)

Market capitalization $ 32 billion.

Covidien manufactures a wide range of energy-based surgical devices. Its products for minimally invasive surgery include the Single Incision Laparoscopic Surgery instruments - SILS. Its medical devices sales increased by 5%, adjusted for a negative foreign exchange rate of 2%.

(click to enlarge)

Table 2. Source of the data: Morningstar

Covidien has seen a fall in revenue of 10% in 2013, due mainly to a rise of the cost of goods sold.

Covidien's share price, $ 69, one-year change +15%.

Accuray Inc. (NASDAQ:ARAY)

Market capitalization $ 729 million.

Accuray manufactures image-guided radiosurgery devices. The Cyberknife and Tomotherapy are robots used for the treatment of tumors. As of the end of 2013, Accuray has sold 706 Cyberknife systems worldwide.

(click to enlarge)

Table 3. Source of the data: Morningstar

Accuray's revenue fell nearly 23% in 2013, together with an increase of SG&A costs, has contributed to a net loss for the last 2 years. The company is considerably indebted, as can be seen by the financial leverage ratio.

Accuray's share price $ 9, one-year change +109%.

Stryker Corporation (NYSE:SYK)

Market capitalization $ 30 billion.

Stryker acquired MAKO Surgical Corp. (NASDAQ:MAKO) in 2013, which manufactures the Rio robotic arm interactive orthopedic system, a surgeon-interactive tactile surgical platform that incorporates a robotic arm and patient-specific visualization technology. As of 3Q2013, MAKO had sold 171 units. How well MAKO will be incorporated into Stryker's portfolio of products remains to be seen, but the sales of the RIO should certainly benefit from Stryker's worldwide sales force - so far only 4% of RIOs have been sold outside the US.

(click to enlarge)

Table 4. Source of the data: Morningstar

Revenue is constantly on the rise, but in 2013, Stryker saw its net income fall as a result of more expensive goods sold; ROA and ROE show a definite decrease in 2013.

Stryker's share price $ 79, one-year change +23%.

Mazor Robotics Ltd. (NASDAQ:MZOR)

Market capitalization $ 348 million.

Mazor manufactures the Renaissance Guidance System for spine surgery, currently the only robotic system for spine surgery approved by both the FDA and CE.

(click to enlarge)

Table 5. Source of the data: Morningstar

Mazor's revenue continues to increase year-on-year, however, net income is negative, and has negative ROA and ROE.

Mazor's share price $ 23, one-year change +140%.

Titan Medical Inc. (OTCQX:TITXF)

Market capitalization CAD 186 million.

Titan is developing the Single Port Orifice Robotic Technology that will be commercially available in 2015, possibly in direct competition with Intuitive.

Titan's share price $ 2, one-year change +163%.

Other companies not quoted in the US have entered the surgical robotic market, such as, Medtech of France.

Conclusion

Surgical robotics is a lucrative relatively new development in full expansion. Just like with the earliest mainframe computers in the 70s, we are witnessing the beginning of a revolution in medical technology, with new companies vying for a slice of the market. The IBM, Honeywell and General Electric of medical technology will be created in the next few years.

In my opinion, companies like Covidien and Stryker are best suited to weather the long-term ups and downs of the economy; with the leverage of a broader range of products, they are better positioned to withstand any short-term headwinds.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Medical Technology - The Rise Of The Robots