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Intuitive Surgical (NASDAQ:ISRG): Long Thesis & Emerging Trends In MIS

Summary

Da Vinci Surgery dramatically minimizes vascular damage.

Omitting costs of complications, re-admissions & re-operations related to initial surgery is the only way to statistically argue there are no economic or clinical benefits to da Vinci Surgery.

Da Vinci Xi System is a fourth generation robot optimized for multi-quadrant / abdominal surgeries, that will lead to an expansion in procedural relevance.

Single-Site da Vinci Surgery now enables surgeons to operate through the patient’s belly button.

NASDAQ:ISRG stock has been severely bruised, and is now touching on 52 week lows amid some serious philosophical/statistical challenges from primary literature, threats of potential litigation, and tepid earnings (hey, they still made money & there was procedure growth).

Suffice it to say that if ISRG were a Napa Valley Cabernet, then the 2014 vintage so far looks like one to avoid. Unfavorable weather is leading speculation and a serious ISRG beat down. However, bear in mind (no pun intended) the 2014 barrel tasting may indicate otherwise, that now is an opportunity to buy into this future.

Trends in Minimal Invasive surgery (MIS) are favorable for technology surrounding robotic interface surgery (ie da Vinci surgery). Given a well trained team, the robot exceeds performance metrics for stability and articulation, and this is a game changer.

There are 3 fundamental issues to the human hand as an interface with laparoscopic tools for MIS.

1) The incidence of tremors.

2) Anatomical articulation of a hand; four fingers and opposable thumb.

3) Visualization.

Case Study: Chess

The most compelling argument for investing in ISRG is time, and history.

The best chess players, a discipline of the imagination, are now subject to robots, as first displayed in this historical chess match; Deep Blue V Garry Kasparov

Wikipedia

Since then, the timeline for human vs computer chess clearly shows there is a point where computation exceeds imagination. For perspective; in 2006, Deep Fritz version 10 ran on a computer containing two Intel Xeon CPUs (a Xeon DC 5160 3 GHz processor with a 1333 MHz FSB and a 4 MB L2 cache) and was able to evaluate eight million positions per second.

The take home message from Chess is that robots no longer compete with humans. Robots are in fact an extension of the human imagination. They are a tool, a device, and a facilitator.

In the same vein, da Vinci is an extension of human imagination, that enables surgeons to perform complex procedures with very attractive clinical outcomes.

Can the best surgeons in the world go toe to toe with a well trained team on a da Vinci? For now, the answer appears to be yes. Yet this is debatable. I believe there is extreme talent within all surgical disciplines where the surgeon resides on the bell curve far enough along to give a well trained da Vinci team, a run for it's worth on favorable clinical outcomes.

How phenomenal is da Vinci Surgery?

By removing tremors, improving articulation, and advancing visualization, a talented surgeon within the da Vinci interface exceeds direct MIS.

What makes da Vinci Surgery so compelling?

Clinical Outcome

  • Lower rate of complications
  • Less blood loss
  • Shorter hospital stay
  • Less pain
  • Faster return to normal quality of life

"Because doctors perform da Vinci Surgery through a few tiny incisions between the ribs, they avoid splitting your breastbone and ribcage (known as a sternotomy). The da Vinci Surgical System provides surgeons and their patients with a minimally invasive treatment option - even for the most complex cases."

Catalysts

1) Technical Chart suggests ISRG is entering an oversold phase

stockcharts.com

2) Intuitive Surgical Inc. (NASDAQ:ISRG) is set to repurchase $1 billion of its common stock from Goldman Sachs & Co. under its accelerated share repurchase program

Not including $1 billion buyback, ISRG holds $2 billion in cash

3) Barriers to market entry for robotic MIS are significant, and there is no competition.

I will take a moment to dispel the Titan Medical myth.

TITAN MEDICAL INC (OTCMKTS:OTCQB:TITXF) is working on the SPORT machine, and this machine is intended to remove the gall bladder. I believe they would be more successful going after the veterinary field.

ISRG offering a single port retrofit to existing Si machines presents a first to market challenge for the Titan single site device, which as of today, does not have FDA approval, and no compelling utility over da Vinci to justify a switch and/or retraining protocol.

From Titan website;

Why is Titan focused on a single-port surgical system?

There are two types of robotic systems - single- and multi-port. To date, only one company in the world, U.S. based Intuitive Surgical, sells a multi-port system and a single port system. Titan is focused on developing a single-port system. It is Titan's view that there is a large market for a single-port system given:

  • its reasonable price (less than $1,000,000 versus an estimated $2.1 million for Intuitive's robotic surgical platform);
  • its smaller footprint;
  • the rising demand for general surgery and the fact that Titan's device is more suitable for general surgery;
  • it is less invasive and less traumatic; and
  • its attractiveness to hospital stakeholders in terms of enhanced clinical, financial and operational outcomes.

www.titanmedicalinc.com/

4) Xi, Si, and Single Port systems will continue to improve clinical outcomes. da Vinci surgery is understood to be an extension of human imagination as a surgical interface. More procedures will be understood as proof of concept, and into mainstream practice as a new generation of robotic surgeons continue to redefine MIS.

5) Procedural growth continues going up, and some believe it needs to be going up even faster. The new systems will expand the arena in which da Vinci will become relevant, and ISRG is still early growth.

Deep Blue and Deep Fritz compelled Kasparov and Kramnik repectively to accept the computational envelop of human imagination as it relates to chess.

da Vinci surgery, is a leading trend in the same vein.

What might the future hold?

Prometheus // Ridley Scott //

Good luck to all.

Disclosure: I am long ISRG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.