On Wednesday, robotic surgery stocks Intuitive Surgical, Inc. (NASDAQ: ISRG) rose 9.37% to close at $567.06 after a strong earnings report, meaning investors might want to look at it along with small cap Titan Medical Inc. (CVE: TMD) and UK based Covidien plc (NYSE: COV) – two other players in the surgical robot market. In case you aren’t familiar with robotic surgery or surgical robotics, a website called All About Robotic Surgery is a comprehensive resource on the subject. Apparently, surgical robots have been around since the 1980s and can mean improved diagnostic abilities, provide a less invasive and more comfortable way to treat patients, and give surgeons the ability to do smaller and more precise surgeries. However, the site does note that robotic surgery systems cost more than $1 million to purchase and $100,000 a year or more to maintain while issues with latency and programming errors can cause problems.
In the case of Intuitive Surgical, its da Vinci system uses robotic arms, cameras and a remote control console to help surgeons perform surgeries with tiny incisions while the company’s business model is focused on selling the devices for $1.5 million and then selling disposable instruments that need to be replaced after each surgery. Intuitive Surgical just reported that it sold 175 da Vinci surgical systems during the fourth quarter, up from 152 a year ago, and that the systems saw 25% more usage during the quarter for procedures such as gynecology and general surgeries. Moreover, Intuitive Surgical believes its da Vinci system could see another 20% to 23% growth in surgery use tis year. Otherwise, revenue grew 23% year-over-year with an 18% increase in da Vinci surgical system sales and a 29% increase in instrument and accessories sales while net income increased 18%.
Intuitive Surgical’s stock is up 27.2% over the past year and up 116.4% over the past five years, but it does have a trailing P/E of 35.49 and a forward P/E of 27.69 – meaning its not exactly a bargain.
Moreover and while Intuitive Surgical would be the most well known and dominate force in robotic surgeries, there are other lesser known players. Canada based small cap Titan Medical Inc. is focused on the design, development and commercialization of new robotic surgical technologies. Titan Medical is developing platforms for single-site and multi-port surgical procedures that are under-served by robotic and non-robotic minimally invasive techniques. More specifically, Titan Medical is developing the Amadeus system - a surgeon-controlled robotic platform that comes with a 3D vision system, other interactive instruments, a surgeon workstation and can provide a 3D endoscopic view of inside a patient’s body during MIS procedures. However, Titan Medical has reported net losses of $1,112,378 and $5,893,142 for the three and nine months ended September 30, 2012 and had cash and cash equivalents of $6,161,095 at the end of September verses $9,738,822 at the start of the year. On Wednesday, Titan Medical rose 5.65% to C$1.31 for a market cap of C$84.72 million plus the stock is down 11.5% over the past year and up 191.1% over the past five years.
Finally, surgical robots do not need to be big as All About Robotic Surgery’s mentions the Endo Stitch from UK based Covidien plc, a medical devices, pharmaceutical and medical supplies giant with 51 manufacturing facilities located in 18 countries. The Endo Stitch automated suturing device has been shown in a study to lower mean hospital costs and operating room time during total laparoscopic hysterectomies treating benign conditions plus reduce overall hospitalization costs by $1800. In other words, big medical device stocks like Covidien plc are also coming up with robotic or other automated devices that can be used in surgeries.
The Bottom Line. For now, Intuitive Surgical largely has the surgical robot market to itself, but investors still might want to keep an eye on what small cap Titan Medical along with its Amadeus system (which could make it an acquisition target) and other medical device makers like Covidien plc. who have medical devices that can automate surgical procedures.