A New Survery Will Boost These Medical Device Companies
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Wednesday the Journal of the American Medical Association released survey data that stated that since 2009 the US could have saved $14 billion in health-plan costs and 50,000 years of sick time if only minimally invasive surgeries had been used. They tracked 6 different procedures since 2009 to see what kind of impact minimally invasive surgeries will have on the healthcare industry. Minimally invasive surgeries can cut costs by $30,000 per coronary bypass procedure and save 38 days of sick time. It can also cut costs by $12,000 per procedure for peripheral artery restoration. This is great news for medical device makers like Intuitive Surgical Inc (NASDAQ: ISRG) and MAKO Surgical Corp (NASDAQ: MAKO), who specialize in making medical devices that help doctors preform minimally invasive surgeries. This survey helps underscore the importance of medical device companies and why hospital's will want to buy their products to be competitive.
Why The Survey Matters
This survey is very important as it makes a strong case to hospitals as to why they should spend $1-$2.5 million for one of MAKO or Intuitive's robotic devices. The Journal of the American Medical Association is the largest weekly medical journal in the world, and AMA is the strongest healthcare lobby in the world. A thumbs up from the largest healthcare lobby in the world is great news, as it will prompt many more surgeries and devices to be sold as physicians, doctors, and surgeons will all recommend the better, cost effective procedure over the traditional, more dangerous, more costly procedure. The AMA spent the third most on lobbying in the 2012 election, behind only General Electric and the US Chamber of Commerce. Not only will these 2 companies benefit from more surgical devices being sold, but their utilization rate will go up. For MAKO, the utilization rate has gone down from 7.2 in 2011 Q4 to 6.6 in 2012 Q4. With this new report out, there is a good chance that could go back up to 7.
Also, as of right now, 62% of MAKO's devices have MAKOplasty Hip applications, up from 44% last year. This survey could push hospitals into increasing that to 75% by the end of this year. This will help out Intuitive Surgical as well for the same reasons, as they currently have over 2,000 devices in use worldwide, with each device costing about $2.5 million. The survey was also done on procedures that are more like what Intuitive's da Vinci system offers, which mean's Intuitive may benefit even more if they can clear up the regulatory concerns.
The AMA survey will help out Intuitive with the regulators that are currently probing them due to safety concerns. If the AMA, which spent $281 million in 2012 lobbying the government, backs Intuitive that will give them a huge ally to protect them politically. It will also help them keep up their reputation, as hospital are unlikely to want to buy a device if the government is probing them about safety concerns. Most of regulators who are investigating Intuitive were appointed by politicians who received money from AMA. Put two and two together, and the revolving door is in Intuitive’s favor. The American Hospital Association could also back Intuitive, as they are the fourth largest lobbying group ($3 million behind AMA) and stand to gain a lot from robotic surgery as their costs go down and the survival rate goes up. Also, the investigation involves and investigation into whether or not Intuitive's devices are safe, and this helps them present a strong case in favor of them being safe as this increases the survival rate and lowers the time needed to recover.
Hospitals stand to gain from this survey if they have robotic surgery centers already set up, such as HCA Holdings Inc (NYSE: HCA). HCA, according to its website, has 6 centers for minimally invasive robotic surgeries. As the AMA pushes physicians to recommend robotic surgeries, word will get around to patients looking for the best care to seek out hospitals offering the best service. This will increase the number of patients HCA will receive as they already have several centers set up. As more patients go to these centers, MAKO and Intuitive will benefit from increased maintenance fees, device sales going up, and PE expansion as investor sentiment turns bullish again. HCA will benefit as they perform more surgeries that are safer and have better outcomes, so they gain a larger chunk of market share and get a better reputation for other surgical needs as our population gets older. Plus, these surgeries are cheaper to do, which will push up margins. HCA's hospitals with minimally invasive robotic surgeries are located strategically in areas with older demographics, like Florida.
While HCA has done well, Intuitive and MAKO have been getting crushed on the market. A thumbs up from the healthcare industry will help drive future growth as more physicians and surgeons recommend using the safer, minimally invasive surgeries. Hospitals will also want to stock up on these devices, as it will make them more competitive in the free-market healthcare system the US has, and enables surgeons to have higher survival rates. If you can tout better surgical success then more people will want to come to your hospital for medical needs, because they know you can deliver. That's why I'm ullish on minimally invasive surgeries and all three of these stocks.
Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical and MAKO Surgical . The Motley Fool owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!