Big Growth Opportunities for 3 Medical Equipment Makers

Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some diseases cannot be cured by traditional drugs but instead require a surgical procedure. This is one of the reasons for constant and increasing demand for medical equipment. The global market for medical equipment is expected to increase at a compound annual growth rate of 7.1% from $307.7 billion in 2012 to $434.4 billion by 2017. In order to monetize this opportunity, the medical equipment manufacturing companies are constantly conducting research and development to create new and efficient equipment.

Medical equipment manufacturers stand to gain from increasing demand. Let’s analyze the growth opportunities for three such companies.

Japan: a growth opportunity for da Vinci systems

Intuitive Surgical (NASDAQ: ISRG) installed 105 da Vinci systems in Japan in the first quarter of 2013. The da Vinci system is a single-site robot, which assists surgeons performing single-incision cancer removals. Da Vinci systems can be used to treat a wide range of cancer conditions including:

  1. Bladder Cancer
  2. Colorectal Cancer
  3. Gynecologic Cancer
  4. Kidney Cancer
  5. Lung Cancer
  6. Prostate Cancer
  7. Throat Cancer

The Japanese Ministry of Health says cancer is the leading cause of death, accounting for 30% of deaths in the country. Every year, around 600,000 Japanese residents are treated for stomach, colorectal, and prostate cancer.

Japan, ranked second, accounts for 10% of global medical technology sales. Japan’s demand creates the opportunity to install 300 da Vinci systems this year. According to the company’s estimate, Japan represents a more than $400 million market opportunity for da Vinci.

<img alt="" src="http://g.fool.com/editorial/images/52839/image-1_large.jpg" />

Source: Intuitive Surgical

There is also an increase in demand for Intuitive Surgical's instruments and accessories used with the base da Vinci systems. The instruments and accessories need to be replaced periodically as they have limited life. A simple change of instruments and accessories eases use of the da Vinci systems. Around 2,650 da Vinci systems are now installed globally. The demand for instruments and accessories is directly proportional to the demand of the da Vinci systems. Expected revenue of the instruments and accessories segment for this year is $1 billion and $1.32 billion next year.

Huge market opportunity for renal device

MEDTRONIC’s (NYSE: MDT) new renal denervation – or RDN – device, Symplicity, is showing positive results for patients with high blood pressure. Symplicity decreases the production of hormones, which results in lower blood pressure and calms the hyperactive nerves in the kidney. More than 1.2 billion people suffer from high blood pressure across the world with 75 million residing in the U.S. With 10% of patients unresponsive to available drugs, RDN devices have an opportunity to grow. The overall renal denervation market is expected to increase from $17 million in 2011 to $561 million by 2015.

<img alt="" src="http://g.fool.com/editorial/images/52839/image-2_large.png" />

Source: Medgadget

The pacemakers and defibrillators segment of Medtronic observed an increase in demand for its second-generation MRI-safe pacemaker, Advisa. A pacemaker is an electronic device implanted in the chest or abdomen of cardiac patients. It controls abnormal heartbeats and increases slow heartbeats. Due to increasing heart problems worldwide, there is a huge demand for its pacemakers and second-generation MRI-safe pacemaker, Advisa. The global cardiac pacemakers market is expected to increase at a compound annual growth rate of 11% from 2009 and reach $5.1 billion by 2015.

<img alt="" src="http://g.fool.com/editorial/images/52839/image-3_large.jpg" />

Source: Medgadget

Acquisition will lead to increase in revenue

Stryker’s (NYSE: SYK) neurotechnology and spine segment reported $397 million in sales – up by 4% year over year – in the first quarter of 2013. There is a huge demand for powered instruments in this segment globally. The segment provides rods, screws, and artificial discs used for spinal surgeries. It also provides coils and stents for cerebrovascular surgery, or operations involving the blood vessels of the brain. There is increased demand for these instruments in the U.S. due to a high death rate for diseases of the cerebrovascular system. Due to high demand, the segment will generate revenue of $443 million by end of the fourth quarter.

In the first quarter, Stryker acquired Trauson Holdings in order to mark its presence in China and expand in emerging markets. Trauson was a major rival in the spine segment and the main manufacturer of trauma implants in China. This acquisition will help the company to expand its product pipeline, specially the orthopedic implants segment. This segment provides hips, knee, and trauma implants. With this acquisition, the orthopedic implants segment revenue will increase from $969 million in the first quarter to $1 billion by end of fourth quarter. The total revenue expected for this year is $ 8.9 billion and $9.4 billion next year.

Conclusion

Intuitive Surgical’s da Vinci system has strong potential in the Japanese market, and the instruments and accessories segment is likely to grow overall due to increase in demand for the da Vinci system.

There is increasing demand for RDN devices and pacemakers globally. Medtronic will monetize this opportunity and generate high revenue.

By acquiring the major equipment manufacturer in China and the increased demand for neuro powered instruments, Stryker has an opportunity to expand in emerging markets while generating high revenue.

Therefore, I recommend buying all three stocks.

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Madhu Dube has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical. The Motley Fool owns shares of Intuitive Surgical and Medtronic. 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!

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