"The Undisputed Champion" in Robotics Based Surgery

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Medical robots should fall in the high tech consumers category as I don’t think it’s just the mechanical part that gives it its name, but a substantial amount of digital technology used to capture and process data to help manipulate the mechanical robot justifies its name. Definitely not all robots will be economic successes but it is a field worth exploring for investors. So far, Intuitive Surgical (NASDAQ: ISRG) has been the undisputed champion of medical robots in the field of minimally invasive surgical robots. ISRG describes itself as a designer, manufacturer, and marketer of the da Vinci Surgical System, a product that incorporates advanced robotics and computerized visualization technologies to improve the ability of surgeons to perform complex minimally invasive surgeries. Going forward, I believe the following reasons will allow ISRG to defend the title “The Undisputed Champion” in long term.

New Procedures are Likely to Gain Traction

I believe the most important metric to focus on is US general surgery growth. In my view, ISRG’s ability to expand into this market will likely be the most important driver of long-term growth. It’s still very early, but initial interest in ISRG’s single site product for general surgery appears strong as management stated the device is already in more than 200 U.S. hospitals. I believe new procedures including general surgery, colo-rectal, and thoracic will continue to gain traction in the near term. Also, the vessel sealer and power stapler should drive further adoption. Going forward, I expect revenue per procedure to increase as newly developed innovative tools should alleviate pressure from less expensive general surgery tools. Strong procedures growth should drive up utilization making a case for hospitals to purchase additional systems.

More Inclination Towards Successful PIVOT

Management seemed confident that high-risk patients and even medium-risk patient volumes are likely to be unaffected by the PIVOT trial, particularly given the lack of alternatives and the strength of clinical data. The impact of PIVOT on surgical volumes in low-risk patients (comprise 50% of the surgical population) remains an unpredictable story for both investors and analysts. However, I am inclined towards the successful implementation of PIVOT given the company’s past performance. Therefore, I continue to remain convinced that the long-term thesis of the company remains intact.

Visibility over Robot Based Surgery

MAKO Surgical (NASDAQ: MAKO) is a medical device company which markets its advanced robotic arm solution and orthopedic implants for orthopedic procedures in the United States and internationally. Although I see a huge difference between soft tissue surgery and bone surgery, I believe the strong growth prospects of MAKO could be used to further show the growing demand of robotics based surgery. The following table summarizes the expected EPS growth of MAKO, Zimmer (NYSE: ZMH), Stryker (NYSE: SYK), Covidien (NYSE: COV) and ISRG:

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Expected EPS growth (next year)</p> </td> <td> <p>Expected EPS growth (next 5 years)</p> </td> </tr> <tr> <td> <p>MAKO Surgical</p> </td> <td> <p>39.7%</p> </td> <td> <p>25%</p> </td> </tr> <tr> <td> <p>Intuitive Surgical</p> </td> <td> <p>20.49%</p> </td> <td> <p>17.2%</p> </td> </tr> <tr> <td> <p>Stryker</p> </td> <td> <p>8.8%</p> </td> <td> <p>10.84%</p> </td> </tr> <tr> <td> <p>Zimmer</p> </td> <td> <p>7.78%</p> </td> <td> <p>10.35%</p> </td> </tr> <tr> <td> <p>Covidien</p> </td> <td> <p>3.54%</p> </td> <td> <p>10.34%</p> </td> </tr> </tbody> </table>

Zimmer and Stryker have good presence in Hip and Knee markets and thus, compete with ISRG. The basis of inclusion of these companies is to show the overall demand. Clearly, both MAKO and ISRG, robotics based medical companies, have impressive expected EPS growth on an absolute basis and relative basis. Though I am optimistic about the strong long term growth prospects of both the companies, I prefer ISRG over MAKO for the near term investment given the better visibility over near term catalysts like adoption of single site procedures.

Going forward, I expect robotic surgery to continue to become the standard of care across a variety of indications as hospitals and governments continue to strive for better outcomes at lower costs. Uncertain development of hospital capital budgets and macro environment may lead to volatility in near term and provide a more attractive entry point.

Interested in Additional Analysis?

The recent market sell-off of MAKO Surgical shares has many wondering whether the potential
growth prospects of the robotic surgery company make it a buy today or a stock to stay away
from. Read The Motley Fool’s premium report to read up on the details of MAKO's story. Click
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sandeep2gupta has no positions in the stocks mentioned above. The Motley Fool owns shares of Intuitive Surgical, MAKO Surgical , and Zimmer Holdings. Motley Fool newsletter services recommend Covidien Ltd., Intuitive Surgical, and MAKO 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.If you have questions about this post or the Fool’s blog network, click here for information.

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