Sunday, April 19, 2015

Barbarians past the gate.

The moat has been crossed.  The ramparts have been breached.  Any hint that the invasion by the robotic surgery company will be slowed is off the table.  At least as seen by the investment advisory folks at LEERINK, analyzing the shares of Intuititve Surgical (emphasis added.)  Is this really the way you want to see health care policy developed in the US and other countries? Such momentum from this and other companies sure makes the proponents of the "Triple Aim" look like naive waifs.

We are attending SAGES in Nashville, TN, where physician discussions continue to highlight a growing level of physician interest/experience in newer general surgery areas such as colorectal, hernia, bariatrics--and the power of robotics as a marketing tool for docs & institutions in these areas. As usual, cost-benefit & clinical outcomes remain highly debated, but dv gen surgery momentum nevertheless seems to be building, and we believe uptake in these newer areas (i.e., hernia, colorectal) should continue to support our accelerating procedure growth outlook thesis.

Hernia continues to be an increasing area of interest for robotics as evidenced by a jam-packed inguinal hernia session on 4/15 that included a few talks/debates on da Vinci. While there continues to be much discussion around cost-benefit and best indications of use (i.e., inguinal vs. ventral)--and no real resolution leaving these panel sessions--there does seem to be some consensus forming around the notions: (1) more procedures should be done MIS with hernia penetration rates still hovering below 25%, (2) robotics may represent an enabling technology for furthering MIS penetration in more complex cases. With this and other recent feedback we head into 1Q earnings and 2015 with a higher level of conviction that potential near-term outperformance in the dV hernia category should to some degree help offset potential slowing trends in chole and ongoing sluggish growth momentum in GYN.

Investment thesis: ISRG continues to be a unique, robotic surgery franchise developing numerous promising new general surgery procedures—cholecystectomy, colorectal, bariatric, thoracic, head &  neck, and others; and accelerated growth and procedure adoption internationally (e.g., dvP [da Vinci Prostatectomy] in Europe, Japan). Recent challenges have called into question the sustainability of long-term revenue growth rates—in both system placements and its bread and butter prostatectomy and hysterectomy procedures. But a new product cycle (Xi) should help to reinvigorate system sales growth.


Thomas Pane said...

Once the platform is in enough hospitals, the relative advantage of owning it shrinks. Will the public (and hospitals) respond to the marketing of a new and improved device?

Paul Levy said...

Good question, Thomas. That's why the current strategy is to spread its application to additional procedures.

Thomas Pane said...

If there is a procedure that is made safer or technically possible only with the robot, then this technology will be a real advance. It would be great to see that.

Bob said...

Capitalism in medicine:

Strength: innovation, increased investment from outside (non-health institution) sources, attraction of good brains (competing with investment banking, although sometimes they seem fungible).

Weakness: aggressiveness overcomes carefulness. Government is weak; human nature is weak (see: University of Illinois Department of Surgery). Thus, safety suffers, and allocation of resources suffers (that is, money gets spent on expensive but non-helpful procedures and products.)