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Investment Overview for Intuitive Surgical (NASDAQ:ISRG)
- da Vinci Surgical Systems' Units Sold: da Vinci Surgical Systems are computer-assisted systems that helps surgeons perform minimally invasive surgeries by controlling the device sitting at a console. With the help of this system, human error during surgeries can be minimized. Since the surgeries are minimally invasive in nature, the device helps reduce surgical complications, and makes the recovery process post-surgery easier.
The advantages associated with minimally invasive surgeries are likely to lure more patients to opt for such procedures over traditional open surgeries. Additionally, we expect the ease and benefits to surgeons to drive demand for these devices. Intuitive Surgical sold 431 units in 2014, and we expect that figure to reach 640 units by the end of the Trefis forecast period in 2020.
However, at present these systems are expensive compared to traditional surgical instruments, and intensive training is required to master the technology. These factors somewhat work against the growth of unit sales; if Intuitive Surgical is only able to reach 500 units sold annually by the end of our forecast period, there could be a 10% downside to our current price estimate for the company's stock. However, if the company is able to sell 900 units, there could be a 10% upside to our current price estimate
- Intuitive Surgical's Instrument & Accessories Spend Per Installed Unit: Intuitive Surgical offers a number of instruments and accessories to enhance the performance of the da Vinci Systems and help to minimize human error during surgeries. Robotic surgical procedures have gained traction in the U.S. in the recent years, and there have been significant increases in the number of procedures using robotic instruments conducted annually. As the number of procedures increases, we expect greater demand for instruments and accessories as greater use will result in shorter replacement cycles.
Additionally, Intuitive Surgical has been expanding the scope of procedures for which its systems are accepted. Many of these additional procedures have specific accessories which improve performance, which should lead to higher instrument and accessory spend per unit. We expect the average spend per installed unit to remain nearly stable over our forecast period, increasing marginally from $330,000 in 2014 to over $350,000 by the end of the Trefis forecast period.
However, should the acceptance of da Vinci Systems, and the frequency with which they are used, grow more rapidly than we expect, the additional accessories and shorter replacement cycle could drive average spend per unit to $450,000 by the end of our forecast period. This would present an upside of about 10% to the Trefis price estimate.
Intuitive Surgical manufactures and sells robotic surgical systems. Its primary device is the da Vinci Surgical System, which helps surgeons perform minimally invasive surgeries through directions from a console. It delivers better postoperative results relative to traditional open surgery. The system is mostly used for prostatectomy and hysterectomy procedures. It also sells self-manufactured instruments and accessories, a set of devices that enhance the functionality of da Vinci Surgical Systems. Additionally, it offers service contracts which include system service and customer training.
Intuitive Surgical has a significant patent portfolio and currently faces little direct competition in the robotic surgery market.
Some of its potential competitors are SOFAR S.p.A., Eterne, Titan Medical, Hitachi, Olympus, Mazor Robotics.
da Vinci Surgical Systems and the accompanying Instruments and Accessories are the major sources of revenue for the company. Largely due to the following factors:
Advantages to patients
Minimally invasive surgeries through da Vinci Surgical Systems can entail fewer and smaller incisions, less blood loss, shorter hospital stays, faster recoveries and fewer scars than traditional open surgery. These relative advantages will likely lead to more patients opting for such procedures as opposed to open surgeries, which should drive demand for the company's systems.
Benefits to surgeons
da Vinci Surgical systems provide a multitude of benefits to its customers. Surgeons get a 3-D view of the entire procedure by just sitting at a console. They perform the surgery by operating the hand and foot controllers of the robotic system, which provides greater control over the surgical instruments as it is steadier than a human hand. This ease of use and improvement in outcomes is expected to drive demand from surgeons for these systems.
Intuitive Surgical is witnessing an increasing share of international sales that mainly come from Europe. This share of international revenues has increased from 20% in 2010 to 28% in 2013, but declined to 21% in 2014. The company is also expanding its operations in Japan and South Korea as the aging population and growing acceptance of robotic surgery in these countries provide significant growth opportunities.
Healthcare reform could impact sales
Healthcare reform is leading to an expansion of the publicly insured base and may also result in lower public reimbursements. Additionally, private insurance companies have become more cautious in providing reimbursements. This could affect demand for medical devices, particularly more expensive devices such as da Vinci Surgical Systems.
Intuitive Surgical has been marketing its da Vinci system mainly on the premise of lower costs. However, a comprehensive study conducted by Columbia University suggested that surgeries performed using this system may actually cost significantly more than standard minimally invasive procedures, and without any major benefits. Since the study became public, Intuitive Surgical has been seeing a decline in surgeries being performed through its systems. Sales could remain impacted until the company can successfully address all concerns with respect to its da Vinci system.
Expansion of procedures
The company's surgical systems have been widely adopted for select procedures, but there are still many for which they have not been adopted. In 2014, the most common procedures was gynecology, which accounted for over 50% of total procedures using da Vinci systems. The company believes that wider adoption of other procedures is likely. A wider range of possible procedures will likely result in greater demand for the company's systems.
Intuitive Surgical faces little competition in the robotic surgery market as there are significant barriers to entry and the company holds more than 1,000 patents worldwide. However, as its patents begin to expire, the cost of entering the market could decline and competition could increase. While we don't expect any competitor to challenge the company's dominant position, they could still cause some pressure on pricing and therefore margins.
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How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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