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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. Further, the surgeries conducted using these instruments are minimally invasive in nature, which reduces surgical complications, and makes the recovery process easier post-surgery.
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 benefits to surgeons to drive demand for these devices. Intuitive Surgical sold 620 units in 2012, and we expect that figure to reach 1000 units by the end of the Trefis forecast period.
However, at present these systems are expensive compared to traditional surgical instruments, and intensive training is required to master the technology. These factors may work against the growth of unit sales; if Intuitive Surgical is only able to reach 800 units sold annually by the end of our forecast period, there could be a 15% downside to our current price estimate for the company's stock.
- Intuitive Surgical's Instrument & Accessories Spend Per Installed Unit: Intuitive Surgical offers a number of instruments and accessories that can 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 recent years, and there have been significant increases in the number of procedures conducted annually using robotic instruments. 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. As such we expect the average spend per installed unit to increase from $329k in 2011 to over $500k 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 $600k by the end of the Trefis forecast period. This would present an upside of about 8% 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 by sitting at a console and 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. This is due largely 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 generally steadier than a human hand. This ease of use and improvement in outcomes should 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 22% in 2011. 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's sales in Europe have been somewhat disappointing, largely as a result of the economic crisis. As robotic surgery can easily be postponed, we expect the economic slowdown to negatively affect revenues in the next few years.
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 2011 the most common procedures were Prostatectomies and Hysterectomies, which accounted for over 70% of total procedures using da Vinci systems. However all other procedures increased by 40% year-over-year, and the company believes that wider adoption is likely. A wider range of possible procedures will likely result in greater demand for the company's systems.
Entry of competition
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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