How Will Medtronic’s Success In The Surgical Robot Market Be Determined?

This week Medtronic (NYSE:MDT) announced  that it expects to see material revenue from surgical robots in FY 2019. In this analysis, we discuss the factors which will determine how big a player can Medtronic be in this relatively new area. Consider the following:

Competition With Intuitive Surgical: Currently, the surgical robot market is dominated primarily by a single large player – Intuitive Surgical (NYSE:ISRG). Intuitive had introduced the daVinci surgical system in 1999 and has brought significant innovation to it since then. Being an early entrant in this field, the company has a highly advanced R&D and sales team. Intuitive has become a 800-pound gorilla in the surgical robot market and has built sufficient economic moats to fend-off competition from others for the years to come. Medtronic’s share of this market will be largely dependent on how effectively it can compete with Intuitive on various points.

Area of surgery: It will be relatively easier for Medtronic to have its surgical robots cater to those areas of surgery, where Intuitive has least or no presence. This implies it should focus on developing its surgical robots outside the areas of gynecologic, general or urologic surgeries. This comes form the fact that Intuitive has a strong foothold in these areas. Below we  list down the areas and the proportion in which Intuitive Surgical’s daVinci surgical systems are primarily used:

Price of the surgical robot: Intuitive Surgical’s daVinci systems have a very high ASP of about $1.5 million, which has caused cost-efficacy concern about this method of surgery. A comprehensive study conducted by Columbia University suggested that surgeries performed using this system may actually cost significantly more than the standard minimally invasive procedures, and without any major benefits. A clever way to tap the market for Medtronic would be to have its surgical robots priced lower than the daVinci systems.

Time to FDA Approval:  We believe that Medtronic might require time and effort to get the FDA approval for the launch of its surgical robots in the U.S. By the time it finally gets a nod from the FDA, there are likely to be more players in the game, making the competition tougher for Medtronic. It must be noted that Google and Johnson & Johnson collaboratively plan to make surgical robots. Further, other companies such as Stryker Corportation also got a nod from FDA approval for using Mako Robot in total knee reconstruction.

Markets Outside The U.S: Medtronic can choose to first enter the markets of Asia and Europe, where it is relatively easy to get an approval for the launch of a medical device. Moreover, it is likely that Medtronic will find it relatively easier to tap these markets, as Intuitive Surgical has less presence outside the U.S. Given below is Intuitive’s revenue according to geographies and it highlights its major presence in the U.S.

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