Competitive Concerns For Intuitive Surgical As TransEnterix Gets FDA Approval For Senhance

by Trefis Team
Intuitive Surgical
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Competition may soon start to heat up in the robotic surgery market. The U.S. FDA has approved TransEnterix’s robotic surgical system called Senhance for use in colorectal and gynecological surgery. Although the company’s CEO has downplayed the possibility of head-on competition with Intuitive Surgical (NYSE:ISRG), there is no denying that the competitive landscape will change. In time, Intuitive may not enjoy the same competitive advantage that it currently has, and may need to compete on price rather than just technology. In addition, considering that Intuitive’s second quarter results failed to live up to the market’s expectations and the second half of the year is expected to be more moderate, we are cautious about further growth in Intuitive’s stock price. In this analysis, we take a look at a pessimistic scenario and understand the potential negative impact for Intuitive in case the competition intensifies.

Our price estimate of $306 for Intuitive Surgical is slightly below the market.

TransEnterix is one of the several players that could challenge Intuitive’s dominance. The company will also face competition from Medtronic, which has been working on building its own surgical robot and plans to launch it in 2018. Medtronic is expected to start with the Indian market, which likely suggests that the company intends to bring the cost of robotic surgery down given the dynamics of the market. This could have meaningful consequences on Intuitive’s value proposition, and may force it to reduce prices over time. Additionally, Medtronic already has a strong presence in minimally invasive surgery, which can allow it to target all relevant procedures right from the start. It also has strong relationships with a much larger base of health care providers as compared to what Intuitive has.

Verb Surgical, a joint venture formed between Alphabet and Johnson & Johnson in 2015, is working on integrating big data and machine learning with robotic surgery. It could eventually be a formidable competitor considering the two companies’ deep pockets and Google’s technological prowess.

Pessimistic Scenario For Intuitive

The image below shows a bear case scenario for Intuitive Surgical. In this scenario, competitive launches not only reduce the incremental number of da Vinci units sold, but the competitive dynamics also force the company to reduce the upfront price of the surgical system and the prices of accessories and training services.

In the above scenario, we assume that Intuitive will be forced to reduce the upfront price of da Vinci surgical systems by nearly 33% to $1 million. Additionally, we assume that average annual accessory/instrument revenue per installed unit will decline to $300,000, and average service revenue per installed unit will come down to $120,000. In such a scenario, we estimate that Intuitive’s EPS in 2020 may fall nearly 20%-25% below what we currently forecast.

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