As everyone ponders the impact of artificial intelligence for better or worse, healthcare is one sector putting the technology to work for the greater good.
One area in particular is so-called medtech, the place where the sophisticated software combines with robotic tools to making surgeries and other treatments less invasive and less painful. This makes it easier and faster for doctors to do their work and means faster healing times and shorter hospital stays. Patients are happier. Healthcare providers are happier as they contain rising costs with reduced surgical times and post-operative care.
A leader in this area is Intuitive Surgical Inc. (NDQ: ISRG). It’s a California-based multinational founded almost 30 years ago. Its mission is to develop and make medical robots to improve outcomes for patients through minimally invasive surgery. Its main product is the da Vinci Surgical System, which recently received approval for its 5th iteration.
Investors have taken notice and the AI craze has pushed its share price up dramatically. The stock is 10.5% higher year-to-date at the current price of US$374.17 and 38% in the past 12 months.
The company’s price/earnings ratio has likewise ballooned and sits at a lofty 84. While that carries plenty of risk, the p/e ratio alone isn’t a reason to look away. The same high ratios come with chipmaker Nvidia (73) and weight loss drug makers Eli Lilly (118) and Novo Nordisk (46). The common thread is a dominant or breakthrough product and a wide moat that keeps competition at bay.
Intuitive’s robotic tools were the first to be approved for assisting in surgery by the US Food and Drug Administration (FDA) in 1997. It has annual revenues of $7.1 billion (figures in US dollars) and a market capitalization of $133 billion. More than 13 million procedures have been performed using its robots, which are installed in 8,200 hospitals in 70 countries. Unit sales are growing at between 12% and 15% a year.
About 80 per cent of Intuitive’s revenue is recurring, composed of leases, instruments, and accessories and services such as training and maintenance. The remaining revenue comes from new sales, which average $1.4 million per unit.
While the notion of robots might conjure up images of the walking, talking machines found in science fiction movies, medical robots are far simpler. They perform repetitive tasks with complete precision. The arms may have instruments attached which can cut. Doctors control the arms using a console. If the surgeon strays from the optimal position, the robot will sense it and issue a warning. They are commonly used for general surgery, gynecology, and urology surgeries, but are spreading to hips and knees and spinal surgery.
During a conference call in February to discuss earnings, CEO Gary Cuthart said the da Vinci 5 went through hundreds of design changes. It has four orders of magnitude and greater processing power than its generation 4 products. That means 10,000 times the processing power to gather data and improve sensing.
The tool went through more than a year of tests and was approved by the FDA in March. The company plans to roll it out in a phased approach.
In a recent research note, RBC Capital Markets analyst Shagun Singh and her team noted that da Vinci 5 has the first-of-its-kind force sensing technology. This measures the subtle forces on tissues during surgery and lets the surgeon know. It is easier for surgeons to use than earlier versions and comes with a redesigned console with customizable positions.
She concluded that Intuitive is the technology leader in the global market for surgical robotics. Barriers to market entry are high. While its competitors are launching their first-generation robots with multiple ports, it has a fourth generation platform with a fifth just launched.
Another strategic advantage is that its robot can be adapted across many types of surgeries, allowing hospitals to use the same platform for many things. This insulates Intuitive Surgical from specialized rival devices made by its competitors.
Intuitive reported strong first quarter earnings last week. Revenue of $1.89 billion was 11% higher than a year ago. Net income was $545 million, or $1.51 per share, which was 53% higher than a year ago.
The da Vinci installed base as of March 31 stood at 8,887, 14% higher than a year ago.
Intuitive competes with such companies as Stryker Corp. (NYSE: SYK), Johnson & Johnson, (NYSE: JNJ), and Medtronic (NYSE: MDT). Most medical technology ETFs include the stock in their holdings.
Intuitive does not pay a dividend but has an active share buyback program.
This article appeared in the Internet Wealth Builder on Apr. 22, 2024. For information on how to reprint this article please view this page.
Adam Mayers 
0 comments on “Intuitive Surgical puts AI to work”