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Robotic Surgery – Paradigm Shift?

After TransEntrix received approval from the FDA for its Senhance abdominal surgical robot, it got us thinking about our exposure to Stryker (held in the portfolio). Robotic surgery isn’t new, we have been avid followers of the Da Vinci robot by Intuitive Surgical for many years. In fact, just to be clear, it isn’t an autonomous robot that is performing the surgery but a surgeon who sits in at the helm of a workstation with mechanical arms and a viewer enabling the surgeon to dictate the procedure without physically carrying out the operation. The workstation is connected to another set of surgically equipped robotic arms that are hovering over the patient that actually carries out the procedure. The robot mimics the surgeon sitting at his workstation. In theory, the surgeon doesn’t need to be present, but currently, policy, process and regulations does not allow this. Use of robotic surgery suggest better outcome for patients and lower costs.

This industry is potentially a game changer for rudimentary proceeds as we have seen for Colon and Gastrointestinal surgery. However, as the technology develops in other areas like Thoracic and Neuro surgery it might become common practice. The biggest hurdle to enter into this market is IP and regulatory approval. In the US, the FDA needs to approve these robots to a level that is at least as safe as manual procedures or to devices currently in the market. It is not easy to obtain approval for new indications in this market and those that have it take full advantage of the time and money they have spent. Even once approval is received, entry into the market isn’t straight forward. One of the biggest obstacles is to receive physician acceptance. Training hundreds of doctors to be able to use the robots can be challenging. However, once all is said and done the business model and growth can be very attractive.

The one aspect of this industry we find appealing is the business model. It’s a recurring model where the robots are sold for cUS$0.5m-$2.5m and where consumables make up the majority of sales. Each procedure requires c$700-$3500 worth of consumables. So growth is driven by the adoption of new robots and more importantly by the number of procedures. Currently the market leader is Intuitive Surgical with smaller players like Johnson and Johnson, Medtronic, Stryker and the likes of Google trying to enter this space. Just in case readers were conjecturing, at present full autonomous surgery isn’t likely for the near term or medium to long term (too many self-interests in the medical profession and resistance in the market place).

The Fund has exposure to this area with the investment in Stryker. It acquired Mako for the robotic orthopaedic market, ie knee, hips etc, in 2013 for $1.4bn. At the time it had sales of over $100m which had grown 43% CARG from 2009. Since its acquisition Stryker has invested into the business leading to greater adoption and improved technology.