Before you read on, please be aware that the analysis below is my opinion only and may include flawed assumptions and inaccuracy of logic; therefore, caveat emptor applies here. Also, all the emphasis (color coded and underlined) on the excerpts are my own.
What status quo are you referring to?
The existing domination of the Da Vinci system due to their reign of 17 years with no competition. Below is an excerpt from Intuitive Surgical Inc’s March 2017 presentation:
“Our total revenue for systems last year was about $792 million or 29% of our total with system revenue. The average selling price per system within that range was roughly about of $1.5 million for the year. So once the system is installed, we’re going to derive recurring revenue from a couple of sources. First, will be the instruments and accessories, those are the surgical tools that are attached to the end of the robot arms that are used in surgery. There, we’re going to earn between $700 and $3,500, roughly speaking per procedure, and it will vary based upon the underlying complexity of the procedure and the specific tools that are used in the case. This was over half of our total revenue last year was instruments and accessories, about $1.4 billion from that category.”
Did anyone “sense” that Intuitive Surgical (ISRG) is putting their recurring revenue on a pedestal as if it’s something they can continue to be proud of. Well, first of all, per my 2 cents, their ability to generate the fat recurring revenue was because of their monopoly status. However the game has changed ever since Senhance received clearance from the FDA in October 2017. ISRG talked as if their products are so entrenched that hospitals LOVE to pay the recurring expenses for the instruments and accessories.
Below is another excerpt from ISRG that is applicable to Senhance as well.
“Value proposition of robotic surgery has a lot to do, the hospitals are going to make an initial capital investment in the da Vinci System itself, as we saw, we’re going to, they’re going to have additional cost for the robotic instruments and accessories, they can see their OR time tends to get little longer. So you see all that above the water and then below the surface of the water in this picture here, on the iceberg you can see the downstream savings, the hospitals will receive benefits from reduced life of stay especially when they’re converting an open case, the minimally invasive with robotics, fewer conversions to open surgery, reduced complication rates for the patients, fewer readmissions for the same condition and then lower infection rates to name a few. All these things will generally have better clinical value for the patients and reduced cost per hospital.”
Notice that ISRG admitted that hospitals are “going to have additional cost for the robotic instruments and accessories, they can see their OR time tends to get little longer.” And YET, they also mentioned the downstream savings as follow:
- hospitals will receive benefits from reduced life of stay
- minimally invasive with robotics
- fewer conversions to open surgery
- reduced complication rates for the patients
- fewer re-admissions for the same condition
- lower infection rates
All the above points have been highlighted by ISRG as things that will “generally have better clinical value for the patients and reduced cost per hospital.”
I totally agreed with the better clinical value for the patients and reduced cost per hospitals BUT these points (downstream savings only) are ALL APPLICABLE to the Senhance as well! In fact, I would have wholeheartedly agreed with the all above statements (above water and downstream savings) made by ISRG IF they still have MONOPOLY with NO COMPETITION. But that is NOT the case anymore. Basically, per my 2 cents, Senhance receipt of FDA clearance in October 2017 rendered some of the statements made by ISRG above as obsolete. In other words, the “above water” of additional cost for the robotic instruments and accessories and extended OR time may become a liability when comparing against the Senhance system.
Imagine the bean counters tallying up the numbers of the two AVAILABLE FDA approved products – Da Vinci and the Senhance and spit out their recommendation. What do you think it will be? Now, don’t get me wrong, I’m sure there are enough “loyal” Da Vinci customers who may still want to buy more Da Vinci but it WON’T be the only choice anymore. My 2 cents is that slowly and gradually, there will be a noticeable shift in the demand for Senhance as opposed to the Da Vinci simply because the numbers are calculated to be more attractive by the bean counters in favor of the Senhance.
In my humble opinion, cost effective is only ONE of the factor that may contribute to the expected demand for Senhance; the other factor is simply due to non-Da Vinci surgeons preferring a different robotic system than the Da Vinci. I attributed this “other factor” to the “choice” of robotic system which has always been the driving force for competition. To compete, there must be a valid choice. And Senhance is a choice that has been blessed by the FDA to be as good if not better than the Da Vinci.
Finally, one more excerpt below from ISRG:
“Our fastest growing procedure and general surgery is hernia repair for both ventral hernia and inguinal hernia. We’re still pretty early stages in that as well as colorectal procedures and other procedures in general surgery.”
This is excellent news! Even ISRG admitted to the “fastest growing procedure” in hernia repair and that ISRG is still “pretty early stages” as well.
Now, take a look at CEO Pope discussing hernia procedures with the Senhance from the 4th QTR earnings call below:
“An additional goal for 2018 is broadening the total available market for Senhance through indication expansion. In February, we filed a 510(k) application to expand our indications to include inguinal hernia and gallbladder. These are two of the higher volume procedures with over 1.5 million procedures performed annually in the U.S. Based on Senhance’s foundation in laparoscopy and favorable per procedure economics, these procedures can now be done effectively and cost efficiently utilizing Senhance. Making the system applicable to a broader range of high volume procedures will increase the number of surgeons for Senhance would be beneficial. We expect to receive clearance for hernia and gallbladder by mid-year 2018.”
Am I the only one thinking that perhaps Senhance is BEST for hernia simply because of its foundation in laparoscopy and favorable per procedure economics?
One more excerpt from CEO Pope that you may LOVE:
We currently have CE Mark clearance for three-millimeter instruments. These have been favorably received by surgeons. We have actually seen hospitals begin to market three-millimeter Senhance surgery as scarless surgical robotics. “We believe three-millimeter will be an important platform expansion in the U.S., especially low in the pelvis with GYN and hernia. We expect to file 510(k) for our three-millimeter instruments by mid-year and anticipate clearance by the end of 2018.”
3mm lap tools for GYN and hernia coming soon! Wait, is Da Vinci offering 3mm anytime soon? No?
Well, my common sense detector is telling me that Senhance is now a viable option and a strong alternative/choice to the Da Vinci not just in term of cost effectiveness but in term of operational effectiveness and efficiency simply because Senhance is built on the foundation of laparoscopy.
Basically, in a nutshell, the challenge to the status quo is ON!
Don’t forget, all the above are my opinions only!
Good Luck and may fortune blesses all TRXC investors.
My 2 cents.
From my camera: