6 Robotic Surgery Stocks for Retail Investors
Earlier this year, we wrote about the increasingly important role of healthcare robotics in smart hospital settings to help cut down on infections, as well as other nasty viruses and bacteria. Service robots can help deliver medications or sanitize hospital rooms, with the goal to reduce contact between human petri dishes in critical care conditions as much as possible. That made us wonder if there might be a long-term pandemic bump in other healthcare robotics sectors where retail investors could get some actual exposure of the good kind. Surgical robotics stocks seemed like a natural place to look.
Surgical Robotics Market
Good luck in trying to find reliable statistics on the global surgical robotics market. We found projections calling for a market modestly valued at about $100 million by 2024 to another forecast that claimed the industry would tip $16 billion by 2025. Yet a third market analyst pegged the surgical robotics market at nearly $7 billion by 2026. We can tell you that the largest of the surgical robotics companies, Intuitive Surgical (ISGR), sports a market cap of about $75 billion on revenue of nearly $4.5 billion in 2019.
The rest of the pack – a mix of private, public, and joint ventures – is far behind at this point.
Big Healthcare Companies and the Surgical Robotics Market
That could change drastically, as some of the world’s biggest medical device and healthcare companies are suddenly getting into the biz of building surgical robots.
One of our dividend-growth investing darlings, Medtronic (MDT), acquired an Israeli-based surgical robotics company called Mazor Robotics a couple of years ago. Last year, another DGI champ, Johnson & Johnson (JNJ) acquired its own surgical robotics company in Auris Health. In addition, J&J joined with Google’s (GOOG) life sciences subsidiary, Verily, on a joint venture: Verb Surgical claims it will “democratize surgery,” whatever that means. German medical tech company Siemens Healthineers (SHL) also jumped on the surgical robotics bandwagon in 2019 by picking up Corindus Vascular Robotics, a platform for minimally invasive vascular procedures. There’s also Stryker (SYK), another medical device company and stalwart DGI stock that bought Mako Robotics more than a half-dozen years ago.
Those four purchases alone represent – at least on paper – $7.75 billion in value (not including the additional $2.35 billion in contingent payments that J&J agreed to pay Auris). Some smaller-potato-deals include the 2016 acquisition of French surgical robotics maker Medtech SA for about $133 million by Zimmer Biomet (ZBH), another medical equipment manufacturer. There was also the 2019 merger of aesthetic technology company Venus Concept (VERO) with Restoration Robot, which turned to automation for hair transplants.
Pure-Play Robotic Surgery Stocks
While most of those companies above would be worthy of a diversified portfolio, none of them are pure-play stock options because most of their revenues are derived elsewhere. In other words, retail investors looking for maximum exposure to the surgical robotics theme can fruitlessly click on Foolishly misleading links or keep reading this article.
We should address one question first: Given our preference for a balanced portfolio made up of dividend-growth stocks, why would you even want to invest in a niche industry like surgical robotics? A few reasons come to mind.
First, emerging technologies can imply emerging markets, which means potential for exponential growth. While surgical robotics systems have been around for about 20 years, one player (Intuitive Surgical) has really dominated the market. As we just noted, that’s about to change with the entry of some medical technology behemoths, not to mention the other privately held surgical robotics companies. Medtronic itself reportedly offered this compelling statistic: Robotic procedures currently only make up about 2% of all procedures, while traditional minimally invasive surgery accounts for 30% to 35% of all surgeries.
Second, the types of robotic surgical procedures being performed are becoming more specialized and expanding beyond minimally invasive procedures. One of the companies below, for example, specializes in robotic radiology procedures.
Third, there’s Intuitive Surgical and their Da Vinci surgical system.
The Best Surgical Robotics Stock
The OG of surgical robotics companies with a market cap of $75 billion, Intuitive Surgical, didn’t have to spend billions for the technology behind the da Vinci robotic surgical system. It came to it the old-fashioned way: By acquiring the intellectual property from SRI International, a federally funded institute out of Stanford University that had developed a telepresence-capable robotic surgery system with backing from that shadowy government agency known as DARPA in the 1990s. Any list of surgical robotics stocks should begin (and probably end) with Intuitive Surgical. It has outperformed the NASDAQ index by a wide margin over the last five years:
The company’s line of da Vinci systems has been synonymous with surgical robotics for minimally invasive procedures for more than 20 years. As of last year, Intuitive Surgical had more than 5,500 machines installed around the world, up 12% in 2019. Even better, sales were up 20% at $4.48 billion.
Things did soften at the beginning of 2020, as many elective surgeries were postponed with healthcare systems overwhelmed by COVID-19. For instance, Intuitive Surgical said worldwide da Vinci procedures increased about 10% in the first quarter, about half of what’s passed as normal growth for the company. Still, Intuitive has new machines hitting the market, such as the da Vinci Single Port (SP) system for deep-tissue surgeries, so the company is continuing to innovate in the face of increasing competition. Competitors include not just giant medical device companies and healthcare corporations, but well-funded startups like CMR Surgical and other pure-play surgical robotics stocks like those in the remainder of this list.
Surgical Robotics Stocks On Life Support
Though whether some of them will even survive past this year appears dubious.
Things got so bad for $34 million firm TransEnterix (TRXC) in 2019 that it reduced its headcount by 40% after selling only three of its Senhance surgical systems all of last year. The North Carolina company’s surgical robotics platform for laparoscopic surgery includes such bells and whistles as haptic feedback (a technology first developed in the 1960s for the board game Operation) and surgeon camera control via eye sensing. In fact, the company announced earlier this year that Senhance is the first surgical robotics system to receive FDA clearance for its new machine vision capabilities. Specifically, the Intelligent Surgical Unit responds to commands and recognizes certain objects and locations in the surgical view, like a tiny plastic pencil indicative of writer’s cramp.
The first quarter of 2020 started off where the last quarter of 2019 ended, with no sales and just $600,000 in revenues from leased equipment and services. TransEnterix raised $15 million gross in a public offering in March, though the move sent its cratering stock price to below $1 per share. That sale and some other moves should ensure liquidity through the end of the 2020 fiscal year, according to TransEnterix.
The company does expect to reduce cash burn by 35% this year, and did report a few positive numbers, including a 43% uptick in the number of procedures performed with Senhance in the first quarter of 2020 compared to last year.
Another surgical robotics company on life support is Titan Medical (TMDI) which presently sports a market cap of $60 million. One sure sign of trouble is the press release the company issued earlier this year to assure investors that its stock still qualified to stay on the NASDAQ. Titan Medical has developed the SPORT surgical system that, like Intuitive Surgical’s da Vinci SP, inserts all surgical instruments through a single incision. The machine could be a game-changer – assuming Titan can stick around long enough to commercialize the tech.
Times had gotten so tough that the company had to temporarily cease development of its single-port system. But thanks to a $10 million license payment and another $1.5 million loan as part of a deal with Medtronic – along with $20 million from a public equity raise – Titan Medical should be able to keep things afloat for a while longer in its attempt to turn the ship around.
A Surgical Robotics Stock for Heart Surgery
Upwards of six million people in the United States suffer from atrial fibrillation, the most common type of heart arrhythmia where the heart beats irregularly, according to the CDC. A $305 million company called Stereotaxis (STXS) has developed a Robotic Magnetic Navigation system to treat arrhythmias like AFib by repairing the electrical circuits of the heart in a procedure called cardiac ablation. The company has published more than 400 studies showing that its technology, which uses ultra-soft and magnetically controlled catheters, is safer and more effective than manual procedures. For instance, a 2016 study reviewed 1,006 robotic cardiac ablation procedures performed between 2010 and 2019 and found the surgery to have low complications. The latest paper was a COVID-19 case study that suggested such heart surgeries “should be performed preferably with a remote navigation system in order to minimize the infectious risk of the staff of the electrophysiology laboratory.”
The success of the system isn’t exactly translating into dollars, as the company has reported declining revenues over the last few years. The trend continued in the first quarter of 2020, when revenue dropped to $5.8 million compared to $7 million in the prior year first quarter. The company blamed most of the reduced revenue on COVID-19 impacts, but slowing growth has been around much longer than that.
On the plus side, the company carries no debt and has about $28 million in cash and assets.
A Surgical Robotics Stock for Radiation Therapy
As we noted earlier, we’re also seeing a greater variety of surgical robotics systems. The CyberKnife system from $198 million company Accuray (ARAY) is a robotics platform that delivers radiosurgery treatments to cancer tumors anywhere in the body. The machine reportedly uses AI to help enable its precise treatments with sub-millimeter accuracy in as little as 15 minutes. Accuray also produces non-robotic radiation systems.
Around this time last year, the company had a backlog of nearly $500 million. It also entered into a joint venture in China with a subsidiary of the country’s national nuclear program, China Isotope & Radiation Corporation. Although the incidence of cancer in China is relatively low compared to the United States and Europe, the disease is on the rise thanks to the most successful exports from the West: an unhealthy diet and lifestyle. Such a deal could be a game-changer for Accuray which is slowly growing their revenues over time with 2019 revenues of around $419 million.
We’ll definitely come back around to do a deep-dive on this company in a future article.
A Disposable Surgical Robotics Stock
As the name implies, Microbot Medical (MBOT) is a $47 million early-stage (i.e., non-profitable, which is different from non-profit) biomedical robot company that is developing microrobots for a system to help treat patients with fluid build-up in the brain. For example, there is ViRob, a miniaturized autonomous robot capable of navigating and crawling in places like blood vessels and the respiratory system. A newly added technology to the pipeline is Microbot’s Liberty, marketed as “the world’s first fully disposable robotic system for use in neurovascular, cardiovascular and peripheral vascular procedures.” Based partly on a patent-protected technology from Israel-based CardioSert, Liberty is designed to maneuver guidewires, microcatheters, and over-the-wire devices within the body’s vasculature. The system features a “unique compact design with the capability to be operated remotely, reduce radiation exposure and physical strain to the physician, as well as the potential to eliminate the use of multiple consumables through its ‘One & Done’ capabilities.”
And, as you might expect from a company without any commercialized products, the money stream only works in one direction at the moment.
Superficially, it would seem retail investors who want exposure to surgical robotics have quite a few options. In reality, there’s really only one choice when it comes to a pure-play surgical robotics stock – Intuitive Surgical. All of the other stocks in this list are small-cap companies that are struggling to grow their revenues in a meaningful way. Prospects for 2020 don’t look good, given the current pandemic and its chilling effect on many types of elective surgeries. The ability and interest of companies like Medtronic and J&J to buy their way into the surgical robotics market suggests further headwinds for these small-cap companies – or an opportunity for their founders to cash out through an acquisition.
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