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The Innovative Edge at This Intuitive Health-Care Star

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Innovation. The word fits with legendary American business like a glove, but revolutionary robotic surgery maker Intuitive Surgical (Nasdaq: ISRG  ) might not be the first name you mention when you think of innovation. Make no mistake -- this high-tech health-care upstart deserves its spot  as Forbes' sixth-ranked company on the magazine's listing of the most innovative companies. Before we explore the potential of Intuitive's forward-thinking approach to business, let's take a look at just why this company excels -- and why you should give its stock a long, hard look.

A knack for innovation
Intuitive's one of the only companies flourishing in the new arena of robotic surgery. Just out of operations listed in the company's most recent annual filing, the da Vinci already records FDA  approvals for prostatectomies, urologic and gynecologic surgeries, various heart procedures, and head and neck surgeries, among others. Da Vinci units performed an estimated 360,000  operations alone in 2011 -- a 29% growth  since 2010.

That 360,000 figure is small potatoes compared with the millions of operations conducted every year in the United States. Still, it's impossible to ignore the growth of the da Vinci device in such a short lifespan -- after all, the FDA only cleared the device in 2000, and only around  1,840 machines have been installed in hospitals. There's plenty of room for growth in that number, given Intuitive's increased sales every year -- the company grew unit sales  by more than 21% in 2011 year over year -- and the company's knack for finding new treatments for the da Vinci to handle.

It's that ability for Intuitive to find new uses for its high-tech star that gives the company its innovative edge -- and has to have hospitals interested as well. The more devices the da Vinci can handle, the cheaper it will become over its lifetime for health-care providers. A machine that performs only one procedure type is an overspecialized, costly gambit; one that takes care of a dozen processes (or more, in the case of the da Vinci) allows hospitals to process many patients through the same system.

Studies showing the da Vinci's reduction of patient recovery time further support the cost-cutting advantages of the device. In total, we've now seen that the unit can handle numerous treatments and can reduce hospital costs in the long run, providing Intuitive with opportunities to generate serious sales on both accounts. But how does that stack up in the long run, and where could Intuitive be headed?

Navigating a tricky future
There's no doubt that the U.S. health-care system is overburdened. America spends far more on health care than most other industrialized nations , and hospitals will soon have to start looking for ways to cut costs. In steps Intuitive, with the da Vinci -- the future's one-stop surgery shop for all kinds of procedures.

Granted, not everything's perfect. Hospitals will certainly balk over  the da Vinci's price tag, which extends into the millions even before recurring maintenance and service fees are tacked on. Furthermore, Intuitive will face its own problems in the recent Patient Protection and Affordable Care Act, which will levy a 2.3% tax on revenues from medical-device companies. Intuitive truthfully admits the PPACA will hurt in its most recent annual report , although the company's financial upswing should soften the blow. Intuitive has grown its net margin  from 22% in 2009 to 29% in 2011 while keeping its costs of revenue stable.

Europe also provides another hurdle. Given the region's economic implosion, hospitals could be hard-pressed to make such a costly acquisition. Intuitive has diversified geographically to compensate, spreading across Asia  and purchasing a distributor  in wealthy, tech-savvy South Korea, but a sustained recession in Europe would certainly cramp expansion plans. The region has already hammered medical-device companies, slamming shares of Edwards Lifesciences (NYSE: EW  ) , a fellow top-10 member of the aforementioned Forbes list of innovators.

Increased competition will also surely mount for Intuitive eventually. MAKO Surgical (Nasdaq: MAKO  ) and Stryker (NYSE: SYK  ) have both dipped their feet  into the robotic-surgery arena, although neither directly competes with Intuitive as of now. If the industry truly takes off, however, big conglomerates with plenty of cash involved in the medical-device game -- such as General Electric (NYSE: GE  ) -- could pose a future threat to Intuitive. If the PPACA stands for the future, that medical-device tax could significantly hinder Intuitive in the face of such a large, diversified conglomerate like GE as well.

There's plenty of trends running in Intuitive's favor, however. With the U.S. population over age 65 expected to increase  to 20% by 2050 from 13% in 2000, American hospitals will experience a much greater need to process these health care-needy senior patients quickly and with fewer complications over the coming decades. The da Vinci system excels in those areas; Intuitive merely needs to continue its current run to capitalize on this demographic shift.

No reason to shy away
Overall, it's hard to pick holes in Intuitive's innovative armor. As the leader of its growing field and without real competition, the company is on pace to continue growing at its torrid pace as long as the economy continues to rebound. While its upcoming earnings report -- in an earnings season predicted to be horrid -- might not please shareholders, Intuitive has all the hallmarks of a solid company that long-term investors should love. While the stock has gained more than 27% over the past 52 weeks, investors should have faith in this company's ample room to soar.

It's safe to call Intuitive's approach a revolution in how we view surgery. It's not the only revolution ready to roar into the future and take your investment to new highs, however. The Fool has just released a free report on a new explosion in tech titled "The Next Trillion-Dollar Revolution" that will give you the details. Inside the report, we not only describe why this seismic shift will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. You can access this new report today simply by clicking here -- it's free.

Dan Carroll has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric, Intuitive Surgical, and MAKO Surgical. Motley Fool newsletter services recommend Intuitive Surgical and MAKO Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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