da Vinci Heads to China

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Following in the footsteps of The Motley Fool's Bill Mann, Rule Breakers pick Intuitive Surgical's (Nasdaq: ISRG) da Vinci surgical system is headed off to China.

Last week, Chindex (Nasdaq: CHDX) announced that China's version of the FDA had given the green light for the company to sell the da Vinci in China, as well as Candela's (Nasdaq: CLZR) AlexLaser system. Chindex has been selling the da Vinci in Hong Kong since 2005, so it does have some experience hocking the robotic surgical system.

Foreign sales have become an important part of Intuitive Surgical's growth story. Last quarter, sales to foreign hospitals accounted for 27% of surgical systems sales, up slightly from the first quarter of 2007. All those sales of da Vinci systems aren't just one-time sales for the company. The installed base drives sales of high-margin disposable supplies to run the systems, so having the opportunity to sell systems to more hospitals is a driver of revenue growth in both the short and long term.

It could take a while for sales of da Vinci systems in China to pick up, since -- as in the U.S. -- the hospitals will have to work the major purchase into their budgets. When the sales do finally pick up, the average selling price may slip a little, but investors shouldn't be alarmed. Having a middleman sell the systems means that Intuitive Surgical will likely have to discount the systems sold to Chindex, but it'll make up for it in operating margin, since Intuitive Surgical won't have to pay a sales force.

With a P/E still north of 60, Intuitive Surgical isn't cheap by the standards of other medical device makers like Medtronic (NYSE: MDT) or Stryker (NYSE: SYK), but those companies just don't have the growth potential of Intuitive Surgical. Now that it has an additional 1.3 billion people to market the da Vinci to, Intuitive Surgical's growth story may just be getting started.

More slicing and dicing ahead:

• Cramer vs. Cramer: Intuitive Surgical
• Intuitive Surgical Is Called Up
• Foolish Forecast: Intuitive Surgical Is Worth Every Penny