This Moat Just Keeps Growing!

A patent-shielded technological moat can give a company a long time to exploit the niche in which it dominates. When the company runs out of new sub-markets where the technology applies, that's the end of the golden age.

For Intuitive Surgical (Nasdaq: ISRG  ) , that day keeps moving further away.

The robotic surgery veteran, created in a landmark 2002 merger between the only two serious competitors in the field, is busy finding new applications for its robotic tools. So far, the bulk of the procedures completed with the help of the da Vinci toolset have been of the urological and gynecological classes. This makes perfect sense as the Food and Drug Administration approved those uses early on. Now, head and neck cancers can be removed robotically, with benefits and success levels great enough that the respected Henry Ford clinic brags about its procedures in press releases, after being approved as recently as January.

Surgeries that would typically mess up your voice for six months or longer while requiring that you eat dinner through a straw now result in full recoveries most of the time. With about 45,000 diagnoses per year in the U.S., this is not as huge a market as the prostatectomies, cardiac valve repairs, and gastric bypass surgeries that made da Vinci and Intuitive Surgical famous. But every little bit helps. This success is paving the way for trials of sleep apnea treatments and general procedures in the throat and mouth. And it's just one of the several areas where Intuitive Surgical sees future potential growth.

If Intuitive Surgical has any competition, it would be from a bunch of relatively tiny operations that the company could swallow whole: Accuray (Nasdaq: ARAY  ) is the only one large enough to mention. As for larger competitors itching to buy their way into robotic surgery, Intuitive Surgical has become too large and expensive for most of them. Medtronic (NYSE: MDT  ) could make a severely dilutive stock-swap offer, perhaps, or Stryker (NYSE: SYK  ) could attempt a merger of equals. Both seem highly unlikely.

So after carving its way into our hearts and portfolios, Intuitive Surgical is still exploring many new fields. Access to the entire human body is still a long way off, which leaves plenty of room for fresh growth.

Interested in reading more about Intuitive Surgical? Add it to your My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. Stryker is a Motley Fool Inside Value selection. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (4) | Recommend This Article (17)

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  • Report this Comment On September 20, 2010, at 3:35 PM, PauvrePapillon wrote:

    Intuitive Surgical's diVinci device does reduce recovery times and hospital stays (smaller incisions) but there are no studies to date that demonstrate better overall outcomes.

    In fact, it is generally understood that the diVinci has a learning curve and that it takes something on the order of 100 to 200 procedures for surgeons to master the device. So one big question is: Who gets to be one of those first 100 to 200 procedures?

    Accuray's CyberKnife is a different procedure altogether. Unlike the diVinci, which is directly controlled by the hands surgeon (with the elimination of hand tremor is a principle benefit), CyberKnife is controlled by the computer. As such, treatment patterns may be duplicated without the need for either physical dexterity or practice.

    Comparing diVinci to CyberKnife is really an apples and oranges deal. CyberKnife is a non-invasive radiosurgical device whereas diVinci actually does cut you.

    As to which is preferable for what, it's true that urologists love to refer patients for surgery and the diVinci allows them to make the argument at least that the device will reduce their chances of incontinence and impotence.

    Of course, if and when urologists get a CMS code for radiosurgery (like neurosurgeons already have) this may change.

    Why?

    Because surveys have discovered that, nearly to man, CyberKnife prostate patients are satisfied with their treatment outcomes. Several have even launched personal crusades to promote patient awareness of CyberKnife.

    See http://www.iprostatecancer.com

    Prostectomy patients, even ones that used diVinci, do not report nearly the same level of contentment - to put it mildly.

    If you get the gatekeepers out of the equation – or at least allow them neutral incentives – you’re going to see a major shift in prostate cancer therapy - away from surgery and conventional radiation and toward CyberKnife, same for early-stage lung cancer.

  • Report this Comment On September 20, 2010, at 3:43 PM, PauvrePapillon wrote:

    From Comparative Effectiveness of Minimally Invasive vs Open Radical Prostatectomy…

    “Men undergoing MIRP vs RRP experienced shorter length of stay, fewer respiratory and miscellaneous surgical complications and strictures, and similar postoperative use of additional cancer therapies but experienced more genitourinary complications, incontinence, and erectile dysfunction.”

    http://jama.ama-

    assn.org/cgi/content/abstract/302/14/1557

    Note: The only device used in minimally invasive prostatectomy is the diVinci.

  • Report this Comment On September 21, 2010, at 11:55 AM, stanton17 wrote:

    PauvrePapillon,

    Very interesting commentaries... thanks for sharing.

    -- stanton17 --

  • Report this Comment On September 29, 2010, at 3:34 PM, PauvrePapillon wrote:

    Intuitive Surgical does have the IP moat, yes, but it also has other problems chief among these are recent clinical data indicating that, contrary to the marketing claims of urologists selling diVinici, the procedure does not reduce ED and other complication rates but, in fact, increases them.

    From Comparative Effectiveness of Minimally Invasive vs Open Radical Prostatectomy…

    “Men undergoing MIRP vs RRP experienced shorter length of stay, fewer respiratory and miscellaneous surgical complications and strictures, and similar postoperative use of additional cancer therapies but experienced more genitourinary complications, incontinence, and erectile dysfunction.”

    http://jama.ama-assn.org/cgi/content/abstract/302/14/1557

    If the clinical results of the various prostate cancer treatment options ever see the light of day (in terms of being disseminated to the average patient), Accuray shares will take off like Intuitive Surgical did a few years back because CyberKnife has far and away the lowest complication rate and a biological failure rate of near zero (about one tenth of one percent.)

    Bottom line: The moat is great (Accuray has one also) but what’s even more important is what actually works best and for prostate cancer that is clearly CyberKnife.

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