TransEnterix (ASXC -0.44%) shareholders have every reason to be excited. The U.S. Food and Drug Administration cleared the way for the company to market its Senhance Surgical Robotic System on Friday. TransEnterix held a conference call to discuss the big news on Monday morning, with its stock skyrocketing on the announcement.
Senhance will become the first system to compete head-to-head against Intuitive Surgical's (ISRG -0.54%) da Vinci system, which first launched back in 2000. With a new rival gunning for it, should big Intuitive Surgical be worried about tiny TransEnterix?
Senhance and da Vinci are similar in many respects. Both allow surgeons to perform high-precision surgeries from workstations near the patient by controlling robotic arms. Both target similar procedures. However, there are also some differences that could be significant advantages for TransEnterix.
One of those differences is that the Senhance system incorporates haptic feedback. What this means is that the system recreates the sense of touch that surgeons would feel if they were performing procedures using traditional surgical instruments instead of a robotic system. The da Vinci system does provide subtle physical feedback to surgeons holding the controls, but it doesn't go nearly as far as Senhance does.
Another key difference between the two systems is that Senhance allows the surgeon to control the camera mounted on the robot arms by moving his or her eyes and head. Da Vinci doesn't support this functionality.
Perhaps the biggest draw for hospitals, though, is that Senhance's instruments are reusable. This makes TransEnterix's system more cost-effective over the long run. By comparison, Intuitive Surgical makes more money from selling replacement instruments and accessories than it does from selling new da Vinci systems.
With several advantages for Senhance, should Intuitive Surgical be quaking in its boots? Not really.
While the FDA clearance is great news for TransEnterix, the reality is that the company hasn't made significant inroads against Intuitive Surgical in the other markets where it already won approval. That's putting it charitably. In the first half of this year, TransEnterix sold two Senhance systems -- one in Germany and another in Japan. The $3.5 million in revenue made by the tiny company barely amounts to a rounding error for Intuitive Surgical.
Even with some attractive features for Senhance, TransEnterix will likely have an uphill battle competing directly against Intuitive Surgical. It's tough for a new product to win against an established product with lots of reference sites and a solid track record. That's not to say TransEnterix won't be able to make some deals; it will. However, the early going will probably be slow and hard.
Taking existing customers away from Intuitive Surgical will be an even more difficult proposition for TransEnterix. Once a hospital makes the initial investment in da Vinci, it's not likely to switch. Actually, it's much more probable that a customer of Intuitive Surgical will look for more ways to use da Vinci and better leverage its investment.
A bigger worry?
I suspect that Intuitive Surgical executives are eyeing Medtronic (MDT 0.40%) with much more interest and concern than they are TransEnterix. Unlike TransEnterix, Medtronic is huge: Its revenue over the last 12 months is more than 10 times higher than Intuitive Surgical's.
Medtronic plans to roll out its surgical robot system next year. The medical device leader already has long-term relationships with hospitals across the world. Even though Medtronic could face similar challenges as TransEnterix initially, those relationships and the company's size and stability could allow it to take some market share away from Intuitive Surgical over time.
Still, though, I think the overall market should grow enough to support multiple players -- including Intuitive Surgical, Medtronic, and TransEnterix. There are many more procedures that could be performed with robotic systems. As technology improves, all three companies could enjoy growth. Because of this potential, I don't think Intuitive Surgical needs to be too worried about tiny TransEnterix or massive Medtronic.