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In Asia, Intuitive Surgical's Growth Story Is Just Beginning

By Jason Hawthorne - Apr 3, 2021 at 6:33AM

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Despite its challenges, the opportunity ahead could produce huge gains for shareholders over the long term.

In Asia, robots have been employed in healthcare to perform varying tasks. As in the U.S., autonomous machines can travel through surgical areas and patient rooms, using ultraviolet light to disinfect surfaces. During the pandemic, mobile robots in China have also been used to monitor people's temperatures and deliver food. That way, human-to-human contact can be minimized.

However, when the topic of robots and healthcare comes up, it's the image of robotic surgery that is usually conjured in people's minds. When it comes to robotic surgery, one name stands out: Intuitive Surgical (ISRG 2.62%).

The device maker famous for its da Vinci surgical robots has established its dominance in the Western Hemisphere. Its machines for remote-operated urologic and colorectal surgery, gallbladder removal, hernia repairs, and even cardiothoracic surgery, as well as head and neck procedures, are the pride of many hospitals. As manufacturers in South Korea, China, and Japan begin to roll out rival machines, the company is pushing deeper into the Far East to stake its claim to the enormous opportunity ahead.

A dummy on an operating room table with a surgical robot over it.

Image source: Getty Images.

Smooth sailing so far

Currently, Intuitive sells its da Vinci system directly to healthcare entities in China, Japan, South Korea, India, and Taiwan. Those five countries represent a population of 3 billion people, nine times that of the U.S. It's no wonder the company is focused on the growth opportunity in this market. Although the pandemic disrupted the growth trajectory in 2020, the region's importance is clear, routinely making up about one in six device sales.

Year Units Sold in Asia Percent of Units Sold in Asia
2020 157 17%
2019 182 16%
2018 116 13%
2017 108 16%
2016 96 18%

Data source: Intuitive Surgical.

That number's growth will likely accelerate. The company only began selling in India and Taiwan in 2018, and established a joint venture with China's Shanghai Fosun Pharmaceutical in 2019. In China, the government sets a purchase quota for medical devices, including surgical robots. Because of this, Intuitive took on a local partner to ensure it captured as many orders as possible. The whole process can take years between the government issuing the quota and actual surgical robots being placed in hospitals.

Despite the slow ramp-up of da Vinci installations, China became the company's No. 2 procedure market in 2020. That success has inspired device start-ups in the region to innovate and compete.

Local competition

It is estimated that the surgical robotics market will be worth $10 billion by 2027. More than one quarter of that will be in China. The government isn't typically keen to rely on foreign suppliers and has funded at least 30 medical device start-ups, including surgical robotics manufacturers, in the past few years. Beijing Tinavi Medical Technologies is one example of a local firm whose surgical robots have been approved and are in use throughout the country. Medical Healthcare Robot BU, an industrial robotics firm, is also entering the medical arena.

China isn't the only country serving as a hotbed of activity. South Korea and Japan also have companies trying to carve out a slice of the pie for themselves. One company in Korea, Curexo, developed a device it calls Robodoc to perform hip and knee replacements. Another, Meere Company, spent a decade developing its Revo-i robot for laparoscopic surgeries before launching in 2017. In Japan, Medicaroid Corporation became the first to get a robotic-assisted surgical system approved last August. Luckily for shareholders, it's not a winner-take-all proposition.

Enormous potential

At the end of 2020, Intuitive had 3,720 da Vinci systems in use in the U.S. That's 112 systems for every 10 million residents. In Asia, that number is just three. Due to the difference in median income, it's doubtful the company will ever reach the same level of penetration. The cost of the devices and resources required for training are just too much for poorer countries. The fact that there is 37 times more penetration in the U.S. than in Asia does indicate just how much growth is possible over the coming decades.

That growth will likely be uneven. After all, Asia isn't one market. While South Korea is renowned for its embrace of innovation, validated by the country's quick approvals of new da Vinci devices, China funds local competitors and places restrictions on how many devices can even be sold. For shareholders, quarter-to-quarter indicators will no doubt produce both hope and frustration along the way. CEO Gary Guthart had it right when he said results in the region would be "bouncy." Dealing with different economic systems and regulatory regimes is bound to do that.

If unit sales in Asia continue to grow, and the company continues to innovate, the next 10 years of the Intuitive Surgical story could match the past 10. The stock has returned 580% in that time. For investors thinking of buying and holding, Asia could be its path to a repeat performance.

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