Medtronic (MDT 1.79%) may be a leader in the medical device space, but its sluggish 1.3% revenue growth over the past three years has not kept pace with the 5% growth of the medical device market. But Medtronic hopes to revive its revenue gains by capturing a larger share of an expanding new market.
Medtronic leans on surgical innovation
Medtronic's Surgical Innovations segment achieved robust growth over the past year. Its 9% revenue growth overshadowed the 2%-3% revenue growth from the Cardiovascular and Neuroscience segments. Meanwhile, the Diabetes Devices segment lost ground with a 5% decline.
The growth from the Surgical Innovation segment is impressive given the procedural slowdowns caused by COVID-19. Occupied hospital beds, staffing shortages, and patient and staff infections drove the postponement of elective surgeries during COVID surges – but those procedures should pick up as activities return to normal.
Medtronic aims to compete with systems like this one from rival Intuitive Surgical. Image source: Intuitive Surgical.
Surgical devices, and robotic surgery in particular, offer high-growth opportunities for Medtronic. Globally, 33% of surgeries are minimally invasive, but only 3% of these use robotic assistance. The robotic surgery market is projected to grow 19% through 2030, as compared to the 4%-7% growth of the diabetes, cardiovascular, and neuroscience device markets. Medtronic now looks to leverage its expertise in minimally invasive surgical equipment within the field of robotic surgery.
Hugo RAS enters the surgical robotic space
With its 2021 launch of the Hugo robotic-assisted surgery (RAS) system, Medtronic goes head-to-head with Intuitive Surgical (ISRG 2.87%). Intuitive Surgical has long dominated the surgical robotics market with its da Vinci Surgical System. Over the past 20 years, Intuitive has installed more than 6,700 robots and performed more than 10 million operations. However, Intuitive's patent expirations have opened the door for new competitors.
Building on five years of experience in robotic spinal surgery with partnership, along with its 2018 acquisition of Mazor Robotics, Medtronic now looks to expand its robotic offerings into soft tissue surgery with the Hugo RAS system. Similar to Intuitive's da Vinci robot, Hugo allows the surgeon to operate from a console and contains four flexible robotic arms to perform a variety of procedures. The robots' advanced visualization enables the surgeon to perform minimally invasive surgeries while viewing hard-to-see areas during the operation. Robotic surgery is linked to fewer post-op complications and faster patient recovery.
The Hugo RAS system offers an open console that allows the surgeon to interact with staff. The procedure is viewed on a monitor, rather than through da Vinci's confined "periscope view" that isolates the surgeon from the operating room. Additionally, detachable surgical tools allow the surgeon to switch to a handheld device as necessary. Whether these design features sway surgeon preference toward the Hugo RAS remains to be seen.
Medtronic largely seeks to differentiate itself through its modular design. Instead of a single permanently placed robot, Hugo RAS consists of a universal tower, a surgeon control console, and up to four independent carts to carry the robotic arms that wield surgical tools. This design lets surgeons and hospitals transfer modules between operating rooms. Medtronic believes this mobility will increase surgical throughput. Instead of a single procedure per day, surgical teams will be able to schedule back-to-back surgeries in multiple operating rooms. Hospitals can purchase components as necessary to further streamline their procedures. This will drive down hospital expenses, toward the ultimate goal of achieving a per-procedure cost similar to that of a routine manual procedure.
New entrants bring cost competition
Increasing competition within the robotic surgery space may put pressure on every contender's margins. In addition to the high up-front cost of the base system, Intuitive Surgical also charges annual maintenance fees and replaces surgical tools every 10 operations. It introduced extended-use instruments in 2020 with a longer lifetime of 12-18 operations. This will hurt Intuitive's recurring revenue, which previously accounted for at least 70% of its profits.
In November 2020, Johnson & Johnson (JNJ 0.39%) demonstrated a forthcoming robot that will perform general soft tissue surgery as well as orthopedics and vascular procedures. The Ottava offers a completely distinct design, with a "zero footprint" system that is fully integrated with the operating table and six surgical arms. However, COVID has delayed its clinical release, giving Medtronic several more years to establish Hugo RAS.
Medtronic's launch into robotic surgery is now underway in limited markets with an initial procedure in Chile in June 2021 and European CE Mark approval in October 2021. Its focus will now shift toward preparations for an upcoming U.S. urology trial. There is certainly room for multiple robots within the market, but Medtronic must move quickly. Healthcare investors should monitor whether the company can recoup its investment and drive significant top line growth before the field becomes increasingly crowded.
