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Could This Upstart Unseat Intuitive Surgical?

By Todd Campbell - Feb 9, 2016 at 6:20PM

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TransEnterix plans to launch two new robotic surgical systems this year.

Image source: TransEnterix.

A David-versus-Goliath fight is about to occur in the surgical robotics market that pits tiny TranEnterix (ASXC -1.82%) up against industry leader Intuitive Surgical (ISRG -0.05%). Could this small company win away hundreds of millions of dollars in sales and in the process, make investors a big profit? Read on to find out more about TransEnterix's plans to challenge Intuitive Surgical and whether or not it makes sense to buy shares of this upstart.

The background
TransEnterix is developing robotic controlled devices that can be used instead of traditional laparoscopy, a procedure that is done through a patient's belly to find problems such as cysts or infection.

Although robotic systems have been on the market for years, they haven't made big inroads against laparoscopy and as a result, there are still more than 6 million laparoscopic procedures done in the U.S. and EU every year.

So far, the inability of robotic systems to displace laparoscopy stems from robotics' higher per-procedure cost and the learning curve that's associated with using them. Because robotic systems are expensive and insurers reimburse at the same rate regardless of whether a robotic system is used, these systems are less profitable per procedure for hospitals. Robotics are also complex systems that have drawbacks that keep time-strapped surgeons from embracing them.

Enter TransEnterix's SurgiBot and ALF-X, two systems TransEnterix is launching to drive down per-procedure expenses and address surgeons' concerns.

SurgiBot could win FDA approval in the next few months and if it does, then TransEnterix plans to market it with a capital cost that's 75% lower than other systems already on the market. A lower price could encourage more hospitals to buy the system, but it's SurgiBot's features that may encourage more surgeons to demand them.

SurgiBot is a single-port robotic system that can easily be moved in and out of operating rooms and it features flexible instruments that can be used via a single patient incision. It also offers a high-definition 3D display with an articulating camera and tactile feedback so that surgeons can feel exactly what the instrument is feeling. SurgiBot also allows surgeons to perform procedures bedside in the sterile field, rather than from behind a console, which many surgeons may prefer.

Meanwhile, in markets that accept the CE Mark of approval, sales of the ALF-X system should kick off this year, and a launch of the system in the U.S. could come as soon as 2017.

ALF-X is a multi-port platform that lets hospitals reuse both traditional lap instruments and robotic instruments in order to lower their costs. Similar to the SurgiBot, the ALF-X features haptic feedback, but it also includes a camera that's controlled by the surgeon's eye movement and it allows for patient repositioning, which may give it an edge over Intuitive Surgical, too.

Mounting its threat
Last year, TransEnterix hired former Intuitive Surgical sales leaders to head up its own sales efforts, and their experience may jump-start the company's attempt to carve away at Intuitive Surgical's sales, which totaled $2.4 billion last year, up 12% year over year.

However, investors should remember that Intuitive Surgical's existing customers have made significant investments to buy their systems and therefore may be unwilling to switch horses midstream.

Instead, TransEnterix's biggest opportunity may come from expanding the market for robotic surgery to include providers with more limited budgets. According to TransEnterix, 75% of small hospitals have yet to buy a robotic surgical system and cost is likely the biggest reason why.

Admittedly, market demand for robotic surgery may not materialize as quickly as some might hope, but given that laparoscopy is common and the overall penetration of robotics in surgical procedures remains in the low- to mid-single-digit percentages, there's a lot of potential for upside. TransEnterix estimates that the market for abdominal robotic surgery is already worth $2 billion annually and it could grow to $10 billion to $13 billion annually over the next six to eight years!

Obviously, only time will tell if TransEnterix can capture a meaningful share of that growth, but if it does, then it could make the company worth more than its current $361 million market cap. Nevertheless, TransEnterix has yet to post any revenue or profit, so it's a high-risk bet. Therefore, all but the most risk tolerant of investors might be best suited watching this stock and tracking its sales and profit progress. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
ISRG
$229.59 (-0.05%) $0.12
Asensus Surgical, Inc. Stock Quote
Asensus Surgical, Inc.
ASXC
$0.67 (-1.82%) $0.01

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