Robots grab chunk of prostate surgery biz

Intuitive Surgical's ramping up sales of robotic surgical arms - and so far is alone in a $600 million market.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- In a packed lecture hall at Cornell University, Dr. Ash Tewari recently showed a 3D video of a robotic claw surgically removing a prostate, as medical professionals watched stoically and reporters squirmed in their seats.

On the screen's blown-up image, the initials of the robot's maker - Intuitive Surgical (down $0.28 to $120.38, Charts) - were clearly etched onto the surface of the diminutive claws. Dr. Tewari, cancer specialist and director of robotic prostate surgery at Cornell, believes that surgery performed with Intuitive Surgical's robot claws is safer and quicker than the human hand, resulting in less bleeding, with less problems of incontinence and impotence during recovery.

Based in Sunnyside, Calif., Intuitive Surgical makes human-guided robotic arms that help doctors perform some of the most common and delicate procedures - the removal of a cancerous prostate gland or uterus - but only for those hospitals with enough money and the right manpower.

These areas of the healthcare market - estimated at $600 million last year by Wachovia analyst Michael Matson - are rapidly growing, fueled by an aging U.S. population. Intuitive Surgical has already experienced a rapid uptick in the use of its three and four-armed da Vinci robots, with a 56 percent sales surge in 2006 to $112 million. Its stock is up 12 percent year-to-date.

Robotic removal of the prostate has been a "big home run" for Intuitive Surgical, said Tao Levy, analyst for Deutsche Bank North America. "By the end of the year, over half of the prostates that are going to be removed in the U.S. are going to be done robotically."

In 2006, 35 percent of the 90,000 prostatectomies and 2 percent of the 250,000 hysterectomies in the U.S. were performed by Intuitive Surgical's robots, according to Charles Olsziewski, analyst for Oppenheimer.

The prostate gland is a small organ just below the bladder that makes fluid for semen. Hysterectomy is removal of the uterus, the major female reproductive organ in humans.

"The number of [robotic] procedures started to increase as the side effects were taken away," said Olsziewski. He said the market penetration for robotic prostatectomies has tripled since 2004, primarily because robotic surgery causes less complications from bleeding, incontinence and impotence compared to other procedures.

Intuitive Surgical has a monopoly on robotic surgical arms.

Even if Japanese companies like Hitachi (down $0.90 to $74.36, Charts) make good on their promises to produce robotic arms for surgery, their potential products are years away, analysts say. So that leaves the robotic field to Intuitive Surgical in this part of the surgery market, where it still competes against hospitals and physicians conducting traditional open surgeries by hand, and the lesser-used laparoscopies, with tools provided by Johnson & Johnson (down $0.43 to $60.43, Charts), Olympus Corp. and Tyco (Charts).

Despite the benefits of robotic surgery, stealing market share away from these other procedures isn't going to be easy. Not every hospital is willing to pay $1.5 million for the newest da Vinci robot, or to recruit, train and keep the proper specialists to run the device.

"The chief obstacle is the commitment that the hospital has to make to robotic procedures," said Timothy Nelson of Piper Jaffray, noting that influential doctors need to pull together a team of talented surgeons and technicians. "The successful programs are the ones that get a team together. If the commitment isn't there, it doesn't work."

But analysts believe that hospitals will have to take on the new technology eventually to remain competitive.

"[The da Vinci] is expensive, but at the end of the day it's allowing the hospital to do better surgery," said Levy of Deutsche Bank North America. "Also, hospitals without the device run the risk of losing business to those who have it."

The analysts quoted here do not own shares of Intuitive Surgical stock, but Piper Jaffray, Deutsche Bank and Oppenheimer make a market in the company.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.