Domo Arigato, Dr. Roboto
MPSIF Educated Investing
Jiorden Sanchez
Issue date: 12/9/08 Section: Voices
On November 12th, as an analyst from the Michael Price Student Investment Fund (MPSIF), I presented my findings on Intuitive Surgical Inc. (ISRG). ISRG is the founder and manufacturer of the da Vinci System pictured in Figure 1, a robotically-assisted, less-invasive surgery system that has been FDA approved for general laparoscopic surgery, thoracoscopic, urologic, cardiac and gynecologic applications. This edition features the research and analysis that led to the Growth Fund's decision to purchase ISRG.
Intuitive Surgical makes money in two ways; one-time revenue from the sale of the da Vinci system, and recurring revenue from Instrument Sales and Annual Service Agreements. ISRG da Vinci Systems sell for $1.3 million on average. With each system sale comes a service agreement. The service agreement lasts the life of the system (typically eight years) and results in $100,000 to $150,000 in annual revenue per machine. Because instruments wear out with use, ISRG earns approximately $1,500 to $2,000 in instrument sales per procedure performed. In 2007, each system performed approximately 135 cases. As can be seen in Figure 2, growth in the da Vinci installed base has been impressive, totaling 1032 units worldwide as of the third quarter.
The big question is, why has ISRG been so successful in the sale of this expensive piece of equipment? The da Vinci system provides a number of advantages compared to traditional, open, and less invasive surgical approaches. From a physician's point of view, the system provides improved comfort and visualization, while shortening the length of procedures and eliminating the effect of natural tremor found in the hands of surgeons. Many surgeons, as they age, develop tremor that can end their career; da Vinci is a way for those surgeons extend their career. From the insurance provider's perspective, the system reduces procedural trauma and shortens the hospital stay for the patient. For hospitals, shorter hospital stays leads to increased volume and, despite higher capital equipment costs, the robot leads to better per-procedure profitability. Most importantly, the patient benefits from less-invasive surgery which limits blood loss, scarring, and the hospitalization period.
Intuitive Surgical makes money in two ways; one-time revenue from the sale of the da Vinci system, and recurring revenue from Instrument Sales and Annual Service Agreements. ISRG da Vinci Systems sell for $1.3 million on average. With each system sale comes a service agreement. The service agreement lasts the life of the system (typically eight years) and results in $100,000 to $150,000 in annual revenue per machine. Because instruments wear out with use, ISRG earns approximately $1,500 to $2,000 in instrument sales per procedure performed. In 2007, each system performed approximately 135 cases. As can be seen in Figure 2, growth in the da Vinci installed base has been impressive, totaling 1032 units worldwide as of the third quarter.
The big question is, why has ISRG been so successful in the sale of this expensive piece of equipment? The da Vinci system provides a number of advantages compared to traditional, open, and less invasive surgical approaches. From a physician's point of view, the system provides improved comfort and visualization, while shortening the length of procedures and eliminating the effect of natural tremor found in the hands of surgeons. Many surgeons, as they age, develop tremor that can end their career; da Vinci is a way for those surgeons extend their career. From the insurance provider's perspective, the system reduces procedural trauma and shortens the hospital stay for the patient. For hospitals, shorter hospital stays leads to increased volume and, despite higher capital equipment costs, the robot leads to better per-procedure profitability. Most importantly, the patient benefits from less-invasive surgery which limits blood loss, scarring, and the hospitalization period.
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Irving Edelman
posted 12/09/08 @ 6:58 PM EST
Such a lovely artical neglected to explain 1]patent strength 2]competition potential 3]who manufactures replacement parts and disposables {in-house or 4surity of supplier} 4]growth of financials with all aspects of business 5] importance of any persons and retention insurance. (Continued…)
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