A Medical Market Set to Quadruple in the Next 5 Years

In the 2012 sci-fi film Prometheus, the archaeologist heroine Elizabeth Shaw, played by Noomi Rapace, discovers she has an alien being growing within her and makes her way to a sleek, egg-shaped robotic surgery machine inside her spacecraft.

After crawling inside the device, Scott verbally instructs the machine to remove an abdominal growth inside her. The machine anesthetizes her locally, cuts her open, removes the alien and repairs the incision, all within minutes. Scott is weakened dramatically by the surgery, but she is able to summon enough energy to kill the critter that was inside her and walk away.

Prometheus is set in 2089, but with the exception of the alien, there’s not much science fiction in that scene.

My guess is that we’ll see something like a purely robotic surgery long before 2089 — probably within 20 years. Technologically, the only significant difference between the sci-fi robotics in the movie and robotic surgery available in 2014 is that in the movie, there was no surgeon nearby commanding the robotics.

Recovery times for robotic surgery may be significantly less than manual surgery…

Robotic-assisted surgeries are becoming commonplace. More than a million robotic operations have been performed since the FDA approved Intuitive Surgical’s (NASDAQ: ISRG) da Vinci system in 2005.

There are more than 2,000 da Vinci robotic surgery machines installed in hospitals around the world, and the types of operations performed with them now include bariatric procedures, prostatectomies, hysterectomies, complex urological cancer surgeries, thoracic surgeries and neck and head surgeries.

Da Vinci is the only robotic surgery device approved by the FDA, if you don’t count advanced laparoscopic devices as robotics. There are now thought to be more than 350,000 surgeries performed with the da Vinci system annually.

Why so many? Although some of the reason may be reportedly aggressive marketing by Intuitive Surgical, another reason has a lot to do with how ineffective one human body is at cutting delicately into another human body.

Think for a moment how huge a surgeon’s hand is compared with a heart valve or a blood vessel. Think how clunky the whole arrangement of a surgeon’s hand holding a scalpel is. When a surgeon’s hand needs to cut away something like a cancerous growth around a tiny blood vessel or nerve, think how much better those movements might be performed if the hand were much smaller, the knife were much smaller and the hand could rotate 360 degrees.

When it comes to the really delicate work, like replacing a heart valve, robotics uses software and motors to miniaturize the surgeon’s hand motions. Unwanted movements, tremors and any leftover jerkiness from last night’s bottle of wine are ameliorated. In a device like da Vinci’s, a 1-inch movement by a surgeon’s hand can be reduced by the robot to a fraction of an inch at the other end of the device. This is scalability.

Meanwhile, the surgeon observes what he is doing via a 3-D vision system connected to cameras inside those tubes. A robot also can be loaded with a database of thousands of similar operations to help in guiding the procedure.

A Surgeon Using Intuitive Surgical's da Vinci Robotic Surgery SystemA surgeon using Intuitive Surgical’s da Vinci robotic surgery system sits at a separate terminal near the patient and controls the operation from a booth that incorporates 3-D vision technology.

The genius of most surgeries is the brain in the surgeon’s head. We can’t replace that yet with computers or robotics. But the connection that brain has to tools in the real world — held by hands — couldn’t be more inadequate unless we operated with our feet.

Robotics typically involves only a few small incisions, avoids the need to cut large amounts of tissue and is far less invasive than open surgery.

A patient who has had the robotic equivalent of open heart surgery — without a heart-lung machine, without stopping the heart without being under anesthesia for hours and hours, can find themselves walking down hospital corridors the next day…

Instead of spending days in intensive care and suffering the consequences of hundreds of ministrokes caused by heart-lung machines.

Not to mention fewer infections from smaller incisions, less scarring, less bleeding and less pain. Recovery times for robotic surgery may be significantly less than manual surgery if the surgeon has lots of experience.

Getting back to Intuitive Surgical…

Intuitive Surgical has been on an amazing ride in the last decade.

In 2006, months after the FDA approved the first da Vinci surgical robot, you could have purchased the stock for about $6 a share. Since then it has reached a high approaching $600. Intuitive Surgical’s stock took a big dip in 2013, dropping precipitously from about $520 a share to almost $350 a share on adverse publicity about the safety and cost of robotic surgery as well as declining sales. Sales of the da Vinci devices, which had been climbing at phenomenal growth rates for a decade, plunged nearly 30% in 2013 in the United States. International sales, however, have continued to climb. Moreover, as ever more surgical procedures are approved and developed, each unit needs upgrades, accessories and replacement tools, providing an additional revenue stream.

So how are we to invest in this disruptive trend that everyone will be clamoring for?

Reasonable people are uncertain if the Affordable Care Act will allow robotics to grow as quickly as they have in the past. One of the most fundamental and least appreciated facts about Obamacare is that it will require reimbursement based on something called diagnosis-related groups. That means if people are diagnosed with an inflamed appendix and their outcomes are better with laparoscopic surgery than robotic surgery, which usually costs more, then the insurance will not pay more for robotic surgery. The days of costs plus reimbursement for hospitals are over.

Furthermore, Intuitive Surgical’s price is based partly on its monopoly. No other robotic surgery device is approved by the FDA, but that is not likely to continue.

Intuitive does invest a lot of its earnings in R&D, which is likely to keep it at the forefront of this technology for some time. But there is room in the robotic surgery marketplace for competitors, and the cost of entry is not too high. I think we’re better off investing in disruptive newcomers who just might be able to give Intutitive a scramble and which are undervalued at the moment.

So what is the up-and-coming competition?

There are a number of robotic surgery systems in development around the world, most for specialized applications, but two companies stand out: Titan Medical Inc. (OTCBB: TITXF) and TransEnterix (NYSE: TRXC). Intuitive could acquire either of these.

Let’s return to that robotic surgery scene in Ridley Scott’s movie Prometheus. Is that scene really likely in the foreseeable future?

Technologically, yes, but perhaps not emotionally. An interesting analogy is that passenger aircraft can now take off, fly to a destination and land robotically. Pilots these days serve mostly as observers who set the dials on the autopilot and speak to air traffic controllers. Aircraft can take off and land as well as or better than many pilots can.

At this moment, robots are not built to perform surgery without a physician guiding them, but there are few technical reasons why a robotic device couldn’t perform a simple surgery like gallbladder removal without much human help.

The missing component is a PET scan of the person being operated on. With that, and a database of thousands of similar operations, a robotic device could be built to perform relatively simple surgeries such as appendectomies.

Consider that in 1995, laparoscopic surgery was considered a mysterious new form of robotics, and it was very controversial. In 1995, it was used for only about 5% of hysterectomies. In 2013, it was used in 70% of those operations. Robotic surgeries are on a similar path of acceptance, and, eventually, preference.

If you can fill a computer database with step-by-step analysis of thousands of previous identical operations and then tie that into a device that can perform microsurgery at a level only a few humans can accomplish, a patient in the future would be foolish not to pick the robot to perform the operation.

Robotic-assisted surgery is here to stay. It will grow and expand and become as normal as laparoscopic surgery now is. It took 15 years, from about 1995–2010, for both patients and physicians to become convinced that outcomes are frequently better if laparoscopic surgery can be used instead of more invasive methods.

I predict it will take about the same amount of time (starting from FDA approval in 2005) for robotic-assisted surgery to become the default. And then the next step will soon follow: I wouldn’t be surprised to see a robotic surgery device that can do simple operations like gallbladder removal without a surgeon employed by 2025.

A decade after that, unassisted robotic surgeries may be commonplace.

Forward thinking, even when not perfectly accurate, is the key to successful investing in technology.

Had you been able to predict that Google, when it went public in 2004 at $85 a share, was not a search engine in need of a revenue stream but instead a media company likely to become one of the most successful paid advertising venues of all time, you’d have bet the house on it. Had you looked carefully at energy pricing a few years ago and added in the price of CO2 to fossil fuels, you’d have realized that automobiles must become electric by 2030 and you might have poured your savings into Tesla when it was cheap.

That kind of forward thinking is staring us in the face with robotic surgery. The robotic surgery market worldwide is $4 billion annually. It is conservatively expected to quadruple to $20 billion in five years. That is almost a 40% annual growth rate.

Best regards,

Stephen Petranek
for The Daily Reckoning

P.S. The robotics industry’s 40% annual growth rate is a safe, solid way to protect and grow your wealth. But if you’re looking for something with a little more upside and risk, you’ll want to sign up for the FREE Tomorrow in Review email edition. Inside every single issue, readers are treated to a handful great investment ideas, including specific chances to grab actionable stock picks, from a wide range of tech investing experts. You’ve got nothing to lose except massive profit potential as the tech sector continues to expand. Don’t sit on this opportunity. Sign up for Tomorrow in Review, for FREE, right here.

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