Can TransEnterix overtake Intuitive Surgical in the robotic surgery race?
Posted on April 08, 2019 by Medtech[y] Staff
*This article was updated April 8, 2019 to reflect Intuitive Surgical's most recent 'Intuitive By The Numbers' video
A number of companies, including TransEnterix, are set to enter the robotic surgery market in the coming years. The market is projected to reach over $20 billion by 2024, but there's this little company named Intuitive Surgical waiting with history and a massive sales and marketing organization on its side.
Here are a few stats from a 2018 Intuitive Surgical's 'Intuitive By The Numbers':
- 5,000,000 da Vinci patients (and counting)
- Over 43,000 surgeons trained
- Over 15,000 peer-reviewed publications on da Vinci robotic assisted surgery
- 4,409 da Vinci systems in hospitals on 6 continents and 66 countries
- 4,380 employees around the world
- 2,700 patents with 1,900 more pending
- Used by 100% of the top ranked U.S. hospitals in Cancer, Urology, Gynecology and Gastroenterology
- Every 36 seconds a surgeon starts a da Vinci procedure
- 23 years of continuous innovation
- 5 da Vinci surgical systems
To put this in perspective, Intuitive Surgical currently has 4,409 surgical robots at hospitals around the U.S. with a huge field sales and service ecosystem. Within this ecosystem, Intuitive has ~1400 skill simulators/dual surgeon consols, 24/7/365 comprehensive support, and over 40 training course offerings.
Don't get it wrong, this is not a fluff piece for Intuitive Surgical. Rather, these numbers are a realistic view of what TransEnterix (and others) are looking at when trying to enter the robotic surgery market. It can be done, but not without a very strategic approach.
On the positive side, Intuitive has already done the heavy lifting and convinced surgeons and hospital administrators that robotic surgery needs to be part of their offerings. The negative is that those hospitals already shelled out ~$1 million for an Intuitive robot, not another one.
When reached for comment on our story, Intuitive Surgical seemed to welcome the competition:
“Competition is additional confirmation of the value of robotic-assisted surgery, and with continued growth in the field, other companies can no longer sit on the sidelines.”
Competition is inevitable, but in order to unseat Intuitive Surgical, execution has to be perfect.
Large, multinational companies like Intuitive Surgical have unlimited resources but the upstarts do not. The initial funding for start-ups like TransEnterix come from venture capital and other investment funds. Additional funds can come from post-IPO equity rounds.
Money Raised and Market Cap
TransEnterix currently has a market capitalization (outstanding shares x share price) of $69.81 million and raised $263.03 million to date. This is not uncommon considering the amount of capital required to get a product approved through the FDA, but they are currently worth much less than the amount of money raised.
With this said, can TransEnterix afford to add more shares in another equity round before they start showing material revenue? This is a question for banks and investors but both TransEnterix and Titan Medical are at risk of completely diluting their value with extensive rounds of share offerings.
On the contrary, Intuitive Surgical has a market capitalization of $33.27 Billion with 750K procedures performed in 2016 accounting for a 15% growth in procedures. In other words, Intuitive Surgical is well past their funding stages and their primary goal is on innovation and growth.
What differentiates TransEnterix from Intuitive Surgical?
Haptic Feedback and Eye-Sensing
These are very unique technological selling points for the TransEnterix Senhance system, but they likely would have been more beneficial to the company if their SurgiBot system was on the market as opposed to getting denied by the FDA in 2016.
In April of 2016, the TransEnterix SurgiBot was denied FDA approval, forcing TransEnterix to pivot and focus on the FDA approval of their ALF-X system, which then took on the name, Senhance.
Whether TransEnterix admits it, the SurgiBot was set to become their flagship system.
Regardless, both systems have these technological benefits, but having the ability to hit the market a year sooner would have made a dramatic difference in the adoption of their technology.
According to Intuitive Surgical's latest investor presentation, they are currently working on similar features for their robotic systems. While there is no timeline for FDA approval, or an indication of what systems will incorporate these features, the window of opportunity is closing for TransEnterix to use these features as strategic selling points.
The economic benefit has always been the biggest argument for the newer and smaller players hoping to enter the robotic surgery market. Titan Medical's SPORT and the TransEnterix offerings were both slated to be much more economically appealing than the offerings from Intuitive Surgical. With FDA approval challenges and development setbacks, these perceived economic benefits may not be real any longer.
Welcome da Vinci X to the stage.
The da Vinci X system was approved in June 2017 and, according to Intuitive Surgical, will be priced at 2/3 the cost of Intuitive's flagship system, the daVinci Xi.
71% of Intuitive Surgical's revenue in 2016 was recurring which means their capital sales (da Vinci) have slowed and the true growth is coming from increased adoption in General Surgery, Gynecology and Urology.
This is where a lower cost system is needed to increase the percentage of Intuitive Surgical's capital sales.
A reduced acquisition cost has been one of the big selling points for companies like TransEnterix and Titan Medical's SPORT system. While the list price of those devices is unknown as they are currently not on the market, it is fair to assume the recently approved da Vinci X will be competitively priced with them.
The da Vinci X will be optimized for focused-quadrant surgery for procedures, including prostatectomy, hernia repair and benign hysterectomy. The system will also incorporate the latest vessel sealing and stapling technology and endoscopic instruments.
The biggest variable is the ability to reuse instrumentation with the Senhance system. This is listed as a benefit but the pricing and amount of times these instruments can be reused is unknown.
TransEnterix Sales Strategy
Hire Intuitive Surgical Employees
The smartest move TransEnterix could make would be to go after a sales team that has Intuitive Surgical on their resume. From first glance, it looks like they've already used this strategy.
From a simple LinkedIn search, there are currently nine TransEnterix employees who have worked at Intuitive Surgical in the past.
Most notably, Paul Ziegler, the VP of Sales for TransEnterix, came over from Intuitive Surgical as well as the VP of Marketing and the Director of Market Development.
This is important as their goal should be to focus on the technology and not reinventing the sales wheel.
The early sales organization at Intuitive Surgical was one of the most successful in the history of the medical device industry. Having executive sales leaders and sales reps in place who understand those strategies will be imperative as TransEnterix ramps up toward FDA approval and beyond.
So what exactly will these former Intuitive Surgical sales leaders bring to TransEnterix?
What is market development?
It's basically getting hospitals to compete in an arms race against one another by using medical technology as the driver.
If hospital A creates a marketing campaign promoting their new surgical robot as the only one in town, they make hospital B across the street look like they are behind and not as good of a hospital, thus forcing hospital B to invest in that same technology.
The game isn't new. Intuitive has been using it for years with many early stage medical device start-ups replicating these programs with much success.
However, market development only works if the surgeons AND hospital administration buy into it. What makes TransEnterix believe administrators and surgeons will look at their system the way they did when Intuitive Surgical hit the market?
Will a competing hospital go out and buy a Senhance system because of this or will they just continue marketing their hospital as cutting edge because they have the latest product from Intuitive Surgical?
On top of market development strategies, the other obvious benefit in bringing Intuitive Surgical employees over are their surgeon contacts. Having the ability to easily get in front of surgeons and have their ear will be key once Senhance ramps up towards FDA approval.
What surgeons do they go after?
In a medical device start-up, the debate is endless: Do you target private practice surgeons or the academic surgeons?
With the academics, you have a chance to get surgical residents trained on your system while they are in school, which means they will theoretically want to use it once they get out in private practice.
Additionally, many of the academic institutions employ some of the most well-known and respected surgeons in each medical specialty and they are typically heavily focused on publishing data on new technology. Obviously, this is a two way sword as not all data is positive.
Getting a product in an academic center typically comes with several caveats. Yes, you get residents trained and you can say well known surgeons are using your system, but there is a price to pay with them.
Academic institutions can bleed a start-up company dry if they are not careful. The want everything for free. Everything. Or at least get your product at a major discount.
Is a start-up with a sub one dollar stock in position to give product away for free and get dragged around by a slow moving academic institution?
This is important as once the system is purchased, the sales rep will spend a majority of their time at that hospital working with the surgeons on surgeries and in-servicing the hospital staff.
TransEnterix may very well have sales reps that only cover cases and hire a senior rep who mostly focuses on selling the capital equipment but that costs money. In understanding the sales strategies of medical device start-ups, these academic institutions are typically not the best place to start when rolling out new products.
However, if you want to give away a million dollar system or agree to a bunch of freebies, then have at it!
Private practice is more straight forward. A surgeon either wants a device or they don't. If the surgeon wants it, they typically have the ability to pound on the table and get what they want. The capital sales cycle can take time, but the hospitals are intent on keeping their surgeons happy. The surgeon has to be part of the process, otherwise a sale of this size will not get done. The differences are that a non-academic hospital understands they need to pay for the systems and are less likely to expect significant discounts.
There are also considerably more public hospitals than academic centers around the country which means there is a greater opportunity for market development with private practice surgeons as opposed to academic institutions.
Hypothetical and reality are much different with a start-up. Unlike a company the size of Intuitive Surgical, time and money are not endless and these are some of the hard strategic decisions TransEnterix has to make during pre and post commercialization.
Does TransEnterix have a big enough value proposition?
When you add up the perceived benefits listed above, they don't add up to as much as they would have a year ago.
However, are they enough to get business in the US market?
The projected revenue is unknown, but there are always going to be surgeons who want to use the newest thing. There are also surgeons who have been pissed off by Intuitive Surgical over the years so there will be a chance for business with those surgeons. The question is how much? Those are all unknowns.
While there may be that subset of surgeons who want the device, those same surgeons have to be the ones who go to the hospital administrators and pound on the table for the system.
After years of experience selling capital equipment, that's the only way it gets done. It isn't an overnight process either, especially if the hospital is in the middle of their fiscal year. There are always discretionary funds, I don't care what they try to tell you. However, they are not easy to come by so the surgeon(s) and sales reps need to be on the same page to make a sale happen.
With that said, will investors understand that the capital selling process is one that can take 6-12 months?
Intuitive did $2.7 billion of revenue in 2016 and the market is project to be over $20 billion by 2024. There will be plenty of business to go around.
However, TransEnterix doesn't have the window of opportunity they would have had in 2016. While there are no immediate threats to Intuitive's business, almost every major medical device company has some robotic surgery program being developed.
Medtronic's robotic surgery program is expected to launch by the end of 2018 in India and provide material revenue to their bottom line in 2019. Additionally, Medtronic has a sizable investment in Mazor Robotics, a player in the robotic spine market.
Then there is the partnership between JNJ and Google, now Verb Surgical. Details are scarce but there isn't another set of companies on the list that can match the capital behind Google and Johnson & Johnson. Having the resources to get to market are of no concern. They can spend their time getting the product right. This is a luxury TransEnterix and Titan Medical do not have.
Titan Medical is the most similar company to TransEnterix as they are both small, public companies, who have taken a fair amount of equity rounds as they work to commercialize their offerings.
Titan Medical Funding:
There are also niche players like Medrobotics, who offer a flexible robotic system for hard to reach anatomical structures.
It is important to note that Intuitive is also working on similar technology. The timeline for integration and approval is unknown.
Surgibot was a big opportunity and it is now on the back burner. Fortunately, TransEnterix has the ability to pivot and work towards the FDA approval and ultimately, adoption, of their Senhance system.
Time has hurt their chances of taking advantage of many of the benefits listed above but the opportunity is there. The potential market is too big to fail as long as they are strategic in their sales execution.
There are other players in the robotic market that were not mentioned but they mostly focus on other surgical specialties than those listed in this article.
Intuitive Surgical has an enormous head start and those listed have a great opportunity but they have to understand Intuitive Surgical has not lost their focus. In fact, they have upped their game.