Posted on October 17, 2017
In typical FDA fashion, TransEnterix received their FDA clearance letter late Friday afternoon for their Senhance surgical robot which was very welcomed by investors as the stock jumped 53% in after-hours trading. Senhance is the first new entrant into the abdominal surgical robotics market since the year 2000.
This morning the company hosted a conference call to discuss the clearance and the sales strategy moving forward.
We recently wrote about what TransEnterix is up against once they receive FDA clearance and the theme is no different after listening to the call.
TranEnterix CEO, Todd Pope, was clear in saying that investors should expect the capital sales cycle for Senhance to take four to six quarters.
To any investor out there: please temper your sales expectations.
Selling capital equipment to hospitals is hard and it's a process. I've done it for years and have been very successful at it too.
However, for those investors expecting TransEnterix to announce a sale tomorrow, next week or even next month, don't get your hope up.
This past Monday was the first day their sales reps could go out and present their system to a hospital's capital equipment committee. Things take time. With that said, I do think they will sell one before the estimated four to six quarters. They've had the luxury of time while waiting for approval and seem to have done a nice job getting surgeons excited about Senhance.
What did I hear on the conference call?
As a sales rep, the most important thing I heard from Mr. Pope was clear and concise messaging and you can expect their sales reps to be prepped very well as they head out this week to sell the vision of Senhance.
The TransEnterix sales team will start off with nine sales reps and Mr. Pope indicated there are five other regions targeted with the expectation that those territories will be filled by the end of the year.
As systems are sold, they will continue hiring additional field service reps and clinical reps.
As suggested in our recent article, the sales reps will likely focus on selling Senhance and the clinical reps will be present for each of the surgical cases once a system is sold. This will allow the primary sales rep to focus on selling Senhance to other hospitals and develop the market for hospitals where a system has been sold.
By design, the sales pitch from TransEnterix will be much different than the one from Intuitive Surgical.
TransEnterix is looking to convert laparoscopic surgeries to robotic surgery. This is their main objective.
Below is a slide from their most recent investor presentation:
In other words, they are positioning Senhance as the perfect bridge from laparoscopic surgery to robotic surgery.
While TransEnterix will undoubtedly compete with Intuitive Surgical, their messaging is focused on tapping into the existing 6 million patients having laparoscopic surgery and convert those to Senhance.
What else will TransEnterix focus on?
On the conference call, Mr. Pope referenced a quote recently put out by the American College of Surgeons stating that 87% of lap surgeons suffer from performance related symptoms.
Again, this feeds right into the messaging of improved ergonomics with Senhance:
TransEnterix expects to be successful moving these patients from laparoscopic surgery because of the benefits listed above but also because they are positioning themselves as easier to work with than their competitor.
For example, Mr. Pope continually hit on the benefits of Senhance's open architecture and its ability to work within the existing ecosystem of a hospital. As an example, if a hospital purchases Senhance, they do not necessarily have to replace their existing video towers. Mr. Pope reiterated they have a number of third party partners such as Stryker, ConMed, Novadaq and others.
These are all examples of TransEnterix doing everything they can do take cost out of the equation.
A hospital doesn't have to replace existing equipment and purchase new equipment from them just to do a case. Additionally, their instruments are fully reusable which brings individual case costs down, more in line with current laparoscopic surgery costs.
Where will revenue come from?
Most medical device companies with a heavy capital equipment focus get revenue from three specific categories: Capital, Disposable, and Service. As TransEnterix does not have instruments that are disposed of after each surgery, they will likely get their revenue from the sale of instruments which will be sold with the robotic system.
Here is a picture of their instruments:
Mr. Pope mentioned they have partnered with a third party leasing company to help provide hospitals different financing options when acquiring a Senhance. This is very standard. Each hospital handles the purchase of capital equipment differently and a leasing company such as GE Capital can help provide this flexibility.
Not having to throw instruments away after each case will be a huge win for them. This will eat into the revenue and profit opportunity for TransEnterix but so would not lowering the barrier to entry from laporoscopic to robotic assisted surgery.
Service is usually disregarded but it can bring a substantial amount of revenue for companies. A service contract will be offered to a hospital that purchases a Senhance. TransEnterix may even make the purchase of a service contract a requirement.
Intuitive Surgical's Response
While TransEnterix was clear that they are not specifically going to target current Intuitive Surgical accounts, the nature of sales is that there will be a competitive crossover. Yes, the focus is on moving laporoscopic surgery to robotic surgery, but this is also Intuitive Surgical's goal. They just don't have an option with the ergonomic capabilities that Senhance has.
Mr. Pope did say he can see them targeting a high volume laparoscopic surgery centers who already have one or two Intuitive Surgical da Vinci systems and add work with them to add a Senhance as a third system.
Intuitive Surgical's sales reps will finally have to sell with a true competitor in the market. It will be interesting to see how it plays out.
I would definitely not want to be the first rep in the country who lets a Senhance system into their territory. That rep may have to get their resume ready.
One thing for sure is Intuitive Surgical's sales team will be on high alert going forward. Expect competitive conference calls over the next several weeks to discuss Senhance. Trainers, sales managers and others will ask reps to alert them to any activity in their accounts. You can bet Intuitive Surgical will bring in the big managers if TransEnterix gets close to a sale.
A new upgrade program? Maybe. Ok, I would say that's likely.
TransEnterix will host another investor call on November 9th. During this call Mr. Pope will go into more detail on products and potentially future Senhance iterations such as their 3mm option that's currently being tested in Europe.
TransEnterix is also in the process of starting a registry study and will be focusing on beefing up Senhance's clinical portfolio.
The FDA clearance of Senhance came at an ideal time as the two biggest meetings of the year are coming up and TransEnterix can take advantage of the meetings to launch Senhance.
The American College of Surgeons (ACS) meeting is in San Diego on October 22-26 and the American Association of Gynecologic Laparoscopists (AAGL) meeting is coming up in Washington D.C. on November 12-17.
Congratulations to TransEnterix.