Surgical Robotics: Strategics have 5 possible choices

Surgical robotics strategics have 5 possible choices

Intuitive surgical has radically changed the game in soft tissue surgical robotics. It is having wide sweeping impacts across the industry. Well actually - it has had wide sweeping impacts across the industry. It has left many strategic companies with a major headache. Risks to their business - and potentially existential threats to some of their divisions.

This applies to suppliers of endo mechanical products, from Medtronic to JNJ to Applied to Meril to a host of stapler manufacturers and trocar manufactures.

This applies to the well know “Tower” imaging companies like Stryker to Olympus to Storz to Arthrex. And not just for their tower business but also to their smart OR business.

The Intuitive train is gaining speed, especially in the markets these strategics really really care about - USA, Europe, China, Japan, Brazil (and more). They are converting to da Vinci at a relentless space and eating up legacy businesses.

Some of the companies have already reacted - Medtronic with HUGO, Storz with Asensus. But it is still to be seen if these are the right defensive moves.

Others are piling in behind with JNJ and Ottava in an arms race (pun intended) to try and slow the conversion and take a piece of this lucrative pie.

If this onslaught is not stopped in the primary markets (please for now forget the hundreds of small markets - that’s not where companies will survive) then some strategics may lose entire divisions - and for some companies it really will be their demise.

To that end I’ve put down the 5 choices, that I think, the strategics are now faced with. You’re going to really like the last one:

Choice 1: Exit the business and divest while there’s still value

One option is to realise that they’ve left it too late, or they don’t have enough money, or they don’t have the capability to compete. In these scenarios it might just be better for the company to divest their business and realise some value in it - while there is still some value in it. Slow growth or even declining sales of a business where margins are being compressed are never attractive for big strategics to hang on to. Dwindling energy device sales, tanking trocar revenues, diminishing stapling, pressure on towers and service contracts - can all drag on a corporation.

It may make sense to release value today while it still exists. Maximise the sales price of assets and then re-invest that cash into an area where there is no such pressure on sales. Where there is big growth, and they can be the dominant player instead of being a late follower playing defensive strategy games.

It may seem unthinkable that some of the giants could “exit” segments they have been known to build and dominate for years. But financial calculations “what it will now take” to remain relevant may well override the emotional ego side of business decisions. It may just be a mathematical reality that they have to face. Get out - sell - get cash - reinvest into another area where they can lead.

Choice 2: Strategics can get a surgical robot and compete directly or indirectly with Intuitive

Some companies have already taken this decision and have internally built their competency (and bought in) - such as Medtronic and JNJ. Where as others have purely bought their way in - like Storz.

They have decided that the investment is worth the risk - and that having a competing robot is the way that you stem the tide of the Intuitive advance.

But to date - with Medtronic being the number one soldier that has walked into this battle. The body count is not looking great so far.

The cost to do this is massive - and I am still not sure all the companies have fully understood what this will cost over a decade to just nibble at the edges.

But fortune smiles on the brave - and some of the companies are now “half pregnant” so it is how they will now get to market - and the quality of their launches and product introductions that will now decide their fate.

Or re-launches - as I’d encourage Medtronic with HUGO - with a HUGO 2 fast follower tech.

Companies like Stryker - can be smart and realise that they'd not run today (in some senses) super head to head with Intuitive. But they can see the threat of the ASC play by Intuitive and that could risk their tower buisness. By going after a slightly different type of robot - they could defend their business without (in many ways) going directly head to head with the 800 lb Gorilla.

I think - unless you are going to make something so incredibly advanced compared to da Vinci - there is virtually no reason anyone would buy your robot vs theirs. Why would they? However, if the robot you get offers a very clever workflow, site of care, information and data difference that is “meaningful” - then maybe there is a good reason for a hospital to have BOTH. And be assured their primary robot will be a da Vinci. Their secondary, for say ASC, or Outpatient, or low acuity “light” cases could be the other strategic’s... and that could be enough (they are still massive segments) to be a sustainable business and protect their core business.

Going head to head with da Vinci  (and Intuitive as an amazing company) is already proving to be a battle many are losing. Be smart! Go around the side.

Choice 3: Double down on your robotic program

Now if you are a strategic then one thing you can do is just decide - it’s Robot or death. That means you can roll the dice and just say “we are all in on this and we will not stop.” That means coming out with a “Da Vinci” killer. (As many have believed they were). Now I don’t in any way shape or form think that is possible in the next 10 years. But I saw Nokia vanish in a flash to Apple. So weirder things have happened in business.

But in the Apple example - it was a fundamentally different product coming from a fundamentally different place. In my head - that is “not impossible” but the current raft of robots I see on the market today, or coming to market in the next 5 years are pale imitations of “what the da Vinci does well.”

There is no radical change.

Instead, imagine if tomorrow a fully autonomous robot dropped. The surgeon plans and supervises, and the robot does every procedure as if the top 50 world’s best surgeons were operating (as a combined force) with outcomes that were off the charts. Imagine it was tiny - compact - moved between ORs autonomously after setting the schedule for the day. If it had next generation energy and shape shifting end effectors that mean you only needed 3 instruments and they could (like a Swiss army knife) do everything you needed. There was no need for imaging systems as we know today. The system could see in multi modal imaging that humans find hard to comprehend…. Etc etc etc.

But that requires getting all the MedTech people to stop interfering - and have visionaries step in guided by them. Not told what to do by them.

Instead - a halfway house it to make already Gen 2 and Gen 3 of your robot as fast as possible. Luna is a Gen 2 of Senhance - maybe be there’s something there.

Get Hugo 2 out - smaller compact - smarter - (with its own next gen imaging… just saying.)

Have Ottava Gen 2 ready to go - 6 arms with integrated endolumenal - but make that a priority.

Invent beyond your staplers and energy devices with tissue welding - automatic suture based anastamosis - combined percutaneous energy delivery with lap guidance. Etc etc. With autonomy and digital as the core, and mechatronics as the delivery mechanism.

But the alternative is that if you want to go head to head with Intuitive - then you have a 10 year 5 to 10 billion dollar spend with the sole goal of leapfrogging - do unto them what Apple did to Nokia. Pale imiations exit at the next stop please.

Choice 4: Your program’s not working - get a plan B

Plan A for most companies will NOT work in all geographies, in all procedures, at all price points.

Damn… look at Intuitive. DV5, Xi, X, SP - spells choice (actually it spells Dv5xixsp). But what I mean is that it is clear from the leader that segmentation is going to play a vast role in this market.

When I see Medtronic with just HUGO (soft tissue of course they have others in other specialties)

Or JNJ that will have just Ottava. (yes they have Velys and Monarch)

Storz with Asensus

I ask - is that segmenting the soft tissue surgical markets and providing the right tool for the right procedure at the right time? No. The smart money could be doing this!

Here's some fantasy startegics for ya...

Medtronic - go buy Virtual Incision and Ronovo. Get a cool single port application that does not but directly against SP. And a next gen Hugo that is smaller - more compact and easier for Xi users to jump across to. Get Moon - to bolster your Lap 2:0 strategy. Etc etc

JNJ - Launch Ottava as a premium segment in the USA. Go buy CMR Versius (and tomorrow become the number 2 player in soft tissue robotics) just sayin’. And potentially take a Moon surgical as well to defend your lap 2.0 segment. And you will need single port.

Stryker - get a Distal motion and a Virtual Incision - and make a bang up ASC fortification strategy with the 1788 at the heart of it.

Applied - team up with Toumai and have a DV clone and top class consumables - add your energy devices in and get a combined offering around “economics” and accessibility for all.

(Insert your own combinations right here… it's fantasy time.)

Plan B is critical for two reasons. Firstly it gives breadth to the portfolio and segments the markets, geographies, users, price points and procedures. It carves up the sites of care to have the right solution in the right place.

But for me - Plan B is about - Plan B.

In my opinion HUGO is not exactly rocking it today - and with staplers coming, energy coming - improved software and tweaks it is getting “better.” And will be “Better.” But if it is still considered “Too big” or "a pale comparison" of DV. Then having a Plan B will be a real Plan B that could and might still be enough to keep the wheels on if their plan A systems don't meet the optimism.

I am staggered how many of the strategics are still just in Plan A mode “All or nothing” - and as one of the few people on earth that has genuinely gone up against the might of Intuitive (where I tug at my forelock) - I’m looking at what everyone is coming with and screaming at you. “Get an F’in plan B. Thank me later.”

Choice 5: Carry on as is and milk it

Now the might seem an odd choice. But that may look this way until you understand the economics of getting a soft tissue surgical robot to compete with Intuitive.

All that development money is nothing… nothing.

The cost to chase a potential 10% market share will be in the billions. That fuel is coming from the existing business. A smart alternative is to say “Fuck it! Let them come and take us over the next 10 years. We go into cash cow mode - milk the business - use this profits wisely instead of chasing the Dragon. Invest that back into areas of high growth. Just slash and burn the infrastructure and let it slowly diminish away as other business segments take off, back fill and overtake it.”

On the surface this may seem madness. But I’ve done some back of the envelope calculations. If your robot comes out and is a ”success” and lifted your other tower or endomech business - then result. But the chances of that happening (out of the gate) and the robot not just becoming a money pit is low. Because it takes billions to get that small market share - and with the oxygen gone from the room on capital up front. It’s a cash flow nightmare.

The loss of profit from lost business may well be less than the cost of trying to capture robotic market share. And even then it is no guarantee you will not lose that other business to cheaper competitors.

Often hospitals will think - “Hmm to pay for the robot we need to save some money on staplers, sutures, energy... so let’s find some cheap alternatives.” That is a real risk.

You see - if Intuitive wins the business - they don’t put their legacy tower business or their suture business at risk. Administrators may say “To pay for our robot let's reduce spend in other areas” and then that for some companies becomes a massively self defeating result.

The answer really may be… do the best you can as long as you can. Do some fancy marketing to keep people on the lap train as long as possible. Make lap more attractive and the delta to robotics even bigger so the economics don’t stack up as well. Keep the lap alive as long as possible and milk it milk it. Don’t spend all that money on trying to get 10% market share of robotics at lower profitability. Do the math and say “Hey in 10 to 15 years the game is over, but we will have made more profit this way and invested energy - time and money into a new growth area where intuitive is not. And we can be the dominant growth player.”

Bold but possibly the right decision.

Note: Of course there are tons of other solutions - but buying Intuitive is not one of them (in my opinion. If you haven't seen the market cap of them against most other strategics - you need to understaand they are the big dog !). Keen to hear your opinions.

These are just opinions of the author for educational purposes only. All trademarks owned by their respective companies.