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By Prosper Junior Bakiny, Fool.com
Many companies don't last more than five years; many more have trouble reaching the age of 10. And those that can last 30 years or more are rare. Intuitive Surgical (ISRG 0.20%) is close to accomplishing that sort of longevity.
Created in 1995, the medical device specialist hasn't just survived over the years, it has thrived. That's not to say Intuitive Surgical hasn't faced issues, but even with a range of headwinds coming its way, the healthcare pioneer should be able to deliver outsize returns for at least 10 more years. Here is why.
The undisputed leader in robotic surgery
Surgeons typically make open incisions to reach the area they need to operate on. Minimally invasive surgeries, however, use tiny and highly maneuverable instruments that require far less skin cutting. The result is that patients typically experience less bleeding, recover more quickly, and spend less time in the hospital.
Intuitive Surgical's crown jewel, the da Vinci system, allows surgeons to perform robotic-assisted procedures that are minimally invasive. The healthcare company is the leader in this niche.
Although it makes money from the sale of da Vinci systems, most of its revenue comes from sales of the instruments and other accessories that need to be replaced after procedures. So the more operations that hospitals perform with a da Vinci, the more replacement instruments they need — and the more sales Intuitive Surgical makes.
First, according to some estimates, robotic surgeries are used in fewer than 5% of the possible procedures. Second, people are living longer thanks to medical advances, so the world's population is aging. Older people need more medical care, including more of the types of operations da Vinci robots perform.
Intuitive Surgical ended the first quarter with an installed base of 8,887 robots, a 14% increase year over year. Given the cost of these devices — between $700,000 and $2.5 million — and the time it takes to train surgeons on them, most hospitals that own one won't want to switch to another. That gives Intuitive Surgical a wide competitive most, along with a reputation that should attract many new healthcare facilities looking for a robotic device.
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Intuitive's headwinds are manageable
Let's turn to the risks. During the early COVID years, the company's procedure volume dropped substantially because of pandemic-related disruptions. Though a global pandemic won't happen often (hopefully), could the increasing competition in the robotic-assisted surgery market have a similar impact on Intuitive Surgical? Companies including Medtronic and Johnson & Johnson want to enter this field.
That shouldn't be too much of a problem. Neither Medtronic's Hugo system nor Johnson & Johnson's Ottava is approved in the U.S. yet (and that could still take some time), but considering how severely underpenetrated this market is, there should be more than enough room for all three.
Something else that is threatening Intuitive's procedure volume is the increased popularity of weight-loss medicines. The da Vinci system is used to perform bariatric surgery to help with obesity, but if patients opt for these therapies instead, that means fewer such procedures.
The company has said that it is already seeing this dynamic play out, but bariatric surgery accounts for only about 4% to 5% of total worldwide procedures, according to management. And it isn't as if obesity medicines are taking over in this type of care. So given the vast runway ahead, this should mean very little to long-term investors.
Buy it and forget it
Intuitive Surgical has many qualities of a stock worth owning for a decade or more. It is a leader in an industry ripe for growth, it has a strong competitive advantage, it delivers solid and consistent revenue and earnings, and it has an excellent track record. That's why, even with some headwinds it will have to deal with, it is well worth holding in your portfolio for the next 10 years.
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