The healthcare capital equipment market is slowly getting better, as hospitals are starting to pick up spending in the wake of the budget lockdowns forced by the credit crisis and recession. Not only is that good news for major imaging system companies like General Electric (NYSE:GE) and radiology companies like Varian (NYSE:VAR), but also for the burgeoning field of surgical robotics.

TUTORIAL: 20 Investments To Know

Intuitive - Biggest and Best, But Not Home-Free

The go-to name in surgical robotics has pretty much always been Intuitive Surgical (Nasdaq:ISRG), and the company has been exceptionally successful in placing its da Vinci robots in surgery centers around the world. Revenue has rocketed from $227 million in 2005 to over $1.4 billion last year, and the company has established a very profitable recurrent business model.

The challenge for Intuitive is what comes next. Intuitive has done a great job of advertising the benefits that da Vinci can bring to procedures like prostatectomies and hysterectomies, and the company has a strong position in urology and gynecology. The trouble is, Intuitive's shareholder base is ravenous when it comes to demanding growth, and Intuitive needs to start proving that its long-held promise in markets like colorectal, thoracic and cardiology can actually bear fruit. Success will mean hundreds of millions of dollars more in recurrent revenue, but investors will not wait forever.

Hansen Medical and Stereotaxis Look for Profits

Hansen Medical (Nasdaq:HNSN) and Stereotaxis (Nasdaq:STXS) are more focused, and so far less successful, robotic surgery companies relative to Intuitive Surgical. Hansen's Sensei system is focused on catheter guidance and ablation, offering doctors better control and less radiation exposure for the patient. The trouble with Hansen is momentum - after selling 58 systems in 2008 and 2009 (combined), the company sold 16 in 2010. Maybe a recent deal with Philips (NYSE:PHG) will help (and ease some financing concerns), but the company needs to deliver on its promise in vascular and electrophysiology to maintain its recent momentum.

Stereotaxis' systems (the Niobe, Epoch and Odyssey) are not identical to Hansen's offerings, but there are undeniable similarities. Stereotaxis is more focused on cardiac mapping, ablation, and stent and lead placement, and likewise offers the attraction of more efficient surgery. With the Niobe and Odyssey systems together costing about $1.5 million, these are not slam-dunk decisions for hospitals, and the company still has to prove that there is enough benefit to justify the costs. Investors should also realize that both stocks frequently trade on rumors that companies like Medtronic (NYSE:MDT), St. Jude (NYSE:STJ), Boston Scientific (NYSE:BSX) or Johnson & Johnson (NYSE:JNJ) will make a play for one of the companies.

MAKO Making Progress

Also trading near a 52-week high, there are big growth expectations for MAKO Surgical (Nasdaq:MAKO). MAKO has specialized in robotic approaches to orthopedic surgery, and its RIO system can be used in knee or hip procedures. MAKO has yet to prove it can replicate its success in knees and hips, but that is a major part of the near-term thesis, with longer-term possibilities in extremities and perhaps spine.

MAKO arguably has a bit more to worry about with competition. Intuitive Surgical's da Vinci could conceivably be adapted for orthopedic procedures (at least more easily than for the procedures provided by Hansen and Stereotaxis robots), and companies like Curexo Technology and Orthopaedic Synergy are trying to get a piece of the market as well. That's also not to exclude existing orthopedics companies like Biomet, Stryker (NYSE:SYK), and Smith & Nephew (NYSE:SNN) that are working on new procedures, some of which are image-guided.

Can IMRIS Shake Up the Market?

Canada's IMRIS (Nasdaq:IMRS) has a shot to play spoiler, but with a market cap of about $300 million, expectations are not huge yet. IMRIS has an emerging business with its image-guided therapy systems - basically allowing the capabilities of the MRI (and other imaging technologies) to be brought into an operating suite. That is promising (and the company has a relationship with Varian), but expensive at $10 million.

More interesting for this article, though, is the prospects of NeuroArm - a robotic surgery system that is arguably the most comparable to the da Vinci system of all the previously mentioned rivals. NeuroArm has shown some encouraging results in early trials and could be a player in microsurgery. Going a step further, it seems reasonable to wonder whether a system precise enough to be used in microsurgery and neurosurgery could have broad applicability in a much wider range of procedures.

The Bottom Line

There is no risk-free or value option in this sector. Intuitive has more than proven its ability to profit, but can it maintain the growth that its valuation demands? Can Hansen and Stereotaxis convince hospitals to buy enough machines to reach positive free cash flow? Can MAKO hold off would-be rivals in orthopedics? And last and not least, can IMRIS find its way into tight budgets with a very expensive imaging suite and succeed in getting FDA approval (and market acceptance) of another true surgical robot?

IMRIS is an exciting, if risky, play, and Hansen and MAKO both have some pretty robust opportunities in front of them. Investors should make sure they are comfortable with the risks and the above-average due diligence requirements, but these could be exciting plays on one of the relatively few explosive growth opportunities in medical devices. (For related reading, also see Healthcare Funds: Give Your Portfolio A Booster Shot.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!