Intuitive Surgical Files IPO Prospectus Amid Market Challenges and Strategic Shifts

Listed23Year, stock price from2Surge in the US Dollar184Beizhi369Dollar'sIntuitive Surgical, now it seems to have encountered"Midlife Crisis".

On July 19, the stock price of Intuitive Surgical once surged to $358.07 per share, with a market value reaching $126.1 billion. However, after the release of its Q2 earnings report on July 20, the stock price continued to decline. By the close on October 27, the stock had dropped to $258.98 per share, with a market value of approximately $91.2 billion.

From July 19 to October 27, the market value of Intuitive Surgical has shrunk by approximately $34.9 billion (RMB 255.4 billion, calculated at the exchange rate on November 1).

After Intuitive Surgical released its third-quarter earnings report, some media outlets and securities investment consulting firms believed that Intuitive Surgical had achieved better-than-expected growth, but its stock price did not see a significant rise.

With the da Vinci surgical robot dominating the global market, has Intuitive Surgical's growth encountered a bottleneck? What changes are occurring in the surgical robotics industry? What trends and shifts are revealed in Intuitive Surgical’s latest financial report?

On October 19, Intuitive Surgical, the global leader in surgical robotics, released its Q3 2023 earnings report. The report showed that the revenue for Q3 2023 was $1.74 billion (approximately 12.7 billion RMB), representing a 12% increase from $1.56 billion in the same period last year.Although the data is positive, hidden concerns have emerged.

By business segment, Intuitive Surgical's revenue sources include systems, consumables (instruments and accessories), and services, namely surgical robots + consumables + services.

In terms of systems, in the third quarter of 2023, Intuitive Surgical's surgical robot (system) revenue slightly decreased to $379 million., lower than US$426 million in the same period of 2022 and US$415 million in the same period of 2021. However, Intuitive Surgical installed 312 da Vinci surgical robot systems in the quarter, higher than 305 units in the same period of 2022.

High installation numbers but low revenue are due to the fact that, during this reporting period, 163 of the installed da Vinci surgical robots were installed through leasing, compared to 113 units in the same period in 2022. In the third quarter of 2022, the proportion of da Vinci surgical robots installed via leasing accounted for 37% of the total installations, while in the third quarter of 2023, this proportion reached 52.2%. This shows that...Although the installation volume of da Vinci surgical robots has increased this quarter, the growth is mainly due to the increase in installations under the leasing model, while the installation volume from full-price purchases has actually decreased.Therefore, Intuitive Surgical's revenue in the surgical robot sector decreased in this quarter.

To make matters worse, hospitals in the U.S. are currently facing significant financial pressures and declining profitability. As a result, most hospitals have scaled back on equipment investment plans and tightened their financial budgets. Additionally, amid challenging macroeconomic conditions, the financial budgets of U.S. hospitals will continue to be affected.

Intuitive Surgical predicts that financial pressures on hospitals will impact their procurement plans for the da Vinci surgical robot and limit the growth of installations of the da Vinci system. Additionally, increased competition in various markets will place greater pricing pressure on Intuitive Surgical, which could also affect the growth of da Vinci surgical robot installations.

In terms of consumables, in the third quarter of 2023, Intuitive Surgical's instruments and accessories business revenue reached $1.07 billion, a year-on-year increase of 23%. However, in the previous quarter, the revenue of this segment reached $1.08 billion.According to the analysis, the year-on-year growth in the instruments and accessories business was mainly driven by the continued increase in the number of installed da Vinci surgical robots and the number of surgeries performed, as well as improved pricing.

As of September 30, 2023, Intuitive Surgical has cumulatively installed 8,285 da Vinci surgical robots, representing a 13% year-over-year increase from 7,364 units as of the end of the third quarter of 2022. Although some installations are under a leasing model, each use of these da Vinci surgical robots generates revenue for Intuitive Surgical.

In addition, the continuous growth of the installed base has driven the increasing number of surgeries performed by the da Vinci surgical robot. Compared with the third quarter of 2022, the number of surgeries in the third quarter of this year increased by 19% year-on-year, and the growth rate was almost the same as last year.

According to the financial report, the high growth rate in the same period last year was due to the reduction in the number of surgeries in the third quarter of 2021 caused by the pandemic. This year's higher growth rate comes from the increase in general surgery and gynecological surgeries in the U.S., as well as the rise in general surgery and urological surgeries in markets outside the U.S. Notably, the number of surgeries performed using the da Vinci surgical robot has seen strong growth in Japan, Germany, and the UK.

As the main base and primary source of revenue for Intuitive Surgical, the steady growth in the number of surgeries in the U.S. is expected. However, the accelerating growth in surgery volumes outside the U.S. indicates that an increasing number of doctors worldwide are receiving training related to the da Vinci surgical robot and recognizing its value.

More importantly, the clinical and economic value of the da Vinci surgical robot is gaining increasing global evidence, and winning over more clinicians and healthcare payment units.

However, there is also negative news regarding the volume of surgeries. The explosive popularity of the "weight-loss wonder drug" semaglutide seems to have impacted the da Vinci surgical robot. Compared to the previous quarters, the growth rate of weight-loss surgeries performed using the da Vinci surgical robot slowed in the second and third quarters of 2023. Intuitive Surgical stated: It remains unclear whether this slowdown in growth represents a temporary pause as patients evaluate new drug therapies or if the growth of weight-loss surgeries in the U.S. will continue to decelerate in the future.

Based on the clinical data and latest developments of semaglutide, we predict that the number of bariatric surgeries performed by the da Vinci surgical robot will continue to decrease.

Perhaps having foreseen the current situation early on, Intuitive Surgical opted for the "system + consumables + services" business model. Currently,Compared to previous years, the revenue pillar of Intuitive Surgical has quietly changed, with consumables (instruments and accessories) becoming its most important source of income., and this细分 business will become increasingly prominent with the growth in the number of surgical robot installations and surgical volumes. For example, in Intuitive Surgical's 2023 third quarter, revenue from the consumables segment (instruments and accessories) accounted for 61.5% of total revenue, showing a certain increase from 55.7% in the same period last year.

It is expected that with the growth of the installed base and surgical volume of the da Vinci surgical robot, the proportion of revenue from consumables in total income will become increasingly higher.

It can be seen from the financial report that Intuitive Surgical is in trouble.

With Medtronic,Medicaroid、Meerecompany、WEGO, MicroPort Robotics, Edge Medical, Sirui, and Surui's laparoscopic surgical robots have been approved, causing Intuitive Surgical's Da Vinci Surgical Robot to quickly shift from a blue ocean market to fierce red ocean competition.

Not only that, but the natural orifice surgical robot previously developed by Intuitive Surgical has also faced competition from numerous companies. Moreover, Intuitive Surgical does not hold a significant first-mover advantage in this niche market. In the natural orifice surgical robot market, Intuitive Surgical must not only compete with giants like Johnson & Johnson and Olympus but also contend with challenges from companies such as Broncus Medical, MicroPort Robot, Edge Medical, Pulnovo Medical, and QJL Medical Robotics.

Intuitive Surgical, facing fierce competition, urgently needs to find a path to address the increasingly intense surgical robot market.Based on the characteristics of high procurement costs, long usage cycles, and difficulty in replacing surgical robots after installation, Intuitive Surgical plans to increase the installation volume and utilization of the da Vinci surgical robot systems to boost revenue growth and stabilize market share.

Regarding the installed capacity,Intuitive Surgical Lowers Hospitals' Procurement Threshold through Leasing Model, Accelerating the Installation of Da Vinci Surgical Robots in Hospitals. According to financial reports, after medical institutions pay an annual training service fee of 80,000 to 190,000 US dollars, they can obtain the Da Vinci surgical robot through leasing. Meanwhile, Intuitive Surgical stated in its financial report: the profit margin of the leasing model is almost equal to that of selling the entire machine.

In the U.S. market, the penetration rate of the da Vinci surgical robot has reached a relatively high level. In 2019, 71% of hospitals with more than 1,000 beds had already installed and were using the da Vinci surgical robot system. This has made it more difficult for Intuitive Surgical to sell complete systems to U.S. hospitals. However,The penetration rate in other regions around the world is still at an extremely low level. Therefore, Intuitive Surgical is opening up new markets through various strategies and methods.。

For example, after the da Vinci SP single-port surgical robot was approved by the FDA in 2018, it subsequently received approval in South Korea and Japan, and commercialization was rapidly initiated after approval. Meanwhile, Intuitive Surgical plans to apply for more indications for the da Vinci SP single-port surgical robot and intends to continuously register in markets outside the United States to enter more regional markets.

Financial reports show that, as of September 30, 2023, 158 da Vinci SP single-port surgical robots have been installed, maintaining a continuous growth trend. This is due to the robot's superior clinical outcomes and its approval for more indications.

In addition, Intuitive Surgical has quickly entered various markets by establishing joint ventures. For example, in 2017, Intuitive Surgical partnered with Fosun Pharma, a leading innovative pharmaceutical company in China, to jointly establish Intuitive Fosun. This joint venture is responsible for the exclusive distribution of the da Vinci surgical robot in mainland China. To date, the domestically produced da Vinci Xi surgical system manufactured by Intuitive Fosun has received approval from the National Medical Products Administration (NMPA). It is expected that the da Vinci surgical robot will accelerate its bidding and installation in the Chinese market under its "China-produced" identity.

Thanks to the efforts of Intuitive Surgical, an increasing number of large hospitals in Europe, Asia, and other markets outside the United States have begun purchasing and using the da Vinci surgical robot. With the support of a leasing model, the da Vinci surgical robot is entering more and more hospitals due to its superior product performance and strong reputation.

In terms of the number of surgeries,Intuitive Surgical is expanding the indications for the da Vinci surgical robot and training more doctors to increase the utilization rate and the number of surgeries, on the basis of increasing the installed base.

Specifically, the indications for the da Vinci surgical robot have gradually expanded from the earliest urological surgeries to gynecological surgeries, general surgeries, and some transoral surgeries. As the range of indications expands, the number of surgeries continues to grow. For example, an increasing number of general surgeries and gynecological surgeries in the United States are being performed using the da Vinci surgical robot, and more urological surgeries outside the United States are also starting to be completed with the da Vinci surgical robot.

In terms of training, Intuitive Surgical has been laying the groundwork for more than 20 years. From market cultivation to industry development, Intuitive Surgical's training system has played a significant role. Today, these trained doctors will influence more doctors, making them favor and recognize the da Vinci surgical robot; these training centers and bases will provide more medical professionals with the opportunity to learn and practice using the da Vinci surgical robot. Additionally, Intuitive Surgical collaborates with large hospitals and medical universities to promote more doctors and medical students to learn and use the da Vinci surgical robot.

Through the above measures, Intuitive Surgical is expected to take the initiative in market competition by leveraging the clinical advantages, brand advantages, first-mover advantages, and capital advantages of the da Vinci surgical robot.

From the quarterly financial reports of Intuitive Surgical, it can be seen that Chinese surgical robotics companies are increasingly appearing in their reports. This also represents the growing competitive pressure these Chinese companies are exerting on Intuitive Surgical.

Especially since 2022, many domestically produced surgical robots have been approved and commercialization has begun, completely breaking the monopoly of the da Vinci surgical robot in the market. Moreover, compared with the da Vinci surgical robot, domestically produced surgical robots have advantages such as meeting clinical needs, lower price, high cost-effectiveness, and being made in China.

For example, compared with the da Vinci surgical robot, which costs 23 million yuan per unit, the prices of domestically produced endoscopic surgical robots from companies like Edge Medical and MicroPort Robot range between 14 million and 17 million yuan. Meanwhile, the ex-factory price of SIRUIZHE's endoscopic surgical robot SR1000 is between 3.5 million and 9 million yuan. Its winning bid price at the First Affiliated Hospital of Heilongjiang University of Chinese Medicine was 5.38 million yuan, approximately one-fourth of the average price of the da Vinci surgical robot.

In addition to the price advantage, domestically produced surgical robots also benefit from their local identity. Previously, the state explicitly proposed that if domestic drugs and medical devices can meet the requirements, government procurement projects must, in principle, purchase domestic products, gradually increasing the level of domestic equipment in public medical institutions. This makes public hospitals more inclined to purchase domestically produced surgical robots when procuring surgical robot equipment.

Under the influence of various factors, the market share of the da Vinci surgical robot in the Chinese market has significantly decreased.According to the 2023 H1 surgical robot bidding and tendering data compiled by "VCBeat," as of June 2023, there were 46 surgical robot tender announcements issued by hospitals at various levels across China, representing a year-on-year increase of 43%; and 39 winning bid announcements, marking a year-on-year increase of 105%.

Among them, the Da Vinci surgical robot won bids for 14 units, continuing to dominate the endoscopic surgical robot market, but its market share has decreased compared to the first half of 2022. In addition to the Da Vinci surgical robot, domestically produced endoscopic surgical robots such as TuMi, Edge Medical, and KangDuo have also secured bids.

In addition, TIANYIZHANG has a clear leading position in China's orthopedic surgery robot market, with a significant first-mover advantage. In the field of neurosurgical robots, domestic surgical robots such as HuaKe Precision, BaiHui WeiKang, and RuiMi have achieved batch installations. These two细分 fields are expected to become a battleground for domestically produced surgical robots.

Overall, with the approval and commercial launch of numerous domestically produced surgical robots, Intuitive Surgical must also seriously confront the fiercely competitive market.

First, Intuitive Surgical has enabled the da Vinci surgical robot to obtain a domestically produced identity in China. In June 2023, the joint venture between Intuitive Surgical and Fosun Pharma, named Intuitive Fosun, successfully obtained approval for the thoracoabdominal endoscopic surgical control system, which is the domestically produced da Vinci Xi surgical system used in urology, gynecology, general surgery, thoracic surgery, and pediatric surgery.

Second, Intuitive Surgical has simultaneously localized production and R&D. It is reported that the headquarters and industrialization base of Intuitive Fosun also commenced construction in 2022, preparing to research, develop, and manufacture medical surgical robots and related component products such as the da Vinci Xi Surgical System and the Ion Shape Sensing Bronchoscope Operating Control System. In October 2023, the first China-produced da Vinci Xi Surgical System officially rolled off the production line, marking the achievement of localization for the da Vinci Surgical Robot.

According to the "Measures for the Administration of Government Procurement of Imported Products," imported products refer to products that enter China through customs clearance and are produced outside the customs territory. Medical devices produced domestically by foreign companies are also considered domestically produced in China and enjoy the same treatment as domestic products. Previously, products from multinational giants have won bids as domestic products under this regulation.

Third, carry out medical training in a reasonable and compliant manner. Intuitive Surgical's financial report shows that the year-long concentrated anti-corruption campaign in China's pharmaceuticals sector, launched in July 2023, has impacted medical device companies, including its own, in the bidding process within the Chinese market (prolonging the tendering process). As a result of this campaign, the number of da Vinci surgical robots installed in the Chinese market decreased in the third quarter of 2023. It is expected that this campaign will continue to affect the installation of da Vinci surgical robots in the fourth quarter.

In response, Intuitive Surgical has chosen to promote the Da Vinci surgical robot through reasonable and compliant medical training methods. As of August 2023, the Da Vinci Innovation Center has provided training related to the Da Vinci surgical robot to more than 3,000 doctors. Meanwhile, Intuitive Fosun has deeply collaborated with large tertiary teaching hospitals to conduct robotic surgery skills training, establishing five basic training centers and seven academic training centers.