Robot surgeons and the revenue streams they produce
The da Vinci surgical system has been used by surgeons for 14 years in over 2,000 sites around the world, and unlike many “razor and blade” business models, Intuitive Surgical, Inc. (NASDAQ:ISRG) makes money on the robot and on the additional items needed to perform each procedure. Factor in a nearly 25% sustained annual growth rate, and there is a lot to like.
MAKO Surgical Corp. (NASDAQ:MAKO)’s Rio surgical robot could do for arthroscopic surgery what the da Vinci has done for procedures in soft tissues and organs. But where Intuitive Surgical, Inc. (NASDAQ:ISRG) has systems in more than 2,000 sites, MAKO Surgical Corp. (NASDAQ:MAKO) has less than 200 total machines installed. And where Intuitive Surgical, Inc. (NASDAQ:ISRG) is very profitable (and growing that profit at a strong clip,) MAKO Surgical Corp. (NASDAQ:MAKO) is burning through cash very quickly as it builds the necessary scale to become profitable, on the back of the recurring revenues generated by each procedure.
MAKO Surgical Corp. (NASDAQ:MAKO) has faced some serious headwinds over the past year as sales growth of the Rio slowed — actually going backward at one point — and then stabilized. The good news is machine adoption, and the rate of procedures is steadily increasing, a sign of physician and patient adoption. And while the company is still probably a year (or more) away from reaching profitability, I’m willing to take the chance that when it happens, the profits will be significant.
It’s still surgery, and that means risk
Intuitive Surgical, Inc. (NASDAQ:ISRG) has faced a series of lawsuits recently, and while this is a serious concern, more than a decade of solid and safe performance is somewhat reassuring that this is not a significant danger to patients or investors. For MAKO Surgical Corp. (NASDAQ:MAKO), there have been some competitive challenges, but it has managed to overcome that recently, including acquiring competing IP to further strengthen the technology. Frankly the biggest risk I see is dilution if the company runs out of cash before profitability and chooses to use a secondary option to generate cash. It’s really a matter of how quickly the company can influence buyers to acquire systems, and how quickly surgeons start using them.
Foolish bottom line
I’ve taken a position in all three of these companies, counting on their ability to attract customers that see the value of both the “blades” and the “razors.” Only time will tell how it pays off for my portfolio, but I encourage you to explore all three and see how they would fit in your portfolio mix.
The article A Regular Fool’s Retirement Portfolio: Razors, Bubbles and Robot Doctors originally appeared on Fool.com.
Jason Hall owns shares of MAKO Surgical , Intuitive Surgical, and SodaStream. The Motley Fool recommends Intuitive Surgical, MAKO Surgical , and SodaStream. The Motley Fool owns shares of Intuitive Surgical and SodaStream. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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