Robotic surgery is one of the fastest growing segments of the medical device industry. The market is currently estimated to exceed 5BN EUR and, at its anticipated growth trajectory, the industry will likely reach 10-12BN EUR by 2025.
Despite optimistic expectations for growth, the industry is in its early stages and companies face significant strategic challenges. As new entrants validate the industry’s relevance, payors raise legitimate questions about mixed clinical results and high costs. Manufacturers are under pressure to balance their desire to be quick to market with the market’s need for new technological innovations and an improved economic model.
Long dominated by Intuitive Surgical and its daVinci platform, a series of patent expirations in 2016 have resulted in a flood of newcomers and an end to the company’s ~20-year run with a near-monopoly on the industry. The major medical device companies have acquired their way into the market seeking to 1) protect their instrument portfolios from increasing competition, 2) generate new sources of service revenue, and 3) leverage procedural innovation to better differentiate mature products within their portfolios.
Exhibit 1: Recent acquisitions by major medical device companies
Despite impressive growth, robotic surgery has yet to clearly and consistently deliver on its promise of improved patient outcomes and greater operating room efficiency. Inconsistent clinical results have undermined regulator confidence, resulting in a reimbursement precedent in many markets that limits the potential of the industry by setting rates at parity with traditional laparoscopic procedures.
In a recent comprehensive academic literature review published in the Journal of Laparoscopic, Endoscopic and Robotic Surgery, robotic surgery performed better overall on some procedures (e.g., prostatectomies and lung lobectomies); however, results were far less robust for others.
Exhibit 2: Overall performance of robotic vs. laparoscopic surgery*
Diving further into the detail, the same article concludes that robotic surgery consistently delivered on reducing the overall length of stay (with the notable exception of lung lobectomies); however; for the other procedures studied, readmission rates, operative time and overall costs were high versus laparoscopic surgery. With respect to mortality, the risk of death from either surgical method is low; however, robots also tended to fare slightly worse than laparoscopy based on the available data.
Exhibit 3: Highest performing surgical method, by procedure and end point
Most outcomes research available today is for robots that perform soft-tissue surgeries. There is also great variation in research methodologies and the general quality of available academic studies. Although more data is needed for a conclusive assessment, the lesson for companies entering the robotic surgery market is that the message regarding value is at best unclear and that additional efforts must be made to better substantiate and communicate the advantages or robots. Preliminary indications are that the new wave of bone-cutting robots used in orthopedics is delivering more consistent results; however, the market leader, Stryker, exercised caution in its roll-out to ensure sufficient training and treatment protocols were in place prior to launch.
While the benefits of robotic surgery have been called into question, the economic barriers to adoption remain high. The price of a robotic surgical system is easily 1-2MN Euro for the initial installation, but this excludes instrumentation costs and ongoing maintenance. In addition, hospitals must invest significant manhours in training and internal administration.
Robotic surgery has become mainstream for hysterectomies and prostatectomies, but overall surgical procedure penetration remains at only 5% in the United States and only 2% elsewhere (source: Wells Fargo). Innovation offers the potential to drive new growth in relatively underpenetrated therapeutic areas, including cardiovascular, spine, neurovascular, and head and neck procedures among others.
Given the relatively high reimbursement rates, oncology is an attractive target for profitable growth; however, recent FDA guidance advising against the use of robotic surgery for cancer treatment is a clear signal that current robotic surgery options and physician training are insufficient.
“…today we are warning patients and providers that the use of robotically-assisted surgical devices for any cancer-related surgery has not been granted marketing authorization by the agency, and therefore the survival benefits to patients when compared to traditional surgery have not been established” – FDA safety communication, February 28, 2019
The question remains as to whether a frenzy of new companies, products, and procedures will lead to overall improvements that enhance the credibility of the sector or will further jeopardize success by driving a proliferation of subpar products that further obfuscate the potential benefits.
Exhibit 4: Robotic surgery-focused companies to watch
To gain trust and expand the market, both established players and new entrants need to focus their efforts on delivering and clearly communicating value. Companies should avoid rushing to market with new systems, applications, and procedures that cannot be supported with strong clinical data. Renewed stakeholder confidence will come via a combination of technical improvements and enhancements to the current economic model.
On the technical front, innovation should focus on improving the physician experience, better patient outcomes, and greater operating room efficiency. This will be achieved through innovations that simplify usage, even if they require greater technical sophistication. Improvements in visualization (including better incorporation of XR) and haptic feedback will help robotic surgery feel more natural and enable surgeons to apply force more precisely, accurately, and intuitively. Artificial intelligence and more agile instrumentation will further simplify procedures, while improving tolerances and creating better system redundancies. Combined, these changes will improve the quality of existing procedures while enabling and building confidence in others. Investments in training will continue to help offset existing technical limitations but technological innovation is likely a better long-term solution.
Exhibit 5: Detractors to perceived value of robotic surgery systems
Improved outcomes are essential to obtaining higher per procedure pricing and reimbursement rates but, given the precedent in most markets, manufacturers should be prepared to compete in an environment where robotic surgery is reimbursed at parity with other minimally invasive procedures. Even if reimbursement improvements are achieved, to maximize penetration, manufacturers will need to improve the current economic model for robotic procedures.
In theory, as the market evolves, economies of scale should enable manufacturers to reduce both system and instrumentation costs. However, the total cost of ownership can be further reduced by increasing the useful life of instruments. This will likely require shifting high value components further away from the surgical field, incorporating more durable materials, and introducing protocols for sterilization and reuse.
Although stand-alone dedicated robotic surgery suites are possible at larger centers of excellence, more compact and flexible mobile systems will be needed to successfully penetrate smaller facilities with more limited operating room space. Tapping into smaller facilities is a tempting way to drive a higher installed base; however, the benefits of rapid expansion should be weighed against the potential reputational risks associated with expanding into facilities that don’t have the procedural volume or expertise needed to ensure quality outcomes. Some manufacturers may fare better by limiting their systems to larger facilities and maintaining a focus on driving patient referrals to generate procedure volume.
Exhibit 6: Prioritized areas for innovation
Lastly, manufacturers are struggling with the structure of the current financing model. Easier access to leases is an obvious method for easing the burden to hospitals; however, other methods include: 1) the modularization of functionality to spread the upfront cost across multiple system upgrades which can be purchased over time, 2) shifting revenue to consumable instrumentation and 3) shifting revenue to services and software upgrades as a better way to match the cost of each system with the procedural revenue that it generates. Hospitals and payors are increasingly voicing a preference for economic models that incorporate risk sharing.
Exhibit 7: Potential adjustments to financial model
At a macro level, the types of innovations that are required to drive the market forward are reasonably clear; however, the best strategic choices will vary by manufacturer, technology, procedure, customer segment and geography.