Page 56 - Forbes - Asia (April 2019)

STRATEGIES
Robots, Robots
Everywhere
For 20 years Intuitive Surgical owned its market.
Now the operating room is getting crowded.
BY MICHELA TINDERA
t was the femoral artery of a rat that piqued the curios-
ity of Gary Guthart. Then a new hire at a research insti-
tute spun off from Stanford University, he was assigned
Ito a surgical robotics lab. He was asked to sew a severed
artery back together by hand, and then to try it again with a
prototype robot.
“That’s what people have to do in surgery?” Guthart recalls
thinking. “That looks like both a really interesting, important
problem and a really hard problem, and that got me really ex-
cited.” In 1996, Guthart was working at a startup called Intui-
tive Surgical, which had licensed technology from the institute,
SRI International. Two years later, Intuitive launched a robotic
surgical helper, branded da Vinci, that’s changed surgery in the
same way the iPhone has transformed cellphone use.
Today, nearly 5,000 da Vincis are in operating rooms, used
in one million surgeries per year. Intuitive went public just
after the tech bubble peaked in 2000, and still the stock ended
the decade 17 times higher than at its IPO. Why? Because,
until now, Intuitive has had the business to itself. The price
tag on a da Vinci is about $1.5 million. Plus, it sells about
$1,900 in replacement parts per operation. The company’s
30% net profit margin eclipses Microsoft’s.
Guthart, 53, has been chief executive since 2010 and is sit-
ting on $315 million worth of Intuitive stock and options. But
now he’s going to have to work a little harder. Medtronic, a
medical-device maker with sales eight times Intuitive’s, and
Verb Surgical, a partnership between Johnson & Johnson and
Alphabet, are expected to enter the surgery robot market in the
next year. They’re likely to compete on price. And these heavy-
weights are also making inroads into Intuitive’s future markets:
J&J announced in February that it would pay $3.4 billion in
cash for Auris Health, a rival robotics startup with a device that
can perform lung biopsies.
There’s another problem, much like the one that caused
Apple to recently warn on sales: After a period of explosive
growth, a pioneer confronts saturation in its original markets.
A plateauing of sales is inevitable. Morningstar analyst Alex
Morozov expects Intuitive’s rich multiple (41 times expected
2019 net profit) to come down. He rates the stock a sell.
And yet Guthart and Intuitive have somehow defied gravi-
ty so far. In 2012, a national advisory panel declared that some
52 | FORBES ASIA APRIL 2019
prostate cancer screening (and the result-
ing surgeries) did more harm than good;
still, prostatectomies are common, and In-
tuitive’s machine is used in at least 80% of
them. Last year the company increased its
revenue 19% to $3.7 billion, on which it
netted $1.1 billion. Guthart is moving into
new territory with a machine to help doc-
tors inspect lungs for cancer. He is expand-
ing abroad. He is pushing the da Vinci into
stomach shrinking surgery.
Guthart, the son of a defense engineer and a science teach-
er, grew up in Sunnyvale, California, just a few miles from
where Intuitive’s headquarters now lie. His high school math
teacher snagged him an internship writing code at a NASA
research operation, where he was the youngest person in the
lab. He got engineering degrees at University of California,
Berkeley and California Institute of Technology, with dreams
of becoming an academic. But a professor turned him down
for a postdoctoral fellowship. “I think you’re a bright enough
person,” Guthart remembers him saying. “But I don’t think
you would make a good professor. You don’t like to write, and
you spend a lot of time chatting with people.”
Two months later Guthart found a job at SRI, where he
was drafted by a robotics startup founded by surgeon Freder-
ic Moll, engineer Robert Younge and venture capitalist John
Freund. They licensed technology from the research institute,
which had received funding from the Defense Department to
build a system that would enable a surgeon to operate a bat-
tlefield robot remotely. That idea never panned out, but the
startup, Intuitive Surgical, had plans to improve minimally
invasive surgery, a new technique at the time.
In 1998 surgeons used the da Vinci to perform what the
company reported to be the world’s first computer enhanced
closed chest heart surgeries, like mitral valve repair. But ro-
botic cardiac procedures didn’t get a big uptake in a market
where doctors were focused on a different medical innova-
tion: heart stents.
In 2001 the da Vinci got a big break when the Food &
Drug Administration cleared it for prostate surgery. Dr. Ben
Davies, a professor of urology at the University of Pittsburgh
School of Medicine, has been using it for the six to seven
prostatectomies he’s been doing every week for the past de-
cade. Before the robot came along, he says, this very invasive
open procedure would be a challenge because the prostate
gland is surrounded by sensitive parts of the body that need
to be delicately dissected. The result could be lots of blood
loss. With robotics, the doctor operates the precise controls
while watching a feed from a camera set inside the patient. TIMOTHY ARCHIBALD FOR FORBES
Blood loss is miniscule, Davies says.
Sales dipped in 2014, after the bad review of prostate
screening and a warning about robotic hysterectomies from