The burden of healthcare is increasing around the globe, with robotic-assisted surgeries providing a positive solution for both surgeons and patients. While the $2.5m price tag per robot platform is steep, there’s evidence these systems reduce costs for hospitals over time. Milford Investment Analyst Dr Deborah Lambie talks with Ryan Bridge about advancements in robot technology, including the upcoming launch of Intuitive Surgical’s 5th Generation Robot.
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Bridge talks Business: 19 November 2024
Episode Transcript
Ryan Bridge
Kia ora and welcome to Bridge Talks Business with Milford Episode 15. Great to have you here. We’re counting down to Christmas. No, not December 25th. November 27th. Next Wednesday. That’s the final RBNZ monetary policy statement and rate review. Has the economy been naughty enough for a big stocking filler in the form of an outsized rate cut or are we, as many are predicting, set for a half a percent cut pre-Christmas? This week we’re looking at robotic-assisted surgeries. Why aren’t we using them here with more frequency in New Zealand, giving our long wait times? But first, here’s your top five business bits from the past seven days.
1. The post-election stock highs are starting to come down. Investors now starting to worry about inflationary impacts and also general uncertainty through the transition period.
2. Strong growth though, in the US. The economic data there with retail sales growing solidly over the past few months, but inflation does remain sticky and above target.
3. China’s showing signs of economic life after government moves to kickstart the ailing property market. The stimulus so far has failed to fire with investors but growth will be key to improvement here.
4. Back home to New Zealand, data showing inward migration continuing to slow with a trend of Kiwis leaving, more offset by an increase in foreign arrivals.
5. This week we have results from Nvidia, the largest stock in the world by market capitalization. These events are typically volatile affairs, and the outcome could set the tone for market trends into the end of the year.
All right and now it’s time for our sit down this week. Just a note that this segment is informational only and should not be considered financial advice. Now we all know that New Zealand has a long wait list for planned surgeries especially in some of our more rural areas. It’s hard to recruit and retain qualified surgeons and staff. So, why aren’t we making better use of robotic-assisted surgeries? Could they be an answer for us? Who better to ask than Milford Analyst and medical doctor Deb Lambie. Deb it is great to have you back on the podcast. Welcome back.
Deb Lambie
Thank you, thanks for having me.
Ryan Bridge
So, you know I was thinking about this this morning, who needs surgeons? Do we just get rid of surgeons now that we’ve got robots?
Deb Lambie
That is a really interesting question. So interestingly, surgery has changed a lot over time. So if you think back to the 1980s, or even earlier, they were all done open. So you do a big cut – like a big open cut so there’d be a big incision – and then what we saw later on is that laparoscopic surgery developed, which is where you do small cuts and the surgeon is manipulating instruments. Then what we’ve seen more recently – actually over the last 20 years or so – is what we call robotic-assisted surgery – and that’s where you have a robot at the side of the patient, and that is being controlled by a surgeon who is away at a console, and they use the console to magnify the surgical field so they can see what’s happening 10 times the size and then they manipulate the robotic arms which have a greater range of motion as a human hand and they also have technology to do more precise incisions and smaller cuts. So, it’s a space that’s been evolving rapidly. We still need surgeons, and if things go wrong the surgeons are always there to be able to step in. So that’s very important.
Ryan Bridge
So it’s obviously come a long way very quickly but you still need a surgeon there – so is it actually more efficient? What’s more efficient about it? Is it the fact that you’re making smaller incisions and therefore saving time across a number of surgeries?
Deb Lambie
What’s really interesting about this, is they’ve been collecting data on this for 20 years, and so when you have a new kind of indication or a new type of surgery approved, the surgeons have to be all trained up on how to do it, and initially because it’s so different from how it was done originally, there’s not really any difference. But as the surgeons get better over time, what they find is that the procedures have smaller cuts, they have less blood loss, they have less complications for the patient which means that the patients stay in hospital for a shorter period of time after, so they’re discharged faster. So even though the robots themselves are very expensive, so the soft tissue robots are around two and a half million dollars each, actually because patients have better outcomes and are sent home from hospital faster, overall the cost when you use these robots actually comes down in time.
Ryan Bridge
So I want to talk about the companies that are profiting from this, that are doing well under this and also what it means for the cost of healthcare more generally, because obviously we’re all getting older and we’re all going to need more surgeries. But are we doing it much in New Zealand? Like how do we compare to the States or other places?
Deb Lambie
If you look globally, if you look at soft tissue robotic procedures, about 10% or just under 10% of all soft tissue surgeries are done using a robot. And then if you look at the US, that’s around 20% of soft tissue surgeries are done with a robot. But then if you look within that at the procedures that were approved first, or the earliest procedures to be done using a robot, for some of them – for example a prostatectomy, that’s something to take your prostate out if you have prostate cancer – around 85% of those in the US are done using a surgical robot.
Ryan Bridge
Wow.
Deb Lambie
Yeah so it really varies. But then if you look at New Zealand, we don’t have good data yet on how much or how common they are as a proportion overall, but we do know that we have these surgical robotics here and Tauranga was the first hospital to get an intuitive robot, and they are called Da Vinci. Then what we’ve seen is over time Dunedin’s got one, they’re in Auckland, so they are now used over a broad range of procedures. But the kind of barriers to us having more would be the cost initially because they’re so expensive, and then also because the companies that develop these are in the US – so Intuitive Surgical is the market leader by far in robotic-assisted surgery – that means that surgeons in the US had access to these and were trained earlier and the data was collected in the US earlier, so they’re just further ahead in the adoption curve.
Ryan Bridge
Right.
Deb Lambie
But what we expect is that over time, the rest of the world will follow what we’ve seen in the US.
Ryan Bridge
And what have they seen in the US in terms of efficiencies, in terms of costs?
Deb Lambie
They are releasing data all the time, collecting data all the time, and what we know is that around the world, there’s about 12 million procedures that have been done using an Intuitive Surgical robot. There’s 9,000 robots that have been installed, and every quarter what the company does in its quarterly results, is they publish or they highlight new evidence that has been published in scientific journals. So, we know clearly now that they reduce the cost overall, they have better outcomes for patients, and they do actually deliver benefits for the overall healthcare system.
Ryan Bridge
We’re talking about soft tissue operations here basically at the moment, and you used to be a doctor yourself. Will we ever see open heart surgery and stuff being done by robots?
Deb Lambie
What we are seeing is that within the soft tissue space, they are looking to do different types of surgery where they don’t already have approvals, but also they’re making different types of robots. The original Da Vinci robot has four arms and they have just developed what’s called the Da Vinci SP, or a single port robot, and that has just one arm, and that’s used for things like ear, nose and throat surgeries and only needs one incision to be made. They also have a new robot and it’s called the Ion and this is a flexible robot. So the other ones have big arms, that are kind of like mechanical arms, but this is a flexible robot that can go in your throat and into your lungs and take a biopsy, and over time that will be used to do lung operations. And then another space that we’re seeing innovation is actually in orthopedics, and so that’s different from soft tissue. This is surgeries that are done on bones, and so for things like a knee replacement and a hip replacement, it’s different companies that are involved in this. The leader is a company called Stryker, which is also a US company, and there’s another company called Zimmerbiomet. They have robots and these are slightly different to the soft tissue robots. How these soft tissue robots work is you have the console where the surgeon is, you have the patient and they operate, but they’re not side by side. But with the orthopedic robots, the orthopedic surgeon is here and the robotic arm is right beside the surgeon, and the robotic arm assists the surgeon in very precise cuts and getting the alignment of the points completely right.
Ryan Bridge
It’s like a laser guide or something.
Deb Lambie
Yeah, and so it’s much more side by side, whereas with the soft tissue procedures they’re working separately.
Ryan Bridge
With the soft tissue ones, could you have somebody in Wellington and the patient in Auckland?
Deb Lambie
In theory, over time it’s thought that could happen, but at the moment it’s still in the same room. And that’s so something goes wrong, the surgeon is there and the surgeon knows how to do traditional operations and also to use robots.
Ryan Bridge
Like step in.
Deb Lambie
Yeah.
Ryan Bridge
Okay, that’s all very well and good. I don’t feel that nervous about having something like that done so far.
Deb Lambie
Good.
Ryan Bridge
What about in terms of the companies that you’ve mentioned. How are their valuations looking going into the future? If they are more efficient, if they are bringing costs down for hospitals and healthcare, and we are getting older and we are requiring more surgeries, this sounds like something that’s going to be in huge demand.
Deb Lambie
If you look at soft tissue procedures for example, so we know globally around 10% of surgeries are done with the assistance of a robot. By 2028 that’s forecast to get to around 20%. If you think by 2028 that’s still only 20% of global procedures, there’s still a huge runway for growth, and they can increase the proportion of procedures that they already have approval on. So, if you’re doing prostatectomy 85% in the US, but only a much smaller proportion here, that can go up. But then also we will see approvals and new types of surgeries come through and then we have the new robots coming through. But a significant investor debate is the valuation of intuitive surgical. So, we look at a multiple called the price to earnings ratio. For Intuitive, that is almost at 70 times – so these are very, very expensive shares. In order to justify that, you have to be very bullish and very confident on the runway for growth. So there’s bulls or people who are very confident in that, who are happy to own intuitive shares at these expensive valuations. And there’s also people that say they’re too expensive even though it’s a great quality company with a great runway ahead – we can’t justify an investment at this price.
Ryan Bridge
You just can’t beat the old scalpel in the hand. But also, it is quite a fragile thing. I mean you look at automated cars in the United States and when something goes wrong, it makes headlines, right? I mean you can imagine one of these things going haywire and what happens to the share price. I guess there are risks are there?
Deb Lambie
There would be risks, but I have been following this company pretty closely for about five years now, and I haven’t heard any examples of any time where something’s gone wrong. I think it’s just such a highly regulated space. So, for these robots to be used on people doing operations where, if things go wrong, the consequences would be massive, and they just have to be so careful. It’s not something that we’ve seen so far, but it’s something the company’s obviously investing in making sure they prevent that happening as well.
Ryan Bridge
Yeah absolutely, and in New Zealand we would have our own requirements in terms of government regulation etc, before anything could come in here.
Deb Lambie
Yeah.
Ryan Bridge
Is it something that you think will revolutionise in any great way, say New Zealand’s healthcare system, particularly for those rural areas where people are on a wait list for surgeries, and they’re having to travel for surgeries, things like that? Are companies like this and is technology like this going to be an answer?
Deb Lambie
We know that in New Zealand, and around the world, we’re facing increasing costs of healthcare because we have aging populations, and here we currently spend about 10% of our GDP on healthcare. Part of the solution is finding things that will save us money and reduce costs over time while delivering good outcomes. What we’ve seen so far, is because the investment in these is so significant, that they’re in major hospitals. We see that they’re in places like Auckland and big hospitals, but you wouldn’t expect, at this point, to see one somewhere small. But people could travel I guess. If you can get your operations done more quickly and more efficiently in major centres, I guess that shortens wait time, that gets more patients through the system, gets their procedures out the door. Part of the solution is really in finding more efficient ways to deliver better care.
Ryan Bridge
What’s their bedside manner like?
Deb Lambie
I’m not sure – and I guess the other thing that’s kind of interesting is you asked about performance of these companies.
Ryan Bridge
Yeah.
Deb Lambie
When you look at Intuitive Surgical, it has been an awesome performer and so it shares it up 60% this year, and then if you zoom out and look over the past decade, its shares have delivered an average 25% return per year. So, that is massive outperformance compared to the S&P 500 which has delivered around a 12% return. But then if you look at the orthopedic companies, it’s been more mixed. So instead of there being one main leader there’s two, Striker and Zimmer which are competing. This year Striker shares are up 30%, whereas Zimmer shares are actually down 10%.
Ryan Bridge
What’s the difference? Why are some doing well and others not?
Deb Lambie
It’s about a few factors. Zimmer has gone through a period of mis-management, it’s been losing market share to Striker, and it’s had production issues and shipment delays – so it’s kind of disappointed investors. And if you zoom out again over a 10-year period, Striker has outperformed the S&P 500. It’s delivered a return of around 16%, but if you held shares in Zimmerbiomet from 2015 till now, you would have generated approximately a 0% return. So it just goes to show that you can have a company in a really interesting space but they need to be executing really well, they need to be gaining market share, investors need to be confident about their growth prospects. So, just because they’re in an interesting space doesn’t necessarily always mean they make a good investment.
Ryan Bridge
Yeah you need to have the idea plus the execution.
Deb Lambie
Yeah 100%. And if a company’s mis-managed, and losing market share, and disappointing investors – it’s not a good story.
Ryan Bridge
Yeah this is fascinating and I genuinely hope that this can do something for investors in terms of returns, but also do something for our healthcare system as well – because Lord knows we need it.
Deb Lambie
I know, we definitely do.
Ryan Bridge
Thank you very much for coming back on the podcast, great to see you.
Deb Lambie
Thank you for having me.
Ryan Bridge
That is Dr Deborah Lambie who is not only an analyst at Milford but also a medical doctor. What else? She’s probably going to be doing surgeries next. That is it for this week, hopefully giving you some food for thought. Thank you very much for joining me and I’ll see you again next week, have a great one.
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