by Susan J. Aluise | April 1, 2014 10:46 am
Now that the heat is on to make healthcare more affordable and to ensure better outcomes, robotics are getting a new lease on life in the medical community — a shot in the arm that could make the right companies the high-growth healthcare stocks of the future.
The global medical robotic systems market was worth $5.48 billion in 2011 and is expected to reach $13.6 billion in 2018, according to a report from Transparency Market Research.
Although surgical robots are likely to experience the most significant growth in revenue, other systems in fields such as non-invasive radiosurgery, prosthetics and exoskeletons, and assistive and rehabilitation robots also smell strongly of opportunity.
Not surprisingly, the key drivers of medical robotics are the same game-changing factors impacting healthcare stocks: industry automation, a greying population with motion-restricting conditions and advances in non-invasive surgical procedures.
So what’s the best way to play the burgeoning medical robotics space? These three healthcare stocks that deal in robotics are a great place to start.
When it comes to medical robotics pure-plays, the 19-year-old Intuitive Surgical (ISRG) — which is streaking hard today — is about as established a player as you can get.
The company’s revolutionary da Vinci Surgical System used robotics to perform conventional laparoscopic surgeries with greater precision, resulting in less blood loss, faster recovery times and lower post-operative pain. Specifically, da Vinci uses a “targeted electrical charge to cut and cauterize a patient’s tissue during surgery.”
Its three-dimensional camera magnifies the site by a factor of 10, while the precise robotic arms — which offer a full 360-degree wrist motion — are ergonomically friendly for the surgeon and surgical team, reducing fatigue.
The wildly successful da Vinci system has fueled ISRG’s profits in recent years, but is often the case with innovative uses of medical technology, there have been headwinds. ISRG is facing 76 product liability lawsuits over adverse events, as well as shareholder suits, according to FierceMedicalDevices.com. The bad news dampened fourth-quarter U.S. sales by more than 20%; ISRG shares fell by 31% between June and December 2013.
That said, ISRG is up 30% since the beginning of this year on stronger performance outside the U.S. and higher levels of comfort with da Vinci among surgeons. But driving about half of that gain is today’s announcement that Intuitive Surgical got the FDA’s green light on its new da Vinci Xi system.
ISRG is considered expensive by several value metrics, including a price/earnings-to-growth ratio of well more than 3, but the expectations for growth are warranted. Intuitive Surgical’s place among top robotics healthcare stocks is all but cemented right now.
The first thing you notice about iRobot (IRBT) — the name is pretty cool. The second thing you notice is its significant track record in the robotics business. Over the past 24 years, iRobot has carved out a strong presence delivering robotics to homes, in defense and security, and other applications.
Now, in addition to scrubbing floors and deploying with U.S. troops, the company is turning its attention to the high-growth healthcare sector.
One key tool for that market is the company’s Ava 500 video collaboration robot, which was formally launched for U.S., Canada and some European markets in March. In addition to providing a new level of collaboration for office environments and other facilities, the RP-VITA healthcare robot allows doctors to communicate with patients from virtually anywhere in the world.
Last year, IRBT generated earnings of $27.6 million on a top line of $487.4 million — a 12% revenue gain despite the predicted 30% decline in defense and security market sales.
Despite iRobot’s potential, IRBT stock sports a PEG ratio of just 1.1, which would indicate it’s only slightly overvalued — not bad, especially considering its 18% year-to-date run. But that performance has been choppy, reflected in a 1.9 beta that investors not big on volatility should heed.
IRBT truly more of a bet on robotics in general since its home robot franchise drives earnings, but its move toward the healthcare market provides some additional diversification. And telepresence is an increasingly important segment with Obamacare’s pressures on providers to do more with less.
Let’s face it: Microcaps are not for the faint of heart — and Ekso Bionics (EKSO) is no exception.
But if you’ve got a high tolerance for risk (or were a fan of the 1970’s series The Six Million Dollar Man), this stock with a plan to make the mobility-challenged “better, stronger and faster” could find a home in your portfolio.
Since 2005, Ekso Bionics has been focused on developing robotic exoskeletons to augment human strength, endurance and mobility.
Specifically, Ekso focuses on “wearable bionics” — suits that enable an individual with any amount of lower extremity weakness to stand up and walk over ground with a natural, full-weight bearing, reciprocal gait. The user is able to walk as his/her weight shifts, activating sensors in the device that initiate steps. The legs are driven by battery-powered motors that effectively replace lost neuromuscular function.
While Ekso’s bionic suit won’t enable a modern-day “Steve Austin” leap high fences or run 60 miles per hour, it gives even a completely paralyzed individual with minimal arm strength the ability to stand and walk. And that’s no minor miracle.
Ekso has forged partnerships with institutions like UC, Berkeley, received research grants from the Department of Defense and licensed technology to Lockheed Martin (LMT). Plus, U.S. Special Operations Command recently gave Ekso a prototype grant to develop technologies for their Tactical Assault Light Operator Suit project — a futuristic assault suit (nicknamed the “Iron Man” suit) that promises to provide superhuman strength with superior mobility and protection.
For investors who dream of buying into a real-life version of Tony Stark’s company, sinking a little mad money into EKSO stock could be hard to resist.
Just remember: Bleeding-edge technologies like wearable robotics are a high-risk, high-reward play.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
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