Assistant Portfolio Manager
Robot-assisted surgery has grown tenfold in less than a decade, presenting healthcare firms and their investors with challenges – and opportunities
Despite the controversy, robotic surgery is growing rapidly.
In the US – to date by far the largest market for robotic procedures – spending on these devices is forecast to grow at an annual rate of 13.8% over the coming decade, with the number of robot-assisted procedures set to double by 2020.*
An ageing population in many wealthy countries, coupled with healthcare systems that are increasingly focused on value for money, are part of what’s driving the trend. Other factors include new technology and improved outcomes for certain procedures. As long-term investors our task is to position portfolios to benefit from this trend.
In 2004, Guy’s and St Thomas’ NHS Foundation Trust became the first UK hospital body to install robots for surgical uses. In its 2003/04 annual report, the trust acknowledged that “it may sound like something out of a science fiction film, but a robot now carries out keyhole surgery on patients suffering from prostate and bladder cancer”.
The robot in question was California-based Intuitive Surgical’s “da Vinci Surgical System”, which after its launch in 2000 quickly became the most widely used surgical robot in the US and Europe for keyhole prostatectomies as well as gynaecological and cardiovascular procedures.
Today da Vinci robots operate in over 70 hospitals across the UK. Some further 4,000 robots across the world complete over 750,000 surgical operations a year.
September 2018 saw the launch of “Versius”, the first UK-manufactured surgical robot and challenger to the da Vinci system. Cambridge-based medical technology company CMR Surgical claim the robot is “radically different” from other keyhole surgery robots, able to perform a greater variety of procedures whilst also allowing the operating surgeon greater flexibility in terms of working position, reducing fatigue. Once the system is certified by European health and safety standards, it will compete with the American system for installation in NHS hospitals across the UK.
The use of robots is growing outside of laparoscopic (or “keyhole”) surgeries. A robot performed the first automated dental implant in China last year and in orthopaedics, robot-assisted surgery has gained popularity in hip and knee replacements where studies have shown procedure times to be reduced by almost 50%.
That said, other innovations including bioengineering interventions and the development of new drugs may replace surgery as the best form of treatment, in some cases negating the need for surgery. One area where this may be the case is the treatment of solid cancers.
Nicholas Markham FRCS, Elected Member of the Royal College of Surgeons and a member of the Executive Board of the Association of Surgeons of Great Britain and Ireland, said: "Robotic-assisted surgery has already been used successfully in helping surgeons achieve better results, especially in cancer surgery.
“If surgery remains the mainstay of cancer treatment it has an exciting future if it can become unarguably cost-effective, but should other treatments take the place of surgery in cancer management, its usage could become significantly limited.
“Technological progress has been so remarkable in the last two decades it would be a brave person who tries to predict too far ahead.”
The cost effectiveness of robotic-assisted surgery varies by procedure. For example, one study led by Stanford University in 2017 found that robotic-assisted surgery for kidney removals was associated with longer operating times, a higher cost (approximately $2,700 more per patient) and yet delivered no significant differences in post-operative complications. A gallbladder removal performed by the da Vinci system costs three times more than a non-robotic alternative. Many practitioners have called for more data to be produced to validate the claims made by manufacturers.
However, as healthcare moves from a volume-based to a value-based system with a focus on prevention and longevity, robotics could play an important role in providing value for consumers. For example, a robot-assisted orthopaedic operation costs more but overall costs are often reduced as greater accuracy ensures a better long-term outcome for the patient, reducing the risk of re-admission. This is clearly a better outcome for the patient, surgeon, hospital and the healthcare system as a whole.
As medical technology advances, lower cost robotic solutions should increase. Indeed, CMR Surgical considers Versius to be a more cost effective solution than established rivals such as da Vinci, claiming its ability to undertake more procedures will make it more economical for hospitals. The company is also offering a managed-service payment model, replacing a large one-off initial outlay with a series of payments spread over the life of the machine.
An increase in surgical volumes is well-supported by population ageing, arguably one of the most significant social transformations of the 21st century. By 2050, the number of people in the world aged 60 years or over is projected to more than double to 2.1 billion. The number of people over 80 is set to triple to 434 million.
In particular, an ageing population coupled with increasing life expectancies (as well as increasing obesity in countries such as the United States) is driving up the volume of hip and knee replacements. A study in the US in 2007 forecasted total knee replacement operations to increase 673% to 3.5 million procedures by 2030. Hip replacement operations were forecast to grow a less impressive but still significant 174%.
Add to this a well-documented forecast shortage of surgeons in both the US and UK, and the case for surgical robotics to fill this gap appears strong.
At the moment robotic-assisted surgery is largely a phenomenon of the developed world, but the opportunity in developing countries is also significant. In China, the demographic squeeze on healthcare looks formidable, with the number of people over 60 doubling to over 30% of the population by 2050. The use of robotics in surgery is already reflecting this with the market growing from RMB 791 million in 2016 to an expected RMB 2.2 billion in 2021.**
Companies operating in the arena of robotic surgery - and which we like – include London-listed Smith & Nephew. Its robotics-assisted system “Navio” is demonstrating strong sales growth. Alongside Stryker, Smith & Nephew is the only orthopaedics company with a surgical robot offering for hip and knee replacements. The system integrates handheld robotic surgery with patient-specific planning software, providing more accurate and precise implant alignment, soft tissue balancing and bone preparation. Greater accuracy coupled with the fact that the surgery does not require a CT scan (reducing extra steps, costs and radiation exposure) and the improvements to outcome and efficiency are impressive.
John Bowler, manger of the Schroder Global Healthcare fund, said: “Companies such as Johnson & Johnson and Smith & Nephew are committed to improving patient outcomes through robotic surgery usage and the value of surgical robots is being increasingly realised among practitioners. Smith & Nephew’s Navio, for example, is generating better mobility after ligament-sparing knee procedures.”
US healthcare giant Johnson & Johnson gives exposure to the robotics theme via its recent acquisition of Orthotaxy, a software enabled robotic technology company. Johnson & Johnson also has exposure through Verb Surgical, a joint venture with Alphabet. Verb is seeking to “democratise surgery” in emerging as well as developed nations through an end-to-end digital platform for surgery aimed at improving patient outcomes, in part through the use of robotics but also through data analysis and improved hospital efficiency.
We may be in the early stages of robotic surgery, but the signs are that this trend will have a material impact on healthcare. It offers the potential to enhance accuracy and thus generate efficiencies and, more crucially, improve patient outcomes.
Companies positioning themselves at the forefront of innovations in surgical technology in both developed and developing markets stand to reap the benefits over the long-term - along with their investors.
*Statista forecast the surgical robots market to grow from US$5.1 billion in 2017 to US$12.6 billion by 2025 – a compound annual growth rate of 13.8% – with the number of robotic-assisted surgeries set to double by 2020.
**Source: GCiS, China’s Robotics Market (2016).
Assistant Portfolio Manager
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