Move Over, Intuitive Surgical, Here's How Johnson & Johnson and Google Plan to Build a Better Robot

By Markets Fool.com

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Image source: Getty Images.

Surgical robotics company Intuitive Surgical's (NASDAQ: ISRG) near-monopoly is facing a threatfrom two of America's most powerful companies, Alphabet's(NASDAQ: GOOG)(NASDAQ: GOOGL)Google and Johnson & Johnson (NYSE: JNJ). The corporate giants are collaborating in a new company called Verb Surgical, which has its sights set on introducing a safer, more cost-effective, and (here's the truly exciting part) smarter surgical robot.

Fortunately for Intuitive Surgical, the impact from this competitive threat could be diluted since there should be room for multiple players in this market. Surgical robotics is growing annually in the mid single digits and is expected to reach $20 billion by 2020. The surgical industry accounts for $500 billion of current healthcare spending, and just 5%-10% of these surgeries use robots. As the industry grows,there should be plenty of space for expansion of robotics into new facilities and wider surgical procedures, opening up the market to multiple players.

Here's what's likely on its way and (incidentally) why your next surgery could include a robotic assistant the size of Star Wars' C-3PO, and almost as smart as WALL-E.

Google has vast ambitions in healthcare

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J&J and Google are an odd pairing culture-wise, but it still could be a great partnership. J&J has vast experience in advanced instrumentation, while Google has tremendous knowledge in machine learning and image processing.

Google also has vast ambitions in healthcare. Multiple new offshoots have emerged from Verily, which is Google's recently rebranded Life Sciences division. Those projects include everything from a glucose-monitoring contact lens for diabetics to miniaturized devices that tackle various disease targets.

However, out of the wide array of Verily projects, the robotics joint venture appears to be the most promising. Gary Pruden, global chairman of J&J's medical devices group, said late last year that the robot will be commercialized in the next couple of years. Meanwhile, this robot is hidden deep in Verb's labs, and there appears to be some disagreement about exactly what it should accomplish.

J&J wants a cheaper surgical robot; Google wants a self-driving one

Gary Pruden, global chairman of J&J's medical devices group, claims the new robotic-assisted platform will be a "disruptive" alternative to existing surgical robots. "Our goal is to have a lower-cost product, with the smallest footprint, with greater capability, that helps to raise the standard of care. That would be a market disruption," he said.

Pruden elaborated that J&J wants to make "the benefits of robotic surgery accessible to more patients around the world." Read that sentence again, and you'll see J&J's conservative corporate culture at work. This is exactly how the healthcare giant sees itself and its mission. It's also how it has succeeded as a business. J&J has become a ubiquitous brand globally by providing products at a reasonable cost and positioning itself as a highly trusted name.

By comparison, Google thrives on moonshots. Sometimes, the crazier the better. For example, if you read the Verb website, they want to create"a new future, a future unimagined even a few years ago, which will involve machine learning, robotic surgery, instrumentation, advanced visualization, and data analytics."

What I found most interesting -- in addition to wondering how all of this was going to be loaded into J&J's proposal for a lower cost robot -- was the reference to machine learning capabilities. If the new robot actually has those capabilities, Verb's robot will be a huge departure from anything now on the market.

To date, surgical robots have steered well clear of any kind of machine learning, which would make surgical robots more autonomous. As intelligent tools, not just extremely adept manipulators and visualization devices, Verb's new platform could bring an entirely new surgical paradigm.

While a robot capable of "learning" seems pretty far-fetched, it's feasible, since Google is already deep in machine learning in healthcare. For instance, through DeepMind, Google's artificial intelligence offshoot, it is using machine learning to targetradiotherapy treatment for head and neck cancers.

Lower cost would be a big gotcha, if it happens

I'm hopeful the coming robot might contain some truly innovative capabilities. But it's the lower price tag that could really disrupt the robotic surgery market. Since Intuitive Surgical has had this market in its pocket for a long time, it stands to lose the big edge of any near-monopoly: the power to set pricing. That could dent its profit margins, which have varied between 23% and 27%for the past year.The company's da Vinci robotis staggeringly expensive, with systems selling for $1.5 million on average and disposables costing $1,840 per procedure.

Other robotic surgery systems are also priced dearly. Major medical device maker Medtronic, partnered with Mazor Robotics, has a $850,000 spinal surgery robot,with disposables costing $1,500 per procedure. Orthopedics company Stryker Corp.'sMako robot was cleared by the FDA last year for total knee reconstruction. It's priced at $1 million.

Asurgery patient's view of an already-on-the-marketsurgical robot. Image source: Getty Images.

Verb's robot is clearly designed differently. J&J hassaid it will also allow the surgeon to work much closer to the patient and will be about 20%the size of the da Vinci.From a patient viewpoint, that's an eye-opening shift. To the dismay of many experiencing their first robotic-assisted surgery, the da Vinci system looks a lot likea super-sized video game with robotic arms.The surgeon sits behind a screen 10 feet away from the patient and manipulates the machine's robotic appendages while studying an enhanced view of the surgical site. To put it mildly, that's not a reassuring image when you're about to go under.

Surgeon Erik Wilson, M.D., said in General Surgery News, "The market of digital platforms is going to explode over the next five years. Digital platforms under the name of 'robots' are taking over, and we as surgeons have to decide whether we are going to jump on the train or be run over by it."

Honestly, I don't see any surgeons running the risk of being steamrolled by robots. But I do expect Intuitive Surgical's high profit margins to face that risk if the company doesn't step up its game. Until Verb's robot actually appears, Intuitive Surgical's investors can probably relax. But after that, watch out.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools board of directors. Cheryl Swanson owns shares of Johnson and Johnson. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Intuitive Surgical, and Johnson and Johnson. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.