How Big Could This New Procedure Be for Intuitive Surgical, Inc.?

By Markets Fool.com

Image source: Intuitive Surgical.

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One of the biggest reasonsIntuitive Surgical (NASDAQ: ISRG) stock has surged 90% since its 2014 lows is because of its success in hernia operations. While robotic assistance for that operation still seems to have a lot of room to grow, it's important to remember that the market is a forward-looking machine. It's worth checking to see if there are other procedures where the daVinci robotic surgical system could add value.

As you'll see, while colorectal procedures have been called out as one of the key initiatives for the company, it's unlikely that it will approach the volume that hernia operations have been offering.

But first, a little background

In years past, the company's daVinci robotic surgical system was primarily used to improve patient outcomes in hysterectomy or prostatectomy procedures. But with growth dwindling and the efficacy of benign hysterectomy procedures being called into question, investors became hesitant about the company's growth prospects.

Starting in 2014, though, and accelerating for the past three years, operations in the company's U.S. general surgery segment have surged. While management doesn't break out specific numbers for hernia repairs -- which is considered part of U.S. general surgery -- CEO Dr. Gary Guthart has frequently acknowledged that hernia repairs are the biggest driver of growth in this sub-category.

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Data source: SEC filings.

Before hernia operations became as important today as they are for patients, the company, and shareholders, management signaled on conference calls that it believed there was an opportunity to contribute to patient outcomes here.

That's why I think it's worth digging into hernia operations, which have been touted for the past few quarters as an area of interest.

During the most recent conference call, Director of Finance Patrick Clingan made it clear that colorectal procedures are emerging as an important new surgery: "Third quarter U.S. general and thoracic surgery procedure adoption remained strong, led by solid growth in hernia repair and continued adoption of colorectal procedures."

Studies have also been showing that daVinci has been improving patient outcomes. Researchers at Indiana University found this year that when the robot is used for colorectal procedures, it "generated a reduction in length of hospital stay."

Knowing that, I wanted to take a look at just how big of an opportunity colorectal operations could be.

How important could colorectal operations be to Intuitive Surgical?

In order to get an idea for the magnitude of colorectal procedures in the United States, I looked to compare it to hernia operations. While exact numbers can be hard to find, the Society of American Gastrointestinal and Endoscopic Surgeons (SAGES) estimates that when we combine inguinaland ventralhernia operations -- the two Intuitive focuses on the most -- there are between 850,000 and 1.1 million operations performed per year in the United States.

By contrast, the American Cancer Society estimatesthere are a combined 135,000 new cases of colon or rectal cancer diagnosed every year in the United States. However, this doesn't necessarily mean there will be this many procedures performed since not every diagnosed case will lead to an operation.

The bottom line is this: It's highly unlikely colorectal procedures will contribute the same volume hernia operations do.

That being said, it's hard to tell if such operations bring in the same amount of revenue -- or what the margins are -- compared to hernia operations. Far more importantly, we don't want the company to try and juice results for this one operation -- that leads to bad patient outcomes, which is bad for everyone over the long run.

Instead, I encourage investors to view colorectal as just one of many new areas where the daVinci will continue to improve patient outcomes -- and investor returns -- over time.

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Brian Stoffel owns shares of Intuitive Surgical. The Motley Fool owns shares of and recommends Intuitive Surgical. 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.