Four weeks ago, Intuitive Surgical shares rose on a report that it is open to being acquired by a larger player in medtech. Naturally, this type of report drives intrigue and consideration of who might be a viable acquirer. Intuitive may or may not be sold, but when one looks at the potential suitors in medtech who could do such a deal, the list shrinks fairly quickly.
For the sake of argument, let’s take the statement from MassDevice on face value: the acquirer is larger and in Medtech. Intuitive is currently 35th on the list of largest medtech companies. On face value, only Stryker (or possibly Boston Scientific) can truly take on a deal of this size, has interest in selling capital, is in urology/GYN/general surgery, and doesn’t have a robot in the works targeted at Initiative’s procedures. Others like Danaher, GE Healthcare, Siemens, or Fujifilm Holdings could be tempted to explore this opportunity because of a focus on capital or general surgery or informatics. Further, companies like JNJ or Medtronic could explore it if internal robotic development programs fall flat.
So, we are left with three groups within the Medtech segment:
- Group 1: Enter Surgical Adjacency – Stryker or Boston Scientific
- Group 2: Enter a healthcare capital and/or informatics adjacency – Danaher, GE Healthcare, Siemens Healthineers, Fujifilm
- Group 3: Hedge against internal robotic program inability to meet expectations – JNJ, Medtronic
However, is there a fourth category of strategic buyer? Would this market be attractive to a traditional technology company? In the way Verily partnered with Ethicon (Verb), might another tech company see the value in big data, analytics, machine learning, etc. Could an outright acquisition be a path to expand access to information and a channel to market in healthcare?
Healthcare companies have struggled on their own to monetize data effectively and tech companies have similarly struggled with the sales cycle and regulatory environment of the healthcare market. Beyond Verily, we have seen Qualcomm Life, IBM Watson Health, and Salesforce (via Philips partnership) make forays into the healthcare market from a data or disease management perspective. If one thinks of a robotic platform as a data solution vs. an interventional tool, it could lead to a disruptive play.
Despite the threat of competition, Intuitive is in a strong market position with over 3900 installs and 750K procedures/year. The result is over 70% of revenue is from recurring sources, which makes for a stable foundation. However, two of the pillars for Intuitive’s future growth (discussed in recent investor presentations) are built on its ability to develop more intelligent systems and drive data analytics through its platform – clearly a step beyond its historical comfort zone.
It would be a bold move for a company like Apple, Cisco, IBM, or Microsoft. It may be more attractive as a partnership, but it is worth considering. Tying more data into the equation opens channels for novel analysis, different business models, the ability to predict value, budget more effectively, and meet broader hospital (and payer) goals.
Perhaps Intuitive will be able to address its data analytics and intelligent systems strategies in-house or via partnership to stave off competition. This coupled with its early diagnostic platforms could provide an attractive organic growth path. Perhaps Medtronic or JNJ wants the book of business and install base on which to build. Or, perhaps we continue to see this steady march towards a digitized healthcare environment and entry of non-traditional companies to the market.