Market Opportunity for Robotic Surgery Boosted by Service Model

In their latest investor presentation, Toronto based Titan Medical, Inc. (TDM (TSX) – TITXF (OTCQX)) discloses its market appetite and many indications regarding future developments.

 

Salients

  • Targeting Markets by Type of Procedure – Titan Medical claims to focus principally on three types of surgical procedures: general surgery (Cholecystectomy, Appendectomy), gynecology (benign Hysterectomy), and urology. This choice is driven by the size and growth of similar robotic surgery markets
  • IP Assets – Titan Medical uses a single port device where it concentrates most proprietary IP assets in the form of patents for a high dexterity robotic platform, with a small footprint, and lower cost.
  • Planning on Recurring Revenues – The company’s business model combines one-off (selling robotic systems as products) and recurring revenues (selling disposable instruments used in procedures and some services like maintenance).

 

Analysis

  • Highly Stretched Product Launch – Titan Medical expects to be granted final approval for U.S commercial launch by mid-2017. However, assuming no revenues (or nothing sizeable) before commercial launch, $37.6 million USD in cash or cash equivalent as of September 30th 2014 and a current burn rate of $1.3 million USD per month, the company has no room for either a delay in its device approval process or in its solution development roadmap. That said, the Titan Medical still has over 100 million shares outstanding (at $2.19/share on September 30th 2014 – Sharply dropped since then) and could leverage additional capital on the stock market.
  • Embracing a Full Service Business Model to Boost Market Opportunity – In its investor presentation, Titan Medical estimates a total market opportunity of 4,000,000 procedures and over 6,000 surgery system placement opportunities. In the meantime, the Titan Medical SPORT surgical system is set to be sold for under $1 million USD.
    In the U.S, for surgery procedures targeted by Titan Medical: procedures usually last 1 to 3 hours, average operating room charges (exclusive of laboratory, staff and medication charges) comprise an initial setup fee ($1,700 to $2,000) and a cost per use of the room ($40 to $50 per minute). Therefore, each procedure can be estimated to cost hospitals between $4,100 and $11,000 for the use of the operating room.If sold as a device, the total US market opportunity for Titan Medical is roughly $6 billion USD, and the annual market opportunity would also have to take into consideration the replacement rate of the robotic surgery device by hospitals, which would lower this figure.If sold as a service (pay per use), the total annual US market opportunity could reach up to $44 billion USD per year (best case scenario – 4 million procedures at $11k each).

 

  • Matching the Way the Market Works – Hospitals charge patients (and health insurances reimburse patients) on a per procedure basis and are highly compete on price. For healthcare centers, the acquisition of robotic surgery systems represent a relatively high capital investment, a value proposition geared toward better healthcare quality thanks to robotic procedures. However, this is generally insufficient to attract more patients, and since regulations still make mandatory the presence of similar staff headcount during robotic-assisted procedures as compared to “classic” operations, the ROI for the hospital is debatable.Robotic Surgery vendors should, by shifting their business models to wider service models (charging hospitals per procedure), relate their value propositions to lower financial burden as robotic equipment usage would be considered an operating expense, boosting adoption. In addition, the price per procedure offered by vendors could be much lower than the current calculated cost of surgical machinery operated by hospitals based on uncertain ROI expectations.
  • Hospitals are NOT the only Primary Target Market – Health insurances obviously have a great interest in lower procedure pricing for patients. If robotic surgery systems, beyond permitting faster recovery time saving insurance the cost of additional hospital internment, offer substantial savings with the procedure itself, health insurances are likely to pressure care centers to accelerate adoption of robotic devices and could even refuse to provide cover for operations not performed by robots.
    Robotic surgery system vendors should leverage the influence of health insurance companies by suggesting insurance accreditation programs, and perhaps even sell systems through insurances.