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Case Study

Intuitive Surgical - The Journey of the $70 billion Robotic Surgery Giant

In 2000, Intuitive surgical raised $46 million in its IPO. In 2001, ISRG hit a low of $131 million market cap, and today is a $70 billion market cap. ISRG stock has risen 9,800% since its IPO.

Intuitive Surgical Inc. (ISRG) develops, manufactures, and markets robotic products designed to improve clinical outcomes of patients through minimally invasive surgery, most notably with the da Vinci Surgical System. In 2000, Intuitive surgical raised $46 million in its IPO. In 2001, ISRG hit a low of $131 million market cap (a microcap), and today is a $70 billion market cap. ISRG stock has risen 9,800% since its IPO. The tremendous growth in stock price was the result of increased adoption of the da Vinci Surgical System. In 2002, the da Vinci Surgical System performed less than 1,000 surgical procedures, and in 2019 it performed 1.2 million. 

The History (Wiki)

The research that eventually led to the development of the da Vinci Surgical System was performed in the late 1980s at a non-profit research institute SRI International. In 1990, SRI received funding from the National Institutes of Health. SRI developed a prototype robotic surgical system that caught the interest of the Defense Advanced Research Projects Agency (DARPA), which was interested in the system for its potential to allow surgeons to operate remotely on soldiers wounded on the battlefield.

In 1994, Dr. Frederic Moll became interested in the SRI System, as the device was known at the time. At the time, Moll was employed by Guidant. He tried to interest Guidant in backing it, to no avail. In 1995, Moll was introduced to John Freund, who had recently left Acuson Corporation. Freund negotiated an option to acquire SRI’s intellectual property, and incorporated a new company that he named Intuitive Surgical Devices, Inc.

At that point Freund, Moll, and Robert Younge (also from Acuson) wrote the business plan for the company and raised its initial venture capital. Early investors included the Mayfield Fund, Sierra Ventures, and Morgan Stanley.

The company refined the SRI System into a prototype known originally as “Lenny” (after the young Leonardo da Vinci), which was ready for testing in 1997. As the company’s prototypes became more advanced, they were named using da Vinci themes. One was named “Leonardo”, and another was “Mona”. The final version of the prototype was nicknamed the da Vinci Surgical System, and the name stuck when the system was eventually commercialized. After further testing, Intuitive Surgical began marketing this system in Europe in 1999, while awaiting FDA approval in the United States.

The company raised $46 million in an initial public offering in 2000. That same year, the FDA approved use of the da Vinci Surgical System for general laparoscopic surgery, which can be used to address gallbladder disease and gastroesophageal disease. In 2001, the FDA approved use of the system for prostate surgery. The FDA has subsequently approved the system for thoracoscopic surgery, cardiac procedures performed with adjunctive incisions, and gynecologic procedures. 

Shortly before going public, Intuitive Surgical was sued for patent infringement by Computer Motion, Inc, its chief rival. Computer Motion had actually gotten into the robotic surgery field earlier than Intuitive Surgical, with its own system, the ZEUS Robotic Surgical System. Although the ZEUS system was approved in Europe, the U.S. Food and Drug Administration had not yet approved it for any procedure at the time that the FDA first approved the da Vinci system. The uncertainty created by the litigation between the companies was a drag on each company’s growth. In 2003, Intuitive Surgical and Computer Motion agreed to merge, thus ending the litigation between them. The ZEUS system was ultimately phased out in favor of the da Vinci system.

From 2004 ISRG Annual Report

Our company priorities are:

  1. Superior products, customer service and patient outcomes;
  2. Consistent revenue and operating profit growth
  3. A results-driven company culture in which we measure ourselves by our accomplishments. 

We remain dedicated to taking surgery beyond the limits of the human hand. We believe that our technology has broad and significant social and economic implications for the future of healthcare. 

“Great economic and social forces flow with a tidal sweep over communities that are only half conscious of that which is befalling them. Wise statesmen are those who foresee what time is thus bringing, and endeavor to shape institutions and mold men’s thought and purpose in accordance with the change that is silently surrounding them.”  

Quotation from The Life of Richard Cobden By John Morley

The Journey

Our goal on MicroCapClub is to find great companies early. As an experienced microcap investor, I find it beneficial to study the journeys of large public companies that started as small public companies. 

  • What were the key events and inflection points sub $1 billion market cap? 
  • What were the valuations (EV/Sales, EV/ EBITDA, P/E, EV/ Unlevered FCF) during their ascent? 
  • How did the stock react to good and bad news events?
  • How did the business perform, and stock react during the crisis of 2008-2009?  

Instead of answering these questions as a narrative, MCC member Ian Hunter CFA, has produced a Google Sheet that will allow you to go back in time and get all the answers for yourself. Click the link below and scroll to the bottom of the Events tab to start at IPO date. Work your way up the spreadsheet and follow the significant news events, valuation, market cap, and trends. If investors enjoy these worksheets, we will produce more of them for other companies.   

[View ISRG Case Study Worksheet]

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