Moment of truth nears for TransEnterix’s surgical robot

Katy Fitzgerald moves pegs using SurgiBot, a surgical robot designed by TransEnterix, Thursday, March 31, 2016 in Raleigh, N.C.
Katy Fitzgerald moves pegs using SurgiBot, a surgical robot designed by TransEnterix, Thursday, March 31, 2016 in Raleigh, N.C.

TransEnterix expects to learn in less than two weeks whether federal regulators will allow the device maker to sell its surgical robot, SurgiBot, which would be only the second such device approved to perform general surgery on patients in this country.

Clearance from the U.S. Food and Drug Administration would thrust the 156-employee startup to the forefront of a niche industry that has been dominated by a single surgical robot, called the da Vinci system, for about 15 years.

What’s more, TransEnterix is the only robotics developer with two robotic designs being readied for surgical use.

But the decade-old Morrisville company has limited resources and will need another cash infusion soon until it can generate significant revenue in several years. TransEnterix lost nearly $47 million in 2015 and had about $47 million in cash as of Feb. 27, enough to fund operations through the end of 2016.

“It’s a very high barrier to entry,” TransEnterix CEO Todd Pope said. “It requires tremendous investment to build something like this.”

Even though surgery is still performed without robotic assistance in most cases, the nascent field is now at a tipping point, with several competitors developing robotics systems. Just last year, for example, health care giant Johnson & Johnson and the life-sciences division of Google announced a strategic collaboration to develop a surgical robot.

Surgery guided by robots promises smaller incisions, quicker recovery times and shorter hospital stays – all pluses for hospital administrators, doctors and patients.

“At the end of the day, robotics is cutting edge,” said Glenn Novarro, managing director of Global Equity Research at RBC Capital Markets in New York. “Whether it’s driven by the surgeon who prefers robotics, or the patient who thinks that robotics is cool, you’ll be able to drive higher volume to your hospital.”

The FDA is expected to rule on SurgiBot by April 15. Later this year the company plans to apply for U.S. approval for its second surgical robot, called the ALF-X. This robot was developed in Italy and acquired by TransEnterix in 2015 for nearly $100 million, and is already approved for commercial sale in Europe.

The company’s parallel robotics projects have raised speculation that TransEnterix is a likely acquisition target for larger companies looking to break into the robotics market. In late January, TransEnterix stock soared nearly 75 percent over several days after Johnson & Johnson’s CEO Alex Gorsky made a general comment that his company is interested in making acquisitions among robotics developers.

The company’s shares are up 76 percent this year after closing Friday at $4.37. All six of the analysts who cover the company have a “buy” rating on the stock, according to Bloomberg.

Surgical robots are expected to be commonplace in U.S. and European operating rooms, but widespread adoption is still some years away. In the near future TransEnterix is expected to log several hundred procedures a year with its surgical robotic systems.

Electronic tentacles

The world’s dominant surgical robot, the da Vinci model sold by Sunnyvale, Calif.-based Intuitive Surgical, was used in about 652,000 procedures last year and is expected to top 700,000 this year, said Lawrence Keusch, an analyst with Raymond James in St. Petersburg, Fla.

The da Vinci system costs between $1.5 million and $2 million, while the SurgiBot is expected to cost about $500,000 and would appeal to smaller hospitals and outpatient surgery centers that perform less complicated procedures. The SurgiBot system is mobile and not permanently installed in a dedicated operating room.

SurgiBot is designed as a “single port” robot that inserts up to three surgical tools and a laparoscopic camera into the patient’s body through a single incision, whereas the da Vinci system and TransEnterix’s ALF-X require multiple incisions. Even though it’s called a robot, SurgiBot is not autonomous; it operates as an extension of the surgeon, who controls the device by two handles that function as joysticks that control the SurgiBot’s electronic tentacles inside the patient’s body.

It will take at least several years to get SurgiBot established and to generate significant revenue for TransEnterix. SurgiBot will likely be sold to just several hospitals in 2016 so that surgeons and TransEnterix can monitor the robot’s performance on live patients.

TransEnterix has built eight complete SurgiBot systems and over 1,200 instruments, according to a March 16 report by research firm Ladenburg Thalmann.

“We would anticipate SurgiBot’s US commercialization to be a limited, controlled launch, driving critical real-world clinical experience and key opinion leader support,” Stifel, another research firm, wrote in a March 4 report.

TransEnterix employs 20 in Europe and 136 at its Morrisville headquarters, where it designs, builds and tests its robots. The company’s white-coated lab technicians mill instruments, assemble electronics and test components at the company’s on-site manufacturing floor.

In the near future, the company will focus its resources on selling the ALF-X in Europe, where about 300 surgeons have participated in demos of the device. The ALF-X has also been used in more than 200 colorectal and gynecological procedures. TransEnterix maintains sites in Milan and Rome where it offers two-day instructional programs for surgeons and hospital administrators.

To date, ALF-X is used in those two Italian cities for training, data collection and product development, but the robotics system has not been sold commercially.

Reusable instruments

TransEnterix has hired about two dozen sales and marketing employees in Europe to promote the ALF-X, whereas it expects to hire just three sales managers to promote the SurgiBot in the United States this year. In this country, TransEnterix officials expect U.S. regulatory approval for ALF-X and product launch here as early as 2017.

The ALF-X is expected to cost about $2 million, comparable to the da Vinci system, Novarro said. But one of the selling points of the ALF-X system is that the surgical instruments, such as graspers and scissors, are designed to be reusable. The instruments used by the da Vinci model are disposable and therefore more expensive over time, Novarro said.

By 2019, TransEnterix is expected to realize $137 million in annual revenue from SurgiBot sales and $79 million from ALF-X sales, according to a March 4 estimate by Lake Street Capital Markets. Since its founding in 2006, TransEnterix has raised more than $200 million from investors.

One advantage of robotics in surgery is that the doctor’s performance is not as affected by fatigue after a long day at the operating table. “Your muscles don’t get tired if you’re a robot,” Pope said.

Helmuth Billy, a general and bariatric surgeon at Community Memorial Hospital in Ventura, Calif., is one of the “test drivers” for SurgiBot who is advising TransEnterix. He has tested SurgiBot on pigs and said the device is ideal for procedures like gall bladder removals, tubal ligations and bariatric surgery.

“The nice thing is you’re at the patient’s bedside, rather than sitting at a console,” Billy said. “It worked beautifully.”

John Murawski: 919-829-8932, @johnmurawski