One of the most successful business models is the “razor-blade model.”
A company sells the razor – sometimes at a loss – but makes great profits by selling the razor blades, which need to be replaced often.
The model originated with King Gillette, the founder of Gillette. Hewlett-Packard also employed this business model successfully with printers and printer ink cartridges.
Today, this is how the surgical robotics industry is being built.
Hospitals buy high-tech robotic arms capable of performing surgery with smaller tools than any human can operate (see image below). Although the $1.5-$2 million price tag for these units may sound high, this is not where manufacturers make their money.
Intuitive Surgical’s da Vinci Xi Surgical System
Just like Gillette, robotics manufacturers make their money off the instruments and accessories that attach to the arms and must be replaced after each surgery. These sales provide high margins and recurring revenues.
That’s one of the reasons the robotic surgery industry is growing exponentially. In 2014, it was $3.2 billion; by 2021 it is forecast to reach $20 billion.
Intuitive Surgical (NASDAQ:ISRG) makes the da Vinci Surgical System. This has been used to perform more than 3 million surgeries to date. It’s changed countless lives… and not just for patients. Investors have watched happily as Intuitive Surgical’s share price has rocketed from around $90 in the wake of the financial crisis to more than $500 today.
Other examples include Accuray (NASDAQ:ARAY), which uses robotics for radiation therapy and radiosurgery treatments; Mako Surgical (NASDAQ:MAKO), which uses robotics for orthopedic surgery; and Titan Medical (TSE:TMD), which is focused on robots for minimally invasive surgery.
The next generation of surgical robotics will be able to perform a range of surgeries autonomously and without any human error. This will be done at a fraction of the cost of surgical procedures today, and will improve the quality and accessibility of health care worldwide.
It could also make well-placed investors famously rich.
Regards,
Jeff Brown
Editor, Published by Bonner & Partners.
