Dear Owner,
At Intuitive, we believe that minimally invasive care is life-enhancing care. Through ingenuity and intelligent technology, we expand the potential of physicians to heal without constraints. We envision a future of care that is less invasive and profoundly better, where diseases are identified early and treated quickly so patients can get back to what matters most.
We are a focused organization, and the starting point for our company is the understanding of clinical needs in acute care environments—those in which a patient and physician seek an acute intervention to treat an underlying condition. From there, we develop technology-enabled ecosystems (comprised of systems, learning, and services) that we deploy to help our customers build world-class programs for treating their patients.
Our approach started in surgery for conditions like prostate cancer and has now become a standard-of-care surgical approach for several conditions in many countries. The opportunity for improving existing interventions and establishing new ones remains significant. The speed and depth of penetration into these opportunities is not limited by a demand for good solutions, but by the time and effort it takes to design highly reliable solutions and build global capability to deliver them routinely.
Where are we now?
Since our founding in 1995, we championed the idea that a technology-enabled ecosystem can materially improve outcomes, and we often faced significant skepticism. Several years ago, we adopted our customers’ Quadruple Aim goals as the measure of our success in meeting their needs. The Quadruple Aim goals are: (1) better outcomes for patients; (2) better experiences for patients; (3) better experiences for care teams, and (4) lower total cost-to-treat per patient episode. Positive change in healthcare follows a well-known and often arduous journey that begins with innovators, moves to early adopters, and finally, into the mainstream. With the Quadruple Aim as our guide, we’ve supported our customers in the treatment of more than 12 million patients, nearly two million in 2022 alone.
Along with this experience, we’ve seen a proliferation of evidence, including more than 34,000 peer-reviewed clinical journal articles. Importantly, as our customers have adopted electronic medical records (EMRs), we have been able to provide them with specific hospital- and system-based, real-world evidence analyses. We work alongside our customers to build these analyses (we call this work Custom Hospital Analytics, or CHAs). Real-world evidence has supported our customers’ progression from adoption to operational integration to standardization.
Over the past five years
Over the past five years, which include the COVID-19 pandemic, our customers have grown their use of our products in procedures at a compound annual growth rate of 16 percent. In 2022, we saw a return to pre-pandemic growth of 18 percent year-over-year. The growth in volume and depth of use by our customers has created an imperative and an opportunity to serve a global market at industrial scale.
What does this mean to us?
We now engage tens of thousands of surgeons per year, in training, commercial conversation, and scientific engagements in 70 countries. We produce millions of instruments and accessories from our global factories and suppliers. Given this scale and the trust our customers have in us, we are investing in several initiatives that will allow us to produce high-quality products, assure supply of those products, and provide world-class surgical training and service at lower marginal costs than in our past or from our competition. These investments include expansion of our training centers, investments in manufacturing systems, including facilities and automation, expansion of regional commercial teams, and strengthening of our business systems for reliability and greater efficiency. Over the past few years, we have vertically integrated some key technologies—from critical elements of our imaging systems to some of our vital accessories—that allow us to speed innovation, increase robustness of supply, and manage costs.
Taken together, these investments in industrial scale increase our own capital intensity relative to prior years. We assess these investments diligently and say “no” more often than “yes.” That said, the need for excellence in assurance of supply, quality, cost to serve, and reach is undeniable—success here is an essential path to sustained, profitable growth.
What does our three-year horizon look like?
The need for solutions in our segment of global healthcare (acute interventions supporting care teams as they help patients) and the applicability of our business system (the development of technology-enabled ecosystems and teams that help customers meet their program needs by selling, training, and servicing those ecosystems) are durable for the foreseeable future. We make our investment decisions to increase the Quadruple Aim value we bring to existing procedures and to enter new categories where our approach can make a difference. This benefits our customers and builds value for our company. We are driving growth along four vectors: multiport da Vinci penetration in existing and new procedure categories; regional growth outside the United States; growth of our flexible robotics (Ion®) platform, and growth of our single-port (da Vinci SP) platform.
Starting with our multiport platform, da Vinci, we are currently on our fourth-generation platform. Our focus has been on enabling more high-quality minimally invasive surgery in existing and new indications, for example the broad category of general surgery. By adding imaging capabilities like fifth-generation endoscopes and advanced instruments, like stapling and vessel sealing, we have enabled general surgeons across a set of procedures, including bariatrics, cholecystectomy, hernia repair, and colorectal procedures. As a result of these efforts, we are seeing significant growth in general surgery, primarily in the U.S., though we are seeing early positive signs in other countries as well. We continue to see additional procedure opportunities in multiport surgery, including indication expansion and new capabilities that can deepen penetration in existing categories.
Outside of the U.S. (OUS), we have significant opportunity to grow our business and we have been pursuing structured investments to support that growth over the past several years. In our three largest OUS markets, revenue in China and Japan each exceeded $350M in 2022, and in Germany, revenue exceeded $150M. In 2018, $1.09B revenue and 285,000 procedures came from OUS, and in 2022, OUS revenue was $2.06B, a combined annual growth rate of 17 percent, and OUS procedures were 593,000, a combined annual growth rate of 20 percent. This growth has come from sustained attention and balanced investments in key countries. For example, in 2012, Japan’s Ministry of Health, Labor and Welfare granted the first reimbursement for robotic-assisted surgery in prostatectomy. In 2014, we acquired our distributor, and we hired our current General Manager in 2015. The 5-year combined annual growth rate for revenue in Japan from 2017 to 2022 was just under 20 percent. Our mission and business approach clearly have global impact, and we will continue to invest in improving our global reach.
Ion, our flexible robotics platform, has had strong adoption based on its ability to meet an unmet clinical need in biopsy, looking for suspicious nodules in the lungs. We are currently focused on improving the manufacturability, cost, and robustness of Ion products to support its rapid growth in the U.S. We have also submitted our regulatory dossiers for CE mark in Europe, for clearance in Korea, and in China via its Green Channel. Ion is a platform that has the potential for additional indications beyond its first one in supporting lung biopsy. With that in mind, we're conducting development and clinical research to extend Ion into other indications in the lung with an eye towards further enabling pulmonologists and thoracic surgeons.
In 2018, we launched our first-generation, single-port system, da Vinci SP, designed for single entry into the body and narrow access surgeries. Adoption so far has been paced by clinical indications granted to us by regulatory bodies. In Korea, where we have had broad indications since 2018, we’ve seen strong adoption of da Vinci SP across multiple specialties. We are conducting several studies in the U.S. to support indication expansion, including in colorectal surgery, thoracic surgery, and most recently in nipple-sparing mastectomy. We have recently received clearance to market our da Vinci SP in Japan under a broad set of indications. Da Vinci SP saw solid procedure growth of 38 percent in 2022, and we look forward to acceleration in capital placements and procedures in 2023.
Our platforms rest on a foundation of digital products that create a common environment for our customers and our staff. These include personalized learning plans and simulation-based virtual reality (VR) training (roughly 49,000 hours of VR training were logged by surgeons in 2022), mobile application access through our My Intuitive app program, and media management and telepresence through our Intuitive Hub system. We are also building machine learning tools for our customers to evaluate and improve their procedures by working with leading academic centers and innovative startup companies to use federated data (EMR and Intuitive data) to analyze and improve clinical outcomes. We plan to launch this product later this year to early-access sites.
Taken together, the opportunity to serve our customers measured in procedures could expand at double-digit combined annual growth rates for the next several years, given focus and excellence in execution.
What’s our financial position?
We saw 9 percent revenue growth in 2022, 35 percent proforma operating profit as a percentage of revenue, and a GAAP profit as a percentage of revenue of 25 percent. We repurchased 11.2M shares at a weighted average price of $234, ended the year with 350M shares outstanding and with $6.7 billion in cash. Our proforma operating margin is down somewhat from its peak in prior years, reflecting our investments to position the company for durable growth and headwinds from a challenging supply chain and the strong U.S. dollar. Our 2022 35 percent proforma operating margin represents a healthy level of profitability relative to our peer group, with a strong strategic position and revenue growth above the median.
The potential opportunities for our business are greater than our ability to execute them effectively, and we pace our investments to balance execution skill with growth. For example, in the next couple of years, we will focus on cost-to-serve improvements, particularly in our enabling functions. These efficiency gains can be lumpy, as automation and process investments peak at different times. Given the differentiation of our products and services and the value we bring, we expect our net profitability to remain at the higher end of our peer group over the next several years.
Who are we?
One of the joys (and challenges) of working in our space is the requirement for an outstanding, multidisciplinary, diverse team of professionals required to research, design, supply, build, test, train, market, sell, support, and enable the sophisticated ecosystem we need to deliver. We ended 2022 with 12,120 full-time employees, with roughly one-third of those employees in our commercial organization, one-third in our production organization, one-sixth in R&D, and one-sixth in our enabling functions. Net headcount grew in 2022 by 24 percent, with the largest additional headcount coming in manufacturing as we build capacity to meet procedure demand; commercial headcount was not far behind as we grow OUS, and last, in R&D and enabling functions.
Robotic-assisted surgery, advanced interventions, and data-driven surgical science require world-class teams. We prioritize our recruiting and development for 1) character, 2) capacity, 3) energy, and 4) experience. We pursue a fair, equitable, and collaborative workplace—we measure our performance, adjust where necessary, and place team performance to the mission as our highest objective. As talent pools have evolved globally over time, we stretch ourselves to reach into new sources of talent in the communities in which we live and work. For the interested reader, I refer you to our ESG report, which takes you through our talent efforts in greater detail.
Closing thought
We see decades of opportunity in developing and deploying technology-enabled ecosystems to address acute care and we are in a strong position. We focus on what we can control and deal with reality as it is, not as we hope it could be. Our priorities for the coming year are as follows:
- Increased rates of global adoption of procedures through outstanding training, commercial, and market access execution.
- Continued work to expand indications for our new and existing platforms, including launching new platforms in countries where they have not previously been used.
- Continued excellent performance in product quality and services, as well as supply chain resilience.
- Increased productivity and focus on scaling our offerings for existing and new customers.
Thank you for putting your trust in our team and thank you for your continued support in this journey to transform minimally invasive care for the better.
Gary Guthart, PhD
Chief Executive Officer
Read the original letter here.
