After a multi-year hiatus, we re-initiated an investment in Intuitive Surgical, Inc. (NASDAQ:ISRG) Intuitive sells the da Vinci robotic surgical system, which enables surgeons to perform minimally-invasive surgery in a number of different procedure categories. Minimally-invasive surgery benefits patients because they generally experience less pain and faster recovery after the procedure. Intuitive has held an effective monopoly on robotic-assisted surgery for many years. We believe the company has durable competitive advantages consisting of patents, technology, regulatory approvals, a worldwide installed base of systems, large salesforce, and balance sheet with over $4 billion in net cash. Although Intuitive is expected to face competitors in the future, we believe it will be difficult for competitors to displace the company and the company will maintain its leadership position. In 2016, roughly 750,000 procedures were performed worldwide using Intuitive’s robotic systems, an increase of 15% year-over-year. Intuitive generates revenue from instruments/accessories every time a procedure is performed using its robotic system, which together with annual service fees provides recurring revenue. Management has defined its current addressable market as four million procedures, but we believe Intuitive will continue to expand its addressable market by entering new procedure areas. The company has an exciting pipeline of new products, including a single port system that will enable new procedures and a robotic catheter system that will enable lung tissue biopsies to be taken minimally invasively. In the fourth quarter, the stock pulled back despite a strong fundamental outlook because investors became concerned that the repeal of the Affordable Care Act would cause Intuitive’s hospital customers to cut capital spending, which would negatively impact Intuitive’s system sales. We saw this pull-back as short-sighted and bought the stock. We think Intuitive can grow revenue and earnings at attractive rates over the long term.
From Baron Funds' Fifth Avenue Growth Fund fourth quarter 2016 commentary.
