Special Report: Dr. Robot: The Market's Top Medical Robotic Stocks

When I was a child, Ridley Scott's Alien was by far the scariest movie I had ever seen. Maybe it's just me, but there is something innately terrifying about a monster waiting to tear its way out of your belly. I know, it's gruesome and seemingly irrelevant but just stick with me here.

As I got older the scene lost its power as it turned into a common cliché and popular comedic parody. I was no longer a kid and I was no longer scared, so when Ridley Scott released Alien's prequel Prometheus I was brave enough to enter the theater.

Now, I'm no film critic and maybe my expectations were a little too high, but I walked out of that movie with a profound sense of disappointment. Perhaps I've developed a callous for fear-based entertainment.

However, I didn't leave that theater empty handed. I left with a budding curiosity about the future of medical practice – a future based in robotics.

Let me explain.

There is a scene in Prometheus when the film's protagonist needs to extract one of those pesky aliens from inside her.

And this is where the Weyland Corp Med Pod 720i comes in: Our heroin hops in the the automated surgical operation machine, orders a cesarean section, and wallah: crisis averted (sort of).

Not There Yet

Of course, this is science fiction – there is no Med Pod 720i and there is no Weyland Corp to build it – which is actually a good thing.

The fact that we do not have an all-in-one, automated surgery machine is exactly the reason why investors stand the make profit.

Robot-assisted surgery does exist and it is accelerating at a rapid pace. We may not have the Med Pod 720i but all that means to me is room for growth.

Medical practice today relies on accountable care and evidence-based practice. Patients and providers are reassessing the place of surgical robotics in the industry.

As this happens, it is becoming increasingly apparent that in addition to procedural and clinical benefits, the expenditures required to adopt these new technologies are, more often than not, offset by profits and savings.

And with a flood of baby-boomers approaching retirement, the demand for many of these technologies will begin to increase at a rapid pace.

The Weylands of Today

Robotics continues to disrupt many areas within health-care ranging from diagnostic methods to automated nursing-tasks such as sponge bathing. However, the most profound impact currently exists within surgical procedures.

Below, we'll briefly overview a few of the major players in the industry today that are already changing medical practice as we know it.

Intuitive Surgical Inc. (ISRG)

Likely the biggest name in robot-assisted surgery, Intuitive Surgical operates in over 2,000 hospitals throughout various markets around the world.

Intuitive Surgical designs, manufactures, and markets human-guided medical assistance technologies. These technologies allow physicians to perform surgeries at levels of dexterity and precision far beyond human capabilities.

Intuitive specializes in surgery through the use of its da Vinci Surgical Systems. The da Vinci Surgical System records the natural hand movement of physicians at a console station and converts the information into congruent micro-movements of instruments inside patients bodies.

The system allows for ample range of motion, natural control, and fine tissue manipulation through high definition and three-dimensional imaging during surgery. The system is the most versatile on the market, providing enough freedom in movement and dexterity to allow surgeons to literally peel the skin off a grape!

By the end of 2012, there were 2,585 da Vinci systems worldwide performing over 450,000 annual procedures.

Intuitive Surgical procedures also allow for shorter hospital stays, which more than offset the additional expense of robotic surgery.

Intuitive has seen massive gains over the past decade. Share value has jumped more than 6,000 percent and the company is still boosting profits and revenue.

Mazor Robotics Ltd (NASDAQ: MZOR)

Mazor Robotics specializes in spine surgery and has provided technology used in tens of thousands of implants throughout the United States and Europe. The company was named one of Fast Company Magazine's top five most innovative robotics companies and for good reason too.

In April 2013, Mazor's Renaissance Guidance System was used in the first successful lumbar spine fusion surgery. The surgery was performed by the Department of Neurological Surgery at University of California.

Mazor Robotics saw a doubling of first quarter revenue from 2012 to 2013 and is focusing a massive 80 percent of investment to it's United States growth strategy. The company sold just five Renaissance systems in the US last year, which accounted for 84 percent of total sales.

Mazor's reliance on a small number of high-price sales provides the company some major swing potential. You can expect Mazor to be a highly volatile stock with tremendous room for growth.

The company recently received a purchase order from the Oncology Research Center N.N. Blokhin in Russia, so the United States is clearly not the only market to be penetrated.

And with Mazor being the only provider of robotic technology for spine surgery on the market, the company won't be going anywhere soon.

Hansen Medical, Inc. (NASDAQ: HNSN)

California based Hansen Medical designs and manufactures robotics that allow for precision in positioning and control of catheter-based technologies. The company produces Sensei Robotic Catheter Systems including Artisan Control Catheters and Sensei X Robotic Catheter Systems.

For clarification, catheters are not solely used for urinary purposes. In fact, catheters can be inserted into essentially any body cavity, duct, or vessel.

Intra-vascular procedures, also refereed to as interventional radiology or endovascular surgery, are minimally invasive operations that can treat diseases in nearly every organ system. Physicians are provided image guidance through X-rays, CT, ultrasound, or MRI's, allowing navigation of catheters inside the body.

Hansen's technologies pose a major benefit for an already rapidly growing industry. Prior to 1990, vascular disease was treated only with open surgical operations but today 60 to 70 percent of vascular procedures are performed using catheters inserted through small incisions.

But despite this growth, the industry has not seen any fundamental changes in the process of catheter navigation. However, Hansen is already changing that.

The company is soon to release its Magellan System that will reduce radiation exposure for physicians by allowing them to operate in an outside room, away from the radiation source. The system will also increase efficiency during intra-vascular procedures, cutting operation times by about 67 percent.

The Magellan System creates an anatomical map before surgery and allows catheters to move along a designated pathway in order to minimize irritation of vascular walls.

These developments and their range of procedural-applications are likely to increase valuation for Hansen Medical in the near-term while Hansen's niche-market focus should provide long-term stability.

Accuray Incorporated (NASDAQ: ARAY)

Accuray designs and manufactures the CyberKnife Robotic Radiosurgery System, a non-invasive alternative to surgery for the treatment of cancerous and non-cancerous tumors. The CyberKnife can target tumors in any area of the body including the lungs, spine, liver, prostate, and brain.

CyberKnife was the first robotic system on the market to treat tumors non-invasively. Despite the misnomer, there is no cutting involved – the system delivers high doses of radiation to tumors with extreme accuracy.

Unlike traditional methods used to treat tumors such as chemotherapy and radiotherapy, Cyberknife is able to minimize damage to unaffected areas. The system does this by delivering beams of radiation from multiple angles in order to concentrate on a single point. Alone, these single beams are not very powerful, but when the beams cross at a center-point, radiation levels are high enough to destroy tumors.

Additionally, the CyberKnife is able to constantly track tumors that move during surgery and can respond in real time. This is especially useful in respiratory and cardiovascular systems because the lungs and heart are in constant motion.

Along with accuracy and safety, the CyberKnife allows for a significant reduction in hospital visits. Conventional radiotherapy can take up to 45 treatments while the CyberKnife only takes between 1 to 5.

All these factors make the CyberKnife an incredibly attractive method of treatment, especially for patients with tumors that cannot be treated surgically.

In addition to the CyberKnife, Accuray has recently rolled out its TomoTherapy H Series which successfully treated its first patient in May, 2013. The TomoTherapy system works similarly to CyberKnife, but is able to break radiation beams into a collection of smaller beams, allowing for more precise targeting of tumors.

CyberKnife and TomoTherapy technologies have been well received in European and Asian markets with centers in Germany, France, and Japan. However, systems in the U.S. account for well over half of Accuray's total installations. With the U.S. market shrinking, Accuray is now shifting focus overseas.

It is also important to note that unlike the other robotic surgery companies listed in this report, Array does not hold a monopoly in its niche-market. Array competes with Varian Medical Systems (NYSE: VAR), a provider of Oncology and X-Ray products.

Varian is mainly vested in imaging services, but it is looking to increase its market share in radiation oncology.

In any case, it would still be wise to diversify any holdings between Accuray and Varian if you do plan to invest in radiation oncology.

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