LifeHealthcare wants us to place our trust in robot surgeons
Health & Biotech
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The rise of robots already has a host of jobs under threat — and even the medical sector is not immune.
With little fanfare, robots are already being used in the operating theatre at a rising number of hospitals, playing an increasingly important role in complex surgeries requiring pin-point accuracy.
LifeHealthcare (ASX:LHC), a distributor of medical products, has seen buoyant demand for robots over the past few years, with the maker of one of the products it handles, Mazor, claiming 98.9 per cent accuracy.
When it comes to inserting pins into the spine, for example, getting the correct position down to the last micron, counts.
“The technology is clearly part of the future,” says the company’s chief executive, Matt Muscio.
“Navigators are increasingly used in spine surgery. Augmented reality and virtual reality will converge over time.”
This will lead to rising demand for robotics in the operating theatre thanks to the promise of far greater precision by using 3D positioning, for example, as increasingly complex clinical activities are undertaken.
With a list price approaching $1 million, this gear is not a quick sale, with lead times running to well over six months, he says.
“Increased familiarity among clinicians and an expanded footprint with competitive dynamics between hospitals and clinicians for first-mover advantage” is creating demand for robots in the operating theatre, says Muscio.
Sales of two systems in 2016 and three in 2017 have helped sustain organic growth as the company continues to look at acquisitions.
LifeHealthcare, which is itself a roll up of several equipment distributors, has pursued an active mergers and acquisition program since going public, buying two outfits in 2015, and another one this month.
Each acquisition has cost around $10 million, with the company continuing to run the ruler over further buys.
Following the acquisitions in 2015, it needed to “rejig some things operationally”, Muscio says, which slowed things down. But further acquisitions are likely in the near term.
Given the company’s modest market capitalisation of just over $100 million and the present level of debt, “bolt-ons [acquisitions] make sense for us”, Muscio says, rather than making bigger buys which would take it into a new field.
Despite the promising industry dynamics of rising health spending thanks to an aging population and an obesity epidemic, both State and federal governments are pushing hard to limit outlays.
Indicative of the pressure is the fight between government, hospital owners and insurers over the cost of prosthetics, with claims they are more expensive in Australia than abroad, along with differing prices charged in the public and private health systems.
This has kept some sharemarket investors hugging the sidelines, waiting to see how this issue plays out before buying into the company.
The early bout of popularity LifeHealthcare enjoyed after it went public in 2013 evaporated from early 2016 as the government ramped up efforts to slash the cost of prosthetics.
Even though the company has minimal exposure to sectors such as cardiac devices, orthopaedics and intraocular lenses which saw prices cut earlier this year, its shares remained off the radar for many investors.
Even while the first round of cuts had little impact, investors are waiting for the next round of prosthetics price cuts list to be finalised in the coming months before looking at buying in.
“Not all areas have large price variations between public and private hospitals,” says LifeHealthcare chief executive, Matt Muscio of prosthetics. “We’ve been helping to improve the transparency” in the debate.
As a smaller, locally owned player, it is companies like his which plays a key role in bringing niche and often novel technology to the local market, he says, while also pointing to the need to keep in mind the growing number of smaller companies making specialty components and parts for the sector which could disappear if the government is overly aggressive in slashing costs.
In his talks with the government, Muscio has been stressing “the importance for stability in government policy to ensure certainty for investment to be made”, he says. “If the reforms can be locked in over a period of years, it would be beneficial for us.”
LifeHeathcare close at $2.47 yesterday, valuing the company at $109 million.