At the end of 2019, Intuitive Surgical's dominance in the soft tissue surgical robotics field appeared to be challenged by giants such as Johnson & Johnson and Medtronic. Amid large-scale mergers and highly anticipated new robotic systems, outsiders began to question whether this long-time leader could withstand the competition.

Meanwhile, Zimmer Biomet and Stryker were launching robotic systems for orthopedic surgeries such as knee and hip replacements, vigorously promoting the potential of this emerging technology.

Subsequently, the COVID-19 pandemic swept the globe in 2020, drastically changing the healthcare landscape.

Elective surgery volumes dropped significantly in March, April, and May, briefly recovered, then declined again in November and December, dragging down the business segments of many companies across the medical device industry. Despite the setback in surgical volumes, most robotics companies ended 2020 with demand for their systems remaining strong.

Robert Cohen, President of Stryker's Digital, Robotics, and Enabling Technologies division, said: "Despite disruptions to elective surgeries globally, interest in robotics has not changed. The enthusiasm for robotics before the pandemic... continued during the pandemic."

Now, about a year after the outbreak, companies are seeking to maintain the momentum of system demand and meet the market's high expectations for robotic technology as surgeries recover.

Orthopedics competition heats up

Orthopedics was one of the areas hardest hit by surgical volume declines last year. Johnson & Johnson, Stryker, and Zimmer all reported declines in their hip and knee businesses in 2020, with some segments seeing double-digit percentage drops compared to 2019.

However, despite hospitals facing financial pressure from losing the lucrative elective surgery business line, orthopedic robot installations remained strong at the end of last year. Stryker and Zimmer installed more than 100 Mako and Rosa systems respectively in the fourth quarter.

SVB Leerink analyst Richard Newitter explained that installations are not always direct sales. Installations can be direct sales, leases by third-party independent entities, or systems placed conditionally on surgical volume commitments and long-term payment plans.

However, Evercore ISI analyst Vijay Kumar pointed out that installation numbers are a leading indicator of future revenue growth, as a company's robotic systems are typically dedicated to that company's own joint implants.

Although Zimmer and Stryker saw higher installation numbers last year, the substantial acceleration of robotic technology still depends on the recovery of surgeries. Questions remain about how and when surgeries will recover.

Zimmer CEO Bryan Hanson warned of challenges in the first quarter of 2021, but the industry and analysts expect a recovery in the second half of the year as vaccine rollout continues and pandemic pressure on hospitals eases, which could intensify ongoing competition in the orthopedic market.

Kumar believes the orthopedic robotics market still has room for growth, with penetration currently only at 10% to 12%; he also estimates that the US knee market alone could reach $5 billion in size over the next 10 years.

Stryker is seen as a leader in orthopedic robotics, offering total knee, partial knee, and total hip applications through Mako, but Zimmer is catching up. The company exceeded its installation target of 200 to 300 Rosa systems in 2020, although Rosa currently only offers total knee surgery, with partial knee and total hip applications planned for later this year.

Competition in orthopedics will also intensify as Johnson & Johnson launches its robotic system through DePuy Synthes under its medical devices business.

Orthopedics-focused DePuy Synthes received FDA 510(k) clearance for its Velys robotic-assisted system in January. The system is approved for use with the company's Attune total knee products, is now commercially available, and will be rolled out throughout 2021.

Aldo Denti, Company Group Chairman of DePuy Synthes, said that because robotic technology penetration in orthopedics is low, there is still room for another system. The company is targeting both hospitals and outpatient settings such as ambulatory surgery centers, where hip and knee surgeries have been migrating over the past few years, especially during the pandemic.

Denti expects Velys installations to "surpass the past achievements of competitors."

Once hospitals return to normal operations, an important question facing robotics is: how much surgical volume can the systems take from traditional procedures?

Stryker's Mako accounted for about 44% of total US total knee surgeries in the fourth quarter. Cohen said that over 90% of Stryker's partial knee replacement surgeries globally are being performed robotically, and within the next few years, the majority of the company's total knee surgeries worldwide will be performed using Mako.

Meanwhile, according to Zimmer, only a single-digit percentage of its total knee surgeries are performed using Rosa.

Sharrolyn Josse, Global President of DePuy Synthes' Velys Digital Surgery division, expects that by 2030, about 30% of total knee surgeries will be performed using robotic systems.

Although Johnson & Johnson is a late entrant in orthopedic robotics, the company expects to compete with Zimmer and Stryker in the market. While DePuy Synthes has not given a specific target percentage for total knee surgeries, Josse said the company plans to "aggressively become a significant leader in this market."

Hip momentum slower

After total knee and partial knee replacements drove robotic adoption, companies are now paying closer attention to total hip replacement.

Stryker's Cohen said robotic total hip replacement surgery has a lower proportion compared to traditional surgery than total knee, but has accelerated recently. The company previously drove Mako installations with knee surgeries, and now can shift focus to promoting hip surgery applications as surgeons become more familiar with robotics.

Zimmer is entering the robotic hip market for the first time this year, planning to launch Rosa's total hip application in the second half of 2021. After Zimmer divests its spine and dental businesses, the company will have more resources to focus on the hip and knee market.

Kumar believes that despite increased attention on hip robotics, the market may still lag behind the knee in the foreseeable future.

Benjamin Domb, Founder and Medical Director of the American Hip Institute, said hip adoption will be somewhat slower, and an environment where most surgeries are performed robotically is still far off. He explained that some surgeons perform nearly 100% of their surgeries robotically, while others do not use robotics at all.

Domb has been working with robotics since 2011 and was part of the development team for the Mako hip platform. He noted that adoption barriers include a steep learning curve, which slows down surgery. Other entry barriers also exist, such as hospitals being unable to afford or unwilling to invest capital in expensive robotic systems.

As for Zimmer's Rosa entering the hip space, Domb said that once surgeons become proficient with a system, brand loyalty may emerge.

Intuitive's 2020 slowdown

While orthopedic systems gained momentum last year, installations of Intuitive Surgical's soft tissue da Vinci systems slowed. The company installed a total of 936 da Vinci systems in 2020, compared to 1,119 the previous year.

Intuitive Chief Digital Officer Brian Miller said the pandemic also brought uncertainty to surgeries throughout last year.

Miller said: "Throughout 2020, as the pandemic evolved, it was hard to predict the next quarter. Toward the end of the year... one thing we saw was that when people decided to have surgery, they still used our platform and technology."

According to Intuitive's recent earnings call, surgical volume grew 1% to 1.25 million procedures in 2020. In comparison, surgical volume grew about 18% in 2019 and 2018.

Miller said the company still targets about 6 million procedures annually. However, the pandemic has delayed the timeline for achieving this goal, and Miller did not disclose when it might be reached.

Baird Equity Research analyst Mike Polark said that despite declines or slowdowns in installations and surgical volumes, Intuitive's performance remains impressive. The surgical recovery that occurred last year and hospital capital expenditures were both higher than expected, especially after the initial months of the pandemic when US elective surgeries were largely halted and hospital finances were strained.

But there is no denying that after years as the clear leader in the robotics market, Intuitive is facing imminent competition.

Medtronic plans to submit its CE mark application and FDA investigational device exemption for its Hugo soft tissue system this month, and Evercore's Kumar said the system is likely to launch in the fourth quarter of this year.

Johnson & Johnson also plans to enter the soft tissue space with the Ottava system. However, with first-in-human trials scheduled to begin in the second half of 2022 and the company not committing to a timeline at recent investor events, the system may take several years to reach the market.

Although Intuitive is expected to lose some market share, analysts Kumar and Polark both predict it will maintain its leadership position, noting that as the US market matures further, deeper penetration into markets such as China and Japan will be growth drivers.

Kumar said competitors could eventually capture about 20% to 40% of the soft tissue market, but that range is at least five years away.