Summary
Leading Niche Player: Through the acquisition of key competitors, it created a quasi-monopoly position in medical simulation space; recognized by well-known OEM’s like Intuitive Surgical and Aura Health (owned by J&J)
Strong Growth: Between 2013 and 2023, including acquisitions, sales increased from SEK 33.9 million to SEK 882.9, at a CAGR of around 39%
High-Margin Licensing Business: Industry/OEM segment reported a +23.8% YoY growth in FY23, where licensing revenues constitute around two-thirds of the segment's revenues with gross margins exceeding 90%
Solid Balance Sheet: With no debt, equity/asset ratio of 0.9x and around SEK 630 million in cash; enough dry powder for further, smaller acquisitions
Growing Robotic Surgery Market: Main market of robotic-assisted surgery (RAS) is expected to reach USD 14 billion by 2026 growing at a CAGR of 11%
Introduction of Surgical Science
Founded in 1999, Surgical Science (Ticker: SUS), is a leading provider of medical simulators. It develops hardware and software solutions that allows surgeons and medical specialists to practice and improve their technical skills and improve patient safety.
The company is headquartered in Gothenburg and is listed on Nasdaq First North Growth Market in Stockholm (Sweden).
Product & Service
Surgical Science’s first software LapSim, a laparoscopic surgery simulator, was released in 2001 and formed the basis for its business today. Since going public in 2017, the company has grown its operations and increased its market share through both organic growth and a series of strategic acquisitions. Most notably, with the acquisition of SenseGraphics in 2019, Mimic Technologies in early 2021, and Simbionix in August 2021 it has essentially absorbed almost all significant competitors in the medical simulation sector.
Today, it’s business are grouped into two main reportable business segments, Educational Products and Industry/OEM.
Educational Products
Through its Educational Products segment, the company sells its simulation hardware and software to academic institutions and university hospitals for training of surgeons and other medical personnel. The sales are mostly done through distributors, while only a small part is sold with a direct sales team.
Industry/OEM
With Robotic Assisted Surgery (RAS) emerging as a rapidly growing field, Surgical Science has expanded its business with offering customized simulation solutions for a wide range of medical technology companies.
Since 2017, Surgical Science has strengthened its Industry/OEM segment through acquisitions and partnerships with leading OEMs, such as Intuitive Surgical, and healthcare giants like J&J (through Auris Health). Besides the development revenues during the RAS system's development phase, embedded with Surgical Science's simulation software, upon regulatory approval of the robots, it begins to generate high-margin licensing revenues, which are crucial for Surgical Science's long-term growth prospects and profitably.
Management
The senior management team of Surgical Science, boasting decades of experience in medical technology, is complemented by the retention of key employees from recent acquisitions, many of whom have took over leadership positions in the merged company. This underscores the company's successful M&A strategy, showcasing its skill in integrating diverse corporate cultures, managing talent, and preserving a dedicated leadership team.
While the current CTO and co-founder, Anders Larsson, remains with the company, the current CEO, Gisli Hennermark, who has been a pivotal figure at Surgical Science for nearly a decade and holds a substantial stake in the company—directly owning 0.67% of the shares—has announced his departure planned for March 2025.
Industry & Business Model
Over the past 20 years, surgical capabilities in the operating room experienced rapid and significant changes. With the rise of minimally invasive surgery (MIS), robotically assisted systems (RAS) has transitioned from an innovative, experimental approach to a standard practice in the medical field, revolutionizing complex surgical procedures.
Several factors, such as technological advancements, have dramatically increased the demand for RAS in the past years, leading to an rise of a multi-billion industry. According to predictions by Oliver Wyman’s, the RAS market is projected to expand to USD 14 billion by 2026, growing at a CAGR of 11%.
At the forefront of RAS innovation, Intuitive Surgical has dominated the global RAS market by introducing the da Vinci Surgical System in the early 2000s, becoming the first FDA approved surgical robot, which today, according to several market evaluations, holds more than two-thirds of the RAS market with more than 8000 robots deployed worldwide. Moreover, Intuitive Surgical reported a 21% growth in da Vinci robotic procedures in the fourth quarter of 2023 and still expects a 13-16% growth in 2022. These strong figures indicate that an increasing number of surgeons are performing robotic surgery, which also necessitates training beforehand.
The opportunities of the RAS market have also attracted a growing number of players over the past years. Notably, with the expiration of several Intuitive Surgical’s patents since 2016, the competition startedincreasing in the space. Today, various start-ups and established healthcare companies globally are developing competitive robotic platforms, while some still pending regulatory approvals in key markets, widespread availability is expected in the coming years due to the benefits of robot-assisted minimally invasive surgeries, such as shorter recovery times, reduced hospital stays, and lower healthcare costs.
Despite the significant growth of RAS systems over the past two decades, they currently account for less than 1% of the annual 300 million surgeries performed worldwide, according to a study by Roland Berger. The majority of these, 65%, are open surgeries, with the remainder being traditional minimally invasive surgeries. While the largest market for RAS systems is currently the US, growth is anticipated to be strongest Asia-Pacific, especially China and Southeast Asia, driven by economic development, investment in healthcare and the large population.
Even with the substantial benefits, including mortality, length of stay, complications, considerable savings and expected growth, the substantial upfront costs of RAS systems, ranging from USD 400,000 to $2.5 million, may act as a barrier to entry, particularly in emerging markets. Therefore, leading RAS players, such as Intuitive, have started offering a variety of flexible financing models, tailored to each hospital or health system's needs, further encouraging the adoption of RAS technology.
Peers & Competitors
Surgical Science has consolidated the medical simulation market by acquiring some of it’s main competitors, and positioned itself as a dominant player in the world of medical simulation.
With the acquisition of Simbionix in particular, which was more than three times the size of Surgical Science at the time of its purchase from 3D Systems in August 2021, Surgical Science significantly broadened its spectrum of simulators, incorporating new specialties such as endovascular procedures and urology, and orthopedics, which gives Surgical Science a significant edge over it’s competitors, like Mentice and CAE Healthcare (a subsidiary of CAE), by offering a wider variety of simulation procedures.