Considering the fact that TransEnterix makes up 55% of my overall investment portfolio, it's important to thoroughly understand all possible risks behind the company. In my opinion, here are the potential risks, and my reasoning against them.


#1. Perhaps the biggest, most obvious risk of them all: The FDA denies the SurgiBot approval.

Reasoning Against:

• TransEnterix formally received feedback from the FDA on its upcoming 510(k) filing in the summer of 2014 through a pre-submission filing, which was filed in March 2014. The company essentially submitted a rough draft of the SurgiBot 510(k) filing, the FDA told them what worked and what didn't, and TransEnterix is now acting accordingly and expects to submit the 510(k) filing by July 1.

• The FDA desperately wants competition in the surgical robotic market. Nobody benefits from a monopoly except for the company in control, which in this case is Intuitive Surgical. Intuitive has been selling the Da Vinci since 2000. Competition brings lower pricing, faster innovation, and more choices for consumers. In the case of robotic surgery, it means hospitals won't be paying an arm and a leg for a surgical robot, surgeons will quickly adopt better technology that is constantly improving, and less patients will be subject to potentially life threatening complications during surgical procedures due to the inclusion of tactile feedback in the SurgiBot, among other features. Here's an excerpt from a law firm's website that specializes in robotic surgery lawsuits:

  Da Vinci robot surgical complications can occur because the surgeon is given no tactile feedback to gauge the grip of the robot probes. As a result, the manipulation arms can accidentally tear through body tissues, sever small blood vessels, or puncture organs. In some cases, these errors will not be discovered for hours or days after the operation has been completed, when the patient begins exhibiting symptoms that something has gone wrong.

   
• TransEnterix's previous product, the SPIDER System, is considered a similar device to the SurgiBot, which means that TransEnterix is allowed to include human data from the 4,500+ surgical cases already performed with the SPIDER in the SurgiBot 510(k) submission. The SurgiBot System utilizes the same core technology found in the SPIDER System: a single incision operating platform that includes 4 channels where flexible or rigid instruments and a camera can be inserted at the operating site. The SPIDER received 510(k) approval in 2009, and European CE mark the following year.

#2. The FDA will say that the SurgiBot should not be classified as a class II medical device, which would result in the need for human clinical data and delay the approval of the SurgiBot by ~3 months.

Reasoning Against:

• I cannot find a single surgical robot that is not FDA approved as a Class II medical device, from Intuitive Surgical's da Vinci System, and its single port add ons, to Stereoaxis' Vdrive, to Mako Surgical's RIO Robotic Arm (there are plenty more) IMRIS' Symbis will be added to this list if it receives approval in mid 2015, as will TransEnterix's Surgibot.

#3. The Intutive Surgical single port offerings (da Vinci Sp and Xi) will prove to be stiff competition to the SurgiBot.

Reasoning Against:

• Both single port add ons for the da Vinci System still lack tactile feedback, still puts the surgeon outside of the sterile field away from the patient, still has high capital costs of ~$2 Million, and is still a massive machine that cannot be easily moved between operating rooms.

• The Surgical Robotic market is still growing, and remains unsaturated. Less than 1% of the 5,000+ private U.S. surgery centers are equipped with a surgical robot, and a large majority of the 3,000 U.S. Hospitals that have less than 500 beds do not have a surgical robot. Clearly, the market is big enough for a few players. Also, don't forget about the international market.

#4. TransEnterix will be subject to the same costly personal injury/accidental death lawsuits that Intutive Surgical is constantly dealing with.

Reasoning Against:

• While this is no doubt a possibility, the fact that the SurgiBot includes tactile feedback, 3D vision for both the surgeons and assistants, and is a patient side system, a lot of this risk is mitigated. Having internal triangulation, true left hand/right hand control, and the ability to clutch instruments into an ergonomic position, along with several other safety features, also doesn't hurt.

#5. Management will have a tough time executing its strategic goals and selling the device.

Reasoning Against:

• TransEnterix has high quality management. CEO Todd Pope was president of a multi billion dollar division within Johnson and Johnson, CFO Joseph Slattery played an instrumental roll in the growth of Digene Corp, and Mohan Nathan spent a considerable amount of time at Intuitive Surgical. The nine member board is also an impressive team, I suggest you read their bios on the TRXC website.

• Management at TransEnterix has been able to convince Billionaire Dr. Phillip Frost and Dr. Jane Hsiao, six different healthcare oriented venture capital firms, BlackRock, Fidelity, Putnam Investment Managers, and sovereign wealth funds in the Middle East to invest, among others. If TRXC management could convinc these high profile investors that they can execute their strategy, they could (and did) convince me. These investors own roughly 65% of TransEnterix.

• Todd Pope has already indicated that the company is constantly receiving inbound calls about the SurgiBot, and is also receiving strong interest for the product from South America, Japan, Europe, and the Middle East. Pope has also signaled that the first 50 purchase orders for the SurgiBot will be represented by large hospital teaching institutions. Given the SurgiBot's initial $500,000 price tag, it shouldn't be a tough sell.

#6. Surgical Robotics in general will receive increasing scrutiny from the public and their supposed benefits will be questioned, especially given the tight capital spending environment at hospitals following the passage of the Affordable Care Act (ACA).

Reasoning Against:

• TransEnterix plans to release a white paper on the results of the 4,500+ surgeries conducted with the SPIDER System that should refute critics of single port surgery. Cold hard data should help its case.

#7. TransEnterix will need to raise more funds in the future and dilute current shareholders.

Reasoning Against:

• Given my long term investment horizon for TransEnterix, I do not necessarily view this as a risk. Capital infusions are required to expand business operations, and TRXC will have lots of growing to do. I do acknowledge that any secondary offering (such as the current $25M ATM offering) will serve as short term weakness for the stock performance.

#8. TransEnterix will be attacked by short sellers in the event of any meaningful pop in stock price.

 Reasoning Against:

• It's tough to argue against this one. TRXC is already heavily shorted, with more than 1 million shares sold short as of today. It is in the nature of shorts to bet against companies that have a high P/S ratio with no earnings and a large accumulated deficit. Only walking the walk can route this risk, which can take some time.