Another 1,200% Return from a Surgical Robot Company?

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Another 1,200% Return from a Surgical Robot Company?

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By: Michael Vodicka

“This company’s flagship product is the Renaissance Guidance System, which transforms freehand spine surgeries into highly accurate, 3D guided procedures.”

As I write this I’m headed to Grand Cayman for a week in the sun. Even though I’m excited to get out of the cold Chicago winter, I’ve never been a big fan of flying. Turbulence makes me nervous. If something goes wrong 35K feet in the air, I know I’m in trouble.

Piloting an airplane is an occupation that leaves little room for error. A good pilot needs a steady hand. But even the best pilots have their limitations. According to the Journal of American Medical Associates (JAMA), at its steadiest, the human hand naturally trembles, moving from 50-100 microns every second. For pilots and passengers, it’s a weakness they can live with. For a surgeon, it’s not. A 1/4 inch in an advanced surgical procedure can mean the difference between life and death.

That game of millimeters is the driving force behind some of the most innovative technology in the medical devices industry: surgical robots. Even though the industry is still in its infancy, surgical robots are already having a huge impact on how hospitals and surgeons operate.

Not only do surgical robots allow for higher precision movement through 3D visualization and joysticks controlling surgical instruments moving in tiny increments, they also enable surgeons to sit down while performing surgery or even perform operations from a separate room. Surgical robots can also reduce costs. Although they require bigger capital investments, they can be used by multiple surgical teams around the clock and reduce patient expenses with in-patient procedures.

For the last ten years, Intuitive Surgical, Inc. (ISRG) has been a trailblazer in the surgical robot industry.

The company’s da Vinci surgical robot enables surgeons to perform non-invasive surgery using controls and 3D images and is currently used in 400,000 surgeries a year in U.S., triple the number from just four years ago.

These systems are not cheap. A da Vinci usually sells for around $2 million. That has driven a 155% increase in Intuitive’s revenue in just the last five years, climbing to $2.4 billion in 2013 from $875 million in 2008. It also has shares up 300% in the last four years in spite of a recent pullback. Take a look at the big gain below.

But if you missed that big gain, don’t worry. Because that same cycle is about to repeat itself.

In spite of technological gains and growing applications, the surgical robots industry is still in its infancy, with only 2% of domestic surgeries using the technology last year. That has market-research firm WinterGreen Research predicting the surgical robot devices market will grow from $4 billion in 2013 to $20 billion in 2019.

And just like Intuitive Surgical produced big gains for early investors, there is another young surgical robot company in position to repeat the same cycle. The company has something my colleague Andy Obernmueller calls game-changing technology. Andy’s specialty is finding companies with the most innovative technology that have yet to be discovered by the masses. (Click the link for free report with tickers).  And this undiscovered gem definitely fits the bill.

Its robotic surgical system is the only FDA approved surgical guidance device for spine procedures. It is set to launch an FDA-approved product for deep-brain surgery this summer. It just raised $47 million in funding for additional research and pipeline development. And it’s in the process of doubling its global sales force in 2014.

Mazor Robotics Ltd (MZOR) is an Israeli based maker of surgical robots. Its flagship product is the Renaissance Guidance System, which transforms freehand spine surgeries into highly accurate, 3D guided procedures.

This highly innovative medical technology saw explosive growth in 2013, with global systems increasing 54% from last year to 63. Those 63 systems spread across the U.S., Europe and Asia, successfully performing thousands of surgeries.

But even though the company’s Renaissance Guidance System is the only FDA approved surgical guidance device for spine procedures, Mazor is still in the very early stages of full commercialization. That shows up in total revenue of just $12 million in 2012 and $14 million in the first three quarters of 2013.

But here’s the upshot: great medical technology frequently requires billions in development costs and years of commercialization before rendering a profit or even any revenue. And that’s exactly what is playing out with Mazor. Because even though the company doesn’t have much revenue to show for its product or Intellectual property, it is an early leader in a high-growth market with a plan to capitalize.

Its first step has been to strengthen its financial and raise additional capital to fuel marketing and additional R&D.

In May, Mazor successfully executed a listing as an ADS (American Deposit Security) on the NASDAQ, in addition to its primary listing on the Israeli based Tel Aviv exchange. That set the stage for Mazor successfully raising $47 million in fresh capital in October, selling 360,000 shares for $17 apiece. Demand was so strong for these shares that the issue became over allotted, enabling Mazor to extract an additional $6 million from the transaction.

Mazor will deploy a large chunk of that fresh capital into strengthening marketing and sales. The company has plans to grow increase its sales force from 12 in 2013 to 20 in 2014. Mazor also has plans to boost its clinical sales force, responsible for deals with hospital management companies that manage networks of hospitals, with plans to more than double its head count from 30. Its clinical sales force is key to market penetration. One sale to a hospital management company can results in deployments across a wide network of hospitals. That dynamic is on display with Mazor’s three hospital deals that rendered a total of 13 systems sold.

I also like the fact that Mazor is based out of Israel. Not only has that kept most American investors in the dark on this undiscovered gem, Israel has become a breeding ground for companies with strong intellectual property (IP). That includes defense contractor Elbit Systems, Inc. (ESLT), Internet security provider Checkpoint Systems (CHKP) and website builder Wix, Inc. (WIX).  That has enabled Mazor to install systems to a global market in Europe, Asia and the U.S.

In the US, Mazor is focusing its marketing activities in high-growth states attracting lots of retirees. That includes Southern California, Texas and Florida.

Mazor’s recent blast of cash will support an important new product for the company. In 2013 the world’s first Renaissance-guided Deep Brain Stimulation (DBS) surgery was performed at a Florida Hospital. Reports show that the implanted lead had an immediate and dramatic impact on several diseases, including Parkinson’s. More than 1 million people suffer from Parkinson’s in the US, with 60,000 new cases diagnosed each year. Internationally, approximately seven to 10 million more people have been diagnosed. This represents a huge market for Mazor to tap into with its new surgical robot. Mazor is shooting for a commercial launch in mid-2014.

Action to Take:–> Mazor will continue to benefit from its strategic advantage as an early leader in the growing industry. The company will also benefit from aging global boomers. In the next 10 years, Mazor can easily grow into $10 billion market cap.

This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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