Stratasys Prepares For 3-D Synthetic Biomaterials

| About: Stratasys, Inc. (SSYS)

The big news in 3-D printing last week was the acquisition of MakerBot, a desktop 3-D printer manufacturer in Brooklyn, New York by enterprise 3-D systems developer Stratasys Ltd. (NASDAQ:SSYS), based in Minnesota and Israel. That news overshadowed the release of a study two days earlier, where Stratasys engineers joined with a research group at Massachusetts Institute of Technology to produce synthetic human bone matter with 3-D printing. Both the materials developed in the MIT study and the process they used point to a new potential high-growth product line for Stratasys.

Stratasys, with a market cap of $3.18 billion, shipped nearly 30,000 systems in 2012, generating revenues of $359 million, a 30 percent increase compared to the previous year. The company says it had 2012 non-GAAP net income of $59.6 million, or $1.49 per share, with GAAP net income recorded as a loss of $21.6 million, or $0.58 a share. Shares in Stratasys traded in a range of $44.00 to $95.00 a share over the past 12 months.

As Seeking Alpha contributor Richard Berger explained last week, the acquisition of privately-held MakerBot is accretive and synergistic, giving Stratasys access to the mass following developed by MakerBot, as well as the sharing of the companies' technologies and R&D.

In a conference call last week accompanying the MakerBot merger announcement, Stratasys CEO David Reis said the number of 3-D printers overall is expected to double in 2013 from the 35,000 to 40,000 sold in 2012. MakerBot reported revenues of $15.7 million last year, and another $11.5 million in the first quarter of 2013.

One area where neither Stratasys nor MakerBot have so far made much headway is in the 3-D printing of biomaterials, for replacement or enhancement of natural tissue. Not only is the production of biomaterials a highly complex undertaking, it also is difficult to implement and tightly regulated, all for good reason.

The MIT study, published this week in the journal Advanced Functional Materials (paid subscription required), developed a synthetic skeletal material with the stiffness of bone, but also its resiliency. The material emulates bone's natural structure by combining the calcium-based material hydroxyapatite that provides the stiffness and the fibrous protein collagen that offers the resiliency.

The MIT researchers, led by engineering professor Markus Buehler, succeeded in assembling the components into a new material by first developing a computer model that arrayed the ingredients into a structure resembling bone's natural configuration, somewhat resembling bricks and mortar. That design in nature makes it possible for bone to absorb the force of a blow and avoid fracture by dissipating the energy over a larger area.

Process as important as the product

With 3-D printing, Buehler and colleagues overcame a barrier that stymied the creation of many synthetic biomaterials in the lab, namely the inability to emulate the natural electrochemical reactions that self-assemble the materials. Using a Stratasys device, the researchers were able to simultaneously apply the two basic ingredients in the composite material, following the complex design in the computer model.

Stratasys offers simultaneous printing of multiple materials with its Polyjet technology that adapts inkjet printing of liquid light-sensitive polymers that are then cured under ultraviolet light. The company's Objet Connex printers use the Polyjet technology, which are recommended on the company Web site for producing bio-compatible materials.

Stratasys's contributions to the study, however, went beyond the furnishing of a machine to produce the composite material. One of the company's biomedical engineers, Ido Eylon, is listed as a co-author of the paper, a recognition granted only to substantive contributors to the findings, which means the company had first-hand access to the methods and techniques developed.

As important as the production of synthetic bone material is the process of generating synthetic composite biomaterials from computer models. As part of the study, the MIT team designed and generated alternative configurations of the same ingredients in the synthetic bone matter, producing in one case a composite material 22 percent stronger than natural bone.

In addition, the MIT researchers say the materials developed using this technique performed with properties they expected from the designs in the computer models, which indicates they devised a process of designing and producing complex materials that goes beyond biomedical applications.

Stratasys now offers 3-D printing solutions for dental fixtures and orthodontics and bio-compatible materials for medical devices, such as hearing aid molds. The ability of 3-D printing to produce synthetic biomaterials such as bone or cartilage to designed specifications would have a large potential market, with implications for widely used (and expensive) orthopedic procedures today, such as total knee replacements.

The MIT study was funded by a grant from the U.S. Army Research Office, which under the law (Bayh-Dole Act of 1980) gives intellectual property rights to technology based on federally-sponsored research to the university. It is hard to fathom, however, that given the company's participation in the study, Stratasys doesn't have an eye on licensing that technology from MIT.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.