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Robot-assisted surgery has been growing rapidly, and is being used in a variety of diverse medical fields including urology, gynecology, cardiothoracic surgery, general surgery, radiosurgery and catheter based interventional cardiology and radiology. The growing adoption and commercialization of these technologies throughout the medical world has led these surgeries to become widely used in some procedures such as minimally invasive prostatectomies and hysterectomies.

Computer-assisted surgeries are the accepted standard-of-care in brain procedures, and stereotactic frames and frameless navigation devices have dominated this market for almost two decades. Robotic-based systems usually offer greater accuracy, safety and ease of use, and some believe they are likely to gain growing market share in brain surgeries such as biopsy and implantation of deep brain stimulating electrodes. Neurosurgeons learn how to use these technologies as part of their professional training. In recent years, new robotic devices, such as Rosa from the privately-held French company Medtech, have been used in brain surgery and are gaining acceptance, though still not prevalent and in very early stages.

Mazor Robotics (NASDAQ:MZOR) is an Israel-based company engaged in the development, production and marketing of innovative medical devices for supporting surgical procedures in the field of orthopedics and neurosurgery. They are a leading innovator in spine surgery and pioneered cutting-edge guidance systems and complementary products in the spine surgery market. These products provide a safer surgical environment for patients, surgeons and operating room staff.

Investment Thesis

Mazor is a small player in a niche market. It has a market cap of just $230 million. Sales have grown from just $584 thousand in 2008 to $12.2 million in 2012. Surgical robotics is a new, disruptive technology that will eventually change the way surgeons deliver services. Being a specialized player, Mazor can easily become an acquisition target.

Background

Mazor operates in the field of image-guided surgery (also known as CAS) that enables the use of surgical instruments with high precision and minimal invasiveness and that contributes to the safety of a wide range of surgical procedures. Their flagship product, the Renaissance system, is transforming spine surgery from freehand procedures to highly accurate, state-of-the-art, guided procedures that raise the standard of care with better clinical results. The Renaissance system has been used to perform thousands of procedures worldwide (with over 35,000 implants placed in those procedures) in a wide variety of spinal procedures, many of which would not have been attempted without this technology. Mazor is continuing the development of the Renaissance platform for additional spine surgery applications and are developing modifications to the system to enable it to be used for brain surgery.

The company has a pipeline of new products that include applications that facilitate intra-operative verification of the location of implants using imaging technologies in the areas of cranial surgery, such as brain biopsies and guidance of deep brain stimulation implants.

In this regard, the company announced Nizam Razack, MD, JD performed the world's first deep brain stimulation (DBS) using Mazor Robotics Renaissance Guidance System at Celebration Health hospital. Dr. Razack performed the same procedure on two more patients with positive results.

DBS is a procedure to surgically implant a small battery-operated medical device called a neuro-stimulator to deliver electrical stimulation to targeted areas in the brain that control movement. This blocks the abnormal nerve signals that cause the debilitating neurological symptoms of Parkinson's disease and Essential tremor, such as trembling and slowed movement.

The company owns four U.S. patents, and notices of allowance on two additional patent applications. In addition, they have rights to six patent applications in national phase and three provisional patent applications. Mazor owns five patents that were granted in other countries.

Renaissance has also been utilized successfully in 36 brain biopsy procedures in Germany. Mazor says that this could be a major application for the technology. The company is planning a wider commercial launch for the brain application in early 2014.

The Renaissance system is currently being used in spine procedures at 54 hospitals worldwide in thousands of cases, ranging from minimally-invasive one-level fusions to complex deformity reconstructions. The company claims the system increases the accuracy rate of procedures by 98%.

Dr. Christopher R. Good, Spinal Specialist at the Virginia Spine Institute, performed the first robot-guided sacroiliac joint (SI) fusion procedure in North America at Reston Hospital Center. This technological advancement allows for increased surgical accuracy and enhanced patient safety while performing this complex procedure on a three dimensional joint. Mazor's Renaissance system manufactured assisted Dr. Good in placing spinal instrumentation and effectively preparing the SI joint for the fusion.

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The company claims that gross margin expansion to 80% from 75% is primarily due to the increase in revenue. Operating expenses were $5.7 million in the second quarter of 2013 compared to $3.3 million in 2Q12. Mazor reported a net loss of $4.4 million for the quarter. At the end of 2012, the company held about $16.9 million in cash and short-term investments. The company had long-term liabilities of $4.5 million. The company reported second quarter 2013 financial results on IFRS basis ("GAAP"). Revenue grew to $6.2 million in the second quarter of 2013 compared to $2.9 million in the second quarter of 2012. U.S. sales jumped to $4.4 million from $2.5 million in the year-ago period and international sales exploded to $1.8 million from $0.4 million.

Large, well-established medical device companies, such as Medtronic Inc. (NYSE:MDT) and Stryker Corporation (NYSE:SYK), have navigation-based products with applications for spine surgeries that have a relatively low market share but which could be further developed and marketed with greater success. Other companies, including Intuitive Surgical Inc. (NASDAQ:ISRG), IMRIS Inc. (NASDAQ:IMRS) and Mako Surgical Corp. (NASDAQ:MAKO), have developed robotic devices for use in other parts of the human anatomy that could be modified or improved to better compete in the spine surgery market.

Source: Mazor Robotics And The Medical Revolution