In an announcement on Wednesday, May 18, Mazor Robotics Ltd., the 16-year-old company whose headquarters are in Caesarea, Israel, said it will soon be distributing its spine robotics systems through the largest supplier of spinal implant products in the world, Medtronic Spine. Furthermore, said Mazor, it is selling to equity and, providing milestones are met, Medtronic may ultimately own as much as 15% of the company.
Ori Hadomi, an Israeli-born chemical engineer and financial analyst who is Mazor’s chief executive, said the proposed deal, which Wall Street cheered by pushing Mazor’s stock price up by 40% or $80 million, would bring with it “new developments, such as synergistic implants, which could generate new revenue streams for Mazor, beyond the anticipated growth in our current revenue streams from capital equipment, service agreements and disposables. The synergy between the organizations’ teams will potentially yield operational efficiency benefits for Mazor.”
Coming seven months after Smith & Nephew paid $275 million for Blue Belt Technologies (robotic large joint reconstruction) and two and a half years after Stryker paid $1.65 billion for MAKO Surgical Corporation (robotic-arm assisted large joint reconstruction), this deal re-confirms that robotics is arriving to a surgery suite near you.
Wall Street’s analysts like this deal, a lot.
Said Craig Bijou with Wells Fargo: “Big picture, we think that this is positive for MDT and negative for the pure-play spine companies (NUVA, GMED, KTWO, LDRH) because this adds to MDT’s revamped spine strategy of providing spinal solutions and leveraging its hospital relationships. While we believe that MZOR’s robot will remain an open system, the co-development of products for the robot will likely make it significantly easier to use MDT products on the robot than competitor products. MDT products today represent less than 10% of the robotic procedures.”
Said Mike Matson with Needham & Company: “This deal is clearly positive for MZOR in our view. First, we think that it significantly increases MZOR’s ability to sell its systems (MDT has agreed to buy 15 in 2016 and potentially hundreds from 2018-2021). Second, MDT’s equity investment provides cash to MZOR and reduces the likelihood it will need additional capital. Third, MZOR and MDT could develop implants for use with the robot which could provide MZOR with another revenue stream. And fourth, we view it as an endorsement of MZOR’s robotics platform.”
Mazor
Mazor began as a surgical robotics research project at the Robotic Laboratory of the Faculty of Mechanical Engineering at the Technion, Israel Institute of Technology in Haifa, Israel, in the 1990s.
The company was founded in 2001 by Technion professors Moshe Shoham and Eli Zehavi. Prof. Shoham is the head of the Medical Robotics Laboratory of the Faculty of Mechanical Engineering at Technion, and Mr. Zehavi was a former Vice President of Engineering at Elscint.
For its first couple of years, the company operated out of the Technion Technology Transfer (T3) offices. Its original name was M.A.S.O.R. Surgical Technologies, which later morphed into Mazor Surgical Technologies.
In 2003, Ori Hadomi, former CFO of Denex, was appointed Chief Executive Officer of Mazor Robotics. Mr. Hadomi was also Founder and CEO of 7D Ltd. (motion tracker for medical applications), and Chairman of the Izmel Scientific committee (consortium for the image-guided industry).
Mazor received its first CE mark in 2004 for SpineAssist. SpineAssist was the first commercially available mechanical guidance system for spine surgery. Later that same year Mazor landed FDA clearance, and SpineAssist became the first commercially available robotic system for spinal surgery in the United States.
In June 2011, Mazor launched Renaissance, its next-generation spine surgery robotic device which replaced SpineAssist.
Mazor has since sold more than 100 Renaissance systems and those systems have been used by spine surgeons to place more than 98, 000 spinal implants. According to Mazor, surgeons have achieved a 98.3% placement accuracy with Renaissance.
About 150 people work at Mazor and the Renaissance is available in 18 countries, although it’s cleared for clinical use in 40 countries.
Since that first sale 12 years ago, Mazor has racked up steadily rising unit sales. The following chart illustrates the company’s progress over the past 24 quarters:
Before Mazor There Was Medtronic’s STEALTHSTATION
Before Mazor’s Renaissance, there was STEALTHSTATION—the father of modern orthopedic computer-assisted surgery and, therefore, robotics.
In 1996 Sofamor Danek (now Medtronic Spine) introduced a powerful operating room computer system that digitized pre-operative MRI images and made them available to surgeons during surgery, in real time and in ways that improved surgeon control over the surgical process.
Sofamor Danek called it a surgical navigation device. Today, it would probably be called a surgical GPS.
The marketing folks tagged it “STEALTHSTATION.”
In 1999, when Medtronic acquired Sofamor Danek, STEALTHSTATION became part of the product line for Medtronic Neurosurgery.
It was the very first computer-assisted intervention, image-guided surgery and surgical navigation system for spine surgeons.
STEALTHSTATION is a frameless stereotactic image-guided surgery assist device. It also was the first system to rely on special instruments that could be tracked by the computer-driven navigation system. It further introduced the idea of tracking instruments real time in relation to the patient’s anatomy—as the surgeon was cutting or placing instruments, the computer would track and analyze its position vis-a-vis pre-operative images and the pre-op surgical plan.
All the computer, image and tracking capabilities which STEALTHSTATION pioneered and perfected opened the door to surgical robotics.
No STEALTHSTATION, no Renaissance.
Surgical robotics, generally, use computer-assisted surgery data to either perform surgery or share surgical operations with the surgeon.
The blend of computer-assisted surgery with robotics is meant to drive more accurate, lower cost and ultimately more routinely successful surgery—MAKO and Blue Belt for large joints and Mazor for spine. Yes, these three robotics pioneers are also aiming at extremities, trauma, cranial maxillofacial, and so forth.
It’s also noteworthy that STEALTHSTATION’s business model is the same model each of the robotics pioneers have followed. With STEALTHSTATION, Medtronic generated revenues by selling the systems themselves and then also earning recurring sales from annual maintenance contracts, software upgrades, and product enhancements.
Because of Medtronic Spine, the largest spinal implant and instrument supplier on the planet, spine surgeons have had access to computer-assisted and image-guided surgery systems to use for planning, navigation, and precise surgical tool and device positioning for 20 years.
They’re ready for the next step. Robotics.
The Deal
The agreement between Mazor and Medtronic is really two strategic agreements.
The first agreement is a two-stage, multi-faceted, commercial agreement where both companies co-promote Mazor’s robotics systems, co-develop new robotic-related products and, if certain milestones are met, pump the next generation Mazor robots through Medtronic Spine’s distribution system.
How big could this get? It is possible, if milestones are met, that by the end of 2017 Medtronic Spine will assume exclusive global sales and distribution rights for Mazor’s future spine products.
The milestones amount to hundreds of next-generation robotic systems over a four-year period.
Medtronic agreed to buy 15 of Mazor’s future robotic systems during the first year the future systems are available.
Finally, this is a marriage—albeit an open one (see below). Mazor will be Medtronic’s sole strategic partner for development and commercialization of robotic-based spine systems and applications.
The second agreement is for a three-step equity investment by Medtronic in Mazor.
At closing, Medtronic will purchase 4% of Mazor for $11.9 million.
In a second tranche, Medtronic will be able to buy more of Mazor, up to 10% in aggregate, but only if certain operational milestones are met.
Finally, if everything works out as both companies hope, then Mazor will have the right to ask Medtronic to buy another 5% of Mazor’s outstanding ordinary shares on a fully diluted basis.
All told, best case, Medtronic could wind up owning 15% of Mazor.
Throughout this process and afterwards, Mazor will stay independent and will continue to sell and fully support the Renaissance System through its own sales team and distribution partners.
Furthermore, Mazor’s systems will continue to maintain universal implant compatibility, allowing complete hospital and surgeon freedom in surgical tool, implant, and procedure selection.
The Future
In Stryker’s hands, sales of the MAKO robotics systems for large joint surgery have risen from an installed base of about 174 immediately prior to acquisition to, we estimate, about 230-250 now. Generally, MAKO is perceived to have been a successful purchase for Stryker.
Prior to this agreement, Mazor had an installed base of about 108 systems. Under this agreement, Mazor will be able to continue to sell its Renaissance system through existing channels. Medtronic, which isn’t buying Mazor, will be able to roll out Mazor’s next-generation spine surgery robotics system along with tailored instruments and, possibly, implants.
As stated in the press announcements, this agreement could result in hundreds of Mazor/Medtronic Spine surgery robotic systems being sold to hospitals and clinics worldwide.
When we asked Doug King, President of Medtronic Spine, for his assessment of the importance of the Mazor deal to his company, he said this:
“Medtronic is committed to advancing spine surgery through smarter procedures. We’ve long believed that innovative technology in the operating room can further improve the accuracy and efficiency of spine surgery, which benefits patients, surgeons and the healthcare system. We’re excited about Mazor Robotics’ technology, and we look forward to delivering greater clinical and economic outcomes through this strategic partnership.”
Wall Street, which liked this deal quite a bit, immediately looked at its impact on Medtronic Spine’s competitors.
Craig Bijou with Wells Fargo wrote to investors on May 18 that NuVasive has publicly stated it would like to integrate robotic/imaging/navigation technology into its platform in the future, but that Globus Medical was “likely in a better competitive position than other pure plays because of the expected launch of its robot by the end of this year, ” and that K2M, which had been taking deformity market share from Medtronic Spine, could be affected when or if surgeons begin to view the Mazor/Medtronic robot as a useful tool for complicated deformity surgeries.
Bottom line, a computer-assisted spine surgery system with robotic capabilities will be coming to an OR near you—probably sooner than later.
