Medtronic and Mazor Robotics Tie the Knot

Medtronic Spine is going all in for robotic spine surgery with the full acquisition of its junior robotics partner, Mazor Robotics.

Just before the 2018 annual North American Spine Society (NASS) meeting at the end of September, the company announced that it was paying $1.64 billion to complete an initial investment in the Israeli-based Mazor Robotics.

Geoff Martha, executive vice president and president of Medtronic’s Restorative Therapies Group, said, “We believe robotic-assisted procedures are the future of spine surgery.”

Medtronic is getting Mazor’s proprietary core platform technology, including the Mazor X Robotic Guidance System (Mazor X), and the Renaissance Surgical-Guidance System (Renaissance), which along with other robotic technology developers, are transforming spinal surgery from freehand procedures to guided procedures.

Combining Medtronic’s market-leading spine implants, navigation, and intra-operative imaging technology with Mazor’s robotic-assisted surgery (RAS) systems, will allow the company to offer a “fully-integrated procedural solution for surgical planning, execution and confirmation.” The companies plan to showcase the technology integration at the NASS Annual Meeting.

The $1.6 Billion Deal

Medtronic will acquire all outstanding ordinary shares of Mazor for $58.50 per American Depository Share, or $29.25 (104.80 ILS) per ordinary share, in cash, for a total of approximately $1.64 billion, or $1.34 billion net of Medtronic’s existing stake in Mazor and cash acquired. The boards of directors of both companies have unanimously approved the transaction.

Ori Hadomi, a chemical engineer and financial analysts, is Mazor’s CEO. He said the deal is a “historic day for spine surgery and a defining event in the market’s evolution.”

While Mazor has not been profitable, Medtronic projects the acquisition to generate a double-digit return on invested capital (ROIC) by year four, with an increasing contribution thereafter. Medtronic also said that it plans to keep the site and team in Israel as a base for future growth.

Mazor Robotics

Mazor started out in the 1990s as a surgical robotics research project at the Robotic Laboratory of the Faculty of Mechanical Engineering at the Technion (Technion), Israel Institute of Technology in Haifa, Israel.

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.

The research project became a company in 2001 when Technion Professor Moshe Shoham and Eli Zehavi founded Mazor Surgical. Professor Shoham is the head of Technion, and Mr. Zehavi was a former vice president of Engineering at Elscint.

In 2003, Ori Hadomi, former chief financial officer (CFO) of Denex, was appointed chief executive officer (CEO) of Mazor Robotics.

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 U.S.

In 2011, the company introduced the Renaissance system and in 2016 launched the next generation Mazor X system. The company says more than 200 Mazor systems are in clinical use on four continents and have guided the placement of more than 250,000 implants during some 40,000 procedures.

The core technology has been granted more than 15 FDA clearances and contains more than 50 patents worldwide.

Medtronic and Mazor

Bloomberg Intelligence Analyst Jason McGorman wrote earlier this year that the orthopedic industry is likely at a “tipping point with robotic surgery as clinical data are improving dramatically and companies are launching new technologies.”

Medtronic tip-toed onto this tipping point a couple of years ago.

In May 2016, Medtronic and Mazor started a slow dance under a multi-phased agreement which gave Medtronic the option to own as much 15% of the company. A “Let’s See How It Goes” agreement.

In August 2017, Medtronic expanded the partnership to become the exclusive worldwide distributor of the Mazor X system, leading to the installation of more than 80 Mazor X systems since launch.

And now, Mazor is in-house and adds to Medtronic’s strategy of providing spinal solutions and leveraging its hospital relationships.

The Robotic and Navigation Partnership

Mazor’s technology adds to Medtronic’s StealthStation pioneered by Sofamor Danek in the 1990s. This, as we reported in 2016, was the first computer-assisted intervention, image-guided surgery and surgical navigation system for spine surgeons.

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.

The merging of robotic and assist systems has some demand. Orthopedic companies want to offer as much one-stop shopping for hospital paymasters and surgeons as possible.

Douglas Padgett, M.D., chief of Adult Reconstruction for Hospital for Special Surgery in New York, uses robotic assist devices and told us in 2015 that: “Surgical navigation is not enough [of a benefit]. These robotic assist systems improve both the precision and the accuracy of each case.”

The Competition

The Harvard Business Review called surgical robots one of “10 Innovations That Will Transform Medicine.” In 2012, Global Analysts, Inc. predicted that worldwide demand for service robots (which includes medical) would eventually reach $38.42 billion.

Smith & Nephew, Stryker and Globus

There are currently four major competitors in spine and orthopedic robotics—Smith & Nephew, Stryker Corporation, Globus Medical, Inc. and Medtronic. Each bolted on start-up robotic companies that went through the regulatory and sales labyrinth to become market leaders.

The initial Medtronic/Mazor deal two years ago came only seven months after Smith & Nephew paid $275 million for Blue Belt Technologies’ Navio system (a hand-held, portable robotic system used in knee surgery) and two and a half years after Stryker paid $1.65 billion for MAKO Surgical Corporation (robotic-arm assisted large joint reconstruction). In 2014, Globus Medical paid an undisclosed amount to acquire Excelsius Surgical.

The Others

Waiting in the wings are Johnson & Johnson’s (J&J) Orthotaxy platform, Zimmer Biomet’s ROSA system and a small collection of other public and private companies identified in a September 2018 Robotics Handbook publication put out by Wells Fargo Securities.

J&J’s Orthotaxy is an orthopedic robotic platform for hard bone procedures targeted for launch in 2020. It is to be initially indicated for total knee application (TKA), followed by spine and then hips.

Zimmer Biomet’s ROSA will likely be the next major launch of robotics in knees, according to Wells Fargo. The company is looking for a limited launch for ROSA total knee application (TKA) in late 2018, followed by a full launch in mid-2019. The company has also indicated that TKA will likely be followed by partial knee, hips, and revision knee.

Brainlab’s Cirq Robotic System is a universal platform for robotic tasks, serving a range of neurosurgical indications. Cirq offers a spinal module with a focus on alignment.

Brainlab and K2M, Inc. entered into an agreement in October 2017 for the commercial release of future navigated K2M spinal implants compatible with Brainlab’s navigation systems. The next step was expected to be robotics; but on August 30, 2018, K2M announced that it will be acquired by Stryker, which will likely determine the path forward. Brainlab has a global installed base of 5,300 units. It also has a collaboration with J&J for surgical navigation and imaging.

OMNIlife science, Inc.’s OMNIbotics is a robotic-assisted total knee replacement procedure. The first OMNIBotics robotic-assisted total knee arthroplasty (TKA) was performed in the U. S. in 2011. In 2017, the company received 510(k) clearance for its robotic tissue balancing device, which is used with OMNIBotics.

Think Surgical’s TCAT allows the surgeon to execute the preoperative plan for the hip/knee replacement surgery. For hip implant, TCAT mills the cavities and for the knee procedure, it planes the femoral and tibia surfaces. The system has an inbuilt monitoring system, which brings the system to a halt in case of any bone movement.

Think Surgical’s early ROBODOC was the first robotic system to be utilized in an orthopedic surgery in 1992. The system became commercially available in 1994, beginning in Europe. The ROBODOC name was later changed to TSolution One, which represents the company’s current iteration of robotic surgical system.

TSolution One received 501(k) clearance for hip procedures in 2014, followed by CE mark the following year in 2015. For total knee arthroplasty (TKA), TSolution One received the CE Mark in December 2017, but is not yet approved in the U.S. Four centers in the U.S. are currently participating in a clinical trial.

Analysts Comments

The Wells Fargo team wrote that Medtronic stands to benefit in robotics given the low penetration of the market. According to Medtronic, robotics currently accounts for just 5% of procedures in the U. S. and less than 2% outside the U.S. “Looking ahead, the company aims to introduce a platform that will be a low-cost, easily upgradeable solution (similar to laparoscopy) that can drive utilization by reducing economic barriers associated with robotic surgery.”

Needham & Company Analyst Mike Matson said he was surprised by the price Medtronic paid for Mazor, but added, “we think that the deal makes strategic sense since it gives Medtronic: 1) improved margins on the Mazor product sales, 2) more control of Mazor’s R&D efforts, 3) access to Mazor’s lower-priced Renaissance System, and 4) the ability to apply Mazor’s technology in other areas of orthopedics such as recon and extremities.

Finally, Bank of America Analyst Bob Hopkins wrote while there are differences between the spine market and the knee market, “the spine market is larger and the potential for disposable spine implant pull-through is just as meaningful. Medtronic is making a call that Robotics is going to be meaningful in spine and as the #1 share player in spine, the company is in a strong position to make that call.”