Mazor Robotics Ltd's (TASE: MZOR; Nasdaq: MZOR) share price jumped 35% on Nasdaq over the past few days after announcing the signing of strategic commercial and investment agreements with Medtronic - the world's largest medical device maker.
The agreements include an investment of tens of millions of dollars in Mazor shares - which trade at a market cap of $281 million - by Medtronic. After the announcement, Mazor CEO Ori Hadomi told "Globes" about his vision for the company’s future following the new agreement.
Until now, Mazor has - to a large extent - been a one-trick pony, relying on its robotic guidance system for spine surgery. Though the company’s product sold well ($26 million in 2015) and its income increased from year to year (23% from 2014 to 2015), it did not present a framework for a breakthrough and continued to incur losses.
It appeared to experts the company will be snapped up by one of the leading medical device companies and be integrated into its operations. But while acquisition is not off the table, the company now has other options. Though the new agreement determines that Medtronic will gradually take responsibility for marketing the next-generation Mazor spine surgery product - as the existing system is phased out - Mazor will still continue to participate in the marketing process and be allowed to develop in other areas.
Hadomi: “The fact that the current agreement calls for Medtronic to take on gradually much of the investment in supporting the product’s sale frees up a lot of financial and managerial resources for us to deal in other areas.”
While those other directions have yet to be released, it will likely lead the company to adapt its robotic system for surgery on other parts of the body. Several systems for robotic surgery are already on the market including for the brain, the knee, and the prostate.
Theoretically, the robot (which is more accurately described as a guidance system for surgical tools based on imaging) is appropriate for any surgery which requires a high-degree of accuracy. Experts believe the company is already working quietly on developing the robot for additional fields.
“The agreement has two other potential upsides, aside from the marketing by Medtronic and the revenue sharing,” says Hadomi.
“First, even if Medtronic chooses to implement the entire agreement and take over the marketing of the robot for the spine, Mazor will still continue to sell the non-durable items needed for each surgery and provide the service for the systems,” meaning Mazor will continue its contact with the operating rooms even after the system is sold. “If in this period the doctors choose to use the system together with the Medtronic implants, then Mazor will receive a substantial bonus for each surgery.
“Furthermore, in the future it is possible Medtronic, the leader in surgical navigation systems, will choose to integrate the software powering the Mazor system into its other systems.” The cost of a software license is lower than for a robotic unit for each system, but the amount of integrations could reach four-digits or more. Hadomi added: “The two companies are working together on the joint development of products and systems, and Medtronic is taking on itself much of the funding for this research and development.”
A company statement said the two companies have already started developing products together. In the short term, Medtronic intends to allocate hundreds of sales personnel to marketing the joint product. For its part, Mazor does not need to increase its marketing efforts, which should allow it to reduce its losses. The success of the agreement depends on the commitment of Medtronic to the process. Now the market awaits the regulatory approval of the new joint product.
Published by Globes [online], Israel business news - www.globes-online.com - on May 20, 2016
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