Soros-Backed Surgical Robots Break Sales Slump

By Gabrielle Coppola

It’s not easy selling robots that can drill holes in your spine.
After two quarterly earnings misses and a 46 percent drop this year through November, surgical robot maker Mazor Robotics Ltd. (MZOR) finally caught a break.
Mazor announced four sales of its $849,000 device in a single week in December, one to a U.S. hospital, and three more in China and Taiwan. That sparked a 14 percent surge in the stock this month to $12.01, the first positive return since June for the Caesarea, Israel-based company.
Mazor, which counts billionaire George Soros’ hedge fund among its top shareholders, is trying to convince doctors and hospitals that using its system will improve accuracy and reduce surgery time for spinal operations, an $8.5 billion global market, according to Needham & Co. Using surgical robots has become a marketing tool for hospitals, a selling point for Mazor, which had
$20 million in revenue last year. It’s copying Intuitive Surgical Inc. (ISRG), which posted $2.3 billion of sales in 2013.
“We’re still small, and every system counts,” Chief Executive Officer Ori Hadomi said by phone from Tel Aviv Dec. 24. “Between quarters there will be some bumps, but there is an annual trajectory of growth.”
Mazor’s U.S.-traded shares rallied as much as 38 percent before the gains were trimmed this month. The stock, which began trading on the Nasdaq Stock Market in October 2013, has lost almost 40 percent in 2014. The Bloomberg Israel-US Equity Index has fallen 0.4 percent in December, reducing its gain this year to 8.7 percent.

Expensive Robot

With a price close to $1 million, it takes time to convince hospitals to invest in Mazor’s “Renaissance Guidance System,” which uses 3-D images to map out the placement of screws drilled into a patient’s spine to correct problems like scoliosis or spinal fusion. With annual revenue of $20 million, one or two deals can make or break earnings, Hadomi said.
Mazor, which hasn’t yet turned a profit, missed the average sales forecast of four analysts in the first two quarters of the year. It exceeded estimates in the third quarter, posting $6.1 million in revenue. The stock tumbled 33 percent from July through September.
Shares added 3.2 percent to 23.98 shekels at 12:45 p.m. in Tel Aviv.
“The hospital capital spending environment has been challenging,” Mike Matson, an analyst with Needham who’s kept a buy rating on the stock since he started covering it in June, said by phone Dec. 23. “I’m not sure how quickly things are going to happen and when the inflection point will come, but eventually this will become the standard of care.”

Undeterred Analysts

Analysts are mostly unfazed by the stock’s drop this year. Six out of seven recommend buying the shares, which will rally 56 percent in the next 12 months to $18.75, according to the average of estimates compiled by Bloomberg.
Mazor’s revenue is projected to rise 11 percent to $22 million in 2014, according to the average estimate of six analysts.
Hadomi said U.S. hospitals that were reluctant to make decisions in the first half of the year because of lingering questions about health-care reform seem to have more clarity now, and that the “momentum” of third quarter sales has continued in the final three months of the year.
Mazor’s sales are still too unpredictable to recommend buying the shares, according to Gregory Chodaczek, an analyst with Sterne Agee & Leach Inc. who rates the stock the equivalent of hold.

Soros Stake

The portion of Mazor revenue that’s recurring, which comes from maintenance services and disposable components of its guidance systems, is still small, he said.
“As the company gets larger and more of these are installed, the revenue will smooth out,” Chodaczek said. “Long-term, I like the company.”
Soros Fund Management held a 2.4 percent stake in Mazor, the fourth-largest, at the end of the third quarter, according to data compiled by Bloomberg. Michael Vachon, a New York-based spokesman for the fund, didn’t respond to an e-mailed request for comment.
Mazor had 77 guidance systems installed worldwide at the end of the third quarter, and about 80 percent of its business comes from the U.S., according to Hadomi.
China, India, Australia and Taiwan are likely to provide the fastest growth, while the company expects to win regulatory approval in Japan by late 2016, he said.
“The business is healthy,” Hadomi said. “Those who have enough patience and set expectations for long-term growth will be very pleased with the results.”