Stryker shook up the US large-joint reconstructive implant market last week with its purchase of leading robotic knee and hip replacement firm MAKO Surgical. The price tag on the purchase was a hefty one too?Stryker is reported to be paying out $1.65 billion on the deal, essentially paying double the value of MAKO's share price
. MAKO Surgical is known for its RESTORIS knee and hip implants, and, more importantly, its multipurpose Robotic Arm Interactive Orthopedic System (RIO) used to guide physicians in patient-specific replacement of patient's knees and hips. The company had, however, had seen sales lag somewhat in the first half of the year, selling only fifteen RIO systems in the first six months of 2013 while initially aiming for between 45 and 48 on the year
. This follows a tough 2012, which saw the company's share price drop precipitously from $45 at its height to near $15, where it settled until Stryker's purchase.
Given MAKO's troubles, what does Stryker get out of all of this? While MAKO's slow RIO system sales are an area of concern, they aren?t the only barometer of the company's standing. Procedure growth equals implant sales, and MAKO has seen positive developments in this sphere. Looking at unicondylar implants, there were 3,274 procedures performed, a 10% increase over Q1 2013 and a 26% increase over the procedures performed in Q2 2012. Growth in total hip arthroplasty procedures has also been exponential, growing at 24% over Q1 2013 and 106% over Q2 2012
?though there's a huge caveat here: robotic-assisted surgery still only represents a miniscule fraction of overall joint reconstructive procedures. These are positive developments nonetheless.
More importantly, the acquisition may provide Stryker the leverage necessary to supplant Zimmer and DePuy Synthes and become the leading competitor in the $14 billion global joint reconstructive market. According to our own estimates, the competitive landscape in this market is quite top-heavy, with around 90% of the revenues shared across five companies: Zimmer, DePuy Synthes, Stryker, Biomet, and Smith & Nephew. Zimmer, DePuy Synthes, and Stryker alone account for approximately two-thirds of all sales, and shares are fairly evenly split across all three. Given that growth in this lucrative space has largely stagnated due to global financial instability, Stryker's acquisition of MAKO Surgical may give the company a competitive edge in the overall market through a small yet rapidly growing niche.
Whether Stryker overpaid for a technology that won?t ever catch on with physicians on a meaningful scale, or represents a major conduit for increased implant sales, remains to be seen. We?ll certainly be keeping a keen eye on how this develops.