Mazor Robotics - 20F annual report + Q2 2014

Hi all,

Below are my notes for a more speculative position: Mazor Robotics Ltd (NASDAQ: MZOR). As far as I know, this is not a TMF recommendation. Please apply caution.


Company, industry, sector

Company: Mazor Robotics Ltd. (incorporated in Israel)
Industry: Medical equipments
Sector: Health care

American Depository Shares (ADS) representing ordinary shares began trading on NASDAQ under the symbol “MZOR” in May 2013. Each ADS represents two ordinary shares. “MZOR” was listed on TASE in Aug 2007 and has traded on TASE since its listing.

Cash and equivalents as of June 30, 2014: $58.4M (should be sufficient and see no need for further capital raising)

Business overview

MZOR is a medical device company whose frontline product is the Renaissance Surgical Guidance System, a computer assisted surgical surgical guidance system used primarily for spine surgeries. Renaissance enables surgeons to move from freehand surgery to more accurate, state-of-the-art, precision guided procedure.

The system has recently been approved for brain surgery.

Revenues are generated from system sales, service contracts, sale of disposables, and sale of accessories. Note that there’s a recurring aspect to the system sales. As the system base increases, the recurring revenues would also increase.

Over 8000 surgeries (as of Q2 2014; this number was 7000 at Q4 2013 when the annual report was filed) have been performed using Renaissance and its predecessor including fusion, correction of spine deformities, biopsy collection, tumour excision etc.

The Renaissance system is approved for use in the US, EEA, Australia, Canada, China, India, Russia, South Korea, and Taiwan.

What are the key elements of the Renaissance system?

RBT Device is a computer-controlled Stewart platform that spatially positions and orients surgical tools during the surgery as per a surgical plan (“blueprint”). Note that the device movements are as per surgical plan and monitored via a closed loop process. The surgeon performs the surgery using tools attached to the RBT device. The RBT device essentially allows precise localisation. Note that unlike Intuitive’s surgical systems where the robot performs the surgery guided by the surgeon, here the surgeon performs the surgery guided by the system.

Renaissance Workstation is a mobile workstation that houses proprietary software, controllers for the RBT Device, image processing unit, electronics, computer, and graphical user interface software. The Renaissance Workstation is used both for pre-operative planning and intra-operative control to implement the surgical plan.

Mounting platforms serve as an interface and reference frame between the patient and the RBT Device. All are attached to the patient’s spine or skull to maintain accuracy, despite breathing and other minor patient movements.

Renaissance disposable kits are designed to adapt the RBT Device to different surgical applications and for the different mounting platforms utilized by the surgeon. Renaissance accessories include trays of reusable surgical tools.

The company has developed the Renaissance Brain Module, a new application of its Renaissance system intended to provide precise control through the insertion of surgical instruments (drills, cannulas, electrodes, needles, etc.) during brain surgery. The Renaissance Brain Module could be used for guiding brain biopsies, the novel insertion of Deep Brain Stimulation electrodes into the brain and other procedures that depend on a linear trajectory into the brain.

Company strengths, advantages, and strategy

The key strengths of the Renaissance system:

  1. Reproducible Precision and Accuracy. There are some studies that show accuracy as high as 98% for screw placement versus 90% in freehand surgeries.

  2. Use in a Variety of Procedures. While the Renaissance system is often used for conventional or routine spinal surgeries, the
    system is particularly advantageous in complex spinal procedures, such as the correction of scoliosis and other spinal deformities,
    long fusions and repeat/revision surgery. Precision and planning is of particular importance in complex procedures where accuracy and precision are a challenge for even the most experienced surgeons.

  3. Ease of Use. The Renaissance system leverages and complements the surgical skills and techniques already familiar to the
    surgeon as the surgeon still is performing the surgery. The system improves accuracy by accurate movement of the RBT device. This more rudimentary use of “robotic” technology can potentially aid in wider acceptance.

  4. Possible Reduced Exposure to Radiation. Spine surgeries, particularly minimally invasive surgeries, require the use of high
    levels of X-ray imaging, and exposes surgeons and patients to harmful radiation. Renaissance system may significantly
    reduce the need for X-ray imaging during the surgery and provides for a safer overall surgical environment.

  5. Shorter hospital stays, lower complication rates, higher patient satisfaction.

  6. Clinical Differentiation. Early adopters can differentiate themselves over competitors. A nice selling point.

MZOR’s systems list price is $850K, single use disposables are about $1.5K, and service contracts consist of annual contracts at about 10% of the fixed cost beginning the second year. More systems installed, implies more disposables + service income (recurring). Right now, recurring revenues are clocking in about 30% of the total revenues.

MZOR’s aim is to make Renaissance systems the “standard of care” for spine and brain surgeries. This they plan to achieve by driving system sales and generating recurring revenues from service contracts and sale of disposables. The market opportunity is as such very very big. Currently, these systems are available in around 60 odd hospitals, worldwide, while there are approximately 1100 hospitals and surgical centres within the target market in the US alone. In addition to system sales, MZOR is working on increasing system utilisation, i.e., getting more surgeons at a centre or hospital trained to use the system. They are also looking at diversifying the application base of the system, and the new “Brain module” is an example of that drive. MZOR continues to work with early adopters among the hospitals and surgeons, collecting data points that show the value proposition (financial & clinical). Finally, like most companies in this sector, it continues to invest in R&D to stay ahead of the competition.

Its worth noting that spine market in the US alone is very big. There are about 1.25 million annual surgeries, about 750K inpatient and the remainder as outpatient. Among the inpatient group, about 360,000 accounts for Thoracic lumbar related problems, which is Mazor’s primary focus. This itself is a big opportunity. Combine this with global opportunities, plus the optionality from new applications/modules (e.g., “brain module” is an example), and one could visualise a lot of options and a big runway for growth.


As such, MZOR is the only company offering robotic solutions for spine and brain surgery. No direct competitors.

There are computer assisted non-robotic surgical systems in the spine surgery area offered by Medtronic Inc, Stryker, and Brainlab. These CAS systems have not seen wide use in spine surgeries but are generally applicable to other surgeries, which may encourage hospitals to buy these general purpose devices over specialised devices.

In the orthopaedics domain, robotic systems are made by Mako Surgical (now owned by Stryker), Globus (now owned by Excelsius). Intuitive Surgical, which is probably the most well-known name in the robotics surgery area, is also rumoured to be working towards a spine or general orthopaedics system. (Note - Intuitive makes systems for soft tissue surgeries, so this would be a significant leap.)

Excelsius Surgical is probably the most direct competitor. It is likely to launch its system around 2016, so MZOR has a significant lead over them. Note that they still need to get FDA clearance, which is expected sometime in 2015. See here:…


Maintaining competitive advantage and position is critical for the success of Mazor. Its still early days, and while Mazor has the lead, it does so with only about 70 systems installed worldwide. This number is probably not enough to get the “network effect” happening, i.e., another hospital busy the systems because its competitors have it, effective spread of word of mouth publicity etc. Mazor really needs to focus on rapidly expanding the installed base, look at improving system utilisation, and maintain technology lead via R&D. Directly related to the above risk is execution risk. Is management up for the battles that lie ahead?

Q2 2014 Conference Call notes

  • This is the most recent quarter and the only transcript I could locate on Seeking Alpha. They may have just started to cover this one.…

  • Five analysts on the call:
    Jeffrey Cohen – Ladenburg Thalmann & Co. Inc.
    Matt Taylor – Barclays
    Kathleen McGrath – WallachBeth Capital LLC
    Mike Matson – Needham & Co.
    Jose Haresco – JMP Securities, LLC

4 systems sales in the quarter (2 in the US, 2 international). Several system sales active, with one converted already into sale for Q3. One of the US sales was to New Hanover Regional Medical in Wilmington, North Carolina a centre affiliated with the University of North Carolina Chapel Hill School of Medicine. They also had two teaching hospital related sales in the previous quarter. This is good for building up the reputation by getting it out to early adopters at teaching hospitals. They noted that "while the academic centers are usually quick to flow new technology the sales process to their institutions is usually lengthier than to non-academic subsidiaries relatively.”

Brain module was launched in April 2014. First sale achieved in Q2 2014. Here’s some additional interesting bits:
"Deep Brain Stimulation or DBS. DBS procedures are currently used mainly to treat movement disorders associated with Parkinsons’ division. But the indication for DBS continue to expand steadily widening the pool of patients.”
I like the way they priced this module. It’s addition bring the cost of the base spine system from $849,000 to $978,000.

International sales were also to teaching, top tier, hospitals (e.g., in HK and Taiwan). HK was a new market entry.

Utilisation rates appear to be increasing. So, while revenue was down to $4.5 M compared to $6.2 M in Q2 2014 because of lower system sales, recurring revenues accounted for $2.1M representing a 17% QoQ increase. This is good, IMO, as it demonstrates that the system is finding increasing use. In the long run, assuming management can execute on sales, these recurring revenues will hold them in good stead. Utilisation rates are at record high in Q2 2014.

Discussion on market opportunity. They have 39 systems in the US in 32 accounts (locations? hospitals?). They estimate opportunity in about 2200 hospitals. Even if the opportunity is half, at 1100 hospital, there’s a long runway for growth. Here’s another quote regarding the long process involved in getting systems installed.
“Hospital administrators are taking longer to approve capital purchase than in the past and are involving more influences in their decision making process. This cost rise several opportunities for us in the second quarter and I will speak more to it in a few moments.”

MZOR is increasing its sales and marketing activities. E.g,

  • increasing presence at national and international conferences and getting surgeons to give invited lectures
  • reorganising efforts of sales teams
    I sense some adjustments in their marketing approach, which is may be expected of early stage companies.

Also, given MZOR’s size and since its really early days, QoQ metrics may be meaningless for trends etc. May be YoY comparisons make more sense in terms to understanding the business’ trajectory.

Most of the conference call questions were around the lengthy approval process in the US for systems sales to hospitals. MZOR doesn’t give sales/revenue guidance yet. Nothing else that I found interesting.

Valuation - What does all this mean?

MZOR has negative earnings, so we should thread with caution. And, it looks like we have to look out at least a few years for the company to actually report earnings.

Let us first look at the economics of the business, concentrating on two aspects, the gross profit margins and the recurring revenue. See Table below ($ figures in thousands).

         12/31/2010     12/31/2011     12/31/2012     12/31/2013
Revenue     $3,973       $5,904          $12,175         $19,983
Recurring     26%          30%            29%               32%
CoS           $961       $1,879          $2,893           $4,280
Gross       75.81%        68.17%          76.24%          78.58%

Two things standout. The gross margins are in the 70% range. If the business, in particular the sales & marketing and general admin components of the costs don’t linearly go up with increases in revenue than we should see profits soon enough. There’s some proof of this potentially happening already, if we look at the operating expenses of the business. See Table below.

         12/31/2010     12/31/2011     12/31/2012     12/31/2013
R&D       $2,292          $3,062         $2,760         $4,174
marketing $4,592          $6,990         $8,887         $15,692
Admin     $1,424          $1,639         $1,845          $2,766
Total      $3,716         $11,691        $13,492         $22,632

In 2012 & 2013, the total OPEX was around 110% of the total revenue.

Let’s look at the growth of the system sales below.

         12/31/10     12/31/11     12/31/12     12/31/13     06/30/14
US           4            8           19            34          39
Int         14           19           22            29          31
Total       18           27           41            63          70

In 3.5 years, MZOR has grown its installed base 4x what it had at the end of 2010. System sales tend to fluctuate across quarters but we can expect about 14 to 15 system sales in 2014. I would expect the year to end with about 75 to 80 installed systems. This would translate into a GAGR of 45%. Pretty impressive! Getting to about 200 systems by end of 2018 would represent a more modest growth rate of around 26% in 2014 through to 2018. A more modest 20% rate would show a system base of around 150 systems. That’s worldwide and recall that the US opportunity is about 1000 systems.

If we go with the 25% growth rate, we would expect about $42.5M in system sales. Recurring revenue should account for about a third of the total revenues as per tables above. So the total expected revenue could be around $63.75M. ISRG, which is a more mature growth story is selling for about 8x its revenues. With about 200 systems installed and clocking system adds at 50/year, it would seem reasonable to may be expect a market cap around 10x of revenue. That would put the market cap 5-years from now at around $640M. I recall that MAKO was acquired by Stryker for 1.6B and it didn’t have positive earnings. It was (if I recall correctly) drawing in revenues around $100 M when it was acquired.

Concluding remarks

I think my estimates are the lower end of what might happen. Of course, MZOR is super risky, but I also think that the risk reward tradeoff is good here. The company is addressing a large market, both in the US and internationally, and could potentially grow for decades. MZOR would likely show positive earnings by 2015. The technology being computer guided versus being a full robotic system where the surgeons work on a video game like console could be a reason for faster adoption. Companies like MAKO and ISRG have also familiarised the medical community about the advantages of robot assisted technologies, so in some sense the battle ahead for MZOR should be not as though as the one say that ISRG or MAKO had.

All said, the technology has immense promise, the market opportunity is very large, and Mazor has a first mover advantage. These are all great signs of a first mover, rule breaker. That said, its now all about execution. Is management geared up and capable of scaling the business? We will have to follow the business to get to know.

I really like the technology, the opportunity, and the first mover advantage, so I have invested in MZOR. I have added some on the recent price weakness (with the general market weakness but no company specific news as such). Now I ‘m staying pat and following the story. This has potential to be a big multi-bagger but one has to be cautious and not have too much invested at one go. Allocation is crucial here and sizing must be as per risk appetite. This is a high risk, high reward proposition, although I feel the downside from today’s prices are sort of limited. I also believe there will be opportunities to add along the way. If it works out, it will probably be a decade long growth story.


I have to say that, while it is clear that there are still a lot of chasms to be crossed here, that this write up makes me feel significantly more positive about the chances of MZOR long term. There seems to be a nice, solid advance of proving itself in core competencies and finding ways to extend those competencies to new areas.

1 Like


Great writeup. But what about hospital economics? Do they save money for the hospital? Do they save time of the surgeons? Do they cost less than the competing procedures? Do they achieve measurably better results that justify the cost? Are there peer-reviewed publications that study the results?

Thank you for the very impressive introduction.


But what about hospital economics? Do they save money for the hospital? Do they save time of the surgeons? Do they cost less than the competing procedures? Do they achieve measurably better results that justify the cost? Are there peer-reviewed publications that study the results?


Great question, I should have addressed this directly, but it was only there implicitly in the strengths section.

There were some 18 odd published paper. One of their claims to fame is the improved accuracy. Studies, for instance, report accuracy in the 98 to 99% range for placement of screws. A 2013 study in the Neurosurgery journal reported 99% accuracy for minimally invasive surgeries using RBT devices.

They also report substantial reduction in re-operations, complications, hospital stay duration, and exposure to x-ray dosage. These were reported in the European Spine journal in 2011.

Overall, I think there’s a compelling case for these systems. They are cheaper than the Intuitive type systems (which perform the surgeries). They improve accuracies for the surgeons, reduce complications, re-operations, etc.

Have a look at the April 2014 dated Investor presentation:…

There’s lot of very useful information there.


I have to say that, while it is clear that there are still a lot of chasms to be crossed here, that this write up makes me feel significantly more positive about the chances of MZOR long term. There seems to be a nice, solid advance of proving itself in core competencies and finding ways to extend those competencies to new areas.


I agree, most of the marathon still needs to be run!

This is a risky stock but I do feel that the risk reward ratio is now nicely tilted towards those willing to be patient and hold for the long term.

As of Q2 2014, they had about $58M in cash and equivalents and the market is currently assigning them a market cap around $240M. Back out the cash and the business is valued at less than $200M!



This is high dollar capital equipment. The sales cycle is long and difficult as we have learned from Mako. I read about this company before and do some more.


Another great write-up, thank you!



Thank you very much for sharing your research on MZOR. I’m not familiar with them but based on your work I will take a look. I was formerly invested in ISRG so I’m somewhat familiar with the basic concepts of what MZOR is trying to do.


looks more like a jig with a bunch of sensors/visualization aspects, more like MAKO than say ISRG. But interesting, thanks for the writeup.

Tom (did really well with ISRG, MAKO not so much :slight_smile: