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JPMorgan Healthcare Conference Highlights: MAKO Surgical

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The JPMorgan Healthcare Conference currently under way in San Francisco is arguably the most important event of the entire year for the health care sector. This is one of the rarest opportunities for biotechnology, pharmaceutical, and medical device companies to open up about where they've been and where they're headed, so it pays to take notice.

Having had such a disappointing 2012, orthopedic robotic device maker MAKO Surgical (UNKNOWN: MAKO.DL  ) was high on my list of presentations to examine. There have been serious concerns thrown around in recent months that, with the slowdown in MAKO's procedure rate, it would follow the path of other precision robotic companies -- like Hansen Medical (NASDAQ: HNSN  ) with its Sensei Robotic Catheter System and Accuray (NASDAQ: ARAY  ) with the CyberKnife system -- and simply produce conceptually positive clinical data and products but fail to translate that concept into meaningful profits. Thus far, that tale has proven true, but MAKO CEO Maurice Ferre gave investors some reasons to be optimistic in yesterday's presentation.

Ferre's early focus in his presentation -- and I can't blame him -- was on MAKO's procedure surge in the fourth quarter and in hitting a milestone for its Robotic Arm Interactive Orthopedic systems, or RIOs. MAKO completed 2,904 procedures during the fourth quarter -- good enough for a 29% year-over-year increase -- as total procedures performed in 2012 breezed past 10,000 and total RIO devices sold to date jumped past the 150 mark. These figures aren't enough to get MAKO profitable, but they may be enough to get some of the pessimists who see the technology as nothing more than a concept off their back.

What really got investors excited (as evidenced by the 7% pop in yesterday's trading) was Ferre's focus on full and partial knee replacement market share and a vast sea of untapped opportunity.

According to Ferre, there are about 15 million people who suffer from some form of osteoarthritis, yet only 700,000 procedures are being done -- or in other words, only 4% of suffers are getting any surgical relief. MAKO estimates that not only does it boast about 15% market share in knee replacements, but that it can grow its procedural volume and market share without cannibalizing the sales of its competitors like Zimmer (UNKNOWN: ZMH.DL  ) and Stryker (NYSE: SYK  ) because the unmet opportunity is so large and the long-term growth rate for procedures is rising at 3.5% per year.

Ferre also made sure to emphasize how its fifth-generation product is going to provide the precision needed in today's knee and hip replacement surgeries, relying on clinical studies to back his points. To date, MAKO's clinical failure rate on knee replacements is well below the average, at just 0.4%. Furthermore, Ferre highlighted trial data noting that about half of all cup placements done without the aid of its software and robotic devices were improperly placed. These figures have merit considering that Stryker noted just yesterday that a hip recall will cost the company anywhere from $190 million to $390 million in the fourth quarter. 

What I didn't hear a lot about from MAKO was how it'll work with doctors to grow sales other than relying on mounds of clinical data that shows the efficacy and safety of its robotics. We also didn't get any sort of semblance from either Ferre or CFO Fritz LaPorte on when MAKO might be profitable or what it may do to reduce its cash burn, if anything. Both senior managers appear to be leaving those details for the company's official quarterly report in February.

Overall, and as is usual with MAKO, I feel encouraged by the clinical data, and I can see where the opportunity exists for MAKO to make serious cash, improve patient health, and fatten its market share, but I still didn't see concrete evidence of how MAKO is accomplishing this. Ferre's final point that it'll concentrate on expanding its intellectual property portfolio could have possible cash-building implications, but I'm going to need to see more evidence from MAKO's margins that it's headed in the right direction before giving this orthopedics company a clean bill of health.

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