MAKO Neutralizes the Competition: Is the Stock a Buy?

Well, that was quick.

Just a few weeks ago, I noted that MAKO Surgical (UNKNOWN: MAKO.DL  )  had taken two steps to show the world just how serious it is about protecting its turf in robotically assisted orthopedic surgery.

The complaints
First, the company filed a lawsuit against one of its former sales managers and his new employer, Blue Belt Technologies, claiming the employee both violated his non-compete agreement and provided stolen trade secrets to Blue Belt to help its NavioPFS surgical system compete with MAKO's own RIO platform.

Next, MAKO filed complaints against competitor Stanmore Implants, alleging that the U.K.-based company was violating three patents related to MAKO's own robotic devices and software. Stanmore, for its part, had only just recently received its own 510(k) clearance from the Food and Drug Administration to market its Scuptor Robotic Guidance Arm for partial knee resurfacing, which just to happens to be MAKO Surgical's most significant target market.

The ridiculously fast resolutions
Curiously enough, MAKO's lawsuit against Blue Belt quickly proved its merit after MAKO secured a court-ordered permanent injunction against the company on April 4, preventing it from engaging the "former MAKO employee and requiring destruction of all proprietary MAKO business information in Blue Belt's possession."

Then, in a press release this morning, MAKO surprised investors again by announcing it has "agreed to settle all patent infringement actions and acquire certain assets of Stanmore" related to its Scuptor RGA business.

More specifically, MAKO will make an undisclosed cash payment to Stanmore in exchange for its "robotic business assets and intellectual property, as well as Stanmore's agreement to withdraw from robotics." In addition, MAKO CEO Maurice Ferre stated they were "enthused about the possibility of partnering with Stanmore on potential future projects."

Of course, the Stanmore case begs a number of questions for MAKO investors:

How much did MAKO pay?
Or, perhaps more importantly, how much life-sustaining cash does this leave in MAKO's coffers? Remember, as of the end of 2012, MAKO had $73.3 million in cash and investments with no debt on its balance sheet, and that includes the dilutive $42.9 million it raised in a public offering last November. Even so, MAKO is still striving to put itself in the black and burned $28.3 million in cash just last year.

While the rate at which MAKO burned cash did slow as the year went on, it's safe to say that its weary investors would rather not see their stake diluted again should the company not be able to achieve profitability in the near future.

What did MAKO gain?
As I mentioned last month, it was quite possible Stanmore was fully aware its chances of actually competing with MAKO were slim to none, especially given MAKO's massive head start with more than 10,000 orthopedic procedures performed using its RIO system in 2012 alone. Stanmore, then, was probably more than happy to take the money and run, but MAKO must have seen something it liked in Stanmore's tech in order to actually purchase the assets.

I can't help but wonder, then, what Stanmore's technology offered that MAKO didn't already have. As a result, I'll be listening closely to MAKO's upcoming earnings report for any hints of what that might be.

What are those "potential future projects?"
MAKO already takes advantage of high-tech implants from its partner Pipeline Orthopedics, so is it possible that MAKO might be considering giving surgeons more implant options through a new partnership with Stanmore? After all, one of the big advantages of Blue Belt's competing NavioPFS is that its open implant-architecture allows surgeons to customize the system for use with multiple supported implants.

By collaborating with Stanmore, MAKO could then effectively offset Blue Belt's edge, thereby making its RIO platform that much more attractive to prospective customers.

Foolish final thoughts
As a MAKO investor, I'm relieved neither of these challenges turned out to be long, drawn-out ordeals. To the contrary, I think the fact both complaints were so quickly and succinctly resolved can be seen as a significant vote of confidence supporting the viability of MAKO's business.

With all things considered, I'm convinced that patient long-term investors who buy shares of MAKO today should be more than pleased with the results. With shares of MAKO trading up nearly 6% as of this writing, it would seem like the market agrees.

Zero to hero?
Sitting near all-time lows, has MAKO Surgical's robotic surgery growth story rusted over? To help investors answer this question, Fool.com analyst and MAKO expert David Meier has authored a premium research report covering all of the must-know details on the company, including key areas to watch and risks looming in the future for the medical robotics company. Claim your copy by clicking here now.


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