It's the hottest name in health care, and it's trying to bring orthopedic surgeon robots to a hospital near you -- it's MAKO Surgical (NASDAQ: MAKO). MAKO's struggled recently as the company looks for a foothold in this tough economy, particularly as medical device makers are hammered in Europe and prepare for the Affordable Care Act's medical excise tax in the United States. Competition is heating up for orthopedics, but who does MAKO really compete with?
Not all robots are the same
At first glance, it's easy to toss MAKO in with the other robotic surgical makers. Intuitive Surgical (NASDAQ:ISRG) currently leads the way in this industry, while lesser players like Hansen Medical (NASDAQ:HNSN) look to make their own niche in the future. Taking a deeper look into these companies shows that MAKO doesn't have much to do with them at all, however -- besides the robot part.
Intuitive's da Vinci system is approved for a plethora of surgeries ranging from urologic and gynecological procedures to cardiological and colorectal operations. However, the da Vinci doesn't cover orthopedics, where MAKO's RIO robotic system operates. MAKO may want to emulate Intuitive's success as a company, but these two growing companies compete in different medical arenas despite each developing robotics.
Let's try Hansen. The Food and Drug Administration recently green-lighted the company's Magellan robotic system for use in the U.S. to treat cardiovascular intervention procedures. Sticking catheters into arteries is a large market, but it's not something that MAKO's RIO competes against. Like Intuitive, Hansen is a surgical robotics maker that doesn't compete in the same field.
So MAKO doesn't compete against either of these notable surgical robotics makers – who does the company square off with for market share in the orthopedics field?
Intuitive might be a big name, but some of MAKO's competitors are far larger -- as large as Johnson & Johnson (NYSE:JNJ), the 800-pound gorilla of the health care industry. J&J's subsidiary, DePuy Orthopaedics, produces replacement joints and other products for the knees, hips, and more. J&J's orthopedics unit is a worthy competitor to MAKO, and it stands as the largest of the company's medical device divisions with sales of more than $6.8 billion in the past 12 months.
That's a lot of money that MAKO would like to get a piece of; given that J&J lacks the robotic innovation of MAKO, it's a reasonable goal for the company to dig into those significant sales. Given J&J's enormous size and resources, however, MAKO may want to go after a slightly smaller competitor first -- especially because J&J is hardly the only competitor in this lucrative field.
Major medical device maker Stryker (NYSE:SYK) also operates an orthopedics division. The company oversees branches specializing in all sorts of devices, but its reconstructive division sold more than $600 million in hip and knee products and services last quarter. Unfortunately for Stryker, that lofty figure didn't mirror growth: Knee products and services gained only 1.4% in year-over-year sales for the quarter, while hip products and services declined. Given that Stryker's already undergoing other woes -- the company didn't have the greatest third quarter and has been conducting layoffs in accordance with the ACA's medical device tax -- this company's a much better target for MAKO's growth hopes.
Specialized medical device maker Zimmer Holdings (UNKNOWN:ZMH.DL) is MAKO's closest direct competitor. Zimmer makes all sorts of reconstructive orthopedic products, from joints and spinal implants to surgical products and trauma devices. For MAKO's RIO, which is looking to make its mark in knee and hip surgery, this is the first competitor on the block to knock down.
Fortunately for MAKO, Zimmer's gloomy third quarter did a good job knocking itself down. The company's most recent quarter showed a decline in profit, breaking a streak of earnings increases. Zimmer also missed on revenue expectations. Some analysts are optimistic on the stock, but investment firm Stifel Nicolas only initiated coverage at "hold" recently.
MAKO's got technology going for it over these well-entrenched rivals. Traditional orthopedic procedures, such as knee and hip replacements, can be messy affairs full of surgical blocks and other tools. MAKO's RIO robotic system offers a less invasive procedure, allowing for greater precision and alignment of implants. Given that orthopedic surgeries affect major joints responsible for mobility, this can offer a monumental advantage in patient outcomes. However, price is the RIO's biggest negative factor: The system currently sells for more than $1 million.
Still a ways to go
Granted, MAKO has yet to even reach profitability and still has a long way to go to be truly competitive. However, Zimmer -- and to be ambitious, Stryker -- represent the company's closest publicly traded competitors. Going toe-to-toe with these companies in the near future would be a huge win for MAKO, and you should keep an eye out for them when judging MAKO's success in the orthopedics field. MAKO's got a long road ahead of it, but its competition is clear -- and it has the tools to carve out a successful niche in this lucrative field.