TransEnterix, Inc. (ASXC -4.67%) and Mazor Robotics Ltd (MZOR) are both attempting to take the leap and turn into leading robotic surgery companies, but is one a better investment than the other? Read on to find out which one of these two upstarts might be best to own for the long-haul.
Detailing the products
TransEnterix has two systems for robotic surgery: the ALF-X and SurgiBot, but only one of those systems -- the ALF-X -- is approved for sale by regulators.
The ALF-X is a system used in minimally invasive laparoscopic surgeries and it's approved for use in Europe. TransEnterix bought the rights to ALF-X from SOFAR S.P.A. last year in a deal valued at as much as $99.8 million, including $43.7 million in TransEnterix stock.
ALF-X is a multi-port platform that lets hospitals reuse traditional lap instruments and robotic instruments in order to lower their per procedure costs. The ALF-X features haptic feedback, a camera that's controlled by the surgeon's eye movement, and it allows for patient repositioning.
TransEnterix hopes those advantages give it an edge over Intuitive Surgical (ISRG -0.54%), the market share leading maker of the da Vinci robotic surgery system. Intuitive Surgical has an installed base of 3,660 da Vinci systems and trailing 12-month sales of $2.4 billion.
However, TransEnterix only recently began its European road show for ALF-X, and the company has yet to sell a system since acquiring ALF-X's rights.
Meanwhile, Mazor Robotics markets the Renaissance guidance system, a robotic surgery system that is used in spine procedures.
The Renaissance system removes the need for surgeons to perform surgery free-hand, which may reduce complications during surgery, thereby improving patient recovery times while also lowering post-operative pain. The system can also reduce the need for intra-operative x-rays during surgery, lowering patient exposure to radiation.
So far, Mazor Robotics has an installed base of 100 Renaissance systems globally, and in the first quarter, the company received five orders for additional systems, including four orders in the United States. Earlier this month, Mazor Robotics reported first quarter revenue of $6.4 million, up 42% from the same quarter a year ago.
Considering their prospects
Up until recently, TransEnterix hoped to launch a second surgery system in U.S. this year. The company had filed for 510(k) approval of its SurgiBot robotic system last year, and it was expecting an FDA go ahead this spring.
Unfortunately, the FDA rejected SurgiBot's application, leading TransEnterix's management to conclude on its that a large, costly trial for SurgiBot would be necessary for the FDA to grant a go-ahead.
That dealt a big blow to the company because it forces the company to rely on ALF-X, a system that has failed to establish itself in Europe since netting the CE mark of approval from EU regulators in 2011.
Making matters for TransEnterix even more challenging is the fact that Intuitive Surgical appears willing to fight to protect its turf. According to TransEnterix's CEO, Intuitive Surgical is responding to TransEnterix's efforts to win business in Europe by discounting prices on refurbished da Vinci systems.
The path to profitability may be easier for Mazor Robotics than TransEnterix, especially since med-tech Goliath Medtronic plc (MDT -0.40%) recently signed on to co-market Mazor Robotics' spine surgery systems.
Medtronic has an enviable presence in med-tech globally and its deeply ingrained sales force could lead to significantly more orders for Mazor Robotics systems.
Mazor Robotics and Medtronic will co-market Mazor Robotics systems through 2017 and if that goes well, then Medtronic will take over exclusive responsibility for marketing. Medtronic will receive a commission on future system sales (Renaissance costs $849,000 per system). In addition to their marketing pact, Medtronic has agreed to buy a 4% equity stake in Mazor Robotics for $11.9 million and it has options to increase its ownership to 15% over time under certain circumstances.
SurgiBot's rejection is a big blow to TransEnterix and it's unclear to me whether or not this company is on firm enough financial ground to successfully win away business from Intuitive Surgical. TransEnterix has $75 million in cash as of the end of April and while that should be enough to get it through the third quarter of 2017, another dilutive stock offering could be necessary if ALF-X sales don't kick in before then.
Mazor Robotics' financials aren't bulletproof either, but Mazor Robotics may be in better shape than TransEnterix now that it has Medtronic helping it out. Mazor Robotics balance sheet has $37.6 million on it exiting March, however, that doesn't include the $12 million Medtronic is handing over for Mazor Robotics shares. Also, Mazor Robotics cash used in operating activities is relatively small thanks to its existing revenue stream. Last quarter, the amount of cash used in its operating activities fell to $2.9 million from $4.2 million a year ago.
Overall, until TransEnterix demonstrates it can out-compete Intuitive Surgical with ALF-X, its shares are too risky for me to buy. Therefore, Mazor Robotics could be a better bet. Mazor Robotics' installed base means it's generating solid recurring revenue already as procedure volume increases and that should give investors time to see how its deal with Medtronic pans out.