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Medtronic: The New Entrant into the Robotic Surgery Business

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Jun. 1 2016, Updated 1:07 p.m. ET

The robotic surgery market

Medtronic (MDT) is set to enter the robotic surgery market through a partnership deal with Mazor Robotics, an Israeli company. Mazor Robotics is a small-cap company that manufactures robotic systems, specifically the Renaissance Guidance System, which is used for spinal surgeries.

The US robotic surgery market is dominated by Intuitive Surgical (ISRG). Another recent major entrant in this market space is Verb Surgical, a joint venture of Johnson & Johnson (JNJ) and Google (GOOG). Medtronic is expected to invest about $50 million in three tranches. On completion, Medtronic will own 15% of Mazor Robotics. Investors can invest in the SPDR S&P Dividend ETF (SDY), which holds ~0.81% of its total holdings in Medtronic.

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Partnership nuances

The Medtronic-Mazor partnership includes co-development, co-promotion, and global distribution for some of Mazor Robotics’ spine products. Initially, the deal entails a co-promotion phase in the United States. If the expected milestones in this phase are met by the end of 2017, Medtronic will gain the sales and distribution rights of Mazor’s future spine product sales. Medtronic will earn commission on sales of the products, and Mazor Robotics will earn the consumable and service revenues. The Renaissance Guidance System will continue to be sold and distributed by Mazor Robotics.

Mazor Robotics’ Renaissance Guidance System

The Renaissance Guidance System enables surgeons to execute spinal surgeries more accurately and more safely. It allows the surgeon to execute minimally invasive guided procedures instead of freehand surgery, thus reducing risks of complications during surgery. The system also reduces the patient’s exposure to radiation due to the minimal need for X-rays. Radiation levels in robotic-assisted surgeries are 56% lower than in traditional surgeries. Also, patients are found to have a shorter recovery time and better outcomes.

Mazor Robotics sells its Renaissance Guidance System on the razor and blades business model similar to Intuitive Surgical’s. The Renaissance Guidance System sells for $849,000. The disposables sell for $1,500 per procedure. In comparison, Intuitive Surgical’s system sells for $1.5 million on average, and the disposables cost $1,840 per procedure.

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