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MAKO Surgical Corp Blue Belt Receives Approval for Orthopedic Surgical Robot,

Monday afternoon, Blue Belt Technologies announced that it received 510(k) clearance from the U.S. Food and Drug Administration to market its NavioPFS orthopedic surgical system.

Blue Belt is, in our opinion, one of the most direct competitors to MAKO Surgical. Under the initial approval, the company may market its NavioPFS orthopedic surgical system for use in unicondylar knee replacement procedures (a form of partial knee replacement, not including bi‐compartmental) to address a market worth around $400 million (according to our estimates). The product has several differentiating features (such as the ability to deliver intra‐operative navigation, as well as 3‐D visualization during the surgery based on a seamless CT‐free registration process), and thus far has produced positive clinical results (though there is not much significant data at this point, as the device has only been on the market for around 10 months in Europe).

While both companies participate in the orthopedic robotic surgery market, the systems are different in that MAKO’s robot is a platform technology (with an approved partial knee and hip application, along with a total knee application in development), while Blue Belt simply offers a partial knee solution. The Blue Belt system, however, sells for a discount when compared with the MAKO system (likely around one‐third the price of the MAKO system), which may pressure MAKO’s average selling price a bit in the coming years.

We expect Blue Belt will gradually introduce the system out to a few sites in early 2013 before a broader rollout later in the year; the company must determine how to sell and service the system, which is no small task. We anticipate the arrival of the
Blue Belt system may modestly dampen sales of MAKO’s RIO robot, though our model already reflects this dynamic.

One thing to monitor with respect to Blue Belt’s approval is the potential for a larger orthopedic provider to acquire this technology, which could make it more of a competitive threat to MAKO given the sizable resources and distribution networks at
these companies.

Despite the approval of this competitive product and our expectation of additional systems in the future (likely from at least one of the larger orthopedic providers), we see significant runway for MAKO across a number of applications and continue to
believe it will dominate this billion‐dollar‐plus market opportunity. Consequently, while we anticipate it will remain a volatile name, we believe risk‐tolerant investors should start positions in the name, and we rate the stock Outperform.

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