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No. of Recommendations: 4
Mako Surgical is an emerging medical device company with promising technology that has the potential to change how knee and hip procedures are performed. Unlike conventional surgery, which requires extraction and replacement of the entire joint, the MAKOplasty procedure is much less invasive and requires less recovery time. Mako was founded in 2004 and went public in February 2008.

The technology behind MAKOplasty -- the Robotic Arm Interactive Orthopedic System (RIO) -- gives physicians the ability to perform surgery through a tiny incision. The latest RIO system was launched in 2009. They have 97 RIO systems installed and performed 1,813 MAKOplasty procedures up 16% sequentially and 122% from last year increasing revenue by 67% to $20 Million for the quarter. The RIO systems cost about 800,000 and each procedure earns approximately 5,000 in recurring revenue (almost 50% of their revenue).

There is a significant market opportunity for MAKO. Osteoarthritis is a common medical condition that leads to the degeneration of joints from aging and repetitive stresses, resulting in a loss of the flexibility, elasticity and shock-absorbing properties of the joints.

According to National Institutes of Health, 27 million Americans suffer from osteoarthritis. While aging causes much of the problem, the rates of occurrence have increased significantly due to rising obesity rates in the United States.

While not currently profitable, the company’s revenue is growing strongly and there is a potential catalyst around the corner. MAKO only had a knee-surgery system, but it commercially launch a hip surgery system in September 2011. The robotic systems allows the surgeon to ensure the hip is properly aligned a significant problem in past hip surgeries.

Also this quarter, Mako unveil a new 36,000 square-foot high-tech manufacturing facility as it expands production of its RIO system and boosts its workforce by about 25 percent in the next year. The 100 percent increase in capacity will result in the addition of more than 100 jobs to a workforce that currently numbers 392. "As for the job growth, CEO Ferre said Mako Surgical is just getting started. It has tapped about 1 percent of the hip and knee replacement market, and it has barely started its international rollout. “This will double our manufacturing capacity,” Ferre said. “This should last a few years. Then we will need another one.”

This is a very volatile stock but I believe it a version of Intuitive Surgical and will replicate its success in knee and hip surgeries. The stock price has currently fallen from 43 to 26, so this is a good time for PRO to investigate this stock to see if it fits the NorthStar guidelines for addition to our portfolio.

Long Mako
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