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MAKO Surgical Corp. surprised investors by announcing a deal to acquire its 4-year partner Pipeline Biomedical Holdings when the company itself is in the process of being acquired by leading medical device provider Stryker Corporation (SYK - Analyst Report).

The transaction is valued at $2.5 million plus 3,953,771 unregistered shares of MAKO stock. Shares of MAKO touched 52-week high of $29.59 and closed at $29.55 yesterday, which represented a whopping year-to-date return of 127.5% and solid one-year return of 66.2%.

Pipeline is attached with robotic assisted surgery developer MAKO Surgical since 2010. It manufactures orthopedic devices and related instruments for both robotic devices and medical procedures and has been supplying implant technologies for MAKO’s advanced robotic arm Robotic Arm Interactive Orthopedic System, or RIO, which includes RESTORIS PST Cup and Tapered Stem hip implant system for use with the RIO's MAKOplasty Total Hip Arthroplasty software.

The deal, which is expected to close by Oct 4, to some extent justifies the hefty 85.5% premium paid by Stryker Corporation for MAKO. Based in Fort Lauderdale, Fla., MAKO was founded in Nov 2004 and generated sales of $102.7 million last year. The deal will allow SYK to get hold of MAKO’s advanced robotic arm technology, which helps orthopedic surgeons in performing knee and hip joint replacement surgeries, as well as Pipeline Biomedical’s implant technologies.

Stryker believes MAKO’s robotic technology has long-term potential for human joint reconstruction. MAKO’s pioneering RIO system has not been widely adopted as it should be due to inadequate training and marketing efforts. As a result, SYK intends to fill up this gap by utilizing its efficient marketing and training system and gain a competitive edge in the stagnant hip-and-knee replacement market.

Secondly, post-acquisition, Stryker can proceed with the further implant development for MAKO’s technologies utilizing its own R&D capabilities. MAKO Surgical lack resources compared to Stryker in developing implants for its systems. Therefore, the acquisition clearly bridges this gap and enables SYK to meet the wider joint reconstruction needs.

Currently, MAKO Surgical retains a Zacks Rank #2 (Buy). Other medical instruments stocks that are also worth a look include Delcath Systems, Inc. and Echo Therapeutics, Inc. (ECTE - Snapshot Report). Both of them carry a Zacks Rank #2 (Buy).

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