Back to top

Analyst Blog

Medical devices maker MAKO Surgical Corporation recently declared that it intends to offer shares of its common stock in a public offering. The sole manager for this offering is Piper Jaffray & Co.

The company plans to use the proceeds for research and development expenditure as well as selling, general and administrative expenses in a planned attempt to improve its intellectual property portfolio as well as its marketing initiatives and enhance the sales force for its Robotic Arm Interactive Orthopedic (RIO) Systems and related MAKOplasty applications. This is aligned with MAKO’s growth strategy which focuses on increasing sales of its RIO Systems and MAKOplasty applications.

Despite evading further liability, any subsequent public offering might negatively affect the market price of its common stock. However, the contagion of economic problems in Europe as well as challenging global market conditions have resulted in turmoil in the financial service industry and credit market, leading to the company’s limited access to capital.

MAKO’s failure to attain profitability remains an overhang. The company earlier asserted that it expects increasing operating expenses as it continues to improve its infrastructure to support long-term growth. It also expects a substantial net loss in the near term.

After slower-than-expected growth in the first half of 2012, the company’s growth accelerated in the third quarter with a 46% jump in revenues (to gross $29.2 million) on a year-over-year basis. Management’s near-term objective is to improve on strategy execution to accelerate growth in the years ahead.

Given the orthopedic market scenario, there is considerable growth opportunity for MAKO, driven by demographic trends and an unsaturated domestic market. However, this market is still struggling as patients defer elective procedures given the lingering economic softness. The lukewarm demand situation is exacerbated by sustained pricing pressure. Pricing compressions on hips, knees and spine products have already impaired the performances of several other orthopedic companies such as Stryker (SYK - Analyst Report) and Wright Medical (WMGI - Analyst Report).

MAKO carries a Zacks #2 Rank, which translates into a short-term Buy rating.

Please login to Zacks.com or register to post a comment.