Mazor boosts sales thanks to strategy lesson from competitor

Mazor Surgical Technologies has outperformed the TASE's Biomed index by almost 18% since the index's inception this year.

	Mazor robot directing the placement of surgical implants to the spine, shown in process.

The company develops, manufactures and sells the SpineAssist robotic medical navigation system used in spine surgery. Last month Mazor announced it had struck deals for $1 million in sales to two U.S. hospitals, one in Ohio and the other in Texas. The deals include service contracts at the two hospitals that will assure Mazor $50,000 in revenues a year for the next four years.

Mazor's revenues for the second quarter could be $1.4 million - equal to its revenues for 2009 as a whole. "Our business model is working. Our business in the American market is strong. The prices of our deals are increasing, and they are coming in at a much faster pace. Our sales projections are being borne out," said Ori Hadomi, Mazor's CEO.

Hadomi said he is rather comfortable with IBI Investment's forecast of $5 million in revenues for the year, followed by $19 million next year and $25 million the year after.

The predictions are based on a new marketing approach that stemmed from a meeting with Lonnie Smith, the chairman of Mazor's competitor, Intuitive Surgical.

Intuitive Surgical is the world leader in developing robotic systems for minimally invasive surgery on soft tissues, such as the prostate, heart, kidneys and liver. In light of the differences in turnover and market value of the two companies (Intuitive has annual sales of $1.1 billion and is trading at a market cap of $13.5 billion ), Hadomi didn't think Smith would mind sharing thoughts about the industry and Mazor's place in it.

Battered dog syndrome

Smith told him his company was suffering from the battered dog syndrome - it was always trying to improve its product, because every customer had ideas as to how things could be made better. Smith said Mazor should instead be proud of its excellent product, a product that works and is worth a lot of money.

"Then I got it. I understood that to make Mazor worthy of going public on the NASDAQ exchange at hundreds of millions of dollars, we need to attain high revenues quickly based on the products we have and at the same time continue developing and expanding our product range."

It's apparently not by chance that Mazor recruited Christopher Sells as its VP of sales in the United States. He had been vice president of sales at Intuitive Surgical for seven years. Sells told Hadomi that he had no interest in joining Mazor's staff unless the company positioned itself totally differently. His approach ran counter to intuition, but seemed to have been based on organizational politics at hospitals.

Sells said it would be hard to sell the robotic system for less than $500,000. He said it was important to keep in mind that doctors are production workers in a plant headed by hospital directors. As long as the price tag for the system is $100,000, the product would be considered only by middle management-department heads, division heads and procurement managers, who only know how to say no. Such a market position consigns the company to a drawn-out sales process."

Sells proposed an alternative approach, suggesting that SpineAssist didn't need to be positioned just for its clinical value, which was not well-known. Sells said marketing expensive equipment required direct contact with hospital directors to show them the product has strategic value.

Creating demand for Mazor's system by playing off regional competition among hospitals was similar to Intuitive Surgical's approach, and it has worked well for Mazor so far. "The sales process used to take a year on average, whereas with the new approach, we have sold two systems in three months," Hadomi said. He estimated that the company would sell another two to four systems in the U.S. by the end of the year, adding: "The revolution at Mazor is centered around the U.S. market at the moment, but in 2011, we will expand it to Europe, primarily Germany. In addition, we expect to get approval before the end of 2010 to use SpineAssist in brain surgery."

Even if the current business model, which is based on equipment sales, is showing signs of success, it presents at least two problems. One is that the number of back surgery centers is limited, even in the United States, so the potential for increasing revenues seems relatively limited. Even more problematic, however, is that in the last two years, Mazor has changed its business model twice - from an equipment sales approach to a model based on revenues from surgical procedures in the first half of 2009, and now back to the equipment sales model.

In the meantime, beyond the planned float on Wall Street, Hadomi says the company's improved sales picture in the U.S. could make it a more attractive asset for medical equipment firms such as Stryker, NuVasive, Medtronic or Ziemer. He doesn't discount the possibility that Mazor could become part of a group specializing in robotic surgery.

The SpineAssist system improves the accuracy of implant surgery, avoids nerve damage and achieves a 99% success rate in stabilizing the spine, compared to 86% to 90% success without the system. Surgical robotics also enables minimally invasive surgery, reducing the need to cut muscle and expose tissue, thereby cutting hospitalization time and the risk of infection. It also reduces medical costs.

Another Mazor product, LIF-GO, which is used in spine grafts, currently does not have the approval of the U.S. Food and Drug Administration. A third product, C-InSight, which is certified by American and European authorities, is based on software that converts a series of two-dimensional X-rays in an operating room into a three-dimensional image.