Mazor Robotics jumps after entering next phase of partnership with Medtronic

Mazor Robotics (MZOR) announced that it has entered the next phase of its strategic partnership with Medtronic (MDT) earlier than planned and their existing agreements have been amended accordingly.

The agreements provide for the conversion of the commercial relationship between the parties, with Medtronic assuming exclusive worldwide distribution of the Mazor X system, and Medtronic making a $40M third tranche investment in Mazor.

These developments are a result of the early achievement of certain sales and marketing milestones by both companies, as well as higher than expected global market acceptance and demand for the Mazor X system.

Medtronic and Mazor originally entered into a strategic agreement in May 2016.

Medtronic will invest $40 million in Mazor Robotics’ American Depository Shares at a price of $38.46 per ADS, which represents the weighted average of the closing price of Mazor’s ADS on Nasdaq over the past 20 trading days.

This third tranche of investment in Mazor by Medtronic will bring Medtronic’s total investment in Mazor to $72 M, representing approximately 11.9% of the outstanding shares post investment and 10.6% of the fully diluted shares outstanding post investment.

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Mazor will also issue to Medtronic warrants to purchase an additional 1.21 million Mazor ADSs at an exercise price of $44.23 per ADS. The exercise price represents a 15% premium over the per share price for the $40M equity investment. Medtronic has the right to exercise the warrants immediately in whole or in part, for cash, and they expire after 18 months.

Assuming the full exercise of the warrants, Medtronic’s investment in Mazor will reach $125M and its ownership could increase to 4.2M ADSs, or 14.2%, based on the current number of ADSs outstanding on a fully diluted basis. Closing of the $40M equity investment is expected to take place on or around September 12.

Mazor will continue to manufacture and recognize revenues for Mazor X system sales, disposable kits and service fees all of which will be sold at contractual pricing agreed with Medtronic. The contracted pricing is at a lower rate than Mazor realized through its direct sales channel.

In addition, Mazor will be entitled to certain synergy fees associated with the use of Medtronic implants in Mazor Robotics’ installed base. Moving from direct sales to a strategic distribution model is expected to immediately reduce Mazor’s annual operating expenses by approximately $13M.

Trailing 12-month operating expenses for Mazor totaled $52.7M. The proceeds from the investment will further strengthen Mazor’s balance sheet and provide the resources to continue to collaborate with Medtronic to develop innovative solutions for the spine market, as well as develop innovative solutions for other potential markets.

Mazor will continue to independently develop and market globally the Renaissance Surgical Guidance System, which was first launched in 2011. Efforts for Renaissance will be focused on certain market segments for which the Renaissance provides significant customer added value.

PRICE ACTION

Shares of Mazor Robotics (MZOR) are up 11% to $46.39 per share in midday trading. Stock has a 52-week trading range of $20.19 – $47.28.

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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.