IBI Investment House Ltd. healthcare analyst Natali Gotlieb says that Mazor Surgical Technologies Ltd. (TASE:MZOR), a developer of robotic spinal surgical devices and implants may not be hurt as much as US rival NuVasive Inc. (Nasdaq: NUVA), which published a weak financial report for the third quarter.
NuVasive reported a challenging business environment, and cut its guidance. The company said that the spinal surgery market was facing a slowdown, which would affect the company's business.
Gotlieb notes that Johnson & Johnson (NYSE: JNJ), Stryker Corporation (NYSE: SYK), and other companies in the sector reported good third quarter results.
NuVasive lowered its full-year revenue and earnings per share guidance. Gotlieb agrees that the implant market is going through a period of falling prices, and pressure from insurers about the number and justification of procedures. She claims that not all surgical procedures conducted in the US are medically justified, as they are encouraged by policies of payments to doctors. The Obama administration's healthcare reform put these payment policies under the magnifying glass. Analysts covering NuVasive are worried by the company's statement that 10-20% of surgical procedures are cancelled at the last minute, just before surgery.
The issue in the case of NuVasive involves lower back spinal surgery in which the patient is not complaining about the projection of pain to the lower limbs, and for which there is little clinical evidence that implants can help.
The bulk of Mazor's revenue comes from the sale of its SpineAssist systems, services, and disposable components. It does not yet have substantial contribution to revenue from its spinal implants, so even if prices of implants fall at the insistence of the insurance companies, Gotlieb doubts that this will materially affect the company's business results.
On the contrary, she believes that pressure from insurance companies could actually benefit Mazor, because it will increase economic pressure on hospitals, intensify competition, and force hospitals to differentiate and find new sources of revenue, which will strengthen the positioning of Mazor's systems.
The SpineAssist is already used in many procedures, almost all of which are medically justified by the complexity of the procedure, complications, and conditions that make its use essential.
Gotlieb believes the weakness in Mazor's share is a buying opportunity.
Mazor's share price fell 2.8% by early afternoon today, reversing early gains, to NIS 10.35, giving a market cap of NIS 218 million. The share is up from NIS 7.29 at the beginning of the year, but down from its peak of NIS 12 reached in early March.
Published by Globes [online], Israel business news - www.globes-online.com - on November 1, 2010
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