by John Lansing | November 3, 2011 7:42 am
MAKO Surgical (NASDAQ:MAKO) is an emerging medical device company with promising technology and an even-more promising stock chart.
This an early stage medical device company that has the potential to change how knee and hip procedures are performed. Unlike conventional surgery, which requires extraction and replacement of the entire joint, the MAKOplasty procedure is much less invasive and requires less recovery time.
Not only will it attract patients because it’s less painful than current methods, but it could also persuade the vast number of people who put off surgery and decide to just deal with the pain to seek treatment. MAKOplasty has the potential to lure these people to the operating table, which could significantly increase the addressable market for knee surgery.
While not currently profitable, the company’s revenue is growing strongly and there is a potential catalyst around the corner. MAKO currently sells only a knee-surgery system, but it plans to commercially launch a hip surgery system by the end of 2011.
The market size for the hip procedure is potentially much larger than for the knee, so this could act as a catalyst for 2012 and beyond.
MAKO’s Market Potential
There is a significant market opportunity for MAKO. Osteoarthritis is a common medical condition that leads to the degeneration of joints from aging and repetitive stresses, resulting in a loss of the flexibility, elasticity and shock-absorbing properties of the joints.
As osteoarthritis disease progresses, the cartilage and other soft tissues protecting the surfaces of key joints in the body — including knees, hips and shoulders — deteriorate, resulting in chronic joint pain, numbness and loss of motor function.
According to National Institutes of Health, 27 million Americans suffer from osteoarthritis. While aging causes much of the problem, the rates of occurrence have increased significantly due to rising obesity rates in the United States. (About 34% of Americans over 20 years old are obese.) Also, by 2030, 20% of Americans above 65 (or 72 million people) will be at a high risk of developing osteoarthritis.
MAKO in a League of its Own
On the competitive front, despite the success of robotics technology in other medical fields, only limited applications have been commercialized in the field of orthopedics.
Some orthopedic companies have introduced instruments that are smaller than their predecessors, which are marketed as “minimally invasive.” But these instruments still require large incisions, trauma to the soft tissue and removal of large portions of the bone.
Orthopedic companies have also introduced computer-assisted surgical, or CAS, systems that are designed for use in open procedures. However, while these systems do provide a minimally invasive means of viewing the anatomical site, their benefits are marginal because they do not improve a surgeon’s ability to make precise surgical movements through a small incision.
My Technical Take
Not only is MAKO’s fundamental story a compelling one, but the technicals are attractive right now as well.
An Ascending Continuation Triangle shows two converging trendlines. The lower trendline is rising and the upper trendline is horizontal.
This pattern occurs because the lows are moving increasingly higher, but the highs are maintaining a constant price level.
The pattern will have two highs and two lows, all touching the trendlines.
This pattern is confirmed when the price breaks out of the triangle formation to close above the upper trendline.
Making the MAKO Trade
MAKO hit its uptrend line Wednesday. And with the stock trading here in the $36 area, I’m looking at buying the MAKO March 40 Calls as the right way to play this name.
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