ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the August 2017 issue


Medtronic invests $40m in Mazor Robotics

Medtronic, which has so far invested $72 million in the Israeli company, is assuming exclusive global distribution of the Mazor X spine surgery assurance platform.

Israeli surgical guidance systems developer Mazor Robotics Ltd. (TASE:MZOR; Nasdaq:MZOR) announced that it has entered the next phase of its strategic partnership with Medtronic. Medtronic is making a $40 million third tranche investment in Mazor with Medtronic assuming exclusive worldwide distribution of the Mazor X surgical assurance platform for spine surgery.

These developments, which are earlier than planned, are a result of the early achievement of 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.

Other aspects of the new strategic collaboration include: 30 members of the current Mazor sales team will join Medtronic to assure continuation of the current momentum. Future products for the spine market will combine Mazor Robotics' core expertise in surgical planning and precision-guided surgical systems with Medtronic's navigation capabilities and implant systems. The first results of this combined and synergistic effort are expected to be demonstrated this fall. Mazor will continue to provide service to the global installed base of the Mazor X. Medtronic is investing $40 million in Mazor Robotics' American Depository Shares (ADS) 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 million, 11.9% of the outstanding shares post investment and 10.6% of the fully diluted shares outstanding post investment.

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 $40 million 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 $125 million and its ownership could increase to 4.2 million ADSs.

Mazor CEO Ori Hadomi said, "Medtronic is our valued strategic partner and together we have achieved the desired outcome for Phase I well ahead of our original plan. I believe that the move to this next phase reinforces our significant leadership position in the growing market for surgical guidance systems for spine procedures. Our strategic partnership will allow hospitals in new markets around the world to have access to the Mazor X and gain the clinical benefits that this technology offers." He added, "The strategic partnership between Mazor and Medtronic has already resulted in 59 Mazor X system orders since the October 2016 launch and reflects an accelerated sales cycle due to customers' eagerness to adopt our solutions for the spine market. Now, as commercial responsibility for the Mazor X in the spine market shifts to Medtronic, the annual minimums for sale of Mazor X systems agreed to by the two companies are expected to drive substantial improvement in Mazor's financial results dur the next several years. Together we will be able to further advance our robust jointly-developed product pipeline for the spine market, to make a difference for patients while Mazor also pursues new opportunities to apply our innovative technologies to other medical needs." "Moving to the next phase of our strategic partnership demonstrates our shared passion for transforming how spine surgery is done," said Doug King, senior vice president & president of the Medtronic Spine division, which is part of Medtronic's Restorative Therapies Group. "Mazor Robotics' technology and Medtronic's navigation capabilities and implant systems provide spine surgeons with complete procedural solutions that advance the standard of care and will help surgeons maximize predictability and efficiency." Mazor will continue ting o 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 $13 million. Trailing 12-month operating expenses for Mazor totaled $52.7 million.



Reprinted from the Israel High-Tech & Investment Report August 2017

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