Zacks Small Cap Research – MGRM: Initiation of medical device company developing a product solution architecture to enable patient-optimized orthopedic implants by linking 3D printing and robotics. – Technologist

By Thomas Kerr, CFA

NASDAQ:MGRM

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Monogram Orthopedics (NASDAQ:MGRM) is a medical device company developing a product solution architecture to enable patient-optimized orthopedic implants at scale by linking 3D printing and robotics with advanced pre-operative imaging. Monogram intends to produce and market robotic surgical equipment and related software, orthopedic implants, tissue ablation tools, navigation consumables, and other miscellaneous instrumentation necessary for reconstructive joint replacement procedures.

Monogram’s vision is to create “the most effortless surgical system in the world.” The company’s differentiating technology includes mBôs with mVision navigation and proprietary custom 3D-printed implants for which the company has issued patent(s). The mBôs is designed for active cutting under full surgeon control for uncompromised accuracy and unprecedented speed. The plan is to execute a “one robot for the operating room” model with a state-of-the-art robot for multiple applications. With mVision, the company aims to speed up the surgery and reduce barriers to adoption by completely eliminating point sampling based registration and navigation with large arrays.

The company sees an opportunity to unlock new growth within this attractive market by providing a solution to the vulnerabilities in the existing economic model for robotics – namely, increased surgical time, increased consumables cost, and poor multi-modality efficiency. The Company aims to address the sluggish adoption of robotics (88% of knee surgeries still use generic manual instruments) with a system that reduces surgical time and consumables cost, enables novel implants, and is faster and more intuitive to use.

The company expects to largely complete its verification and validation testing in the first half of 2024 and submit the 510(k) to the FDA for clearance in the second half of 2024. In parallel, it is preparing for an OUS (Outside of the United States) clinical trial as added insurance for the 510(k) submission and for its planned OUS launch. The company recently announced the accelerated 510(k) submission timeline based on technical updates that the company indicated further improved the safety profile and device equivalence to predicates. With the company currently trading near replacement cost we suspect this development may not be fully priced into the stock.

Currently robots on the market add surgical time versus manual procedures. Some literature suggests the length of time to complete a knee replacement with current robotic systems is approximately 81 minutes and approximately 70 minutes with manual instruments. Monogram is pushing to reduce surgical time to parity with manual surgery. The company aims to combine cutting efficiency with novel mVision navigation to eliminate numerous setup and registration steps. The company has indicated they have completed the knee replacement cuts in 40 minutes in simulated cadaveric surgeries with mBôs. The company’s ambitious long-term goal is to reduce robotic surgical time to 20 minutes.

The joint replacement market size was approximately $22.3 billion in 2022 and is expected to grow to $38 billion by 2030 driven by an aging population. The market for orthopedic robotics could double over a comparable period. Notably, the market for robotics and press-fit implants is highly concentrated and growing – 74% of TKA’s remain cemented, with Stryker accounting for 75% of uncemented implant volume. The Company believes that robotic adoption has helped drive uncemented volume because of the generally smoother and more uniform cut surfaces. Monogram already has FDA-cleared uncemented implants.

The surgical robot under development is fully autonomous with no input force to the arm required by the orthopedic surgeon. It is the only orthopedic robot with seven joints and autonomous sagittal cutting capabilities. The mBôs was the first system to ever perform a fully remote simulated knee replacement (https://youtu.be/j0OQk8mT-bs). The company recently announced that they have made technical updates that could improve cutting efficiency and the safety profile of the device and potentially reduce the risk of requiring a clinical trial with the 510(k) submission.

The company’s long-term vision is to combine state-of-the-art robotics with 3D printed implants designed to be press-fit, bone sparing, highly stable, easy to revise, and more anatomic loading for younger or healthier patients. The orthopedic market is an oligopoly in part due to the significant barriers to entry caused by the inventory burden of generic implants. The company believes that combining pre-operative imaging and 3D printing could reduce the cost of delivering care over time.

Monogram currently has minimal revenues at this time and research & development expenses were $10.6 million in 2023. The company has $13.6 million in cash as of 12/31/23 and working capital of $11.8 million. The company expects to fully commercialize in early 2025.

We believe MGRM stock is worth $6.00 based on a conservative discounted cash flow (DCF) calculation and a peer multiple comparison.

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