In order to take Monogram Orthopaedics to the next level, management is hoping to raise a significant amount of cash. In all, the firm hopes to close a round of funding in the amount of $30 million. This follows a $14.59 million round in March 2020 and a $2.97 million private round closed last month. The company hopes to achieve this new, higher round by issuing common stock valued at $6.27 per unit. The valuation management is asking investors to accept is $75 million on a pre-money basis. That amount is quite high for a business that still has not generated any revenue.

The market opportunity for Monogram Orthopaedics is not particularly large, though it is healthy. According to one source, the hip replacement market in 2018 was worth $7.13 billion globally. By 2026, it’s expected to climb to $10.51 billion. This implies an annual growth rate of 5%. The largest market for hip replacements right now is North America at $2.52 billion. The knee replacement market is even larger. Our source pegs the opportunity at $9 billion in 2019. By 2026 it should climb to $16.2 billion. That’s based on an annualized growth rate of 34.7%. The largest market opportunity is in the US specifically. Our source puts the US opportunity at about $4.64 billion.

A broader way to look at the opportunity is to look at the joint reconstructive device market. One source we found pegs the space at about $19.38 billion as of 2017. With an annualized growth rate of 5.1%, the expectation is for the industry to rise to $28.47 billion by 2025. There is also the robotic surgery aspect to the business. One source we dug up indicated that this opportunity was worth about $6 billion in 2020. By 2025, it should rise to $11.1 billion based on an annualized growth rate of 13.1%.

All in all, there is plenty of room for Monogram Orthopaedics to carve out a healthy niche for itself.

Monogram Orthopaedics has an extensive team working on it. At present, in fact, the company has 16 full-time employees and at least four contractors. At the helm of the business, though, are its two co-founders: Dr. Douglas Unis and Benjamin Sexson. Dr. Unis currently serves as the company’s CMO (Chief Medical Officer). He also works as a Board-Certified Attending Orthopaedic Surgeon at Mount Sinai Health System. He has also held other roles, such as Chief of Quality Improvement at Mount Sinai West and Surgical Consultant at an unnamed think tank. His medical experience — particularly his emphasis on orthopaedic surgery — is excellent to see. 

Sexson, meanwhile, operates as Monogram Orthopaedics’ CEO. Previously, he founded and was the CEO of Brides & Hairpins. Before that, he was the Director of Business Development at Pro-Dex Inc. He has also worked as a VP of PPRR Modeling and Analytics for the Corporate Treasury at MUFG Americas. None of this experience relates to orthopaedics. However, Sexson does bring business acumen and entrepreneurial experience — both important attributes for Monogram’s potential success.

Differentiation is perhaps one of the most difficult aspects to view the business from. On one hand, its customized, 3D-printed implants and the robotic surgical machine are clearly superior to the bulk of what is on the market today. Analysts seem to agree that the future of surgery is robotic in nature. One source, for instance, says that by 2027 50% of knee replacement surgeries will be done using robotic assistants — a substantial increase from just 11% in 2019. While Monogram Orthopaedics is different from the majority of the market, though, it’s not the only player in this space.

The market leader in knee and hip replacements is a giant named Stryker. In 2019, the company’s orthopedics segment generated revenue of $5.28 billion. In this, its knee implant business generated revenue of $1.82 billion, while its hip replacement unit generated sales of $1.38 billion. In the US, its knee business was $1.35 billion in size, while its hips business was $882 million. If Stryker were focused solely on the old way of conducting these procedures, it wouldn’t be worrisome. But in recent years the company has made solid strides in the same direction that Monogram Orthopaedics is focused on.

Its Mako robot, for instance, boasts more than 1,000 installations since launch. This device operates as a CT-based preoperative planning machine. The company is also focused on customized, 3D-printed implants for both knees and hips. In fact, the firm recently invested $225.8 million toward a facility expansion dedicated to R&D on this market. And in November of 2020 it acquired Wright Medical for $5.4 billion. Wright Medical designs implants and technologies to help with the extremities of the human body. This competition from Stryker should be worrisome for shareholders in Monogram Orthopaedics.

Since we last wrote about Monogram Orthopaedics, the company has had some nice traction. True, it is still pre-revenue and generating net losses. However, management is forecasting that it can begin to monetize its implants this year. It has already executed agreements with two different distributors. This process was vastly accelerated by the ability of the firm to open up a cadaver lab of its own in November of last year. There, the company has performed surgeries using its devices. Monogram is also going to be presenting its product system to the American Academy of Orthopaedic Surgeons in August of this year. Though it is still quite far behind Stryker at this time, this progress is encouraging. In addition, it would be a boon for shareholders if the company can begin generating revenue this year.

At present, there are some bearish things for investors to be aware of. For starters, the company’s valuation is awfully high. It’s one of the highest we have seen, and it’s exceptionally high for a business with no revenue. The market opportunity is neither particularly large nor small. In addition, investors should expect the business to have to raise additional funds in the future, which will serve to dilute investors further over time. There is also growing and significant competition from the industry leader, Stryker. That’s definitely an issue to be concerned over.

Monogram Orthopaedics has a strong bullish case. It’s clear from the data that the company’s business model is the way the industry is moving. It’s certainly one of the earlier movers and, as such, has the opportunity to fare well. The industry is growing at a nice clip, and the company’s management team is robust. Throw in its filed patents and the prospect that revenue generation should begin this year, and it’s difficult not to see this as an interesting and viable prospect.

At this moment, the data paints a rather interesting picture of a business in a race against time. The situation involving Stryker is especially worrisome, but on the whole Monogram Orthopaedics looks to be an appealing prospect. After all, the industry does have room for more than one winner. In a sense, Stryker is proving what kind of market opportunity really does exist for Monogram Orthopaedics. Management’s traction in recent months is also a plus. Taken all together, Monogram Orthopaedics remains a Deal to Watch at this time.

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Analysis written by Daniel Jones.