Hansen's CEO Presents at 31st Annual J.P. Morgan Healthcare Conference (Transcript)

| About: Hansen Medical, (HNSN)

Hansen Medical, Inc. (NASDAQ:HNSN)

31st Annual J.P. Morgan Healthcare Conference Transcript

January 10, 2013 2:30 PM ET


Bruce Barclay - President and CEO

Pete Mariani - Chief Financial Officer


Chris Pasquale - J.P. Morgan

Chris Pasquale - J.P. Morgan

Okay. I think we already get started with the next presentation here. Coming to the stage now we have Hansen Medical and presenting for them is the company’s President and CEO, Bruce Barclay. We’ll take questions down the hall in the Yorkshire Room immediately following. Bruce?

Bruce Barclay

Thanks, Chris. Good morning, everyone. Thanks again for inviting us to participate this year. With me today is our CFO, Pete Mariani, and he and I will both be available for Q&A here at the end of the presentation.

So some of the statements made today maybe considered forward-looking. I would encourage you to consider the information on this slide, in our Securities filings and read that carefully.

So Hansen Medical is the global leader in intravascular robotics poised for growth in the $2 billion plus medical robotics market. We truly consider intravascular robotics, a platform technology and so we have focused ourselves in two areas, electrophysiology or EP and Vascular.

Within the EP space as you probably know we’ve been selling our Sensei system since 2007 in both U.S. and Europe. We’ve delivered almost 10,000 procedures on that system since that time. We got installed base of over 110 systems.

Growing body of clinical data. We’ll talk about that here in a few minutes and showing favorable outcomes in atrial fibrillation. We are also leveraging this technology in the new clinical applications, in particular the vascular opportunity which we are very excited about. We just got our 510(k) clearance on that product. Mid last year we have begun our initial launch in the U.S. mid last year and I will talk a little bit about that as well.

Lastly, we continue to invest heavily in R&D. We have a full pipeline of projects and particular we are focusing ourselves on developing a suite of catheters to go with that broad application of the technology.

So very excited to be a part of the medical robotics segment. As I mentioned, $2 billion in sales. Most of that comes from Intuitive Surgical of course. We are also in good company with MAKO Surgical in the orthopedics space but we do believe our technology uniquely addresses those challenges associated with using robotics in the intravascular space.

So year ago we identified a number of goals for the company and we are very pleased to say that we have accomplished most of those goals or exceeded most of those goals since that time, let me walk through those just quickly here.

We have received approval and launch a number of new products for the company, most notably the Magellan System in the United States. We’ve also launched a couple of new products in the U.S. in the EP space as well, an Artisan Extend catheter was approved in the second half in the U.S. last year. It just got approval in Europe and got our CE Mark here in early 2013, so excited about initial launch of that product here soon.

We are generate a number of clinical papers and clinical presentations both on the vascular side and on the EP side, we will talk about the 1700 plus robotic patient paper that published last year, it’s important for our AF business. But we are also seeing a lot of good presentation and publications on the vascular side as well.

Procedure growth as I said now approaching 10,000 cases. We’ve had five consecutive quarters of procedure growth on the robotic side.

Improving margins, we’ve done a number of good things in the -- within the factory in terms of implementing lean manufacturing, margins are improving. We are also reducing expenses as well and doing everything we can to achieve operational excellence inside the organization.

Continue to focus on issuing new patents, 14 new patents issued in 2012, strengthening the leadership team, made a number of change at the senior level and feel like we have a terrific team in place to run the company. And we have added additional capital to the company, we announced in October a new transaction with Intuitive Surgical that added $30 million to the balance sheet.

So now we have some background for the com -- for the folks here in the room that don’t know the company. Founded in 2002, went public in 2006, since that time we’ve established a number of key relationships with companies both large and small in the industry relative to launching the products and using them within the hospital environment but also to help us develop new products and to feed the product channels, and some of those names are listed here.

Business model again maybe familiar with, it is the classic razor, razor blade business model. We sell catheter which is the robotic system itself on the left hand side here on the slide and we have recurring revenue both with catheters and accessories and with service revenue.

So leadership team is very focused around delivering the three pillars of strategic growth here we think that will help drive shareholder value in the future. The first is around launching our vascular business, we’ll talk more about -- that in detail just a second.

But really is around launching this product and focusing on early adopters of new technology, making sure that they’re trained well, they have exceptional clinically experience with the product and that they present on those experiences and that is happening.

EP business is a little more mature, that’s more about introducing new products, expanding our geographies, spending more time on the clinical data, publication and communication, and that is working as well.

And then the last bucket is in operational excellence. We want to make sure that even though we are currently using cash that we get to the point where we a profitable company.

So before I go into more detail, I do believe Hansen represents a very compelling investment opportunity especially at current levels. We have a large and growing installed base of systems in the EP market.

We are launching new products with improved commercial execution and the body of clinical data continues to grow. All this is supported by our broad and deep intellectual property portfolio.

Our new Magellan platform allows us to enter much larger vascular market, where interventionalists perform complex intricate procedures that can benefit from the precision and predictability of the distal tip control that we have with our system. This product is already been used by specialists in a broad range of procedures which we will talk about in the second here.

Gained recognition by a key opinion leaders and the clinical and executive interest is growing. Finally, we have a strong business model and offer a compelling value proposition in a challenging healthcare environment.

So intravascular robotics using either our Sensei or our Magellan System offers a broad value propositions for patients, hospitals and physicians alike. For patients they may benefit from predictable procedures and simplified interventions. For hospitals we believe that our products will offer improved procedure predictability allowing for lower cost and incremental patient throughout. This can allow hospitals to improve utilization and profitability of some of their most profitable assets, their operating rooms for EP labs and their cath labs.

Robotics also provides hospitals with the technological advantage when competing with four patients, as well as four physicians and medical staff itself. With both the Magellan and the Sensei Systems physicians have the opportunity to improve their precision and their performance across most of their cases, while potentially converting certain open surgeries into minimally invasive procedures.

Additionally, with the robot the physician is seated comfortably not wearing lead, away from the radiation field and has the opportunity to reduced both the radiation and their orthopedic related risk.

So we’ve developed an ROI model that we used with every hospital considering the purchase of both the Magellan and the Sensei System and the slide is directed to the Magellan System itself.

Specifically, our model demonstrates how even with a less price of $1.5 million on -- for the capital and $4,000 per catheter, hospitals can still achieve an internal rate of return ranging from about 20% to 40% and a payback from two to four years, depending upon the hospital -- specific assumptions made by the hospital.

The model examines three types of peripheral vascular procedures including aortic cases which are lower volume but can be very complex and can be very time-consuming, especially for physicians with less skill in that area.

High-volume peripheral vascular cases that cannot afford delays and what we call peripheral-enabled procedures, are those cases that would have to be done in an open environment except for the precision and control the Magellan System offers. The model also assumes increased utilization that results from additional patients drawn to a hospital because of the robotics program.

In the model, we specifically demonstrate the potential value of the Magellan System through incremental profit contribution from an increase in patients including better insured patients that typically come from far distances to have this -- to be able to have though robot used.

Savings from avoiding costly procedure time overruns including staff overtime cost, as well as result from improved procedure predictability. And lastly, contribution from improved utilization within the lab.

We found this model to be very helpful in our discussions with hospital administrators as we demonstrate the potential of the Magellan System to improve utilization, capacity and profitability within both the OR and the cath lab.

And of course we do have some experience with this economic benefit on the EP side, an important paper we’ve talked about in the past came out of Arlington Memorial and it shows their first year experience with the Sensei System and what they showed was they were able to increase their patient volume by 76% in the first year with the Sensei System as part of their marketing campaign.

They were able to treat all those additional patients with the same fixed assay, with the same one physician because of he is less fatigue, better scheduling, better predictability with the system is that same benefits in the Sensei System that we expect to see in the Magellan System as well.

Let’s talk about that vascular system in more detail, we believe that there is a very significant unmet clinical need that can be addressed by robotics in the vasculature, cases can be very long, they can be complex, they can be unpredictable -- very unpredictable, leading to inefficiencies within the lab and costly overruns.

We’ve also experienced physicians or operators who have different skill sets, either physicians that are new to the interventional space, don’t quiet have the same number of patients treated or physicians that have been in the space longer but maybe don’t have the volume to keep their skill set up and what we’ve seen is, what we talk about is the ability that the robot to level the playing field that actually makes all physicians regardless of skill set better able to those procedures.

Obviously, physician suffer radiation in orthopedic industries -- injuries, you’re standing next to radiation source, wearing lead eight hours a day and that can lead to injury, shorten careers and time away from the lab. And lastly, complex cases can result in costly complications to the patient.

So looking specifically at the Magellan System itself, it consists of a capital component and a disposable component. The capital consists of two pieces. You see the robotic arm on the upper left of the slide here with the catheter extending from it. And then remote physician console which can be placed up to 100 feet away from the patient and typically sets in the control room outside the radiation field with the physician, the operator seated comfortably.

For list on the right here are actual clinical anatomy that have been treated with the Magellan System and one of the things you will see right away is the breadth of application of this product. It’s very exciting for us to see it use from the neck all the way down to the knee with the exception of the coronary at this point but broad application of the product mostly on the arterial side, we also have physicians using on the venous inside.

So it’s that breadth of the utility that really excites us the most and is driving our future product development activities around new catheter development. We’re also very encouraged by the number of different physician specialties that are using the product as well with EPA’s selective physiologists only.

With this product, we’re actually seeing endovascular surgeons, interventional radiologists and interventional cardiologist that do peripheral cases using the robot and that’s very exciting also to drive utilization but also to help identify funds within the hospital for the purchase of the robot itself.

The market opportunity 3.1 million interventional procedures will be done in 2012 in about 3500 hospitals in the U.S. and Europe where we’ve targeted about half of those procedures today with the peripheral side. We are working on a lower profile system, which will allow us to get into that coronary segment as well in the future but even the peripheral segment is five to seven times or larger than the EP segment right now.

So additional specialties, much larger market is what’s driving a lot of our excitement around the product. So what you’ll see here is a quick video of how this system works. You’ll see the operator in the control room outside the lab. You’ll see the robotic arm over the patient, catheter extending from the arm itself. The disposable catheter sets on the arm and then the system has the ability to drive three different components. It can drive the outer sheath of the catheter, the inner sheath of the catheter and the guidewire. So they operate independently and together as needed.

Use the standard guidewire off the shelf, you can control it with either the buttons or the joystick. What makes us truly unique and what will give us the competitive advantage, I’m convinced that this ability to steer the distal tip of the catheter.

Imagine being in a location inside the body where you can steer left right up or down and uniquely 360 degrees. And again you get that 360 degrees of freedom on both the outer and the inner catheter.

So the multiple benefits to the system, this slide represents some data generated out of our partners down in Houston, Dr. Bismuth did an animal study showing that the system allows them to drive much more than the center of the lumen. Potentially, two benefits derive from that, one is that you don’t injure the artery wall while you’re advancing the equipment inside the arteries. And the second is hopefully avoiding dislodgement of the existing plaque that might exist.

And what you’ll see here on the left are the results of manual catheterization inside animals. Blue bars being minor injuries, yellow bars being major injury and then the absence of major injury on the right with much, much less minor injury. So ability to stay within the center of lumen is key to success in cases we believe.

So where are we on the commercialization side. We, as I mentioned, the U.S. got approval mid last year. We are very focused on identifying key adopters of new technologies and helping them be successful with the system.

We have direct distribution organization both U.S. and Europe. We do use distributors in some smaller countries but we believe that we’d have this in our own hands to be most successful in the short-term here. So we are direct.

And then we have just recently put in place the commercial valuation program which on a very select limited basis allows physicians that we believe will eventually purchase the robot begin using the system in advance of the actual purchase. And we’ve got a couple of those going as well.

So at the end of Q3, this is all data as of September 30. We had shipped seven Magellan systems worldwide. We have five clinical and two preclinical systems. The preclinical systems are used for generation of research. We also use those to train physicians considering the purchase or train physicians that have purchased the system on the robot itself.

At the end of the quarter, end of Q3, we had four clinical systems installed in completing procedures. In Q4, again we’ll talk about that next month at our year-end conference call but as many of you that might’ve been at the some of the bigger meetings. We had two live cases at TCT, which were very successful conduct by Dr. Katzen with multiple presentations at TCT VIVA and VEITH and then we had a number of clinical cases performed as well and we’ll talk about those later.

So if you look at the slide and read it, may be as you were clock faced, the top going around, we start with simpler cases which are aorta femoral cases in the lower leg and then ask physicians to get comfortable with the system. They immediately want to get into more complex anatomy and that’s what you will see on sort of the left side of this pie chart here.

Again, the encouraging thing for us is that we’re seeing a nice variety of systems both in the main trunk, legs, up in the neck but also visual and side branches as well. It’s that arterial and venous benefit throughout the body that we think is going to make this very, very successful product. And again three different specialties using the system today.

Such that’s a quick look at our EP business. Let’s talk real quickly about our vascular business. Let’s talk real quickly about our EP business as well. The Sensei X System again is a different system. The Magellan was fundamentally the same in terms of capital equipment and disposables.

We sell a couple of different catheters, one that allows for use of other companies, AF devices which is called the Artisan system. We sell our own therapeutic device in Europe called the Lynx.

Again at the market that we believe is relatively untapped right now, about 3.1 million Americans suffers from some form of atrial fibrillation. Most of them either go untreated or treated with drugs that are found to be less helpful than actual catheter ablations themselves. So lot of opportunity for future catheter ablations, where the robot can be used.

I mentioned this data earlier last -- mid 2012. Data was published showing the results from 1700 plus robotic patients at 12 sites, six U.S., six international compared to historical control. And what the data demonstrated was that since it was as safe as manual with improved efficacy, which essentially is freedom from AF drugs or antiarrhythmic drugs at 18 months, point one.

Point two is that maybe most exciting to us is as operator experience grew as they got more comfortable with the system, became better aware of the attributes that offer. Data actually showed statistically significant improvement in both safety and efficacy compared to historical control.

And then, since these patients were treated, we’ve actually made a number of improvements in the technique. New best practices have come out of that and we’ve added new products as well. So there are additional data that we hope to come out soon that show some of these clinical benefits.

We’re also not standing still in the EP space. We’re looking at expanding the market application into ventricular tachycardia which is a -- tachycardia, which is a rapid heartbeat that can lead to sudden cardiac death, which claims about 250,000 lives each year in United States.

This is a paper out of some work done. Again down in Houston showing the potential benefit of the system in treating VT. We’re also funding a small study in Europe to collect some data as well around this opportunity.

We mentioned the 10,000 procedures before the end of Q3. We’re nearly at 10,000 procedures with the system. And just in terms of the strategy going forward, we are very focused on the EP space, delivering new products. We mentioned the Artisan Extend catheter which has now been cleared in Europe previously approved in the U.S. in the second half of last year, allows not only improved clinical flow inside the EP lab but also we can make it much, much less expensively than the current Artisan products. So we do expect to see some improvement there on the cost line.

We mentioned the clinical data for expanding clinical applications. We are growing our commercial teams. We expect to add to our commercial teams in both the U.S. and Europe in 2013. We’ve really got a terrific job in the trauma training side brought in a new head of training and clinical affairs, who has built a terrific team, terrific set of materials around training on the system both for the physicians and the physician staff.

So we continue to invest heavily in R&D. And I mentioned earlier that one of the key focus areas for us is to expand the available catheters that we can use with the Magellan System. We have a current system right now which is a 9-French O.D. compatible with 6-French I.D. catheters and deliveries -- and treatment catheters, which is compatible with most peripheral cases today but certainly not all, which currently working on a lower profile system for the periphery first and then eventually for the coronary.

We also see the opportunity to make larger catheters for stent graft applications and even potentially larger catheters for valve delivery as well. Because of our early entry into intervascular space and our continued high investment and research, we have developed a very broad and a very deep intellectual property portfolio. We have in excess of 250 patents and patent applications pending, covering just research done here at Hansen Medical.

We’ve also licensed in hundreds of patents and patent applications from intuitive surgical, Philips, Luna and Mitsubishi relative to many of the technical elements that you see listed on the right-hand side of the slide here, not just robotics but imaging software and the integration of the various piece of equipment inside the hospital. As we’ve seen, we’ve been able to leverage some of that IP into funding opportunities for the company.

So turning to financials quickly here in the last couple of minutes, these are the data at the end of Q3 in 2012. Year-over-year revenue was down slightly even though shipments were up year-over-year but in spite of that we’re able to drive better gross profit with our improving margins we talked about before.

We’re continuing to use cash in the business and what you saw in late October was an announcement where we were able to bring in an additional $30 million from a transaction with intuitive surgical. 20 million of that was non-dilutive. It was a license fees for updating an existing patent license that we have with them.

And then we’re also able to make them our third largest shareholder with a $10 million equity investment, which included an 18-month lockup on those shares. So we were very pleased with that transaction.

We’ve also been able to fund the company historically with non-dilutive capital. We’ve done previous transactions with Philips, both in terms of some IP transfer but also helping fund some of the R&D projects, we’ve been able to bring in some debt as well all on an non-dilutive basis.

So I’ll end where I started here, I continued to believe that Hansen medical represents a very strong investment thesis. We’re the global leader in intravascular robotics. We believe those are strong platform that can leverage an EP peripheral vascular and eventually in the coronary vascular space.

We’re very excited about the vascular opportunity in front of us as we’re now executing on that. And we do believe this is a strong business model for the new healthcare environment. So thanks for your attention. Thanks for your interest in the company. We look forward to answering your questions in the breakout session.

Question-and-Answer Session

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!