Hansen Medical's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Hansen Medical, (HNSN)

Hansen Medical, Inc. (NASDAQ:HNSN)

Q4 2012 Earnings Call

February 27, 2013 5:00 pm ET


Peter J. Mariani – Chief Financial Officer and Head-Investor Relations

Bruce J. Barclay – President and Chief Executive Officer


John Demchak – Morgan Stanley

Jeffrey S. Cohen – Ladenburg Thalmann Securities


Good day, ladies and gentlemen, thank you for standing by. Welcome to the Hansen Medical’s Year-End and Fourth Quarter 2012 Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Wednesday, February 27, 2013.

I would now like to turn the conference over to Pete Mariani, Chief Financial Officer. Please go ahead, sir.

Peter J. Mariani

Thank you, Britney. Good afternoon, everyone. Welcome to Hansen Medical’s full year 2012 and fourth quarter results conference call. My name is Pete Mariani and I am the Chief Financial Officer for Hansen. With me today is Bruce Barclay, Hansen Medical’s President and CEO.

As we begin today’s call, please remember that our prepared remarks and responses to questions will contain forward-looking statements that are subject to number of risks and uncertainties. All statements other than statements of historical facts could be deemed forward-looking statements, including statements containing the words, plan, expects, potential, believes, goal, estimate, anticipate and similar words.

These statements are based on the current estimates and assumptions of the Company's management as of the date of this call and are subject to risks, uncertainties, changes in circumstances, and other factors that may cause actual results to differ materially from the information expressed or implied by the forward-looking statements made in this call. Examples of such statements, includes statements about the potential benefits of our Magellan Robotic System for hospitals, patients and physicians, expectations of shipments and installations of our Robotic Catheter Systems, catheter sales and procedures, expectations regarding gross margins and operating expenses for 2013, and the sufficiency of the Company’s cash resources for supporting the Company’s operations, expected efficiencies from cost saving initiatives, and the anticipated timing of commercially launching a 6F vascular catheter.

Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, among others: engineering, regulatory, manufacturing, sales and customer service activities in developing new products and entering new markets; the commercial viability of our products in vascular markets; potential safety, and regulatory issues that could slow or suspend our sales; the effect of economic conditions on capital spending by our potential customers; the uncertain timelines for the sales cycle for newly introduced products; the rate of adoption of our systems, and the rate of use of our capitals, regulatory constraints on our ability to promote our robotic systems for specific uses and our ability to manage expenses and cash flow, and other risks more fully described in the risk factors section of our quarterly report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC on November 9, 2012, and the risks discussed in our other reports filed with the SEC.

Given these uncertainties, you should not place undue reliance on the forward-looking statements in this conference call. We undertake no obligation to revise or update information herein to reflect events or circumstances in the future even if new information becomes available.

And with that, I’ll turn the call over to Bruce.

Bruce J. Barclay

Thank you, Pete, good afternoon, everyone. Thank you all for joining us today for our fourth quarter and full year 2012 conference call.

2012 was a strong year for Hansen Medical as we continue to develop new markets for intravascular robotics around the world, built momentum in our base EP business and continued the fundamental transformation of the organization, positioning us for long-term commercial success.

During today’s call, I will provide a review of the fundamental transformation that began in Hansen Medical in 2010 and continued year, to provide an update on recent business highlights, and report on the progress being made with the initial launch of the Magellan System.

As part of the Magellan update, I will review how we have gone from just one installed clinical system, less than six months ago to an expected nine installed clinical systems by the end of Q1, 2013.

In addition I will detail the recent enhancements we’ve made to our management team and board, provide a top line review of our financial results for the fourth quarter and full year 2012, and discuss our outlook for 2013 including a review of our strategy. I will then turn the call over to Pete, who will review our financial results for the quarter and full year 2012. Pete and I will then take your questions at the conclusion of our prepared remarks.

We achieved a number of important accomplishments in 2012; in particular we delivered one of the most significant milestones in the Company’s history, with the receipt of FDA clearance for our Magellan Robotic Systems, and the subsequent first sale in clinical cases in the U.S. This was the first new Intravascular Robotic System in the U.S. since the Sensei Robot was launched in 2007.

With the strong physician interest and positive clinical experiences and data that followed, we continue to build a strong pipeline of future system placement by partnering with influential physicians through our thought leaders in the space and who are known as early adopters of new technology.

Beyond Magellan, we achieved several other important milestones in 2012, that demonstrates the transformation that the Company has achieved over the recent past, which has helped prepare the Company for future growth and profitability.

In our EP business, we launched the Artisan Extend Catheter in the U.S. and Europe with an improved flush design that enhances physician workflow during complex cardiac procedure.


Ladies and gentlemen we are experiencing some technical difficulties. Please hold one moment while we get the speakers back on line. Ladies and gentlemen, thank you for standing by. And gentlemen, please continue with your presentation at this time.

Bruce J. Barclay

Great, thanks, Britney. In our EP business, we launched the Artisan Extend catheter in the U.S. and Europe with an improved flush design that enhances physician workflow during complex cardiac procedures and it can be manufactured at a lower cost.

Additionally, we launched the Sensei 4.1 software upgrade, which provides physicians with enhanced visualization and clinical utility through improved third-party product integration. These product launches are the result of talented technical teams, working in an improved engineering organization that delivered meaningful product enhancements for our physician customers, and our patients and with specific and targeted cost improvements.

Importantly, our innovative engineering teams allowed us to continue to expand our broad and deep patent portfolio with the issuance of 15 additional U.S. patents in 2012, taking our total number of Hansen owned patents issued and pending to over 250. And we continue to generate important data in support of the clinical and economic benefit of Intravascular Robotics, specifically there are now over 10 specific publications describing clinical experiences with a vascular robotic system, additionally Magellan has been the subject to several presentations, and has been demonstrated in four successful live cases at conferences.

Most notably Dr. Barry Katzen, at Miami Baptist heart and vascular center presented two live cases at the TCT conference in November, and two additional live cases at the ISET conference in January. Live cases such as these help to demonstrate the real world medical utility of the Magellan system, and how it can enhance endovascular procedures. We received very positive feedbacks from physicians on these four live cases.

For Electrophysiology, the journal of cardiovascular electrophysiology included an important publication of clinical data in 2012, from a worldwide twelve side survey of Hansen Robotic cases. In this paper data from over 1,700 Hansen Robotic patients showed a slightly lower complication rate as compared to manual technique and importantly improvement in freedom from AF at 18 months compared to manual.

The data also showed that as operators performed more procedures the advantages in robotic technique improved for both acute complications and long-term benefit compared to manual technique. It is also important to note that this positive data was absorbed in some of the earliest sensory cases in 2007 through 2009 prior to answering medicals development of our improved training and clinical support team, which has helped to advance Robotic techniques and prior to several important technology upgrades and new products that have enhanced physicians’ clinical experience and EP procedures.

Turning specifically to the Magellan Robotic Systems; we have made significant progress with system placements leading to growing clinical utilization. As of the end of the year, we had shipped eight Magellan systems worldwide, six of these systems are clinical systems that are installed and being actively used by physicians.

Two of the Shipped systems are training and research systems designed to create new physician champions and system sales. Of these eight systems, five are located in the U.S. and three are in Europe. Also five of these systems have been sold and reported as revenue in 2012, and three replaced under our commercial evaluation program at the end of Q3.

The three systems under the commercial evaluation program continues to be evaluated for purchase by their hospitals and the physicians, as the physicians continue to generate clinical cases. As you will recall Hansen Medical initiated our limited commercial evaluation program in the third quarter of 2012 to allow certain key accounts to install and utilize our systems for a limited trial period, while the purchase opportunity is being evaluated and processed at the hospital.

Historically, the sales cycle for large capital equipment typically takes six to 18 months and it’s our belief that these commercial evaluation programs maybe able to expedite the purchase process. We continue to believe that this limited commercial evaluation program will also help to drive demand for Robotic Systems and accelerate the ramp of clinical cases allowing us to further grow our pipeline and close system sales more efficiently. We also expect thought leaders participating in the program to publish their experiences and discuss their results at major conferences to generate interest from other physicians. As a reminder, hospitals with evaluation systems are not obligated to purchase these systems and the timing of the eventual close of these deals is subject to reaching specific agreement with the hospital on the terms of a purchase contract.

In addition to these eight systems, I’m pleased to report that during the first quarter of this year, we shipped three additional Magellan Systems under our commercial evaluation program to three leading institutions while in Europe. We expect based on current plans that these systems will be installed and capable of performing clinical cases prior to the end of the first quarter.

We’re also making excellent progress in placing systems and generating important clinical data and experiences. Less than six months ago, we only had one Magellan System installed in treating patients and by the end of the first quarter as I said, we expect to have at least nine clinical systems installed and capable of being used to treat patients with peripheral vascular disease. These installed Magellan systems are being used by physicians to treat patients and develop clinical data has been presented at leading medical conferences.

In early October, we exhibited the Magellan System at the Vascular InterVentional Advances Conference or VIVA, which is an annual meeting of leading clinicians focused on the peripheral vascular churn.

In November, we conducted product demonstrations and featured the Magellan System at the 39th Annual VEITHsymposium. At this event, we also co-sponsored a symposium with Philips on the benefits of Robotics, which featured Professor Nick Cheshire of St. Mary’s, London and Dr. Jean Bismuth from Methodist Hospital, Houston showing their clinical experiences with the Magellan System.

Serving as further validation of our technology is our expanded license agreement with Intuitive Surgical, which we announced in October. We are extremely pleased to deepen our relationship with Intuitive Surgical, the global pioneer and leader in medical robotics. We believe this agreement demonstrates the utility of our technology. As you will recall, our agreement with Intuitive Surgical provided Hansen with a total of $30 million, $20 million from an upfront license fee and $10 million from Intuitive Surgical purchase of Hansen Medical common stock in a private placement.

This capitalized further strengthened our balance sheet, the significant portion of the new capital being non-dilutive to our current shareholders. In fact in the recent past, we have brought in more than $80 million of new non-dilutive capital. In addition to these important commercial, clinical product development, and capital structure achievements. We’ve also greatly strengthened our management team and board of directors.

In January of this year, we announced that Bob Cathcart had joined the company in a newly created position of Senior Vice President Global Sales. Bob is a strategic leader with extensive commercial and senior management experience in the medical technology industry and specifically intervention of cardiology and the creation of this position will allow Hansen Medical to more efficiently execute its global sales strategy.

Earlier this month we announced the appointment of Will Sutton, to the newly created position of Chief Operating Officer. Will brings over 25 years of product development and manufacturing experience in the medical technology industry. The creation of the COO position provides the benefit of enhanced collaboration on product development and manufacturing, which is consistent with the company’s strategic imperative of bringing new innovative products and capabilities to the market with improved product margins.

Further in April of 2012 we appointed Joe Guido, as Vice President of Marketing and business development. In Joe’s 20 plus year career he has excelled as a sales and marketing professional driving significant sales growth through innovating strategies across the medical industry. We are excited to have Bob, Will and Joe on the leadership team, and are confident that their operational and commercial expertise will be invaluable to us as we continue to advance our strategic initiatives.

These positions are in addition to several other key new hires, the track records of success, who have joined hands in medical recently across our sales, marketing, engineering and administrative functions in both the U.S. and internationally, who have embraced our vision and are helping to deliver the promise of intravascular robotics.

Additionally, over the past year, the company has recruited four highly experienced industry professionals to join our Board of Directors. These seasoned healthcare executives also brings specific experience in product development, manufacturing, operation, and sales from successful carriers with large global and developing companies in the medical device and pharmaceutical industries. Each of these executives has experience developing new technologies and positioning organizations for success.

With that, I would like to take you through a few of the top lines from the fourth quarter and full year. Revenues were $4.3 million in the fourth quarter. We shifted three systems in the fourth quarter, one Magellan System and two Sensei’s all internationally.

During the quarter, we recognized revenue on two systems in total including one Magellan System and one Sensei System, both of which were shifted in the fourth quarter. One of the Sensei System shift in the quarter were shift under our commercial evaluation program. With these three additional shipments in Q4, we have now shift 122 robotic systems worldwide since first commercial launch in 2007.

We are also excited about the momentum we are seeing in the Robotic Systems utilization. We estimate physicians performed a record 755 procedures, which is up 15% sequentially and 19% year-over-year in Q4. This represents the sixth consecutive quarter of procedure growth for the company, and we are particularly pleased that this growth is being driven primarily by systems, which have been placed or restarted over the past two years and to a lesser extent by the introduction of our Magellan system.

We also shipped a record 840 catheters in the fourth quarter, up 22% sequentially and 18% year-over-year. For the full-year period, revenues were $17.6 million. We shipped 12 systems and recognized revenue on 13 systems in 2012.

In 2011, we shipped 13 systems and recognized revenue on 23 systems. While revenue was down in 2012, 20% as compared to 2011, this decrease was primarily the result of 12 systems in 2011 revenue which has been shipped in 2010 and prior years, compared to only five systems in 2012 revenue which has been shipped in prior years.

Physicians performed a record 2688 procedures in 2012 which is up 8% versus the prior year and the company shipped a record 2807 catheter which is up 1% versus the prior year. The record procedures in 2012, led us to another important milestone as physicians have now completed over 10,000 Hansen Robotic procedures since the Company’s inception.

Switching gears and before I turn the call over to Pete to discuss our financials, I want to review our strategy for the company for the benefit of all of our shareholders. As I’ve said often in the past, I view intravascular robotics from Hansen Medical as a platform technology. We intend to leverage the significant core competency of ours in intravascular robotics into multiple clinical applications. Our initial clinical applications was within the EP market. In EP our Sensei robotic system and related products are being used in both left and right atrium in cardiac arrhythmia procedures, in some accounts have begun the use of the system in ventriculars as well in the treatment of ventricular tachycardia.

Our second clinical application for intravascular robotics is in the peripheral vasculature, we are very encouraged by the breadth of clinical cases being performed with our new Magellan Robotic system. The cases include ones in the upper extremity like the (inaudible) what the lower extremity like terminal iliac anatomy, and cases in the aorta order including the viscerals to the aorta.

The Magellan system is being used access multiple clinical targets in both the arterial and the venous vasculature. To further leverage the strategy we are developing a suite of catheters to access multiple blood vessels in the body. Our next catheter to be launched is our lower profile 6F catheter to access smaller vessels in the body, initially for use in the peripheral vasculature and this catheter will be our platform for accessing the coronary vessels.

In the future, we may develop and launch both larger and smaller diameter catheters for use in TAVI, neuro and other clinical anatomy. Further, we believe this platform is well suited not only for providing physicians with vascular access. It can also be used eventually to provide robotically driven treatment devices as well.

Intravascular Robotic’s offers physicians direct distill tip control of catheters, improving position and predictability of procedures and improve utilization of hospitals most profitable assets, their operating rooms, EP labs and accounts labs.

Currently there is a growing utilization of robots in the EP market for an estimated 130,000 total procedures are performed annually.

The vascular market is over 20 times larger with an estimated 3.1 million annual procedures. Hansen’s ability to capture share over the next several years in this much larger market offers a tremendous opportunity for Hansen Medical and our shareholders.

Now moving on to our outlook for 2013, we have an exciting year ahead of us as we focus on the global launch of our vascular platform, drive further EP adoption and enhance operational excellence. We anticipate growth in total robotic system shipments in 2013, compared to 2012, as well as growth in both procedures and catheter sales.

However, given the uncertainty of the timing of system shipments, we’re not in a position to provide specific financial guidance at this time. We expect continued improvement in gross margins over 2012 levels, based on our volume assumptions and increased efficiencies from our ongoing cost savings like and initiatives like lean manufacturing. Also operating expense levels are expected to increase moderately as we anticipate adding resources in support of the commercial launch of the Magellan and the increased adoption of our Sensei system.

We will continue to invest in new products in 2013 and anticipate the commercial launch of our lower profile 6F vascular catheter for use in smaller vessels with a peripheral indication in 2013. Once cleared for peripheral application this catheter is expected to provide a path toward a specific indication for coronary vessels potentially in 2014.

In summary, 2012 was a strong year for Hansen Medical, as we continue to develop new markets for intravascular robotics around the world, build momentum in our base EP business and continue to fundamentally transform our organization and positioning us for long-term commercial success.

With that, I’ll turn the call over to Pete to discuss our financials.

Peter J. Mariani

Thank you, Bruce. We recorded quarterly revenue of $4.3 million in the fourth quarter primarily on the recognition of revenue on two robotic systems, and the sale of a quarterly record, 840 catheters. revenue declined 30% over the fourth quarter of 2011 and 15% sequentially due primarily to lower system revenue.

catheter sales in the fourth quarter were up 18% compared to the prior year and 22% sequentially. The Company shipped one Magellan system and two Sensei systems during the quarter. Of the two systems that we recognized revenue on, both were shipped in the fourth quarter. One of the Sensei systems shipped in the quarter was shipped under our commercial evaluation program.

On a full-year basis, we recorded revenue of $17.6 million, primarily on recognition of revenue of 13 robotic systems and a record 2807 catheters, eight of the 13 systems recorded as revenue in 2012 were shipped in 2012 and five systems were shipped prior to 2012. These results compared to 2011 shipments from 13 robotic systems, revenue on 23 systems, and catheter sales of 2787. 11 of the 23 systems recorded as revenue in 2011 were shipped prior to 2011 and 12 were shipped in 2011.

To provide some additional insight into our business we are instituting an annual review of our system and catheter average selling prices or ASPs.

In 2012, ASPs for Robotic Systems shift including amounts allocated to service revenue but not including evaluation systems was approximately $675,000 up 12% from the ASP for Robotic Systems shipped in 2011 of approximately $601,000. We are not breaking out ASPs for Magellan and Sensei for competitive reasons, but Magellan ASPs for the three system shipped in 2012 were higher than the average and Sensei ASPs were lower than the average.

Sensei ASPs declined slightly year-over-year due to a higher mix of the unit sold through international distributors. Additionally, the full year average selling prices of catheters in 2012 was $1702, up 4% compared to the prior year amount of $1642.

In 2012, average selling prices increased for all three of our EP and vascular catheters, while most catheter sold in 2012 were EP catheters, we do expect a growing number of vascular catheters to be sold in 2013 at a higher ASP than the EP catheters, and again we are not disclosing average selling prices for our Magellan catheters for competitive reasons.

We estimate that physicians performed a record 755 Hansen Robotic procedures in the fourth quarter, up 15% on a sequential basis and 19% year-over-year. For the full year, we estimate that physicians performed a record 2,688 procedures representing an 8% increase over 2011. We are particularly pleased that this growth is being driven by systems, which have been placed over the last two years and to a lesser extent to the introduction of our Magellan System.

Gross profit was $868,000 or 20% of fourth quarter revenues compared to gross profit of $1.6 million or 27% of revenues in the fourth quarter of 2011 and $1.3 million or 25% of revenues in the previous quarter. The year-over-year and sequential decreases in margins is primarily due to fewer system sales partially offset by further catheter and service margin improvements.

On a full-year basis, gross profit was $3.6 million or 20% of revenue compared to $4.9 million or 22% of revenue in 2011. Again the decrease in margins is primarily due to the lower system revenue and is partially offset by improved catheter and service margins.

Research and development expenses for the fourth quarter were $3.5 million compared to $1.9 million for the same period in 2011. The 2011 amount included $3.7 million of funded research and development credits, which were recorded as a reduction of expense from our now completed work under our joint development agreement with Philips. Excluding these research and development credits in the fourth quarter of 2011, prior year research and development expenses were higher primarily due to additional development costs associated with the Company’s Magellan System and higher employee related costs.

Selling, general and administrative expenses for the fourth quarter were $6.9 million, compared to $8.6 million in the same period of 2011. The net decrease in the current quarter is primarily due to decreased legal fees and stock based compensation.

Total operating expenses for 2012 were $42.1 million representing a 4% decline compared to 2011. 2011 operating expenses however of $43.6 million included $10.6 million of funded research and development of credits from the Philips agreement. Excluding these research and development credits in the prior year, current year operating expenses were 22% below the 2011 levels. The decrease is primarily the result of company initiatives to drive efficiencies across the organization and bring additional resources to our commercial operation while lowering total operating expenses.

As you may recall, we established the goal to lower top operating expenses for the second half of 2012 by 15% compared with the first half of 2012. We achieved this target as the total operating expenses in the second half of 2012 was approximately 17% lower than the first half of the year.

Net income for the fourth quarter of 2012, including a gain of $20 million on the licensing of intellectual property and total non-cash stock compensation expense of $600,000 was $9.6 million or $0.15 per share based on average shares outstanding of $65.3 million.

In comparison, net loss for the fourth quarter of 2011 including total non-cash stock compensation of $1.2 million was $9.5 million or a loss of $0.16 per share, based on average shares outstanding of $57.9 million. Net loss in the third quarter of 2012, including non-cash stock compensation expense of $1 million was $8.4 million or $0.14 per shares based on average shares outstanding of 61.5 million.

For 2012, net loss including total non cash stock-compensation of $2.9 million and a gain on license of intellectual property of $20 million was $22.1 million or a loss of $0.35 per share based on average shares outstanding of 62.4 million.

For 2011, net loss including total non-cash stock compensation expense of $6.7 million and a gain on sale of intellectual property of $23 million was $16.7 million or a loss of $0.30 per share based on average shares outstanding of $55.4 million.

As we have said in past quarters, we are taking steps to reduce spend and drive operational efficiencies across the organization, specifically in 2012, we lowered product costs through improved design and productivity gains through our lean manufacturing initiatives.

Additionally, we reduced 2012 operating expense by $12 million or 22% compared to 2011, excluding the impact of the $10.5 million of the funded credits from the Philips agreement, which were recorded as a reduction of expense. These reductions were achieved through our efforts to focus our R&D spend on key product development initiatives and lower our G&A costs while actually adding resources to our commercial team. Operational excellence will continue to be a focus of the Company going forward.

As we turn to the balance sheet, I want to remind you that in October, we announced in expanded agreement with Intuitive Surgical. This agreement provided Hansen Medical with $30 million, $20 million from the upfront licensing fee and $10 million from Intuitive Surgical purchase of Hansen Medical common stock in a private placement. This capital has further strengthened our balance sheet with a significant portion of this being non-dilutive capital.

Cash, cash and equivalents in short-term investments as of December 31 2012 were $41.2 million compared to $21.6 million as of September 30, 2012 and $53.2 million as of December 31, 2011. Cash gain in the quarter was $19.6 million compared to cash burn of $7.8 million in the third quarter of 2012, which included a $1.5 million insurance reimbursement.

Excluding those items, Q3 cash burn would have been approximately $9.3 million. The current order of cash position was positively impacted by the receipt of $30 million from Intuitive Surgical and negatively impacted by a $620,000 valuation adjustment of a short-term investment. Excluding these two items, Q4 cash burn would have been approximately $9.9 million.

Accounts receivable increased to $5.2 million at December 31 from $4.6 million at September 30 and $5.5 million at December 31, 2011. Inventories increased to $9.1 million at December 31, 2012 from $8.4 million at September 30 and $6.6 million at December 31, 2011. This increased inventory was primarily – reflects increased inventory builds in support of our Magellan launch including three robotic systems under commercial evaluation programs, which continued to be reported as finished goods inventory.

As of December 31, 2012, we had $2.8 million of deferred revenue on the balance sheet, all of which is related to deferred revenue on service contract. Total debt on December 31 was $29.4 million, essentially flat with the September and December 2011 balances.

As I have summarized above, we have made important operational improvements over the past few year that helped to position the company for future success, our employees are working hard to deliver additional efficiencies across the Company, our success continues to be dependent upon the clinical adoption of our robotic systems, but we are now better positioned to support and drive this growth and improve our financial result.

And that concludes our summary of the financials. I’d now like to pass the call back to the operator. Britney.

Question-and-Answer Session


Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of David Lewis with Morgan Stanley. Please go ahead.

John Demchak – Morgan Stanley

This is actually John Demchak in for David.

Peter J. Mariani

Hi, John.

Bruce J. Barclay

Hi, John.

John Demchak – Morgan Stanley

Well, we saw the cash balance go up in the quarter, obviously it was driven primarily by Intuitive’s license agreement and the stock purchase. So if not for this, it actually would have, I guess been reduced by what you mentioned, which I guess is more than the previous two quarters. And I guess when you kind of look forward into next year, and following it without reducing cost structure more significantly or raising revenues more significantly, it looks like current cash levels probably won’t last far beyond this year. So I was wondering if you could discuss whether there is some plan to maybe stretch catch out longer, so you can build some more clinical data, or also just where the priorities lie between ET versus vascular given the limited cash available?

Peter J. Mariani

Sure, John a couple of things. One, remember in the third and fourth quarter we are on a much lower run rate of spend than what we were in the first half of the year, so that will carry over as we start the year. And again, we do expect top line growth both in the systems and in catheters. What we’ve said is the lien manufacturing improvements that we put in place will continue to help us drive better margins as the top line grows and we do believe that our plans for next year that the $41.2 million will be sufficient to fund the operations for the year.

John Demchak – Morgan Stanley

Okay, very helpful. Additionally just one quick follow-up with the catheter sales, obviously we have started accelerating substantially, this quarter at nearly 850 and I was just wondering if you could give a little more detail of the one that led to this increase? Is it related to staffing increases from the system? Is it more related to just utilization of the test day, any color would be very helpful.

Peter J. Mariani

Yeah. I think that primary color is the fact that this is the sixth consecutive quarter of procedure growth. The momentum is there in the business, not on its – to a lesser extent certainly the Magellan had to apply in this, but the primary driver this is a more procedures across the business and catheters are being shift to supply that additional demand.

John Demchak – Morgan Stanley

And just one quick follow-up on that. When you look at I guess the Sensei System versus Magellan Systems, obviously more prestigious would be the Sensei, but if you just feel like a procedure curve of system days, are they comparable as one leaning ahead of the other?

Bruce J. Barclay

No, I think the way to think about that is the number of applications in the vascular market are much broader than on the EP space, and there’s more physicians potentially building those procedures within a hospital and so we would expect higher utilization on the vascular side as those systems come up – come online to begin to get to develop cases in the hospital.

Peter J. Mariani

I’d add, we really have limited data, John. given the fact that less than six months ago, we only had one system installed performing clinical cases. Now that we’re going to have what we anticipate nine by the end of this quarter, obviously that will give us more data that we can better answer your question.

John Demchak – Morgan Stanley

Okay, thank you, very helpful.

Bruce J. Barclay

Thanks for the call.


Thank you. Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Hello, thank you for taking my questions.

Bruce J. Barclay

Hi, Jeff.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

So just to review there is as of the end of February or currently there is nine Magellan units that have been shipped, there is another six are under evaluation period and three have been sold.

Bruce J. Barclay

We actually count the two training and research systems as well, so 11, five sold, 6 under eval.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

11, 5 sold and 6 under eval.

Bruce J. Barclay

And of that 5 sold, two are training systems that we train physicians on and do research on but otherwise you are correct.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, so but during the fourth quarter you recognize revenue on one Sensei and one Magellan?

Peter J. Mariani

That’s correct, we had a Magellan Systems that was not an eval system, that was just sold out right and then we also had one Sensei System that was sold out right.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay. So there is one Magellan that you – we could expect that you’d recognize revenue on during Q1. Is there one or there is two?

Peter J. Mariani

What he meant by Q4, we shift and recognize revenue on a Magellan System without going through an evaluation program. It has come and it wasn’t related to Q1. In Q1, we shifted three Magellan Systems under eval programs.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay. So the three sold on Q4 – there were three sold during Q1, but just one is recognized during Q4. The two were recognized earlier?

Peter J. Mariani

There were two Sensei’s shipped in the fourth quarter, one which recognizes revenue and one was placed under an evaluation program. There was one Magellan shipped in the fourth quarter, and it was recognized as revenue.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay. Of the three Magellan’s sold in total, one was during fourth quarter, so that two were during the third quarter?

Bruce J. Barclay

One of those was, remember, we had the shipments earlier in the year, the St. Mary’s system came into play earlier in the year from a revenue perspective as well.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, I got it and that’s clear. The 6F distal tip on the Magellan catheter currently is what size?

Bruce J. Barclay

I’m sorry, the 6F distal tip, so the current Magellan catheters is a 9F system, it’s 9F OD – 9F stick into the body, and then the ID compared to OD with treatment catheters is a 6F.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay. The smaller version will be 6F as well.

Bruce J. Barclay

So the smaller version that I referenced was a 6F OD. so it’s 3F sizes smaller outside diameter and it will be a 4F compatible systems. So now, it’s compatible with much, much smaller balloons, instants and…

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay. So the distal tip will be 4F?

Bruce J. Barclay

Yeah. You’re saying distal tip. it’s the inner room in that catheter. So it’s what treatment catheters will fit within that outer catheter will be 4F.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, got it. Can you provide a little bit more commentary on how to be redundant on the previous callers’ questions, but – so as far as the unit sales, I’m trying to look at the utilization for Sensei. So being that there’s more Sensei units out there and catheter sales for Magellan, can you provide any commentary on unit utilization for Sensei or any trends or any data that you are seeing?

Bruce J. Barclay

Yeah. The commentary is we are seeing utilization increase, especially among accounts that have begun programs over the last two years. They are coming on line and ramping up procedures rather quickly for the most part on average compared to our experience of prior than two years ago. So that we are getting some good new accounts towards using the system much more and more quickly.

Peter J. Mariani

Relatively to EP we have had very few clinical cases done with Magellan again because we have had one clinical system installed in the hospital little over six months, little less than six months ago and then we had three additional systems installed later in the year, but compared to EP, we’ve had very little Magellan usage. It is growing and obviously we’re placing more systems. We expect it to continue to grow significantly but just back to the math of small numbers here Jeff, it’s much, much smaller on the vascular side.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, got it. Peter any clarity on the evaluation adjustment? Can you talk about that at all?

Peter J. Mariani

No, it’s just an investment that we continue to hold as a short-term investment that stock price on it adjusted and we needed to make that adjustment.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Got it. And lastly I heard you correct you were talking about operating expenses potentially increasing 2013 over 2012?

Peter J. Mariani


Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay. And I should think about that from 2012 levels of $42.1 million?

Peter J. Mariani

Yes, and that’s why we’re saying moderately because we actually were on a lower run rate here in the back half than the first half. We have got the flexibility to bring additional resources in support of the commercial while only seeing expenses going moderately year-over-year.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Got it. Okay, perfect, thank you. I appreciate the additional color.

Peter J. Mariani

Okay, Thanks Jeff.


Thank you. (Operator Instructions) And I am showing no further questions in the queue. I would like to turn the conference back over to Mr. Barclay for any closing remarks. Please continue.

Bruce J. Barclay

Thanks operator and thanks to everyone again for joining us today for our fourth quarter and year end 2012 conference call. We will look forward to providing you with the results of our first quarter in May.


Thank you. Ladies and gentlemen this concludes the Hansen Medical year-end and fourth quarter 2012 results conference call. We thank you for you participation. You may now disconnect.

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