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Executives

Fred Moll - Co-Founder, President, Chief Executive Officer

Steve Van Dick - Chief Financial Officer

Lasse Glassen - Financial Relations Board

Analysts

Samir Harish - Needham and Company

Tim Lee - Piper Jaffray

Mimi Pham - JMP Securities

Suraj Kalia – SMH

Richard Sack - First Allied Securities

Jason - Morgan Stanley

Hansen Medical Inc. (HNSN) Q1 2009 Earnings Call May 5, 2009 5:00 PM ET

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Hansen Medical Inc. first quarter 2009 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 May 5, 2009.

Now, I’d like to turn the conference over to Lasse Glassen with the Financial Relations Board. Please go ahead, sir.

Lasse Glassen

Thank you. Good afternoon everyone. Welcome to Hansen Medical’s 2009 first quarter conference call. With us today are Hansen Medical’s Co-Founder, President and Chief Executive Officer, Fred Moll, and the company’s Chief Financial Officer, Steve Van Dick.

Before I turn the call over to management, please remember that our prepared remarks and responses to questions will contain forward-looking statements. Words such as may, will, should, expects, believes, estimates, targets, projects, goals, could, scheduled, plans, opportunity, guidance and variations of these words and similar expressions are intended to identify forward-looking statements that are subject to a number of risks and uncertainties.

Examples of such statements include statements about our expected operational and financial results, the expected numbers, locations and timing of placements of our Sensei system and recognition of revenue on those systems, the timing and results of our clinical studies, the receipt and timing of future regulatory approvals, the expected results of our cost reduction initiatives and the timing of future product introductions.

Actual results may differ materially from those set forth in these statements due to risks and uncertainties inherent in our business, including potential safety and regulatory issues that could slow or suspend sales, our ability to effectively sell, service and support our products, the rate of adoption of our systems and the rate of use of our catheters by customers that have purchased our systems, our ability to successfully manage our manufacturing and operating expenses, our reliance on third-party manufacturers and suppliers that could adversely affect our ability to manufacture products on a timely basis, the scope and validity of intellectual property rights applicable to our products, competition from other companies, the effect of credit, financial and economic conditions on potential purchases of our systems, our ability to obtain additional financing to support our operations and other risks detailed in the ‘Risk Factors’ sections of our periodic SEC filings, including our annual report on Form 10-K filed with the SEC on March 16, 2009.

We undertake no obligation to revise or update information herein to reflect events or circumstances in the future, even if new information becomes available.

With that, it’s now my pleasure to turn the call over to Hansen Medical’s President and Chief Executive Officer, Fred Moll. Fred.

Fred Moll

Thank you, Lasse. Good afternoon everyone and thank you for joining us. On today’s call, I’ll provide an update on our operating results and business highlights for the first quarter of 2009. Following my comments, Steve Van Dick our Chief Financial Officer will provide additional details about our financial results and our business outlook for the remainder of 2009. After our prepared remarks, we’ll open the call for questions.

We are off to a good start in 2009. I continue to be pleased with our progress in system sales as well as the growth in Sensei procedures. Also, I’m encouraged that as a result of actions we have taken to reduce spending, we are seeing improvements in our cost structure and reduction in cash burn.

In addition to cut backs in spending, we recently completed a capital raise that we believe will fund the company though cash flow breakeven based on our current business plan. Steve Van Dick will provide a more detailed description of our recent financing in his remarks.

As we pre-announced last month, during the first quarter we recognized revenue on the placement of 10 Sensei systems. This represents a 25% year-over-year increase in units placed compared to the first quarter of last year. In less than two years of commercial activity, we have now recognized revenue on 65 systems, which we refer to as our worldwide installed base.

This includes 43 systems in the United States and 22 in the international markets. Of the 10 systems that contributed to first quarter revenue, seven were sold to sites in the United States and three were sold to international distributors.

Customers this quarter included Stanford University Hospital as well as St. David’s Hospital in Austin, Texas. St. David’s has now purchased two Sensei systems and the second system purchase was in response to increasing procedure volume in their EP lab.

Internationally, one of our three system sales was the result of our expanding relationship with St. Jude Medical. During the quarter we signed a distribution agreement with St. Jude in Australia which follows an agreement we signed in the fourth quarter for St. Jude to act as our distributor in France. We will continue to work to establish additional distribution channels in 2009 to compliment our international direct sales organization.

With regard to recurring revenues, we have now experienced three successive quarters of increasing sales in catheters and service. In the first quarter we sold approximately 600 Artisan catheters, which compares to 520 catheters in Q4 2008 and 420 catheters in Q3 2008. Also I’m pleased to report that through the first quarter we have converted a total of 30 customers to extended service agreement.

Regarding our clinical experience physicians are gathering a growing body of clinical data that we believe reflect the benefits of our technology. For example, Dr. Kautzner, one of our highest volume users recently published a paper in the journal of Pacing and Clinical Electrophysiology, which describe his experience in using the Sensei system for the Ablation of Atrial Fibrillation.

This study reported improvements in efficacy, a reduction in procedure time and lower radiation exposure, when Sensei Robotic procedures were compared to procedures using manually controlled catheters.

Also in April 2008, we began a 100-subject randomized study in Europe to compare Sensei robotic navigation to conventional technique for the treatment of AF. This study is being performed at St. Bartholomew’s Hospital in London with Dr. Richard Schilling as the principal investigator.

The study is progressing well with 86 patients enrolled. We expect the remaining 14 patients will be enrolled by the end of the second quarter of 2009. We anticipate reporting initial findings from this study some time in the fall of 2009.

Overall we believe there is a growing perception among clinicians that the Sensei system is able to create better clinical outcomes than manual technique for several reasons, including; first, better control the catheter; second, better contact with tissue; and third, the ability to make contiguous lesions in a systematic fashion.

In addition, our system gives clinicians the ability to perform complex procedures while seated at a workstation, shielded from radiation without the need for protective lead aprons. Thus the clinician is comfortable, protected and given enhanced ability to perform the procedure in an optimal manner.

Now with regard to product development, we are very excited about the progress we are making in developing new capabilities of the Hansen platform technology. In EP, we are clinically testing a number of innovative features such as haptic for sensing as well as small diameter catheters and plan to introduce these as important additions to our product offering in the near future.

We believe that these new features will strengthen the value equation of using Sensei for the hospitals and the electrophysiologists. Also, we recently announced joint development and cooperation agreements with Royal Philips Electronics to co-develop integrated products for the EP market. The agreements will enable the creation of integrated product solutions by combining Philips’ Allura system with our Sensei system.

Through this collaboration, we are targeting applications that will improve visualization capabilities for robotic catheter control and further enhance the value of robotic navigation.

Also during the first quarter, we announced an investment in privately held advanced cardiac therapeutics and the securing of exclusive rights to certain intellectual property for robotic application.

ACT is developing a novel technology that is designed to accurately measure the temperature in a lesion during cardiac ablation procedures. While still in an early stage of development, this sensor technology has the potential to assist the electrophysiologist by providing real time feedback regarding the amount of energy delivered by the catheter to cardiac tissue.

Further, we’re having success in testing our vascular platform and plan to initiate a pharma clinical trail in the second half of 2009. The New Hansen platform is designed to offer a novel capability in vascular surgery, a surgical specialty that is quickly converting to minimally invasive catheter technique.

We believe this presents a significant business opportunity because vascular surgeons by and large have not received formal training in catheter-based or interventional technique. Hansen’s technology will provide a means for these surgeons to quickly become skilled in catheter intervention.

In this way, we believe our technology will add a significant clinical value by giving vascular surgeons the ability to expand their practice and increase their procedure volume. We look forward to updating you on the success of these initiatives in future reports.

I would now like to discuss our ongoing efforts towards building a profitable entity. We are focused as a team on a rigorous expense controls as well as steps to improve our gross margins. We have undertaken reductions in our work force, once in October of 2008 and again in January of 2009 as well as targeted variable cost reductions, manufacturing furloughs and process improvement initiatives. We expect that these actions will reduce our 2009 operating expenses below 2008 levels and we are beginning to see results.

Sequentially, from the fourth quarter of 2008 to the first quarter of 2009, total operating expenses were reduced by approximately $1.2 million. Our cash burn moderated to approximately $6 million in the first quarter of 2009 from approximately $10 million in the fourth quarter of 2008 and approximately $9 million in the third quarter of 2008.

We had designed our expense reduction initiatives for 2009 to achieve our operating expense goals without materially affecting our ability to deliver product enhancement opportunities in the EP and vascular segment, and as importantly without significantly affecting our customer facing activities such as sales, field clinical support and field service.

Now before wrapping up my remarks, I’d like to briefly comment on our favorable jury verdict late last month related to our litigation with Luna Innovations. By a way background on this matter in June of 2007 we filed suit against Luna alleging that Luna had among other things breached a 2006, 2007 development and intellectual property agreement that we believe established our ownership of all intellectual property and medical robotics developed by the parties during the performance of the agreement.

Our suit also alleged, Luna misappropriated our trade secrets and has revealed our confidential information to other companies who might improperly benefit from it. The jury awarded Hansen Medical approximately $36 million in damages finding in favor of Hansen on its breach of contract, breach of the covenant of good faith and fair dealing and misappropriation of trade secret claims against Luna.

The jury did not find in favor of Hansen on its fraud claims against Luna, but it did find that Luna’s misappropriation was woeful or malicious. While the verdict and recovery of damages are subject to customary post-trial motions and appeals as well as collection risks, the jury’s verdict represents a very positive development in this litigation.

In summary, I continue to be pleased with our progress and accomplishments during the past quarter. Despite a tough economic environment, adoption of our technology remains strong. We have now gained experience from clinical cases in a variety of different hospital settings which is indicative of the broad appeal of our system.

Additionally, we have had success in developing and fostering relationships with leading medical imaging and device companies to expand the benefits of our technology. Operationally, our cost reduction initiatives and our recent successful financing activities have helped solidify our financial position. We expect our current cash position to fund the company through cash flow breakeven.

With that, I’ll now turn the call over to Steve Van Dick, our Chief Financial Officer for a closer look at the first quarter’s financial details and our outlook for 2009.

Steve Van Dick

Thanks, Fred. Before my comments on the first quarter financial results, I’d like to reiterate our recent financing activities. As Fred noted, subsequent to the end of the first quarter, we successfully completed a public offering of approximately 11.7 million shares of our common stock. The net proceeds to Hansen from this offering after estimated expenses were approximately $35.1 million.

We intend to use the net proceeds to support commercialization sales, marketing, general administrative activities or research and product development activities or capital equipment and to fund working capital and other general corporate purchases. Based on our current business plans, this financing coupled with our cash on hand and existing debt facility is expected to be sufficient to fund us through cash flow breakeven.

Now, move on to our first quarter 2009 income statement. We recorded quarterly revenue of $7.1 million, primarily on the sale of 10 Sensei systems and approximately 600 Artisan control catheters. This represents a 14.1% increase over the $6.2 million of revenue in the same period in 2008, and once we sold eight Sensei systems and approximately 400 Artisan catheters.

The average selling price for the 10 systems sold during the first quarter of 2009 was approximately $585,000. This compares to an ASP of approximately $601,000 in the previous quarter and approximately $674,000 in the same quarter last year. The principal reasons for the lower ASPs were discounting in currency exchange rates.

The Artisan control catheters sold in the quarter had an average selling price of approximately $1,620. This was essentially unchanged from the previous quarter, but down from approximately $1,800 in the first quarter of last year.

Cost of goods sold for the quarter was $5.2 million and included non-cash stock compensation expense of $223,000. Gross profit for the quarter was $1.9 million yielding a gross margin of 26%. This compares to a gross profit of $1.3 million and a gross margin of 21% for the same period in 2008.

For the remainder of 2009, we expect that cost of goods sold, both as a percentage of revenue and on a dollar basis will continue to vary significantly from quarter-to-quarter due to a variety of factors, including revenue levels, fluctuation in ASPs, product mix and manufacturing levels and yield fluctuations.

In reviewing the key expense line items on the income statement, research and development expenses for the first quarter were $5.7 million including non-cash stock compensation expense of $0.6 million. In the same period last year, R&D expense was $5.2 million, which included non-cash stock compensation expense of $0.6 million.

The increase in R&D expenses was primarily due to increased outside services, materials and overhead expenses partially offset by decreases in climate related expenses due primarily to a lower average headcount and a one-week furlough.

On a substantial quarter, R&D expenses decreased $1.1 million from the fourth quarter of 2008 due primarily to decreased materials, supplies and outside service charges into lower employee-related expenses related to lower average headcount in a one-week furlough.

For the remainder of 2009 we anticipate research and development expenses to decline from 2008 levels as we carefully manage expenses related to our development efforts for the electrophysiology market and other applications and realized savings from the recently completed reduction in force and our one-week per quarter furlough.

Now on to selling, general and administrative expenses during the first quarter were $10.1 million and included non-cash stock compensation expense of $1.8 million and $2 million of Luna litigation expenses. This compares to a SG&A expense of $8.1 million for the same period in 2008, which included non-cash stock compensation expense of $1.3 million and $0.4 million of Luna litigation expenses.

The increase in selling, general, and administrative expenses was primarily due to increased litigation cost, executive severance cost and commissions partially offset by a decrease in employee-related expenses related to a lower average headcount and our one-week furlough.

On a sequentially quarterly basis, SG&A expenses were almost unchanged compared to the fourth quarter of 2008. However it is important to note that the results of our recent cost reduction efforts were somewhat hidden in the first quarter by a fact that there was an incremental $1.2 million in our increase in Luna litigation expense compared to the fourth quarter.

For the remainder of 2009, we expect selling, general and administrative expenses to decline from 2008 levels as a result of careful expense management and savings realized in the recently completely reduction in force and a one-week per quarter furlough. A substantial portion of this expense reduction will occur in the second half of 2009 and it ties with the winding down of the Luna litigation expenses.

As previously mentioned, Hansen has already implemented a number of cost saving measures in each of the expense categories. Hansen will continue to evaluate to a certain extent of these measures based on changing future economic conditions, any achievement of estimated revenue through 2009 and we’ll consider the implementation of additional cost reductions during the remainder of the year, if in any of the circumstances we’re in.

Other expense net for the first quarter of 2009 was $445,000 compared to other income net of $352,000 for the same period in 2008. The change was due primarily to foreign currency losses and higher interest expense due to our borrowings under the equipment line of credit, in addition to lower interest income related to lower average cash, cash equivalents and short term investments.

Going forward, we expect our interest expense to gradually decrease as we begin to pay down our equipment loans and interest income will increase due to a higher average cash balance due primarily to our recently completed equity financing.

Net loss for the first quarter of 2009 including non-cash stock compensation expense of $2.6 million was $14.3 million or $0.57 per basic and diluted share, based on average basic and diluted shares outstanding in 25.2 million shares.

Net loss for the first quarter of 2008, including a non-cash stock compensation expense of $2 million was $11.6 million or $0.53 per basic and diluted share. Based on an average basic diluted shares outstanding 21.8 million shares for the same period in 2008.

Now turning to the balance sheet, cash, cash equivalents and short term investment as of March 31, 2009 was $29.3 million compared to $35.2 million as of December 31 2008. The lower cash balance was due to the company’s normal operating expenses during the quarter. On March 31 2009 cash balance excludes the net proceeds of approximately $35.1 million raised from the financing signs and completed n April.

During the first quarter, our net cash burn from operations moderated to approximately $6 million from approximately $9 million in the fourth quarter 2008. We have an existing debt facility with Silicon Valley Bank which is comprised of an equipment line of credit and an undrawn $10 million revolving line of credit. The undrawn $10 million revolving line of credit allows the company to borrow against qualified receivables and inventory. This line will expire in August 2009.

The equipment line has used to finance construction of our new facility and other capital equipments acquired since December 1, 2007, as well as refinance the company’s previous term loan. Terms of the equipment line allow the company to draw down on this facility through the end of the first quarter 2009 at which time the $12.5 million had been drawn down.

Beginning April 1, 2009, we can no longer draw down on the equipment line portion of this debt facility and the equipment line converted to installment debt which will be repaid over the next 42 months.

Before wrapping up my prepared remarks, I’d like to reiterate our business outlook for 2009, which we initially provided last month when we pre-announced our first quarter results. Based on our pipeline of potential customers that we have identified, we continue to expect or recognize revenue on a range of 53 to 60 systems for 2009.

Among other factors we believe this range takes into account the uncertainty around the length and severity of the current economic recession and the impact it will have on our potential customers purchase decisions in 2009. That said, it is important to note that at the low end of this range represent more than 30% growth in system unit sales compared to 2008.

Thank you for your attention. At this time, I’ll turn the call back over to Fred for some concluding remarks.

Frederic Moll

Thanks Steve. With 65 systems in the field and less than two full years of commercialization and projected year-over-year system sales growth of more than 30% in 2009, we believe we’re experiencing strong demand for our technology in the electrophysiology markets.

In addition, we’re pleased with our progress in developing other platform opportunities for our technology and with the successful completion of an equity financing last month. We believe that our current financial position provides us with the resources to execute our business plan through cash flow breakeven , and in spite of the tough economic environment, we’re optimistic regarding the company’s commercial opportunities in 2009 and beyond.

At this time, we’d like to open up the call to questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jason - Morgan Stanley.

Jason - Morgan Stanley

First of all, at this stage in the companys development cycle and given the proprietary nature of your technology, isnt it too early to be cutting price?

Fred Moll

Were not cutting price, we are in an environment that has required, last quarter some discounting based on the pricing pressure weve seen, as I said because of the environment that we are in, but were not cutting price of the system.

Steven Van Dick

I mean, I think there are several factors that you need to look at, and as you compare for example our average ASP in Q1 versus Q4 of 2008, there is only about a little over 2% decrease in our average ASP, but internationally, not only we have a mix between end user sales and distributor sales and in the first quarter of 2009 all our systems sold internationally with distributors, and since the first quarter of 08, weve seen almost a 20% drop in the currency exchange rate because we sell in local currency which is in euros or pounds.

From Q4 to Q1, we saw almost a 13% drop in the average ASP just internationally and even a larger percent drop if you look at like Q1 of 08 versus that. So, were kind of seeing a convolution of a lot of different factors going on.

One being the foreign currency exchange rate really working against us if youre in the last few quarters, as well as economic environment where customers know that they can use the economic pressures of the day and the recession in the U.S. as an excuse to extract lower pricing on systems in futures that we sell. So, kind of an environment that kind of is tough to deal with even with new technology.

Jason - Morgan Stanley

Thanks, very helpful. So, what do we expect for ASPs going forward for the rest of the year, roughly flat from here or continued downward currency?

Steven Van Dick

No, I would hope, if I could project foreign currency market that would be in a different line of business. We are hoping that weve seen kind of a bottom out of at least the exchange rate differences, but I would beg off to economists who spend their lives tracking these kinds of things. We would hope to see the ASPs begin to trend upward as the economy begins to get more attraction.

Jason - Morgan Stanley

Okay. Thanks. So regarding the Luna decision, is there any update you can provide there regarding our strategy considering the company as Luna at catheter resources and also, does that decision have any implications for your relationship with Intuitive Surgical?

Fred Moll

Cant really comment on that. I would say that were very pleased with the outcome, mostly because we are excited about the technology and want to incorporate the technology into capabilities in the products of Hansen Medical, and so excited from that standpoint that puts us in a very good position to do that.

Operator

Your next question comes from the line of Samir Harish - Needham and Company.

Samir Harish - Needham and Company

I wanted to ask a little bit about the discounting that you had in the quarter, was it more significant internationally than the U.S., was there discounting going on in the U.S. as well and is it just on the system side or disposable discounted as well?

Fred Moll

I think like we said before on the domestic side. Ill talk domestic side first, if you look at Q1 of 08 versus Q1 of 09, only about a 2% drop in the average ASP domestically, just a little over 2% on the system. Then on catheters, our domestic ASPs are held rock solid, and so on the catheter side of the business, most of the drop that youre seeing in the average ASP is exchange rate related, as well as were getting as our distributor of days increases its installed base in system. They are buying larger chunks of international catheters at a distributor type discount.

Samir Harish - Needham and Company

Okay. So the distributor side is growing faster?

Fred Moll

Yes.

Samir Harish - Needham and Company

I think you mentioned, first quarter SG&A include some litigation and severance cost that arent going to be necessary ongoing long term. Can you give us a sense where you think these may have leveled of kind of the natural rate for the companies expenses were in the quarter and directionally should we be looking at that is kind of a trend for the rest of the year?

Fred Moll

Lets specifically talk about the Luna litigation expense. If you look at the Luna litigation, we spent about $2 million in the first quarter, specifically in that process to litigate Luna. Now a substantial portion of the trial occurred in April, so there is going to be a carryover of Luna litigation expense that continues on into Q2. Will it be at the $2 million level, I doubt it? Its probably going to be greater that a million dollars, but less that $2 million.

Then through Q2, most of the motions that get filed and all that things that happened after the jury given his verdict which are motions go before the judge and judge has to render a judgment. Those will be occurring here in the next 30 to 60 days. So we hope to have the bulk of litigation expense behind us by the end of Q2, and then its going to get down to more of the noise level which is probably the $100,000 a month kind of run rate until it finally results itself and gets all burnt out completely through the rest of 09.

Samir Harish - Needham and Company

Now does that include the potential for appeals on this or is it not appeal bond?

Fred Moll

There will be a question for a lawyer that at this point were probably not comfortable commenting on.

Samir Harish - Needham and Company

Okay. On the equipment line of credit, did I understand youre not going to be paying that down immediately; you are going to sort of let that linger for a while?

Fred Moll

No were required to start making monthly payments in April.

Samir Harish - Needham and Company

Okay, but as far as paying it down in completion you think through the year it will happen?

Fred Moll

Well, its a 42-month amortized schedule, its like an installment note we make six payments for 42 months that pays it all.

Samir Harish - Needham and Company

Last expense question, when you talk about the cash level of the company taking you to breakeven, does that include receipt of the Luna award or does that not include that?

Fred Moll

No, it does not factor in any money received on the Luna award.

Samir Harish - Needham and Company

Okay. Fair enough. For CoHesion, you had seven systems in the quarter. Geographically are those centered around the U.S. or you are getting international as well?

Fred Moll

Yes, we said there are a mix of CoHesion systems both in the U.S. and international.

Samir Harish - Needham and Company

Okay. Perfect. I wanted to switch gears a little bit, talk a little bit about advanced cardiac therapeutics deal that you put together. Does that technology replace IntelliSense how, should we think about that?

Fred Moll

No, it doesnt. Its temperature sensors and IntelliSense is a four sensor.

Samir Harish - Needham and Company

Okay. I guess just to think about it, its something that physicians are going to use side by side or is it an either or how are you going to position it to the doctor?

Fred Moll

Yes, now we think its an additional piece of very, very valuable information for electrophysiologists. If you think about it, if you have the ability to retemperature inside the tissue and as this technology also has the capability to give a very clear idea of the ablative lesion that youre creating as one reach temperature over time.

We think its a piece of information or like for sensing that the clinician has not have to date and can be extraordinarily powerful in that. If you think about it today, clinicians are turning on for example an RF catheter that they think is against the tissue for a certain period of time at a certain power setting.

They have no idea actually, what sort of lesion they are creating and their only way to judge the adequacy of the lesion is to titrate it to where you get an isolation of the electrical signal. This is a real time piece of information that gives clinicians the ability to understand in a much more objective way, what sort of ablative lesion they are creating.

For that reason we think its enormously powerful and can be used in conjunction with IntelliSense, and those two pieces of information I think are going to really add a lot to the Armen Mentorium of the electrophysiologist.

Operator

Your next question comes from the line of Tim Lee - Piper Jaffray.

Tim Lee - Piper Jaffray

Could you care to comment on just the overall macro environment, what you are seeing over the last 90 days, have the things have got worsen and things getting stabilized, any anecdotal feedback would be appreciated?

Fred Moll

So, I would characterize it as its gotten much more stable and I think incrementally a better environment than Q4 and so there still is pressure and I think the sales cycles are continuing to be extended, there are certainly hospitals that are very hesitant to do any capital equipment purchasing, but relative to Q4 we saw in the later half of Q1 and more recently that there is a bit of a thawing out of the environment and I think optimistic although, I think its not going to change over night but its gotten incrementally a bit better.

Tim Lee - Piper Jaffray

Thank you. Its very helpful and as we look at kind of your full-year outlook for system sales, any sense of type that well see. Should we see an up tick here sequentially then may be a drop of in Q3 and bulk of the sales being backend loaded, will that can be the right way to think about it?

Fred Moll

No, I mean I think we see certainly the year will be somewhat backend loaded, but we think we dont have a fine enough view to say Q3 is going to be this and Q4 is going to be that. We think that historically the capital equipment business in the second half of the year is much stronger than the first half of the year and we think were going to see that this year.

Tim Lee - Piper Jaffray

Two more quick ones, if I may. You had talked about your European clinical study on the A Fib side, any plans to do any type of some randomized study here in the U.S. either for Fib or flatter?

Fred Moll

Were talking about it, we have not decided exactly what sort of study we might do in the U.S., but we will be hearing more about that in future calls.

Tim Lee - Piper Jaffray

Then just one last one. Anything we should look for to next week at HRS?

Fred Moll

We have some new features that were showing, and weve some presentations and we think its going to be an exciting show for us.

Operator

Your next question comes from the line of Mimi Pham - JMP Securities.

Mimi Pham - JMP Securities

If you exclude your sort of top users, would you characterize the middle or average utilization for your installed base at around two cases per month, is that fair math?

Fred Moll

Two cases a month? Im sorry; youre talking about the middle third, thats what you are saying?

Mimi Pham - JMP Securities

Yes, just sort of the middle, I mean excluding your top users sort of the bulk of your installed base out there and do you get a sense, are they getting it some time?

Fred Moll

I think the bulk is a little bit better than that, we characterize high volume users as sort of 1.5 to 2 a week and sort of medium is 0.5 to 1.5 and below 0.5 obviously they were low volumes. I think the bulk of the people are in the middle.

Mimi Pham - JMP Securities

Okay. In terms of the Tactile vibration feature you are showcasing in HRS, is that already approved?

Fred Moll

That is yes.

Mimi Pham - JMP Securities

You talked about your smaller diameter catheter for the EP application, you didnt give a time line, but is that some thing potentially in 09 or is that 2010?

Fred Moll

In Europe it may be in 09 probably not in the U.S.

Mimi Pham - JMP Securities

Just to clarify the small diameter, you can still fit changing [inaudible] device through to Artisan?

Fred Moll

Yes, I dont want to talk too much about the architecture. Were very excited about it, but were not really talking about the architecture at this point.

Mimi Pham - JMP Securities

Then on your European study, Sensei data would come out in the fall. Does that mean that end points are shorter term like 90 days or three months, are you collecting six months or longer term?

Fred Moll

Yes, we are, but we plan on doing some reporting on the data when its fully enrolled and when we have short term data to talk about.

Mimi Pham - JMP Securities

Then last question in terms of talking about our cash flow breakeven, what are your assumptions in terms of gross margin at that point?

Steven Van Dick

I think we are assuming gross margins that are cash flow breakeven would be in the somewhere in the high-50% to low-60%.

Operator

(Operator Instructions) Your next question comes from the line of Suraj Kalia – SMH Capital.

Suraj Kalia – SMH Capital

Fred, the system placement seems to be a track based on what youre lacing over the last few quarters. However system utilization is based on the Artisan catheters being shipped does not seem to be picking up at least by the numbers that I have. When you say that the demand for technology is increasing, are you all measuring in more the strategy is more to broaden penetration or is it more to deepen penetration?

Fred Moll

Both and I wouldnt agree with you that its not picking up. In any new technology youre going to have high volume users, sort of medium volume users and low to no volume users based on sort of where they are in the cycle of when they bought it, how well they were trained, what their initial experience was and does not say that we dont have work to do on the low volume users to get them to reasonable volumes, but we also have people that are having enormous success with the product, and so Ill give you an example of the best in the industry with regard to catheter utilization is Biosense Webster which we believe to be selling essentially two catheters a week, 2.1, 2.2 catheters a week.

So when we say we have some clinicians doing two, three, four catheters a week and some clinicians doing less than one. I think exactly what you expect at this stage and as we continue to sell more catheters every quarter, we think were in track with building utilization, were not where we want to be in every account there is no question about it, but we do see very positive trend in the customers that have really embraced the product and are utilizing it on a routine basis.

Suraj Kalia – SMH Capital

Fred, this might be a little early or even a little tough at this stage given the number of units out there, but do you have any anecdotal evidence whether in the U.S. or in Europe in terms of what are the repeat touch up procedures that are needed for the procedures used with the Sensei?

Fred Moll

Touch up, you mean redoes.

Suraj Kalia – SMH Capital

Yes.

Fred Moll

We dont have data, honestly I cant comment on that just because we dont have a lot of visibility on the rate of redoes. Im not saying we dont have redoes, Im just saying we havent gotten a lot of data that weve had a lot of redoes and so I just honestly dont know how to comment on that.

Suraj Kalia – SMH Capital

Steve in terms of the SG&A levels for 2009 if I heard it correctly they would be less than the 2008 levels. If I remove the Luna litigation and the $1.2 million or so that was set, is the implicit assumption that the selling process towards the second half of the year becomes easier and hence youll be able to keep the line item equal to or less than 2008 levels?

Steven Van Dick

Yes, we expect that the efficiencies that weve been working on in the cost reduction and the cost scrutinization that we are doing is going to be able to allow us to bring SG&A expenses lower in 09 than what you saw in 2008.

Suraj Kalia – SMH Capital

And finally, Fred in terms of that relationship with Advanced Cardiac Therapeutics for reading lesion temperature. You are putting in temperature that is the IntelliSense for force contact and there was intercardiac navigation, ultimately you have to tie all of this in terms of clinical outcomes and possibly cost effectiveness.

Do you have any color right now in terms of the time line, how long do you see this playing out and at would you all be in a position to come and effectively say physician so and so, I need to pump up my price by 10% or so because this is what added features that Im giving you or not for that matter.

Fred Moll

Yes, its a great question. We think that procedures in electrophysiology can be augmented dramatically by more and better clinical information and we believe that we will be able to make a case that catheters that give you more information, should be more valuable. I mean that certainly has been the mantra of the mantra of the mapping and ablation catheters to date sold by other companies.

Its going to take some time to show that better information leads to better outcomes, but I think were beginning to gather information as I talked about that suggest that just better contact and the ability to more carefully move a catheter inside the atrium is responsible for better outcomes.

We dont have enough of that data to convince the world that were sufficiently better, that there is overwhelming evidence that we have a better capability, but I think we are building that evidence and I think temperature sensing and force sensing are at the end of the day, so logical with regard to the needs associated with doing better ablation that were very willing to bet that in developing and bringing those capabilities to market that we will be able to incrementally increase the value and charge for that value.

Suraj Kalia – SMH Capital

Fred, sorry, Ill just squeeze in one more if I could. To that point, Fred when you talk about temperature, would it make more sense just to measure the lesion temperature and hence make a determination of transmitter lesions or do you think since we know 30o C is the threshold there, where death occurs, the irrigated catheters thats really what theyre trying to do and you just keep on pumping in more energy so that you dont achieve charring.

Is it like the same thing we are doing just in two different ways? How do you see that playing out?

Fred Moll

No, I think there is a fundamental problem associated with current irrigated ablation catheters that have thermistors that measure the temperature at the tissue surface which have very little to do with the tissue temperature inside the tissue. So this sensor has the ability to look into the tissue two or three millimeters and read tissue temperature in the wall of the atrium which is the only place you really care about it. You dont care whats going on at the surface, you care what about where the tissue temperature is, and so I think, it does add a very significant piece of information that you cant get with conventional gap.

Operator

Your next question comes from the line of [Richard Sack] - First Allied Securities.

Richard Sack - First Allied Securities

The literature that you put out typically has a statement that says the safety and effectiveness of the Sensei system for use with cardiac ablation catheters in the treatment of cardiac arrhythmias, including Atrial fibrillation have not been established.

My question is at what point in time or in the number of cases will it have been deemed to be effective and what are the criteria and wholl establish the process as effective?

Fred Moll

So, we are currently approved for mapping in the chambers of the heart. We are embarking on a study to change the indication for our catheters for approval of doing certain ablation procedures, and that process starts this year and we believe well receive an ablation indication sometime in 2010

Steven Van Dick

I mean in essence that statement that you read is a statement that was mandated by the FDA due to the type of label that we do have and that we provided data to get to be able to change that statement, we have to go through a regulatory process with the FDA with 510(k) or PNA where it is were trying to get toe able to say something different than that.

Operator

(Operator Instructions) I show no further questions in the queue. Id like to turn the call back over to management for any closing remarks.

Fred Moll

I appreciate everyones attention and look forward to following up with you at our next earnings call.

Operator

And ladies and gentlemen, this concludes the Hansen Medical, Inc. first quarter 2009 results conference call. If youd like to listen to a replay of todays conference, please dial 303-590-3030 or toll free 800-406-7325 and enter access code number 4066278. ACT, wed like to thank you for your participation. You may now disconnect.

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Source: Hansen Medical Inc. Q1 2009 Earnings Call Transcript
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