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Hansen Medical, Inc (NASDAQ:HNSN)

Q1 2013 Earnings conference call

May 08, 2013 5:00 pm ET

Executives

Peter J. Mariani – Chief Financial Officer

Bruce J Barclay – President and Chief Executive Officer

Analysts

Michael A. Dinerman – Piper Jaffray, Inc.

Chris T. Pasquale – JPMorgan Securities LLC

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Hansen Medical’s 2013 First Quarter 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 May 8, 2013.

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

Peter J. Mariani

Thank you, Camille. Good afternoon, everyone. Welcome to Hansen Medical’s first quarter 2013 results conference call. My name is Pete Mariani and I am the Chief Financial Officer of Hansen Medical. With me today is Bruce Barclay, Hansen Medical’s President and Chief Executive Officer.

As we begin today’s call, please remember that our comments today contain forward-looking statements regarding among other things statements relating to the goals, plans, objectives, milestones and future events. All statements other than statements of historical facts are statements that could be deemed forward-looking statements including statements containing the words, plan, expects, potential, believes, goal, estimate, anticipates, outlook and similar words.

These statements are based on the current estimates and assumptions of management as of the date of this press release and 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 forward-looking statements made in this call. Examples of such statements, includes statements about the potential benefits of the Magellan Robotic System for hospitals, patients and physicians, the anticipated range of commercialization of the Company’s Robotic Systems and the range of estimated procedures for 2013, expectations of gross margins and operating expenses for 2013, and the anticipated timing of commercial launch of 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 challenges in developing new products and entering new markets; the commercial viability of the Company’s products in the vascular markets; potential safety, and regulatory issues that could slow or suspend sales; the effect of economic conditions on capital spending by potential customers; the uncertain timelines for the sales cycle for newly introduced products and the resulting difficulties in forecasting the timing of sales; failures to close system sales with interested prospects; the rate of adoption of systems and the rate of use such systems by hospitals and physicians; the scope and validity of intellectual property rights applicable to our products; competition from other companies; the ability to recruit and retain key personnel; the ability to maintain adequate internal controls over financial reporting; the ability to manage expenses and cash flow, and obtain additional financing; possible failure of the parties to execute final settlement documents related to Class Action lawsuit or to obtain court approval of the settlement or delays in final court approval of the proposed settlement.

And other risks more fully described in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013 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 call. The Company undertakes 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

Thanks, Pete, good afternoon, everyone. Thanks for joining us today for our first quarter conference call. During today’s call, I will provide updates on utilization, our Magellan launch activities and the progress we’re making with our overall sales pipeline. In addition, I’ll detail reasons why we have growing confidence in our business, leading to the outlook we provided today.

Finally, I will review progress within product development and review our top line financial results. I’ll then turn the call over Pete who will review our financial results for the first quarter in more detail. Pete and I will then take your questions at the conclusion of our prepared remarks.

I want to start by discussing the growing confidence we have in our business as a result of several developments that have occurred in recent months. As evidence of this growing confidence as you’ve seen from today’s press release, we are now providing a full year outlook for commercialization of robotic systems as well as a range of expected robotic procedures to be performed in 2013.

This growing confidence is primarily driven by five key factors; first, continued utilization growth, second, breadth of procedure types and positive clinical experiences being generated with the Magellan System, third, advanced discussions with certain accounts regarding potential purchases, fourth, advanced discussions relating to the possible establishment of several regional training and reference centers, and fifth, continued evolution and growth of our sales force.

I’ll now review each of these five key factors in detail. Starting with utilization, physicians performed an estimated record 781 robotic procedures during Q1, marking the seventh consecutive quarter of procedure growth and an increase of 23% year-over-year and 3% sequentially. The sustained procedure growth seen over the past, nearly two years, validates our technology and is further evidence of the value we believe physicians and hospitals can and are deriving from our intravascular robotic systems.

Based on the significant procedure activity seen in Q1 and that is expected for the remainder of the year, we now expect physicians to conduct 3,100 to 3,400 procedures for the full year, which would represent year-over-year growth of approximately 15% to 25%. Specific to Magellan, we’ve made significant progress with system placements leading to growing clinical utilization. At the end of Q1, we had shipped a total of 11 Magellan Systems worldwide since our initial launch. Nine of these systems are clinical systems that were installed and used by physicians by March 31 and two of the shipped systems are training and research systems.

Of the nine clinical systems, three are located in the U.S. and six are in Europe. Also five of the eleven systems have been sold and reported as revenue and six were placed under our commercial evaluation program. Of these six systems under commercial evaluation, five continue to be evaluated for purchase by other hospitals as the physicians continue to generate clinical cases and one we agreed to convert to a monthly payment program effective April 1 until the budgeted capital dollars at the hospital are available in Q4.

Second, the growing utilization we are seeing is delivering positive experiences in a variety of clinical anatomy at these hospitals. To-date, approximately 150 vascular cases have now been performed using the Magellan System. These cases include the upper extremity like subclavian vessels, the lower extremity in the femoral iliac anatomy including internal iliac arteries and cases in the aorta including viscerals to the aorta like the renal and mesenteric arteries.

Magellan System is being used to access multiple clinical targets in both the arterial and venous vasculature. And as we announced last week, there is a growing body of clinical experiences and interest in the use of intravascular robotics in the aortic arch and especially the carotid arteries.

In addition of results from a preclinical study describing potential benefits of our robotic technology for the treatment of carotid arteries were published in December in the Journal of Cardiovascular Surgery. The study was conducted by a team of clinicians under the guidance of Professor Nick Cheshire of St. Mary’s hospital. The purpose of the study was to investigate whether the use of robotic technology could reduce the embolic risk associated with carotid artery stenting. The study was performed using a predecessor robot to Hansen Medical’s Magellan Robotic System in a pulsatile in vitro model of the aortic arch and carotid arteries.

The authors described that a common concern of endovascular intervention in the arch and carotids is the risk of embolization and the resulting neurologic deficit including stroke, due to the presence of vessel tortuosity, angulation, arterial plaque, and calcification, and poor patient selection. The preclinical data suggest that endovascular robotic technology may facilitate endovascular intervention to improve the catheter maneuverability, stability, and control even for less experienced interventionist.

Since the study Magellan has been used in patients to treat carotid arteries as well. They are now over 10 specific publications describing clinical experiences with the Magellan System. Additionally the Magellan has been the subject of several presentations and has been demonstrated in multiple live cases at conferences.

Dr. Barry Katzen has already performed four successful live cases and Professor Jean-Pierre Becquemin and his team at Henri Mondor Hospital in Paris, France, are expected to perform five live cases with the Magellan System at the EuroPCR conference later this month. Live cases such as these help demonstrate the real-world medical utility of the Magellan System and now it can enhance endovascular procedures. We’ve received very positive feedback from physicians and others on these live cases.

I am also pleased to announce that the first case is in Germany using the Magellan System recently performed at The Heart and Vascular Center Bad Bevensen. These cases were performed by Dr. Thomas Nolte, Director of The Vascular Center of the hospital.

In addition to this the Magellan System received increased visibility in France last month, when a robotic procedure performed by Dr. Nabil Chakfe at Hospital Civil Strasbourg, in Strasbourg France was featured in a broadcast of the French national news. Third, the continued growth in utilization and breadth of procedure types, it’s having a positive impact on the sales pipeline.

As we mentioned in this afternoon’s press release we are currently in advanced discussions with several key accounts regarding the potential purchase of systems and we remain encouraged by the direction of these conversations.

Given the status of these discussions we now anticipate the commercialization of 14 to 17 robotic systems in 2013. While they are certainly no guaranty that these hospitals will ultimately enter revenue generating transactions with us in 2013. We are encouraged by the direction of these ongoing conversations to remain optimistic about the potential of these opportunities. We are specially encouraged by these opportunities given the continued challenging capital environment within hospitals.

As we said previously the sales cycle for capital equipment typically takes six to 18 months. However purchasing decisions are being prolonged even further due to hospital budget constraints and the continued soft macroeconomic environment. Despite these challenges we remain encouraged by our growing sales pipeline.

In short our commercialization effort essentially boils down to three phases; the first is to prove the technology, which we have done and are continuing to do with growing number of procedures and the increasing number of doctors performing them.

The second phase is to prove the value proposition or the ROI, which we are currently doing with the number of targets including those that have installed evaluation units in their hospital.

The third phase is to work with hospitals through their capital approval and purchase process, which in many instances tied to an annual calendar including specific dates by which purchases are approved and capital is released. This is where a number of our pipeline opportunities stand today. Although it’s very difficult to predict timing of these decisions, we’ve growing confidence that we’re successfully navigating this process in many accounts.

As you recall we said at the outset of the U.S. launch of Magellan, our initial plan was to focus on commercialization strategy and our commercialization strategy on partnering with a select group of esteemed physicians who are both influential and early adopters of new technologies in the industry. In this regard, we’ve made significant progress at the top of the sales funnel given the number of important relationships we’ve established with well known physicians and prominent hospitals across the U.S. and Europe.

These thought leaders continue to be enormous advocates of the technology and their positive experiences with Magellan has helped to drive further interest and adoption of our technology. We continue to receive positive feedback from other physicians as well.

Fourth, we are in the process of establishing regional reference and trading centres for physicians. These training centres will be valuable educational resources for physicians to become more familiar with our technology and will serve as an important sales for our company given many hospital require clinical case observation, physicians feedback and test drive is part of their due diligence prior to a repurchase. We’re currently, in advance discussions with multiple institutions across both the U.S. and Europe to become regional training and reference centers. It is anticipated that each of these potential regional training and reference centers would purchase both a clinical and a pre-clinical system. And along these lines, we’ve been increasingly hosting prospective customer visits to our Mountain View, California headquarters, which afford visiting physicians and members of hospital administration the opportunity to test drive our systems, learn more about our technology to our facility and get to know our people better. It is our belief that this initiative along with our strengthened sales force and regional training and reference centers will help increase adoption of our systems over time.

And fifth, the strength of our pipeline is a testament to the dedication and excellent work being done by our recently enhanced sales force. As you know, we’ve spent the better part of the last 12 months bolstering and growing this team and as our current pipeline indicates these efforts are beginning to pay off. One way we have been improving our sales force is by focusing on hiring sales representatives with significant experience in selling capital equipment in the healthcare industry. We’re also filling important positions in clinical support and management, marketing and sales operations.

Also recall that in January, Bob Cathcart joined the company in the newly created position of Senior Vice President, Global Sales. Bob has nearly 30 years of sales, management experience and intervention of cardiology and his key appointment will allow us to more efficiently execute on global sales strategy.

To summarize, we have a growing sense of confidence in our business that is being driven by five key factors. The first of these is the continued utilization growth we are seeing as we just delivered our seventh consecutive quarter of procedure growth. The second is the breadth of procedure types and positive physician experiences being generated through the use of our Magellan Systems. We’re encouraged by the wide range of clinical anatomy in which the Magellan System is being used to treat patients with peripheral vascular disease.

In addition, the status of the advanced discussions we are in with potential purchasers of our technology and those institutions you may serve as regional training and reference centers for the Magellan System are also critical factors in our increasing confident view. And finally, we continue to enhance our sales force with key hires that are positively impacting the pipeline.

Before I briefly review the quarter’s performance, let me touch on a few product development-related initiatives. One strategy we have to grow Magellan installed base and increase utilization is to develop and launch a suite of catheters for use with the robot in multiple clinical applications. As we often say, intravascular robotics at Hansen is very much a platform technology and our strategy is to leverage it into a broad spectrum of clinical anatomy and to do that we need additional catheter types and sizes. Our technical and development teams are making exceptional progress in this effort.

Under the direction of Will Sutton, Chief Operating Officer and Francis Macnamara, our VP of Advanced Technology we’ve never had a more talented, committed and productive team of engineers and scientists in our product development area, and as evidence of that between now and mid-2014, we expect to have on the market in commercially available a number of new vascular products. First, a lower profile 6F catheter, initially with a peripheral indication to be launch this year and later with a coronary indication available next year. Second, a lower cost 9F Magellan catheter with improved clinical workflow and a much reduced cost of manufacturing available this year.

Third, a larger internal diameter peripheral catheter comparable with a greater number of treatment catheters available next year, and a doubling of this shelf-life dating of current Magellan catheter just completed and now being rolled out. Of significance is the lower profile 6F catheter, a highly innovative product. By comparison the current 9F catheter has two separate and independent telescoping catheters, each with a single dispelled bending section. However this design does not allow us to reduce the diameter by about a third necessary to access smaller vessels. And so our engineers developed a proprietary single catheter with two separate and independently controlled bending sections in it. This catheter would be launched first for peripheral indications and later for coronary applications, and this coronary indications has the potential to about double the size of the currently available peripheral market.

Finally our innovative engineering team allowed us to continue to expand our broad and deep patent portfolio during the first quarter, with the filing of 30 additional U.S. patent applications relating to flexible robotics. Hansen Medical now owns or has exclusive rights to approximately 250 issued and pending patent applications relating to medical robotics, in addition to hundreds of other related patents and patent applications, which the Company has the right to use under various third party license agreements.

In another positive development we are in discussions with the FDA regarding an opportunity to streamline our Sensei IDE study and we are encouraged by those discussions. As we communicated in the past in 2010, we received an FDA approved Investigational Device Exemption or IDE to investigate the use of our Sensei system and Artisan Control Catheter in the treatment of atrial fibrillation. The clinical study was designed to support a submission to the FDA to obtain approval for a broader label claim in the U.S. beyond the current mapping indication. This study was planned to enroll approximately 300 patients.

In an effort to obtain the necessary clinical data sooner the modification to the study design was proposed to the FDA in January of 2013. These changes if approved would reduce the require sample size while still demonstrating safety and effectiveness of the device in atrial fibrillation treatment procedures. If successful, we intend to use the data from this study to support a submission to the FDA to obtain approval for a broader label claim for use of atrial fibrillation procedures. The IDE application was submitted to FDA last month and is under review with the Agency. We’ll update you further once we have affinity feedback.

With that I’d like to provide a top line overview of the first quarter financial results. Total revenue for the first quarter was $2.9 million and the Company shift 4 systems, one Sensei in the U.S. and three Magellan evaluation systems in Europe. You recognized revenue one Sensei system as well as the shipment of 592 catheters.

Catheter sales were up 3% compared to the first quarter of 2012 and down 30% sequentially. Consistent with the prior year, this sequential decrease in catheter sales in the phase of a much higher quarterly procedure number was the result of hospital reducing their inventories from year end levels.

In summary during the remainder of 2013, we will continue to focus on the global launch of our vascular platform, drive EP adoption and enhance operational excellence. For the full year, we now anticipate the commercialization of 14 to 17 robotic catheter systems as well as total estimated producers of between 3,100 and 3,400. We also we expect to see improvement in gross margins over 2010, based on current volume assumptions with product sales and increased efficiency from cost saving initiatives.

Finally we continue to anticipate that operating expenses will increase moderately as the Company expects to add resources to support the commercial launch of the Magellan. System and continuing adoption of the Sensei System.

We will continue to invest in new products in 2013 and the company anticipates that commercial launch of our 6F vascular catheter for use in smaller vessels peripheral applications by the end of 2013.

I’m optimistic about Hansen Medical’s future. We continue to see increased clinical utilization, we have a robust pipeline of clinical interest in our systems and I’m encouraged by the ongoing budget discussions we’re having with hospitals that are evaluating system purchase. We also have made significant steps to strengthen our sales force and leadership team and I’m confident that these initiatives will help grow our business well into the future.

With that, I’d like to turn the call over to Pete to discuss our first quarter 2013 financial results.

Peter J. Mariani

Thank you, Bruce. As Bruce mentioned, we recorded quarterly revenue of $2.9 million primarily on the recognition of revenue on one Sensei System and the sale of 592 catheters. Revenue declined 37% over the first quarter of 2012 and 32% sequentially due primarily to lower system sales.

Catheter sales were up 3% compared to the first quarter of 2012 and down 30% sequentially, and again as Bruce noted, this is consistent with last year’s first quarter when hospitals reduced the level of catheter inventory held compared to year-end.

The Company shipped one Sensei System in the U.S. and three Magellan Systems international during the quarter. All three of the Magellan Systems shipped in the quarter were under our commercial evaluation program.

We estimate that physicians performed a record 781 Hansen robotic procedures during the first quarter, representing year-over-year increase of 23% and up 3% sequentially. This is the seventh consecutive quarter of procedure growth. Gross profit was $469,000, or 16% of first quarter revenues compared to gross profit of 732,000 or 16% of revenue for the same period in 2012. The decrease in gross profit dollars was primarily due to lower system sales. However our efforts to lower the cost of materials and implement lean manufacturing processes continue to positively impact our gross margin percentage.

Research and development expenses for the first quarter were $4.1 million, compared to $4.3 million from the same period in 2012.

Reductions and total development spent through lower employee temporary and contractor cost totaling approximately $600,000 were offset by approximately $400,000 of additional non-cash stock-based compensation expense compared to the first quarter of 2012.

Selling, general and administrative expenses for the first quarter were $7.4 million, flat with $7.4 million for the same period of 2012. Decreases in commissions due to lower sales volume and other employee-related costs totaling approximately $800,000 were offset by increases in professional fees, primarily legal fees due to the increased patent applications activities of approximately $500,000 and additional non-cash stock compensation expenses of approximately $300,000 compared to the first quarter of 2012.

This afternoon we also issued a separate press release announcing that we have reached an agreement in principle to settle all claims related to the Class Action suit regarding the restatement of Hansen Medical's financial statements that was first reported in October 2009. The settlement is subject to execution of final documents and to final court approval, which we expect to receive within approximately six months.

As a result, the Company recorded a loss on settlement of litigation of $4.5 million in the first quarter. The loss represents the Company’s portion of the total $8.5 million settlement amount, whereby the Company’s insurance provider and another third party will fund $4 million of the settlement in cash, and the Company will fund the remaining portion by paying $250,000 in cash and issuing $4.25 million worth of shares of common stock. The numbers of shares associated with the $4.25 million will be determined based on the average closing price of the Company’s stock for the 10 trading days preceding final court approval of the settlement of the Class Action.

Other expenses net amounted to approximately $1.6 million in the first quarter of 2013 compared to $866,000 in the first quarter of 2012. The increase was primarily due to a $586,000 write-down of an equity investment that we recorded in the quarter.

Net loss for the first quarter was $17.2 million, or $0.26 per share, based on average shares outstanding of 67.3 million. This compares to a net loss for the first quarter of 2012 of $11.8 million, or $0.20 per share, based on average shares outstanding of 60.5 million. The charge associated with the $4.5 million litigation settlement in the quarter amounted to a loss of approximately $0.07 per share.

Net income for the first quarter of 2013 included total non-cash stock compensation expenses of $1.1 million compared to $279,000 in the first quarter of 2012. The first quarter of 2012 included a one-time adjustment of $740,000 related to previously recorded expenses for the Company's employee stock purchase program affecting all expense categories.

Turning to the balance sheet, cash, cash equivalents and short-term investments as of March 31, 2013 were $31.3 million compared to $41.2 million as of December 31 of 2012. Cash burn in the quarter was $9.9 million compared to a cash gain of $19.5 million in the fourth quarter of 2012. The fourth quarter cash position was positively impacted by the receipt of $30 million from the expanded licensing agreement and stock purchase by Intuitive Surgical, and negatively impacted by $620,000 valuation adjustment of a short-term investment. Excluding these two items, the comparative cash burn in the fourth quarter would have been $9.9 million.

Accounts receivable decreased to $3.4 million at March 31 compared to $5.2 million at December 31, 2012. Inventories increased to $10.7 million at the end of the quarter compared to $9.1 million at December 31. The inventory growth represents increases in robotic catheters and systems primarily in support of the Magellan launch including three additional robotic systems placed in the quarter under our commercial evaluation program. The Company currently has six Magellan Systems and one Sensei System under evaluation agreements and those units will remain in our finished goods inventory through the duration of their evaluation program.

As of March of 2013, we had $2.4 million of deferred revenue on the balance sheet, all of which was related to deferred revenue on service contracts. Total debt on March 31 was $29.5 million compared to the balance of $29.4 million at the end of the year.

Additionally, in March of this year we executed a $25 million at-the-market agreement. These facilities are becoming a more common tool similar to self registrations and would allow us to offer and sell shares of common stock and our discretion and from time to time in response to natural strength and institutional investor demand and/or existing market liquidity and at a lower cost. There is no obligation to sells shares under the program and we control the parameters of the sale including the minimum price, number of shares and timing. To-date we have not offered or sold any shares under this agreement. We continue to evaluate financing options including debt, licensing and equity sources to ensure adequate funding of operations.

Finally, we are continuing our operational improvement initiatives in order to position the Company for future success. Our employees are working hard to deliver additional efficiencies across the Company. As Bruce mentioned earlier, we expect operating expense levels to increase moderately in 2013 as we are adding resources in support of the commercial launch of Magellan and the increased adoption of our Sensei system. Our success continues to be dependent upon the clinical adoption of our robotic systems as well as the macroeconomic environment. But believe we are well positioned to support and drive this growth and improve our financial results. That includes our summary of the financials.

I’d like to pass the call back to the operator for Q&A. Camille?

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we’ll now begin the question-and-answer session. (Operator Instructions) Our first question is from the line of Brooks West with Piper Jaffray. Please go ahead.

Michael A. Dinerman – Piper Jaffray, Inc.

Yeah, hi. This is actually Michael Dinerman for Brooks. I was just wondering if you could, if there’s any breakout or any anticipated breakout between the Magellan and Sensei Systems that you’re projecting at the end of the year.

Bruce J. Barclay

No. We’re not going to break that out at this time.

Michael A. Dinerman – Piper Jaffray, Inc.

And do you have any thoughts on ASP, any update there as far as what that might be?

Bruce J. Barclay

No. We give the ASP updates at the end of the year, both for catheters and for systems.

Michael A. Dinerman – Piper Jaffray, Inc.

Okay. Thank you.

Operator

Thank you. Our next question is from the line of Chris Pasquale with JPMorgan. Please go ahead.

Chris T. Pasquale – JPMorgan Securities LLC

Thanks. I want to start by just trying to understand the commercial evaluation program a little better. You’ve described it as something that was restricted to certain strategic accounts, but so far it’s accounted for most of the Magellan placements. Ultimately, how many customers do you expect to offer it to before you transition to a more normalized sales process?

Bruce J. Barclay

Yeah, we’ve got six. We had six evaluation systems out there and then just converted one of those into a rental program, so five today for Magellan. We have, I think, one more potential evaluation program going forward, but we don’t anticipate using it a lot more. We have been pleased with the results of the program. It is definitely being used in the counts to help generate data selling catheters and we are seeing the purchase of the system advance nicely through the various hospitals where they have placement. So I think at this point it’s been successful from our perspective, but we don’t anticipate using it much more.

Chris T. Pasquale – JPMorgan Securities LLC

Okay, and that’s helpful. And then just one question on the sales force, you’ve talked about some of the changes that you’ve made. How the sales force being incentivize today, how much of the emphasis is on system placements versus catheter sales and is it procedure volume or catheter sales and replacements are actual revenue recognition of systems to generates the incentive events for the sales force

Peter J. Mariani

Yeah, good question. We get our catheter sales force and clinical support sales force, the clinical group is primarily compensated on procedures and catheter sales, and not compensated on the system sale. But the catheter sales team is primarily compensated for revenue transactions of the system sales. They are not compensated on just simply placing an evaluation system. And then they also get some of a little bit of compensation on procedures in catheters.

Chris T. Pasquale – JPMorgan Securities LLC

Great, thanks.

Bruce J. Barclay

Thanks for the call.

Operator

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

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Hi, thanks for taking my questions. So firstly, could you discuss a little bit about the economic arguments that you’re making to the hospitals as far as Magellan’s when it comes to ROI and other value propositions?

Peter J. Mariani

Yeah, sure. Our ROI is about bringing additional patients into the hospital and the ability to handle those patients more efficiently and handle higher volumes through the increased predictability of the process with the Magellan System and through that, what we have demonstrated to these hospitals is that they can be a more efficient with their everyday cases, and have pure complications with their tougher cases, and in general bringing more patients, handle them at a lower cost and increase the utilization and profitability of what is already their most profitable assets, their cohorts and cath labs and EP labs and through that generate a return on investment that between two years and four years is generally what we walk-in with, and then we sit down with them and go through their specific data and adjust that as necessary and walked in through a model that makes sense for their account.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

So, you think just cases of current installations that are taking procedure volume away from others because they have Magellan’s currently?

Bruce J. Barclay

Well, we’re certainly seeing examples where some of our physicians are talking about the calls and inquiries they are getting once they have seen some of the media events that have occurred around placement, we’ve seen that in certainly in London, and in Strasbourg where they have done some of those as well, and those are the accounts that have been public for some of their marketing campaigns, and then some of these others, who are just completing their valuation program is, they’re just beginning to become more public with their system, and also Dr. Lumsden in Arlington, Dr. Bismuth in Arlington has published his paper on the use of the Sensei which even though it’s the Sensei, it’s still the same concept that where he was able to increase his patient flow by 76% in the first year because of his ability to handle more patients and handle them more timeline effectively with the Sensei system and we used that paper effectively when we are working through these purchased physicians with hospital gone Magellan.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, and could you talk about the learning curve from Magellan little bit, I mean is there a kind of certain number of cases of which point and operators up the speed or is it depended on specific interventions?

Bruce J. Barclay

Truly have been a pleasant surprise actually just compared to Sensei, the learning curve is substantially lower with Magellan system. We’ve got six sites that are doing more complicated cases on their first three to five cases. We still encourage them to start in the lower extremity with more simple cases, but then pretty quickly they’re going into abdominal or thoracic aorta to do cases or side branches lot of those relatively quickly

And I think that’s a combination of number of factors not a least of which is we’ve got a terrific set of training and educational people and materials that we walk everyone through, we support the early cases very closely from our feel personal, and then learn from those, and share that leaning among different sides as we obtain it. So it’s not taking many cases for people to get up the speed, each of our 9 sites that are doing clinical case today have multiple physician users as well. And that’s also encouraging, I think that’s reflective of that quick learning curve, it’s not scaring people off, if you will in terms of their ability to learn how to use it and then apply that to their patient practice.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, got it. Pete, where are you putting the device tax under R&D or SG&A.

Peter J. Mariani

SG&A.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

SG&A, okay, and you were talking before about some bolstering up of you sales team and growing it. So I’m assuming that comes at a cost. Is that correct?

Peter J. Mariani

Well, certainly and that’s why we’re saying we do expect expenses to grow moderately. You might remember we took some spending down on the back half of last year, which allowed us to, we focused R&D spend down. We took our G&A spend down in an effort to free up additional resources for sales, marketing, clinical resources and we’re beginning to spend that money. Net, we do expect expenses to grow moderately across the year and most of that is going to be related to expanding our commercial operation.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

So will you expect those two line items to kind of mirror image what 2012 did from beginning to end and then see 2013 from end to beginning?

Peter J. Mariani

Mirror image. I’m saying that total expenses in 2013 would grow over 2012 and that you would see most of that growth would essentially be in support of our sales and marketing team or show up in the S&A line with the R&D being flat to down from last year.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, got it. Just a couple more, that $586,000 was a write-down of equity investment? I didn’t see equity investments. I just saw cash, cash equivalents and short-term investments.

Peter J. Mariani

You’re right. It’s a short-term investment. It was classified as a short-term investment.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

But it was in an equity?

Peter J. Mariani

Yes. It’s the investment in Luna that we’ve had, which, again at fourth quarter we talked about how we took a charge on the balance sheet.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Right.

Peter J. Mariani

And put it in equity. And as we came through the first…

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Was that marked down or was that marked to zero?

Peter J. Mariani

I’m sorry.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Was that marked Zero.

Peter J. Mariani

I’m sorry

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Was that mark down or just zero.

Peter J. Mariani

Marked down, yeah.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, so what’s have been carried at now?

Peter J. Mariani

I don’t have it in front of you, it’s whatever their current stock price is what we market now.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, and last one, so for the quarter $0.01 in 592 catheters…

Peter J. Mariani

Yeah.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

But I’ll get a sense and call it 600 or 6.25 that’s $3,960 for catheters, does that make sense to you.

Peter J. Mariani

$3,960 no, because are you counting for the service…

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay, so what was the service component for the quarter? Could you give me an approximation?

Peter J. Mariani

Yeah I will give you the number and just, hold on, sorry about that. Jeff why don’t we go and when I get I’ll speak about it.

Jeffrey S. Cohen – Ladenburg Thalmann Securities

Okay that’s it from me. Thank you very much.

Peter J. Mariani

Thanks.

Bruce J. Barclay

Thanks for the call Jeff.

Operator

(Operator Instructions)

Peter J. Mariani

While we are waiting the service revenue in the quarter was about $1.3 million, which was about flat year-over-year. So next question.

Operator

I’m showing no further questions at this time please continue.

Bruce J. Barclay

Thank you, operator. Thanks everyone for joining us today for our first quarter 2013 conference call. We look forward to providing you with the results of our second quarter in August.

Operator

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.

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Source: Hansen Medical's CEO Discusses Q1 2013 Results - Earnings Call Transcript

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