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Executives

Bruce Barclay - President & Chief Executive Officer

Peter Mariani - Chief Financial Officer

Analysts

Josh Jennings - Cowen & Company

Brooks West - Piper Jaffray

Jeffrey Cohen - Ladenburg Thalmann & Co.

Sherry Grisewood - William Smith & Co.

Hansen Medical, Inc. (HNSN) Q2 2013 Earnings Conference Call August 7, 2013 5:00 PM ET

Operator

Good day ladies and gentlemen and thank you for standing by. Welcome to the Hansen Medical, 2013-second quarter results conference call.

During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions).

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

Peter Mariani

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

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

These statements are based on the current estimates and assumptions of our 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 forward-looking statements made in this call.

Examples of such statements, include statements about the expected closing of the company’s private placement, the 2013 outlook provided with regard to commercialization of systems, robotic procedures and certain financial results, the anticipated timing for the clearance and launch of a 6F vascular catheter, the pace of enrollment in the valuation of our clinical trial and the anticipated growth of Hansen Medical Intravascular Robotics technology for EP and vascular applications.

Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include among others: potential delays and the anticipated closing of our private placement transaction, engineering, regulatory, manufacturing, sales and customer service challenges in developing new products and entering new markets; the commercial viability of our products in the electro physiology and 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 the use of our catheters; the scope and validity of intellectual property rights applicable to products; competition from other companies; our ability to recruit and retain key personnel; our ability to maintain our remedial actions over previously reported material weaknesses and internal control over financial reporting; our ability to manage expenses and cash flow, and obtain additional financing and other risks more fully described in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 10, 2013 and the risks discussed in other reports filed with the SEC.

Given these uncertainties, you should not place undue reliance on the forward-looking statements in this press release. 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 Barclay

Thank you Pete. Good afternoon everybody and thank you all for joining us today for our second quarter conference call.

During today’s call I’ll provide updates on utilization, our Magellan commercialization activities and the progress we’re making with our overall sales pipeline. In addition, I’ll review the recent steps we’ve taken to strengthen our balance sheet and detail the growing confidence in our business that drove the updated outlook we provided in this afternoon’s release.

Finally I’ll review our top line financial results for the second quarter and discuss our plans for the remainder of 2013. I’ll then turn the call over to Pete, who will review our financial results for the second quarter and the recent financing activities in more detail. Pete and I will then take your questions at the conclusion of our prepared remarks.

I’d like to start by discussing the significant progress we made during the first half of the year in advancing the clinical utilization of our systems. Coming out of the first quarter we continue to see growing momentum in the business during the second quarter. Nowhere is this momentum more apparent than in the strong procedure rates seen during the first half of the year, which validates our technology and is indicative of the value positions and hospitals are driving from our intravascular robotic systems.

During the second quarter we sold a record 875 catheters, which represents year-over-year growth of 24% and 48% growth sequentially. Physicians also performed a record 864 Hansen robotic procedures in the second quarter, up 36% year-over-year and 11% sequentially. This is the eighth consecutive quarter of procedure growth.

As a result of these strong utilization trends, we are increasing our full year procedure outlook to a range of 3,200 to 3,400 procedures, from our previous expectation of 3,100 to 3,400 procedures, representing potential year-over-year growth of approximately 19% to 26%. This anticipated procedure growth would be the highest year-over-year growth for the company since 2010.

This growing momentum in our business is also being supported by our enhanced financial position. As you saw from the announcement last Wednesday, we are significantly strengthening our balance sheet by entering into a securities pushed agreement, with a number of new and existing investors, including our two largest shareholders, Oracle Investment Management and leading medical device executive Jack Schuler, as well as certain members of the company's Board of Directors. This agreement will bring in $39 million immediately.

Importantly warrants exercised were for an additional $14 million of common stock, are subject to mandatory exercise following receipt by the company of FDA clearance of our 6F Magellan catheter, which is anticipated in late 2013 or early 2014. Ultimately this transaction could yield our company gross proceeds of up to $93 million before expenses. Pete will delve into the specific details of the transaction when he reviews the financials.

We are very pleased to be securing this capital and believe this investment from our larger shareholders is reflective of the confidence they have in the long-range prospects of our business. As further evidence of this confidence, we are also pleased that this financing includes a lock-up for buying and selling stock for one year. We are gratified that this prestigious group of investors shares our vision for Hansen Medical’s future success with Intravascular Robotics.

Another reason for growing confidence we have in our business is the breadth of procedure types and positive clinical experiences being generated using the Magellan System. Over 200 vascular cases have now been performed to-date using Magellan, demonstrating broad clinical applications in the peripheral vasculature. These cases include procedures in both the arterial and venous vasculature, from carotid down to the lower extremities and including multiple side branches to the aorta.

We’ve made steady progress with system placements leading to growing clinical utilization. At the end of the second quarter we had shipped a total of 12 Magellan Systems worldwide since our initial launch; of the 12, six were evaluation systems and in the quarter one system was converted into a monthly rental program, while the hospital continues to evaluate the purchase of this system and one system has had the evaluation period last, due to the unavailability of 2013 budget dollars at the hospital, which funds we had previously believed would be available this year.

Magellan continues to be the subject of conference presentations and utilized in multiple live cases. Most recently Professor Jean-Pierre Becquemin and his team at Henri Mondor Hospital in Paris performed three live, complex endovascular cases with the Magellan System at EuroPCR conference in May. We’d now have a total of seven live cases performed at three different conferences since Q4 of last year.

Live cases such as these help demonstrate the real-world clinical utility of the Magellan System and how it can enhance endovascular procedures. We’ve received very positive feedback from physicians and others on all of the live cases completed to-date. Key thought leaders continue to be enormous advocates for our technology and their positive experiences with the Magellan system have helped to drive further interest and the adoption of the technology.

In addition to the live cases performed with Magellan, we also continued our marketing efforts with the Magellan and Sensei Systems at other notable industry conferences during the second quarter.

During the quarter we showcased the benefits of the Magellan system at the 2013 Vascular Annual Meeting of the Society for Vascular Surgery in San Francisco; the 8th Annual European Symposium of Vascular Biomaterials in Strasbourg, France; and the 35th Annual Charing Cross International Symposium in London.

Additionally in May we showcased the Sensei system with our new Artisan Extend® Catheters at Heart Rhythm Society's 34th Annual Scientific Session in Denver. This conference included four separate presentations from key opinion leaders, discussing the positive experiences with the Sensei System and the benefits of Robotic contact for sensing.

In addition to these targeted marketing activities, we’ve been taking steps to develop our global sales team with experienced capital and clinical reps. In the first half of this year we’ve increased our global team by nearly 20% and over 50% of the current team has been with the company for less than one year, as we have continued to attract sales leaders with the extensive capital and clinical sales experience.

For the full year we expect to grow the total sales force over 40%, with most of that growth coming from the capital sales team, which will nearly double by year end. The experience of this improved team is contributing to the growth in utilization and the breadth of procedure types being performed and it’s having a positive impact on our sales pipeline.

We remain in advanced discussions with several key accounts regarding the potential purchase of systems and we are encouraged by the direction of these conversations. Additionally we remain in the process of establishing regional reference and training centers for physicians in both the U.S. and Europe.

These training centers will be valuable educational resources for physicians to become more familiar with our technology and will serve as important sales tools for our company, given many hospital require clinical case observation, physician feedback and test drives as part of their due diligence prior to a purchase. It is anticipated that each of these potential regional training and reference centers would eventually purchase both a clinical and a pre-clinical system.

In addition, we recently reached an important milestone in our long-term collaboration with Philips, by securing certified article flow compatibility between our Magellan Robotic System and the Philips' Allura interventional X-ray systems. Article 12 compatibility covers specific technical and service requirements and means that the Magellan Robotic system is compatible with Philips Allura, live in the guidance and systems.

We were pleased to secure this important certification with Philips, our long standing imaging partner for our Robotic systems, as it enables seamless coordination and integration of the Magellan system, with Philip’s most advanced light imaging guidance systems for our hospital and physician customers. We have previously reported that we had already received Article 12 compatibility with Siemen’s X-ray systems.

Based on the continued momentum in our business that I’ve outlined above, we are reiterating our expectation for the commercialization of 14 to 17 robotic systems in 2013. As a reminder, the company uses the term commercialize to refer to revenue generating transactions, which includes both sales and the conversion of evaluation systems. While there is certainly no guarantee that hospitals in our pipeline will ultimately purchase this system, we remain encouraged by the direction of these ongoing discussions and remain optimistic about the potential of these sales opportunities.

We were especially pleased to reiterate our commercialization outlook, given the continued challenging capital environment and prolonged sales cycle within hospitals, which can take up to 18 months after initial interest. Despite these challenges, we remain encouraged by our growing sales pipeline and our ability to demonstrate the value proposition to a number of targets, including those that have installed evaluation systems in their hospital.

Turning now to our EP business, we were pleased to have announced this week that we successfully enrolled the first patient in our new study design of the ARTISAN-AF Trial, a pivotal clinical trial evaluating the use of the company's Artisan® family of control catheters with the Sensei System for the treatment of Atrial Fibrillation.

Recall that back in May we had announced that we received conditional approval from the FDA of this new study design, which reduced the required sample size, while still demonstrating safety and effectiveness of the device in Atrial Fibrillation treatment procedures. This new study design allows for a single arm study and reduced sample size, which is expected to greatly facilitate enrollment in the trial and allow us to evaluate clinical end points in an expedited fashion.

The enrollment of patients into this study is an important milestone for Hansen Medical. If successful, we intend to use the data from the study to support a submission to the FDA, to attain approval for a broader label claim in the U.S., for use of our Artisan family of catheters with our Sensei system NAF procedures. You can see even that the broader label claim has the potential to drive further growth in our U.S. EP business.

Finally we further strengthened our Board of Directors recently with the appointments of Will Weinstein and Marjorie Bowen. Will and Marjorie are both Wall Street veterans that together bring combined 65 years of financial experience to the board. We are happy to have both of them on our board and believe their expertise will be invaluable to our company going forward. In addition, once our private placement transaction closes, Jack Schuler, a leading medical advisor executive will also be joining the board.

With that, I’d like to provide an overview of the second quarter financial results.

As a reminder we issued preliminary second quarter results on July 23 and the results we put forward today are within the ranges specified in that pre release. Total revenue for the second quarter was $3.3 million. The company shipped two systems; one vital in the U.S. and one Sensei in Europe and the third system was converted to a commercial transaction from our violation program. We recognized product revenue on one Sensei system and the monthly rental income from the conversion of the Magellan evaluation unit, as well as the shipment of 875 catheters.

In summary, during the remainder of the 2013 we will continue to focus on the global launch of our vascular platform, drive EP adoption and strengthen operations across the company. We are seeing increased clinical utilization of our systems in a variety of procedural types.

We have a robust pipeline of clinical interest in our systems and are encouraged by the direction of the ongoing budget discussions we are having with hospitals that are evaluating Hansen in purchase. We’ve also taken significant steps to bolster our balance sheet and strengthen our sales efforts 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 second quarter financial results.

Peter Mariani

Thank you Bruce. We recorded quarterly revenue of $3.3 million, consisting of revenue on one Sensei System and the monthly rental income from a Magellan rental unit and the shipment of 875 catheters. The monthly rental income is from the Magellan System that we converted from an evaluation system, to a monthly payment program effective April 1, through September 30, while the hospital continues to evaluate purchase of the system.

Revenue declined 5% over the second quarter of 2012, due primarily to lower system sales and increased 13% sequentially, due primarily to increased catheter revenue. Catheters sold were up 24% compared to the second quarter of 2012 and up 48% sequentially.

Consistent with the prior year, hospitals increased inventory levels in the second quarter following a sequential decrease in the first quarter. Total catheter ASPs continued to grow moderately versus the full year 2012 amounts. The company shipped one Magellan System in the U.S. and once Sensei System internationally during the quarter. The Magellan System that we shipped was sold, but will not be recognized as revenue until a future quarter.

We estimate that physicians performed a record 864 Hansen robotic procedures during the second quarter, representing a year-over-year increase of 36% and up 11% sequentially, and as noted, this is the eighth consecutive quarter of procedure growth.

Gross profit was $576,000 or 17% second quarter revenues, compared to gross profit of 753,000 or 21% 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 second quarter were $4.5 million, compared to $4.6 million from the same period in 2012. Current year research and development expenses were lower compared to the second quarter 2012 due to reduced cost associated with our Magellan Robotic System and other product development initiatives of approximately $500,000, partially offset by increases of $400,000 in clinical activities in the current quarter.

Selling, general and administrative expenses for the second quarter were $8.5 million, compared to $6.8 million for the same period of 2012. The net increase in the current quarter is primarily due to an increase of $1.2 million in legal expenses associated with the settlement of the securities class action lawsuit, patent filing expenses and other corporate matters, as well as $600,000 due to the development of our global sales organization and targeted marketing activities in the quarter. We expect to continue to grow this sales team through the end of the year.

Net loss for the second quarter was $13.4 million or $0.20 per share, based on average shares outstanding of 67.6 million. This compares to a net loss for the second quarter of 2012 of $11.5 million or $0.19 per share, based on average shares outstanding of 61.2 million. Net loss for the second quarter of 2013 included total non-cash stock compensation expenses of $1.3 million, compared to $1 million in the second quarter of 2012.

Turning to the balance sheet. Cash, cash equivalents and short-term investments as of June 30 were $21.1 million, compared to $31.3 million as of March 31, 2013 and $41.2 million as of December 31, 2012. Cash burn in the quarter was $10.2 million compared to a cash burn of $9.9 million in the first quarter of 2013.

Accounts receivable increased to $4.4 million at June 30, 2013 from $3.4 million at March 31, and inventories increased to $11.1 million at June 30, compared to $10.7 million at March 31 of this year.

As of June 30, we had $3.2 million of differed revenue on the balance sheet compared to $2.4 million at March 31 of this year. The increase primary relates to the addition of one Magellan System that was sold in the quarter and will be recognized as revenue in a future quarter.

Total debt on June 30, 2013 was $29.6 million compared to a balance of $29.5 million at the end of the first quarter.

Now turning to our recent financing, we have entered into an agreement for a private placement common stock and warrants exercisable for common stock for up to $93 million with certain investors, including Oracle Investment Management, leading medical device executive Jack Schuler, certain members of the company’s Board of Directors and other existing and new share holders.

The agreement has cleared all regulatory conditions to closing and is scheduled to close and fund by Friday, August 9. Upon closing we will receive approximately $35 million from the sale of common stock at a price of a $1.23 per share, as well as approximately $4 million from the sale of warrants to purchase approximately 34 million shares of common stock at a price of $0.125 each. The warrants have a two-year term and are not transferable.

Total gross proceeds to the company from the initial sales of common stocks and warrants will be approximately $39 million before deducting fees and expenses, which are expected to range between $2.4 million and $2.8 million. The warrants will be allocated into three equal series of approximately $11.4 million each and if exercised, to yield the company additional gross proceeds of up to $54 million.

The Series A warrants have an exercise price of $1.23 per share and our mandatoraly exercised subsequent to Hansen Medical’s receipt of regulatory approval of the new smaller 6F Magellan Catheter in the U.S., which we expect by late 2013 or early 2014. The additional gross proceeds we would receive for this Series A warrant will be approximately $14 million.

The series B and series C warrants have an exercised price of $1.50 per share and $2 per share respectively, but are not subject to mandatory exercise. These warrants, if fully exercised, will provided additional proceeds to the company of $17 million and $23 million respectively or up to another $40 million in total by the third quarter of 2015.

Additional terms of the deal provide that each investor in subject to a one-year lockup agreement, providing that they will not buy or sell any shares of common stock other than for the purpose of exercising warrants for a one year period following the closing date.

We are pleased to be securing this additional funding of up to $93 million over the next two years and as a reminder, we have not provided specific financial guidance. However, this funding will provide us the opportunity to continue to fund operations as we further develop the clinical adoption of these robotic systems and achieve our commercial goals.

Additionally, last week we also disclosed that given the significance of this recent equity financing, that we have differed the close of the previously announced debt agreement with White Oak Capital Advisors, LLC as we re-evaluates our long-term capital requirements. Our existing debt agreement with Oxford Finance and Silicon Valley Bank remains in place as we consider our options.

Finally, we are continuing our operational improvement initiatives in order to position the company for future success. Our employees have and are continuing to deliver important improvements across the company.

And as Bruce noted, we continue to expect the commercializing of 14 to 17 total robotic catheter systems in 2013 and we now anticipate total estimated procedures of between 3,200 and 3,400 procedures during the year. We expect improvement in gross margins over 2012 levels based on current volume assumptions and product sales and increase efficiencies from cost savings initiatives.

We also expect that operating expenses in the second half of 2013, excluding the 4.5 million litigation settlement charge recorded in the first quarter will be less than operating expenses in the first half of 2013, even though we anticipate continuing to add resources to support the commercial launch of the Magellan System and the continuing adoption of the Sensei System, and we will continue to invest in new products in 2013 and expect the commercial launch of our 6F Magellan catheter for the use in smaller vessels peripheral applications in late 2013 or early 2014.

Our success continues to be dependent upon the clinical adoption of our robotic systems, as well as the macro economic environment, as we are well positioned to support and drive this growth and improve our financial results.

That concludes our summary of the financials. I would now like to pass the call back to the operator for Q&A. Operator.

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions). Our first question comes from the line of Josh Jennings with Cowen & Company. Please go ahead.

Josh Jennings - Cowen & Company

Hi, thanks. Good evening gentlemen. Just wanted to start of with your system guidance of 14 to 17 placements and just get a sense for what is included in there. Do commercialized units to the rental agreements count within that guidance and will units that are shipped, but you don’t recognize any revenue on in counter 2013 count within those 14 to 17. And just a follow-up on this question is, how many revenue generating system placements have you counted to date in the first half of ’13.

Bruce Barclay

Yes, good question Josh. We’ve done four systems commercialized in the first half of this year. The conversion of any Evalve system to a rental payment will count or did count in the second quarter. Conversely if that system becomes a full sale in the year, we would certainly not count that a second time. So we’ll count it once as it becomes a revenue generating transaction.

And if we have a system that we sell, but for whatever accounting reasons we are not able to recognize revenue in the current year or even in all of 2013, but we would expect to recognize revenue in the near future, we would still count that as a commercialized system as it is shipped and as that agreement is made with the hospital.

Josh Jennings - Cowen & Company

All right, good, that’s clear. And just in terms of the transition from an Evalve to a rental income unit, should we expect more of these going forward or is this kind of a one offs or is this a path that hospitals may be able to take once they get to the end of the Evalve program.

Bruce Barclay

Yes, in this case it was driven primarily, because the timing of the available capital dollars was in the future a couple of quarters, but they wanted to continue to utilize the system and continue to build their business. And so in a situation like that where you got a strong user who’s adopting a program, we would come in with a short-term arrangement to bridge to future available capital dollars.

Not sure if that’s something that we would see in a lot of cases. If could happens a couple of more times, that may be appropriate based on the budgets of the hospital, but I would not expect it to be a long term feature of our model.

Josh Jennings - Cowen & Company

Okay, and can you make any commentary on just what you’re seeing from the U.S. sort of capital budget stand point. What you’re hearing from your customers in terms of where catheter budgets may head now that we’re in the kind of new fiscal calendar for some academic centers and where any purchase is push out due to any possible specific budgetary issues in Q2.

Bruce Barclay

Yes, we are defiantly seeing that the current macro economic environment is challenging as hospitals are managing their capital spend very carefully. We said in the past that once the initial interest is expressed by the hospital, it would take anywhere from six to 18 months for us to close those transactions and that’s still the case.

We are seeing capital dollars within hospitals. Its just that the process of gaining approval and the processes that they go through to prioritize the spend of those dollars can take a very long time and we are seeing some of those with some of our transaction as well. I think that’s part of the basis for having confidence in maintaining the outlook of 14 to 17 systems, as we are not only adding systems to our pipeline.

But we are also seeing those systems move to the right if you will, in terms of starting out with an initial clinical interest and then extending over to executive interest and validation, which would lead to a purchase. So we are seeing these advance through the pipeline, its just recent (inaudible) and here it’s taking much, much longer than it has in the past.

Josh Jennings - Cowen & Company

Thanks, and last question from me. Just, if we could have any comments on your view of the competitive threat of MediGuide that’s now coming into play here, more so in European markets, but different system for appellation, but one of the key features is decreased floor time redistribution exposure for physicians and that’s one of the features obviously of Sensei. Can you just talk about how you’re felling about this technology as a competitive threat to Sensei. Thanks a lot gentlemen.

Bruce Barclay

Sure, thank you. Well MediGuide’s been out for a while, so we do have some experience with this as this is the St. Jude system and we haven’t seen any significant road blocks from that technology and the deals that we are talking with now, and the accounts now with the Sensei System.

I think not only has St. Jude been communicating more often, the benefits of reduced radiation, we are actually seeing that from other large companies, as well if you had been or heard of the HRS meeting this year in Denver in May. We saw a number of different companies taking about the benefits of their top technology and reducing radiation to the patients and the physicians.

We think that’s helpful to us frankly, because we think that’s a significant advantage of our products over certainly manual technique, given the length of some of these cases. So we welcome that discussion. We think we fit well into that and I’d say we’ll continue to watch MediGuide and other related technologies. But right now we have not seen anything that’s gotten away.

Thanks for the questions.

Operator

Thank you. And our next question is from Brooks West with Piper Jaffray. Please go ahead.

Brooks West - Piper Jaffray

Thanks guys. Can you hear me?

Bruce Barclay

Yes. Thanks Brooks.

Brooks West - Piper Jaffray

Pete thanks for taking the questions. Pete, could you break out capital from disposables in your product revenue for the quarter.

Peter Mariani

Capital from disposables, no.

Brooks West - Piper Jaffray

Capital versus – of the $2 million in product revenue, how much is capital and how much is disposables.

Peter Mariani

Yes, we haven’t broken those down in the past. I mean we’ve got one system and revenue in there, so you can assume that most of that product revenue is related to the disposables.

Brooks West - Piper Jaffray

And just kind of taken that thought forward, I know the capital can be lumpy, but given your in this process of trying to get systems out to generate, experience and data, should we assume that disposables will drive the majority of revenue near term.

Peter Mariani

No, I wouldn’t. I mean we are seeing nice disposable growth certainly, but if we are on track to achieve the 14 to 17, the growth would be – we’ll be achieving those additional system units in the back half of the year.

Brooks West - Piper Jaffray

Okay. What is your feel for us right now in terms of capital sales, focus people and clinical specialists?

Bruce Barclay

We have increased our total sales force, that’s clinical and capital, U.S. and Europe by 20% in the first half of the year and we expect to increase the total sales force for the full year for 40% and we do see most of the increase coming from the capital sales team, which will nearly bubble year-over-year; so beginning of the year compared to the end of the year.

So we are adding substantial resources to the sales organization and most of that is capital. The exact number is close to 40 total sales folks for both organizations by year-end compared to less than 20 when we stated the year.

Brooks West - Piper Jaffray

Okay. and then I guess just two more from me. Thinking through your guidance on operating expense being lower in the second half, what are the puts and takes? I mean you are building up the sales force, but where are you trending; is it R&D, is it G&A and last, can you give us where we should be with the share count for the year.

Peter Mariani

Okay, so on the spend side first. One of the things that we tried to highlight for the last two quarters on the G&A side is the substantial legal spend that has come through and in the first half of the year, if you are doing the math, first quarter to this its nearly $2 million, a little over $2 million in legal spend related specifically to the litigation settlement activity, the accelerated patent filings that we did in the first quarter and continue to roll out in the early part of this quarter, in other general legal matters which we believe are unique to the first half of the year and will not necessarily repeat in the back half. Some of that will, but not all of it.

So there is one big take; is that the other take is that we have done some things in the G&A side of business to trim back and continue to contain spending, primarily on the G&A side, allowing us to continue to fund the development of the sale force growth that we talked about, and allowing us to continue to do the efforts that we need to bring the 6F catheter to market by the end of this year or early next.

And then the question on share count, we got $67 million, almost $68 million here at the end of the quarter. We’ll have 28 million roughly shares that will be added with the close of the deal and so that $96 million is the way I would look at it through the end of this year. And then the potential of the additional warrant, series of warrant exercise that could take place the end of the year or early next year, depending on the timing of that, which will bring another 11.4 million shares to the count.

Brooks West - Piper Jaffray

Perfect. Thanks so much guys.

Bruce Barclay

Thanks Brooks.

Operator

Thank you. And our next question is from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Hi, thanks for taking my questions. Could you tell me when your Q will be filed.

Peter Mariani

Well, we are going to file on Friday.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Friday. Okay, can you talk about the $2.4 million to $2.8 million operating expenses associated with the deal announced.

Peter Mariani

Yes, we got a placement agent fee in there, as well as legal expenses accounting and other things that you would expect.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Got it, okay. For the sale force that Bruce was talking about earlier, you were talking about near 40 current for the capital team, as well as clinical team.

Bruce Barclay

It’s near 40 Jeff, but that will be at the end of the year. Right now we are somewhere near 30, give or take each – total.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Total. Okay, 30 plus or 40 by the end of the year ballpark.

Bruce Barclay

40 total clinical capital U.S. and Europe and most of that growth has come from the capital team.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Got it, okay, most of the growth from the capital teams. Okay, so can we get back to your commentary about the operating expense for the second half? You said that it would lower than the first half, not inclusive of the 4.5 million litigation from Q1.

Bruce Barclay

Yes, just even if we were to take the Q1 piece out of the mix and do the first half total OpEx. We expect second half total OpEx to be below the first half run rate.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Okay, and first half looks like that about – not counting the litigation of about 25, so to say.

Peter Mariani

Yes, I lost my spot in the press release. I’ll take your word for it.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Yes, okay.

Peter Mariani

Yes 29 minus the 4.5 right, so 25.

Jeffrey Cohen - Ladenburg Thalmann & Co.

25 okay. Any anticipated papers or product presenters due out over the next few months that you’re anticipating.

Bruce Barclay

We are just now framing up what some of the presentations might look like for the second half of the year at the conferences. There are some major conferences coming up, PCT, VIVA, the ESVF, European Society for Vascular Surgery and so I can’t speak of that right now Jeff, other than to say that we typically would put out a release before those conferences that identify the presentations and papers that might come out.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Okay, got it, and could you redo for me again; so on the Magellan side you shipped 12, which are inclusive of six evaluation systems.

Bruce Barclay

That’s correct.

Jeffrey Cohen - Ladenburg Thalmann & Co.

So you had one of the evaluation systems returned.

Bruce Barclay

That’s correct.

Jeffrey Cohen - Ladenburg Thalmann & Co.

But you sold four, so I’m still missing one there or is that the rental one that I’m missing.

Peter Mariani

Yes, the rental one.

Bruce Barclay

The rental, so four remain right now in Evalve.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Four in Evalve. Okay, but at before sold, three were sold and one was rented.

Bruce Barclay

Of the six total, six of the 12 were sold.

Bruce Barclay

Jeff, are you referring to the four commercial systems in the first half of the year.

Jeffrey Cohen - Ladenburg Thalmann & Co.

That’s the confusion. Okay, so the Magellan’s there have been 12 shipped, six have been sold, inclusive of one rented.

Peter Mariani

All right, there’s seven commercial transactions which includes the one rental.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Six sold, plus one rental.

Bruce Barclay

Right, but that’s crossing two years.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Okay, and five still out there being evaluated.

Peter Mariani

Four is still out there. One of those remaining five was returned at the end of the Evalve program.

Jeffrey Cohen - Ladenburg Thalmann & Co.

Okay, perfect. Thank you very much.

Bruce Barclay

Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from Sherry Grisewood with William Smith & Company. Please go ahead.

Sherry Grisewood - William Smith & Co.

Hi, good afternoon guys. A couple of my questions have been already answered. So let me move on to a couple of those I had in mind. With regard to what your sales team is telling you from what they are hearing in the field, are they getting specifics in terms of the impact of sequestration on hospital budgets, as the hospitals try to explain why they are sales cycle is being pushed out, number one.

And number two, has there been any feed back from your sales force concerning negative press on intuitives that could be impacting hospitals decisions to jump into robotic systems.

Bruce Barclay

We are not getting that level of detail from most of the hospitals we are talking with about their budget cycles. As I said, the hospitals that we’re in conversations with have funds available and it’s more about their process and their prioritization within that process that we typically get involved with. And in terms of including surgical, I know we are not actually getting much feedback from that at all, at least not expressed to us.

Sherry Grisewood - Wm Smith & Co.

That’s good. The second question I had, that wasn’t answered. While are you dealing with these relatively lower volumes and understanding the capital infrastructure that you have place, what can you do on a more immediate basis to improve your manufacturing operating margins based on these lower volumes. Is there anything you can do in the near term?

Bruce Barclay

Yes Sherry, as we talked about before, over the last 18 months we’ve done a significant amount of improvements of the manufacturing side of the business. We’ve implemented lean manufacturing techniques where we’ve nearly doubled the productivity of some of our catheters.

We continue to make incremental improvements on that process as we bring the Magellan catheter online and plan for additional improvements. In addition to that we launched a significant effort to improve the design of the catheters, remove more costly and replace more costly materials with less costly materials and we got a very, actually very strong process to incrementally continue to take cost out of the production of our catheters, improve the production of end systems and improve the production of our systems and put ourselves in a very good position to expand margins as the top line grows.

Sherry Grisewood - Wm Smith & Co.

So sort of backtracking to my question then, if we’re talking about revenue in the next two quarters being somewhat in the range that we’ve talked about in the first half, most of those improvements you made have already effective into your manufacturing process.

So we can model then the margins in the first half or in the manufacturing side that are likely to be similar that we are experiencing now or is there still some immediate incremental improvement that will impact the second half margin if revenue volumes stay around these levels.

Bruce Barclay

Yes, so I would think about it this way. If we are on path to achieve our outlook, the 14 to 17, we are going to be bringing more robot sales into the mix in the back half of the year than we’ve done in the first half, and that additional volume in the catheter volume that comes with it will allow the margins to expand fairly quickly, especially as those robotic systems come into the revenue mix.

Sherry Grisewood - Wm Smith & Co.

Okay, thank you very much guys.

Bruce Barclay

Thank you for the call.

Operator

Thank you. And our next question is from David Lewis with Morgan Stanley. Please go ahead.

Unidentified Participant

Hello. This is actually John Dem (ph) checking in for David.

Bruce Barclay

Hi John.

Unidentified Participant

Hi. I had a quick question on I guess some of the updated guidance. Basically the increase in procedure guidance I thought made a lot of sense, given the pace of procedures throughout the first half of the year. But the I guess growth in procedures hasn’t really lead to system placements yet and I was wondering the visibility maybe towards the 14 to 17 systems in ’13.

Bruce Barclay

So the question is…

Unidentified Participant

I’m just trying to figure out if you placed four systems in the first half, and I guess speaking for the back half guidance, the 10 to 13 range, and I was just trying to think of it like, where the jump comes from.

Bruce Barclay

Sure, so a few things. I mean we have a very detailed commercial action plan that we manage our teams against and that we have seen some success with that in the first half of the year in terms of progress on system deals and we expect to see more of that in the second half of the year.

I think there are several factors that give us the confidence. One is the pipeline we mentioned. We continue to believe we have a very strong pipeline, several deals in it and several deals in it that are advancing towards closer.

The clinical data we continue to believe is very compelling and we are making every effort we can. So once that data is generated that we are publishing it, getting into the hands of the sales organization and having physicians present that from the podium.

We talked about the sales organization, we are adding to that sales organization and we are also adding sales folks that have a tremendous amount of experience with clinical and capital sales in the past. And in new products, we are very optimistic amount what the 6F catheter could bring once its approved in the U.S. and Europe, in terms of additional experience.

So utilization I think has a short term effect of selling catheters, but I’m convinced over the long term utilization maybe one of the most important metrics in the business, because ultimately it is that metric that people see the value of intravascular robotics within hospitals and once those data become published, once additional hospitals see that benefit that will lead ultimately to do additional system sales. So no one backed it. We think there are several factors here that give us the confined that we’ve expressed in the outlook.

Unidentified Participant

And how many commercialization’s in like third quarter would you consider a successful quarter.

Peter Mariani

Yes, so we are not going to break it down by quarter. I mean again, I think the way that we have looked at this is the significance of the pipeline is such that we feel like the 14 to 17 is still the right range for us and whether that comes in evenly across the quarters or not is something that we’ll see here in the coming months. But we do feel confident in the status of the deals that we have in this pipeline, in supporting that outlook.

Unidentified Participant

Thank you very helpful. And I just had a last question on some of the vascular procedures. I think you mentioned that there were about 200 that have been done to date and I was curious if you can maybe break them out and do a few of the larger buckets of which ones you really have at least seen the most energy on.

Bruce Barclay

Well, given the hospitals and the sites that have the robots and the KOLs at those sites, the robot is typical being used in what I’d call more complex cases. The exception of that is every site that comes on and every physician within a site that comes on, we do ask them to start using the system in low extremity cases, so relatively straightforward (inaudible) and SFA procedures on the arterial side.

So pretty quickly those physicians in the KOLs are using it in. Aortic aneurysm cases and in carotid cases where we are seeing a lot of the, probably the most interesting applications right and then there are a number of branches, side branches off the aorta either in these Evalve cases or not in Evalve case that can be difficult to access for physicals, because of acute angulation or very diseased nausea, where the robot has been very successful as well.

So the reports we get back, we have someone in every case filled. So we get very detailed data from cases that we bring back here, that we incorporate into product development that we incorporate into our training for the next physician. But the reports we get back from physicians is that they are seeing in many cases reduced procedure time, reduced radiation exposure, several cases where the physicians believes that they could not have accessed believing without the robot, meaning that the patient would have either gone home un-treated or might have been converted to open surgery right there.

So again, we need to roll that data up and get into some presentations and publications here, but right now what we are seeing is very encouraging.

Unidentified Participant

Okay. Thank you very much.

Bruce Barclay

Thanks for the call John.

Operator

Thank you. And I’m showing no further questions. I’ll turn the call back to Bruce Barclay for closing remarks.

Bruce Barclay

Thanks George and thanks to everyone for joining us today on our second quarter 2013 conference call. We look forward to providing you with the results of our third quarter in November.

Operator

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

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