Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Hansen Medical, Inc. (NASDAQ:HNSN)

Q3 2013 Earnings Conference Call

November 6, 2013 17:00 ET

Executives

Peter Mariani - Chief Financial Officer

Bruce Barclay - President and Chief Executive Officer

Analysts

Chris Hamblett - Cowen

Brooks West - Piper Jaffray

Jeffrey Cohen - Ladenburg Thalmann

Jon Demchick - Morgan Stanley

Chris Pasquale - JPMorgan

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Hansen Medical 2013 Third Quarter Financial 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)

I would now like to turn the call over to Peter Mariani. Please go ahead sir.

Peter Mariani - Chief Financial Officer

Thank you and good afternoon everyone. Welcome to Hansen Medical’s third 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 CEO.

Before we begin, I would like to inform you that comments made on today’s call maybe deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied by such forward-looking statements as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in the company’s Securities and Exchange Commission filings, including in our most recent Form 10-Q filed on August 9, 2013. These filings can be found through our website or at the SEC's EDGAR database. Prospective investors are cautioned not to place undue reliance on such forward-looking statements.

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

Bruce Barclay - President and Chief Executive Officer

Thank you, Pete. Good afternoon, everyone and thank you all for joining us today for our third quarter conference call. During today’s call, I will provide an update on our business and milestones accomplished in the third quarter with an emphasis on our commercial results and the progress we are making with our sales pipeline. I will also discuss our expanding commercial strategy and the long-term opportunity we see for the Magellan and Sensei Systems to help hospitals attract patients and improve utilization in their most profitable service lines. I will then turn the call back to Pete, who will review our financial results and our cash position. Pete and I will then take your questions at the conclusion of our prepared remarks.

We delivered a number of positive results in Q3, many of which were outlined in the press release issued earlier today. But before I discuss these in more detail, I want to comment on what may have been the most significant accomplishment in the quarter, which is the substantial strengthening of our balance sheet. In the quarter, we received $39 million, of up to $93 million private placement transaction with some of our largest shareholders, board members and other investors and closed a $33 million long-term interest-only debt facility. These two transactions have significantly strengthened the company by removing the near-term financing overhang from the company. These transactions have also added increased competence of our long-term viability to our customers, our employees, suppliers and other partners critical to our ultimate success.

Additionally, we have further surrounded ourselves with accomplished investors with a long-term view of our business who are equally committed to our ultimate success. In fact, our top shareholders are not only accomplished medical device industry veterans they have also had significant success in the medical robotics space specifically. This long-term view of the business is further evidenced by all of the investors that participate in the recent financing agreeing to a one-year restriction on selling their shares of the company. With our strong cash position backed by an excellent group of investors who share our long-term view of the business will remain confident in our ultimate success and believe that the results of our third quarter are an example of the potential we see everyday in our business. However, we also recognize that much work remains especially in this dynamic healthcare environment and we look forward to reporting on our progress in future quarters.

With that, I will now take you through a high-level review of the quarter. As you saw from this afternoon’s press release, the third quarter was highlighted by the commercialization of four robotic systems with an additional Magellan System commercialized in the month of October. As a reminder, the company uses the term commercialized to refer to revenue generating transactions, including the conversion of evaluation units. We shipped a total of five systems during Q3, two Sensei’s and two Magellan’s which were recognized as revenue as well as the third Magellan system as part of our commercial evaluation program.

In addition to the four systems commercialized in Q3, we also converted a Magellan evaluation unit into a sale during the month of October. After these transactions we now have three remaining Magellan evaluation systems in the field. Two former evaluation systems have been commercialized and two other systems we removed due to the hospital’s inability to find the necessary capital to purchase the system. In all cases we generated valuable clinical data which further supports the clinical and the economic value proposition.

As I noted in the press release hospitals continued to be challenged to manage costs and to make capital spending decisions carefully, especially given the uncertainty stemming from the implementation of the Affordable Care Act and other headwinds recently reported in the capital equipment sector. However, Magellan and Sensei systems offer hospitals the opportunity to attract more patients and improve utilization in this cost constrained environment. And we are encouraged by the progress being made with our pipeline of potential deals. With the additional conversion of the Magellan unit in October we now commercialized a total of nine systems for the year and remain on track to our stated Outlook of commercializing 14 to 17 total systems for the full year.

Additionally we continue to make progress towards establishing reference – regional reference and training centers for physicians and hospital administrators in both the U.S. and overseas. These training centers will be viable educational resources for customers to bring more familiar – to become more familiar with our technology and will serve as an important sales tool for us given many hospitals require clinical case observation physician feedback and test drives as part of a due diligence prior to purchase. It is anticipated each of these potential regional training and reference centers would eventually purchase both a system for clinical use as well as a system for training and research purposes.

We also continued to see strong year-over-year growth in procedures and catheter sales in the third quarter which is indicative of the value physicians and hospitals are deriving from intravascular robotics. During the third quarter we sold 790 catheters, which represents year-over-year growth of 15% and a decline of 10% sequentially. Physicians also performed an estimated 750 Hansen robotic procedures in the third quarter, up 14% year-over-year and down 13% sequentially. The sequential decline in procedures and catheter sales was primarily due to European seasonality which was partially offset by continued sequential growth in the United States.

For the nine months ended September 30, physicians performed 2395 procedures, which is 20% – up 24% year-over-year and puts us on track towards our stated outlook of between 3230 and 3400 procedures for the year. Magellan also continues to be the subject of industry presentations and utilized in multiple live cases at conferences. Most recently Dr. Barry Katzen, Founder and Medical Director of the Baptist Cardiac and Vascular Institute utilized the Magellan system in a live endovascular aneurysm repair case or EVAR at the TCT conference in October. We have now had a total of eight live cases performed at four different conferences in the past 12 months. We have received very positive feedback from physicians and others on all of the live cases completed to-date. Key thought leaders continued to be advocates of our technology and their positive experiences with the Magellan system have helped to drive further interest and adoption of the technology. In addition to the live EVAR case performed with the Magellan at TCT, we also showcased the benefits and brought clinical utility of the Magellan system at the 2013 VIVA conference in October. Later this month we will be exhibiting Magellan at the annual VEITH symposium in New York and the Magellan will be highlighted in a number of physician presentations and other symposia.

We will continue to execute these targeted marketing activities so as to showcase our technology and highlight to the interventional vascular community how the Magellan system can significantly enhance conventional endovascular procedures. We continued to develop our global sales team with additional experience capital and clinical sales reps. By year end we will increase our global team by over 40% for the year as we build the capability and expertise of the team and attract sales leaders with extensive capital sales experience. This experience is contributing to the growth in utilization and is having a positive impact on our sales pipeline.

I’d also like to update you on our expanding commercialization strategy for Magellan. As you will recall, our initial commercial strategy was to partner with influential physicians such as Professor Nick Cheshire, Professor Jean-Pierre Becquemin, Dr. Alan Lumsden, Dr. Barry Katzen and others around the world who are thought leaders in this space and who are known as early adopters of new technology. This strategy has allowed us to build significant momentum around the technology, generate multiple publications, multiple podium presentations at key conferences allow for the live case demonstrations at several conferences, which have reached thousands of potential physician operators and most importantly provide us with important positive clinical data in real world applications.

The breadth of procedure types and positive clinical experiences being generated continues to be an excellent long-term indicator for our business. These cases include procedures in both the arterial and venous vasculature from the carotid down to the lower extremities, including the aorta and multiple side branches to the aorta. We are also seeing reduced procedure times in cases that were likely open surgical procedures, because manual techniques that failed be converted to successful Magellan cases without surgery. Given the growing clinical successes we see with Magellan, we are confident of its ultimate success. Additionally with our strong intellectual property position from our license with Intuitive Surgical and/or extensive organic IP creation based on a culture of innovation here at the company, we have a significant IP portfolio in intravascular robotics giving us a strong competitive advantage.

At this point, we are evolving our commercial strategy in two ways. First, we are reaching out to a broader group of community hospitals at both the clinician and executive levels demonstrating the opportunity for these hospitals to attract more patients and improve the utilization of their most profitable service lines. In these accounts, we are seeing multiple positions and their executive teams be coming together to evaluate the strategic opportunity to draw patients from other competing hospitals and provide improved economics in their intravascular service lines. This is in contrast to the early key opinion leader approach, where we typically are working with one primary physician who is focused on evaluating the clinical application of the Magellan in the most difficult vascular cases. In this expanded approach, we expect to see the broad economic impact of Magellan.

Secondly, our commercialization strategy is expanding into new international markets as we have successfully opened global distribution and geographies with both favorable macroeconomic conditions as well as strong healthcare investment trends. We have successfully opened two new markets in the Middle East and Australia with multi-year, multi-system agreements. We have excellent representation in these regions and are actively engaged with physicians to begin intravascular robotics programs. We will have more to say about this in the coming quarters, but we are pleased by the progress we have made in these areas.

Finally, I’d like to talk about the long-term opportunity for the company. Physicians are performing an estimated 3.5 million intravascular procedures annually. Recent data suggests that the outpatient vascular service line will be one of the highest growth areas within hospitals and is expected to grow approximately 38% over the next decade. And the data also notes that the vascular service line is one of the most profitable in the hospital with a contribution margin of over $7,500 per patient. Further, certain complex procedures within the vascular service line such as peripheral vascular stenting, EVAR and valve procedures offer contribution margins well in excess of this average. The Magellan System with its direct distal tip controlled and solid catheter support for the subsequent delivery of a variety of therapeutic devices offers improved precision and predictability in these procedures and provides hospitals with the opportunity to attract more patients and improve the utilization and profitability of this important service line.

Our plan is to continue to demonstrate the clinical utility and economic benefit of Magellan in real world settings. We are encouraged by the data that’s been generated to-date and we will continue our efforts to develop additional clinical and economic data in support of the system. Additionally, we will continue to develop and offer physicians an expanding set of tools to help them treat a growing population of patients. Our smaller diameter 6 French catheter, which we expect to have FDA cleared and on the U.S. market in Q1, 2014 is responsive to certain physician operators who prefer a smaller femoral puncture site and to allow access to smaller vessel disease and new clinical targets. Additionally we are working on larger diameter catheters which could evolve the clinical applications to valves and similar procedures that require the use of various tools throughout – through a common catheter.

In summary, while we have a lot of work ahead of we are pleased with the progress we’ve made to-date and remain confident of our eventual success. As I noted at the beginning of the call, this past quarter was extremely important to us. We strengthened our balance sheet eliminating our near-term financing risk and surrounded ourselves with long-term shareholders who are accomplished and proven supporters of robotics and to share a vision for long-term success. We also have made progress with the commercialization of five additional systems through October and have reported year-to-date estimated procedure growth of 24%. We are seeing increased clinical utilization of Magellan and a broad set of procedure types.

Our commercialization strategy has produced important clinical data and we are expanding this strategy to include community hospitals. We are expanding our geographic footprint outside the U.S. and we expect have further information on this in the near future. Finally, we are on track to achieve the Outlook that we updated last quarter in putting the FDA clearance of our new lower profile 6 French vascular catheter in Q1.

With that I would like to turn the call over to Pete to discuss our third quarter financial results.

Peter Mariani - Chief Financial Officer

Thank you, Bruce. We recorded quarterly revenue of $5.1 million consisting of revenue on two Sensei systems and two Magellan systems as well as on the shipment of 790 catheters and $1.2 million of service revenue in the quarter. In the prior year revenue was recognized on five systems two of which were shipped in the quarter and three were shipped prior to 2012. Revenue was approximately flat compared to third quarter of 2012 and increased 52% sequentially due primarily the increased system sales. The company also shipped an additional Magellan system domestically during the third quarter as part of the company’s commercial evaluation program and commercialized an additional system in October bringing the year-to-date total of commercialized systems do nine.

Catheter sales of 790 units were up 15% compared to the third quarter of 2012 and down 10% sequentially. We estimate that physicians perform 750 Hansen robotic procedures during the third quarter, representing year-over-year increase of 14% and a decrease of 13% sequentially. And as Bruce mentioned earlier the sequential decline in catheter sales and procedures was primarily due to seasonal weakness in Europe that was partially offset by continued sequential growth in the U.S.

Gross profit was $1.3 million or 26% of third quarter revenues compared to gross profit of $1.3 million or 25% of revenues in the same period of 2012. 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 third quarter were approximately flat at $3.8 million compared to the same period of 2012. Current quarter research and development expenses include costs associated with the development or 6 French Magellan catheter product and additional clinical programs.

Selling, general and administrative expenses for the third quarter were $7.7 million compared to $5.1 million for the same period of 2012. The net increase in the current quarter is primarily due to $1.5 million insurance reimbursement received in the third quarter of 2012 related to prior litigation cost as well as $1 million of additional litigation and financing costs incurred in the current quarter.

Net loss for the third quarter was $13.2 million or $0.16 per share based on average shares outstanding of 84.1 million. This compares with the net loss in the previous quarter and $13.4 million or $0.20 per share based on average shares outstanding of 67.6 million and a net loss for the third quarter of 2012 of $8.4 million of $0.14 per share based on average shares outstanding of 61.5 million. Net loss for the third quarter of 2013 included total non-cash stock compensation expenses of $1.2 million compared to $1.3 million in the previous quarter and $1 million in the third quarter of 2012.

Net loss and net loss per share for the third quarter of 2013 was negatively impacted by the $1 million of litigation and financing costs noted above as well as the $1.9 million charge recorded in the quarter as a loss on the termination of the previous debt agreement. These items totaled $2.9 million and impacted the current loss per share by $0.03 per share. Further, the private placement of common stock completed in the third quarter increased the number of weighted shares outstanding by 16.4 million shares in the quarter, which positively impacted net loss per share by $0.04 compared to the previous quarter.

Turning now to the balance sheet. Cash, cash equivalents, short-term investments and restricted cash as of September 30, 2013 were approximately $47.1 million compared to $21.1 million as of June 30, 2013 and $41.2 million as of December 31, 2012. Cash received in the quarter from financing transactions, net of related fees and charges, was approximately $36.5 million. Excluding this net amount, cash burn in the quarter would have been approximately $10.5 million compared to $10.2 million in the second quarter of 2013. Accounts receivable decreased to $4.3 million at September 30 from $4.4 million at June 30, 2013. The AR balance is flat with the previous quarter as cash was received before the end of the quarter on three of the four systems sold. Inventories increased to $11.8 million at September 30 from $11.1 million at June 30. The inventory growth represents increases in robotic systems, primarily in support of the Magellan launch. Total debt on September 30 was $33.1 million compared to a balance of $29.6 million at the end of the second quarter. The debt balance increase as we refinanced the previous debt agreement with a new $33 million long-term interest-only debt facility.

As Bruce noted, perhaps the most important item in the quarter was the strengthening of our balance sheet. Let me remind you of the specific details of these transactions. First, on August 8, we announced the closing of a private placement of common stock and warrants that yielded $39 million in initial funding from a group of 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 shareholders. Also as part of this transaction, the company issued warrants exercisable for approximately 34 million additional shares of the company’s common stock to the investors. If exercised the warrants could yield the company additional proceeds of up to $54 million bringing the total investment to approximately $93 million.

Additional terms of the deal provided that each investor is subject to a one-year lockup agreement providing that they will not buy or sell shares of stock other than for the purpose of exercising warrants for a one-year period following the closing date. All warrants have a two-year term and are not transferable. The warrants are allocated into three equal series of approximately $11 million each.

The Series A warrants have an exercise price of $1.23 per share and must be exercised subsequent to the company’s receipt of regulatory clearance of the smaller 6 French Magellan catheter in the U.S., which we now expect in Q1 of 2014. The proceeds from this Series A warrant will be approximately $14 million. The Series B and C warrants have exercised prices of $1.50 and $2 per share respectively and can be exercised at anytime through August 9, 2015. These warrants, if fully exercised, would provide additional proceeds of up to $17 million and $23 million respectively or up to an additional $40 million in total by the third quarter of 2015. Additionally on August 26, the company announced the closing of an emended $33 million long-term interest only debt agreement. This agreement requires interest only payments through December 30, 2017 at which time the accrued principal balance will become due. Taken together, these transactions significantly strengthen our balance sheet and reduce our financing risk and provide the company with the long-term capital foundation to expand the commercial launch of our Magellan family products, to drive further adoption of our Sensei program and continue to strengthen and scale operations across the company.

Finally, we are continuing the operational improvement with initiatives in order to position the company for future success. Our employees have and are continuing to deliver important improvements across the company. As Bruce noted, we continued to expect the commercialization of 14 to 17 total robotic catheter systems in 2013 and total estimated procedures between 3200 and 3400 for the year. We expect improvement in gross margins over 2012 levels based on our current volume assumptions of product sales and increased efficiencies from cost savings initiatives. We also expect that our operating expenses in the second half of 2013 will be less than operating expenses in the first half of ‘13 excluding the $4.5 million litigation settlement charge recorded in the first quarter. Even though we anticipate continuing to add resources in support of the commercial launch of Magellan and continuing adoption of Sensei system and we will continued to invest in new products in 2013 and now expect FDA clearance of our 6 French Magellan capital for use in smaller vessel peripheral applications in Q1 of 2014.

Our success continues to be dependent upon the clinical adoption of our robotic systems as well as macroeconomic environment where we believe we are well-positioned to support and drive growth and improve our financial results. That concludes our summary of the financials, now I would to pass the call back to the operator for Question-and-Answer Session.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the become question-and-answer session. (Operator Instructions) Our first question is from the line of Chris Hamblett with Cowen. Please go ahead.

Chris Hamblett - Cowen

Congratulations guys on a strong quarter in the new system commercialization. Just wanted to ask a couple of questions here in terms of the remaining six to nine commercializations for the remaining quarter what gives you that conviction to kind of meet that guidance, is the environment improving overall in general or have you anecdotally gotten more feedback from that live case of TCT that may drive things?

Bruce Barclay

Thanks Chris for the call. We are not unmindful of the challenging economic environment right now and also as we have noted in our prepared remarks uncertainties that hospitals are experiencing relative to the Affordable Care Act. So the environment is challenging. I would say we have a very detailed specific commercial execution plan that we are working towards and there are several factors in that that give us the confidence for being able to achieve the now five additional systems in the quarter. We got very strong pipeline. We continue to have several deals that are advancing well along both in the U.S. and outside the U.S. towards final decision point. We continued to generate very compelling clinical data.

Obviously, we are very gratified by the TCT live case to a very full room at TCT had lots of good feedback from that both from clinicians the non-clinicians. But the clinical experience continues to be good. As they said we are increasing our feet on the ground in both the U.S. and Europe although its mostly in the U.S. that’s mostly on the capital side we would be actually be selling these systems and we are substantially increasing the training and the capital experience in that group as well as a whole. And then we got new products coming as well 6Fr, we are very excited about it. We don’t believe it’s going to hit in Q4, more likely Q1, but nonetheless because we have been able to offer that lower profile system, there are number of physicians that weren’t as comfortable with higher profile catheter and are now maybe renewing interest in the system. So overall, I would say, there are number of factors, but we still have good confidence in spite of these various headwinds that we can meet that 14 and 17 for the year.

Chris Hamblett - Cowen

Okay, thanks. And just one follow-up, I might have missed this, but did you say that you are still on track to get the sales force to 40 by the end of the year or has that shifted a bit?

Bruce Barclay

I don’t know if I said specifically, but let me be clear now. Yes, we do believe that we are on track to get to 40 for the year. We are a little under that now. We have got another half a dozen or so higher that are well down the interview process. So we believe we will be able to get to that number.

Chris Hamblett - Cowen

Okay, thank you very much.

Bruce Barclay

Thanks for the call.

Operator

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

Brooks West - Piper Jaffray

Hi guys. Thanks for taking the question.

Bruce Barclay

Hi, Brooks.

Peter Mariani

Hi, Brooks.

Brooks West - Piper Jaffray

Bruce, I just wanted to walk through the kind of the mathematics around the system sales again, you said nine systems commercialized through October and what was the split again there between Sensei and Magellan?

Bruce Barclay

We believe it’s five Magellan and four Sensei, Pete and I are looking at each other right now. I think that’s the right number.

Peter Mariani

I think that’s right.

Brooks West - Piper Jaffray

And then what is remaining in the market that’s under evaluation?

Bruce Barclay

So we have got three pending evaluation systems now, the one that we shipped in Q3 and two others. So just quick math again on that Brooks, we had seven total shipped, three are pending, the other four, two we have pulled back because of hospital’s inability to purchase in the foreseeable future and then two we have converted to commercial.

Brooks West - Piper Jaffray

Okay. And that the two you pulled back, you just put those into inventory and they can be shipped somewhere else?

Bruce Barclay

Correct.

Brooks West - Piper Jaffray

Okay. And then it’s still looking like the dollar amount, the revenue that’s associated with the commercialization is small, but are you – can you outline or are you – as you place these systems, can you speak more to the total volume of the commercialization? I mean, are you getting a guaranteed volume or procedure or can you give anymore color around maybe the total value of a commercialization?

Bruce Barclay

Sure. I mean, one of the things that Pete has been very active in and I could actually let Pete talk about this is just the flexible financing arrangements that we offer to hospitals today in terms of whether it’s an outright purchase or a purchase over time or some purchase dependent upon procedural use, that type of thing. Most of the sales we have had to this point have been outright purchases of the system. We do have the one rental system the we have referred to which we actually anticipate being able to convert that into an outright purchase, but right now, it continues to be a rental program. So as I think we have talked in the past about oftentimes hospital will come to us seeking and asking about very creative financing arrangements. We go through a number of different possibilities with them as they look at them. They almost always, not always, but almost always revert at purchasing the system outright. I don’t know Pete any color on that?

Peter Mariani

No, that’s right. I mean, we occasionally get these questions about can you do financing, can you do creative terms and especially with these accounts who are interested in high-volume activity we can offer that type of flexibility, but in the end almost every case when the CFO of the hospital gets involved and they do their own math. It turns into a cash purchase.

Brooks West - Piper Jaffray

So I mean, can you help with kind of what’s the average value you are getting from one of these systems? I mean, are you still – I mean are you getting somewhere near this kind of $1 million plus valuation that you were talking about earlier or any help with thinking about that, are you still investing for kind of clinical data?

Bruce Barclay

Well, I mean, look we have got the evaluation program, which is where we could place it there without receiving a purchase price from the system. So they can take that opportunity and those limit our accounts we will do that, but when it converts to a sale, we are getting a fairly strong ASP for the system.

Brooks West - Piper Jaffray

Then Bruce on the 6 French, you mentioned a couple of procedures, but can you talk about what this opens up clinically maybe some thoughts on market size. And then also from compatibility with other devices, can you also talk about what 6 French might open up for you guys?

Bruce Barclay

Sure let me talk a little bit more about the product first. So we – when you change the catheter you also have to change the system, the robot itself. And we have on filed with FDA and actually already received clearance from FDA on the system changes necessary to accommodate 6 French catheter so that was tremendous amount of work and effort and good work on behalf of the team here. The 6 French system as I said we expect to have that cleared in the U.S. in Q1 and we will be able to market those together as a single product. Probably two benefits from that. One is there are a number of physicians typically interventional cardiologists and interventional radiologists who are not comfortable with the current 9 French catheter the current 9 French stick. It oftentimes requires a surgical cut down in the operating room or cath lab. And oftentimes these interventional radiologists or cardiologists don’t have that backup or don’t want to have backup and so they want something smaller. So being able to offer it – offer the system now out to more physicians is a very positive thing that predominate users today – predominate interventionalists today are radiologists and cardiologists not vascular surgeons who have been the primary contact. So we think that’s the big positive for us.

The second one is just as you said vessel access. There are a number of vessels in the lower extremity, below the knee in particular but also above the knee internal iliac side branches to aorta that are too small for us to get into with the current 9 French. The 9 French sometimes can get to the opening or ostium of those smaller vessels but can’t get inside. This 6 French now will be able to do that and we think that’s a very significant increase in market opportunity for us. And then one of the benefits of the 9 French which we expect to continue with the 6 French is how compatible that catheter and the second catheter we expect will be to other companies therapeutic devices, we are seeing every company’s products that are compatible with the 9 French fit to our system. And in fact we see because the product is so stable once you set in place and once you start delivering a therapeutic through it that’s been a real advantage for the product. And so we expect that same level of compatibility with the other company’s therapeutic devices to continue with the 6 French.

Brooks West - Piper Jaffray

That’s helpful. And then the last one from me just any updates on timelines for either the 4 French or some of the larger diameter catheters that you mentioned on the call? Thanks.

Bruce Barclay

Yes, thanks for the call. The next generation will be a larger internal diameter. There are some catheters that don’t fit through even the 9 French now that we are hearing that we need to be able to be more compatible with. So and will actually go up in size on the ideas or next generation and that we expect in 2014 we will have more information on that our year end call we will be able to give you more specifics.

Operator

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

Jeffrey Cohen - Ladenburg Thalmann

Thanks for taking question. Just a few clarifications if I may.

Bruce Barclay

Sure.

Jeffrey Cohen - Ladenburg Thalmann

So for this year, Magellan, your shipped seven, three are pending, two are pulled back and two are commercialized?

Bruce Barclay

The evaluation programs began in 2012 Jeff, but for the total evaluation program not limited to this year seven shipped, three pending, two commercial, two pulled back.

Jeffrey Cohen - Ladenburg Thalmann

Okay got it. And what’s the most recent share count now?

Peter Mariani

Yes, for the end of quarter we are going to have 960,209 that’s actual share count, that’s not the weighted average share count.

Jeffrey Cohen - Ladenburg Thalmann

Got it and number of employees?

Bruce Barclay

We are right around 170 approximately.

Jeffrey Cohen - Ladenburg Thalmann

Okay. And could you talk about how we should think about the spend for SGA as will as R&D going forward?

Peter Mariani

Yes, great question. SG&A as we’ve highlight here and previously and this year has been burdened by some additional litigation and legal fees around accelerated patent filings which is tapering off as we finish up some of the litigation as well. So we do expect to see the G&A trend to continue to trend down. And as we think about next year, I would see, G&A lower next year. R&D we are still evaluating what that will be, but we continue to have lots of opportunities in the R&D line both on the product development and on the clinical side of it as well. And we will be able to give you more update on the expectations there, but we have lots of options, lots of opportunities there that we need to make some final decisions on as we get into 2014.

Jeffrey Cohen - Ladenburg Thalmann

Okay. And just one more if I may, you talked about earlier, could you give us a little more insight as far as unit pricing both from Magellan as well as Sensei units? Are you seeing Sensei hold up to where it’s been in previous quarters or are you seeing that slipping a little bit and how that may relate to ASPs on Magellan’s versus previous quarters?

Bruce Barclay

Yes, no good. Our ASPs have been moving in the right direction. I mean, we have gotten to a point here where we will disclose sort of full year effective ASPs on an annual basis. I can tell you that the pricing in the third quarter was single-digits higher than what we had at the year end last year low single-digits higher. Our ASPs continue to be dependent upon who we are selling to. So if we are comparing against a lot of distributor sales, we will typically be higher. And the mix of sales has been positive for us in the pricing that we are getting both on Sensei’s and Magellan’s especially in this quarter, have been very positive for us.

Jeffrey Cohen - Ladenburg Thalmann

Okay, perfect. Thanks very much.

Bruce Barclay

Thanks for the call, Jeff.

Operator

Thank you. (Operator Instructions) Our next question is from David Lewis with Morgan Stanley. Please go ahead.

Jon Demchick - Morgan Stanley

Hello. This is actually Jon Demchick in for David.

Bruce Barclay

Hi, Jon.

Jon Demchick - Morgan Stanley

Hi. So you let the call off today by discussing the strength in balance sheet through raising both equity and debt funds. And I was wondering if these funds allowed you to, I guess operate businesses a little differently than you otherwise would be if you are in a little more cash constrained environment? I guess, specifically I am wondering if the expanded approach both clinically and geographically was made possible from the stronger cash position? And also how you expect that to impact your spending, I guess, moving forward?

Bruce Barclay

Yes, look we can’t say enough about the importance of the financing the we have got both the amount of money raised the ability to bring in additional funds through the warrant exercises and the fact that we now have a long-term debt arrangement that is an interest-only facility through the end of 2017. Those two things together give us very good flexibility. Now that being said that, we are going to continue to make spending decisions based on their merits, based on the market opportunities. We are still going to be very – try to be very selective as far as which, where we spend our money. We will continue to hold G&A in check, because this money needs to be directed toward the sales and marketing, the commercialization of these systems and in ensuring that we are bringing the right products to the market over the near and mid-term to continue to expand our market presence with Magellan.

Jon Demchick - Morgan Stanley

Okay, great. And just a quick follow-up I guess on that with the expanded approach more towards community hospitals rather than primarily through KOLs, basically what made now the right time for the shift in your guys’ view?

Peter Mariani

Well, I think it’s the natural evolution. The first part of this of our launch was about validating the technology itself in the space and the KOLs helped us to do that through and we have – they have been able to establish. This is important technology that offers tremendous clinical benefit. Now, we are looking forward to getting with more of the community hospitals where you have got several physicians within a hospital that are interested in this and where the hospital itself is interested and strategically growing its vascular service line and how Magellan fits into that strategy. And so we are – that’s where we are – we are well into that with several accounts that we are working with and we are optimistic of being able to continue to develop that story.

Jon Demchick - Morgan Stanley

Thank you.

Bruce Barclay

Thanks for the call Jon.

Operator

Thank you. And our next question is from Chris Pasquale with JPMorgan. Please go ahead.

Chris Pasquale - JPMorgan

Thanks. I just want to take one more stab at clarifying the Magellan activity so far because the terminology is kind of little confusing. By my math you have shipped 15 systems to-date, six of which you recognized as revenue and seven of which were part of the evaluation program which you already covered and it was helpful. Is that right and what’s the status of the other two?

Bruce Barclay

We’ve had – we have shipped 15 Magellan’s to this point since Magellan become approved or cleared to ship around the world. 10 of those have been commercialized and seven of those have been put into the evaluation program. Now two of those seven have been commercialized, so think about it as 10 commercialized and five evaluation systems that were not commercialized, three pending and two that have been pulled back into the factory. Does that help Chris?

Chris Pasquale - JPMorgan

Okay, so it’s 15 systems, seven were for the evaluation program, eight were not or it goes eight that were not I think six have been recognized as revenue is that correct, I am looking for what happened to those other two?

Bruce Barclay

Yes, one of them is in deferred revenue and will be recognized when all the revenue conditions are met. And the other one is on a rental program and we are receiving rental income on a monthly basis for that system.

Chris Pasquale - JPMorgan

Got it, okay. That’s helpful. And at this point are there any Sensei systems that are in the field, but have not been recognized as revenue yet?

Peter Mariani

No.

Bruce Barclay

I don’t believe so, no.

Chris Pasquale - JPMorgan

Okay and then just on the share count so the 96 million as of end of 3Q, you had a class-action settlement back in May that called for some shares to be issued has that occurred at this point, is that part of that 96 million?

Peter Mariani

No, it’s – first of all the settlement will be – we expect the settlement to be final sometime in November or December. And that is not in the 96 million share count that we just gave you, that’s - that will be priced 10 days following the settlement of the litigation and that’s $4.25 million divided by the price of the stock at that time.

Chris Pasquale - JPMorgan

$4.25 million?

Peter Mariani

Yes, sorry.

Chris Pasquale - JPMorgan

Great, okay, so when we think about share counts sort of exiting 1Q, things that will inflate, it will be the class action settlement and then the $11.3 million, $11.4 million in warrants tied to the catheter approval?

Peter Mariani

That’s correct but I wouldn’t expect that the additional $11 million until sometime in the first quarter.

Chris Pasquale - JPMorgan

Right, okay, alright. Thank you, guys.

Bruce Barclay

Thanks Chris.

Operator

Thank you. And I am showing no further questions. I will turn the call back to Bruce Barclay for closing comments.

Bruce Barclay - President and Chief Executive Officer

Great, thank you George and thanks to everybody for joining us today for our third quarter 2013 conference call. We look forward to providing you with the results of our fourth quarter and full year 2013 in February.

Operator

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

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

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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

Source: Hansen Medical's CEO Discusses Q3 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts