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Hansen Medical, Inc. (NASDAQ:HNSN)

Q4 2009 Earnings Call Transcript

February 23, 2010 5:00 pm ET

Executives

Lasse Glassen – IR, Financial Relations Board

Fred Moll – President and CEO

Steve Van Dick – VP of Finance & Administration and CFO

Analysts

Chris Pasquale – JP Morgan

Tim Lee – Piper Jaffray

Ryan Chu – Morgan Stanley

Sameer Harish – Needham & Company

Jose Haresco – Brean Murray

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Hansen Medical, Inc. fourth quarter 2009 results conference call. During today’s presentation, all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator instructions) This conference is being recorded today, Tuesday, February 23rd of 2010. And I would now like to turn the conference over to Lasse Glassen of Financial Relations Board. Please go ahead, sir.

Lasse Glassen

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

Before I turn the call over to management please remember that our prepared remarks and responses to questions will contain forward-looking statements. Words such as may, will, should, could, expects, believes, estimates, targets, plans, projects, goals, opportunity, and variations of these words and similar expressions are intended to identify forward-looking statements that are subject to a number of risks and uncertainties. Examples of such statements include statements about our expected operational and financial results, the expected number of Sensei systems to be sold and recognized and recognition of revenue on systems, the timing and results of our clinical studies, the receipt and timing of future regulatory approvals, the expected results of our cost reduction initiatives and the timing of future product introductions.

Actual results may differ materially from those set forth in these statements due to the risks and uncertainties inherent in our business, including uncertain timelines, costs, and results of developing new products, potential safety and regulatory issues that could slow or suspend sales, the rate of adoption of our system and the rate of the use of our catheters at customers that have purchased our systems, our ability to successfully manage our manufacturing and operating expenses, our reliance on third-party manufacturers and suppliers that could adversely affect our ability to manufacture products on a timely basis, the scope and validity of intellectual property rights applicable to our products, competition from other companies, the effects of credit, financial and general economic conditions on capital spending by potential purchasers of our systems, our ability to obtain additional financing to support our operations, additional cost and resources necessary to address existing and potential claims and proceedings related to the restatement of our financial statements, our ability to remediate material weaknesses in internal controls over financial reporting and other risks detailed in the Risk Factors section of our periodic SEC filings, including our quarterly report on Form 10-Q for the quarter ended September 30, 2009 as filed with the SEC on November 16th, 2009.

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

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

Fred Moll

Thank you, Lasse. Good afternoon everyone and thank you for joining us. On today’s call I will provide an update on our operating results and business highlights for the fourth quarter and full year of 2009 as well as an outlook for 2010. Following my comments, Steve Van Dick, our Chief Financial Officer, will provide additional details about our fourth quarter financial results. After our prepared remarks we’ll open the call to questions.

2009 was a difficult year for our Company, one in which we encountered significant headwinds in building our business in the electrophysiology market. However, this past year has also clarified our market opportunity and has helped illustrate what changes can be made in our strategy and execution to drive more effectively towards our business goals. Through the end of 2009, we had shipped a cumulative total of 81 Sensei systems worldwide along with more than 4000 Artisan Catheters.

Although sales were disappointing overall, we continued to innovate in 2009 and made significant enhancements to our technology both in terms of our next generation system, the Sensei X, as well as more advanced catheters, including the Artisan Extend and the Lynx Ablation Catheter for the overseas market.

On the clinical front, we continue to add to a gathering body of procedural data that speaks to the clinical benefits and positive safety profile of our technology. Also, our business development and R&D efforts are helping position the company in a number of new procedures outside electrophysiology. We believe these new procedures represent significant future markets for Hansen technology. In this regard, we are pleased to have established a partnership with Philips Healthcare and believe this collaboration will help us expand our business into the market for robotic vascular intervention.

With regard to our system sales, we recognized revenue on nine systems and shipped six systems during the fourth quarter. Contributing to the fourth quarter revenue were five systems that were shipped during the fourth quarter and four that had been previously categorized as deferred revenue. In addition, one of the six systems shipped in the quarter remained as deferred revenue as of the end of the fourth quarter. This system is in the use and the company expects to recognize revenue on this system in the first half of 2010.

We are especially pleased with the performance of our European sales team and we continue to invest in our OUS sales effort. We believe that our success in Europe is a reflection of the potential of the U.S. business that can be realized as we make progress in this country with labeling and other regulatory constraints.

With regard to recurring revenues, our sales management restructuring and increased focus on catheter utilization and procedure adoption is showing early signs of success. During the fourth quarter we sold 539 Artisan Catheters, a solid increase on a both year-over-year and sequential quarter basis. More than 2200 catheter units were sold during 2009, bringing total catheter sales to more than 4100 since commercialization began in mid-2007.

Also, I am pleased to report that through the fourth quarter we have now converted a total of 48 customers to extended service agreements, up from 46 customers at the end of Q3.

Although the current selling environment remains challenging, we do believe conditions have incrementally improved over the last several months. And while we continue to experience at times a lengthy sales cycle for our Sensei system, our pipeline of potential customers is healthy.

To drive demand in 2010, our efforts will focus on technological improvements of our system and catheters, including enhanced imaging integration and Force sensing technology, and the introduction of our smaller diameter Lynx Ablation Catheter in Europe. We also intend to be more aggressive in communicating the growing luminary support for our system and it’s clearly benefits in terms of clinical capability and efficacy as well as the system’s ability to provide market competitiveness to clinicians and hospitals.

As previously mentioned, we will increase our focus in 2010 on utilization within our installed base. We have initiated a number of new programs to drive utilization and cement adoption including user group meetings and peer to peer interactions, which facilitate the communication of positive customer experience with our technology. In addition, we will continue to collect clinical data generated by customers, which can be published, distributed and discussed within the EP community.

With respect to our clinical experience, our customers have now accomplished more than 3000 clinical cases using the Sensei system. From this clinical experience, we have generated a significant body of data that points to some encouraging potential benefits of our technology when compared to manual technique. At a high level, these studies suggest that the potential benefits of our technology include improved efficacy rates, improved catheter stability and instinctive movement, procedure times equal or better than manual procedures, significantly lower fluoroscopy times, and reduced RF duration and energy delivery.

I’d like to briefly highlight the findings of the sampling of several clinical studies. We have some very encouraging single center data including a paroxysmal AFib study by Dr. Kautzner at IKEM in Prague, which studied robotic versus manual technique. This 38-patient dual arm study found efficacy at three months to be 91% in the robotic patient population compared to 81% in the manual patient population. In addition, procedure time was 17% faster in the robotic population while fluoroscopy time was 44% lower and radiation dose a dramatic 63% lower.

In another example, physicians at the Texas Cardiac Arrhythmia Institute at St. David’s in Austin, Texas, published a study describing the largest perspective experience of a single center in the use of the Sensei system compared to manual technique. This 396-patient study found that success rate for remote navigation was 85% versus 81% for manual technique. The study also found fluoroscopy terms were significantly lower for remote navigation at 48.9 minutes compared to 58.4 minutes for manual ablation, and the safety profile for the Hansen system was similar to that of the manual counterpart.

We believe that this data, which represents the independent work of this group substantiates our broader experience with the use of our technology. Further, we believe that there is a growing recognition of the attractive safety profile afforded by Sensei as measured both by the low rate of completions as well as the clearability of our system which significantly reduce fluoroscopy exposure to the patient.

Regarding upcoming clinical initiatives, we have proposed a clinical trial to the FDA for the treatment of Atrial Fibrillation as part of our process to expand our current labeling in the U.S. beyond mapping. We are currently contemplation a 300-pateint study and expected to enroll our first patient in the second quarter of this year and complete enrolment by the end of this year. The study will include a seven-day followup for safety and a one-year followup for efficacy at intervals of 90, 180, and 365 days.

We believe this study will allow us to move to a more representative label for Sensei as well as provide more data to the physician community about the utility of Sensei in ablation. We look forward to updating you on the progress of this initiative in future reports.

Next, let me update you on our progress relating to our new vascular platform. As I have described in the past, we are very excited about the opportunity to introduce a new Hansen robot and catheters for the use in the arterial vascular system. We believe this platform and its clinical capability will open up very significant new markets for Hansen. In terms of timing for the vascular platform, we are targeting a person [ph] manned study during the second half of 2010 and receipt of regulatory approvals including 510(k) clearance in the U.S. and CE mark in the European Union estimated in the first quarter of 2011.

There are several key reasons why we are so excited about the vascular market opportunity for flexible robotics. If any of you have had experience in the cath lab watching vascular interventional procedures, you know that a certain percentage of these cases are prolonged, and complicated by difficult access to target anatomy. The issues with access include navigation to the target via a torturous path, and stabilization and orientation of the catheter tip at the point of therapy. The ability to navigate through a vessel where we are stable, precise tip control is what flexible robotics was born to do. We believe that robotics can not only take the complexity out of these procedures, but remain challenging using standard technique, but also open the door to new therapeutic devices that are driven by robotic actuation. Our first customer target within the interventional market is the vascular surgeon. We believe that our new platform will enable vascular surgeons to perform more complex catheter bases procedures and convert more of the fractures from open surgery to noninvasive therapy.

This physician population is an attractive customer base for a platform because the specialty of vascular surgery is becoming more and more dominated by catheter based intervention. We seen an opportunity to provide these clinicians with a means of rapidly gaining exclusive catheter capabilities and accelerate the adoption of interventional procedures within their practice.

The initial clinical target for our new platform is peripheral vascular disease, including disease of the aorta as well as the disease of the renal iliac and femoral, popleteal arteries. The procedure volume associated with the treatment of these diseases is quite large. For example, the catheter based treatment of renal artery disease is estimated to be 192,000 annual procedures worldwide. Other procedure volumes include iliac artery disease estimated to have an annual worldwide procedure of 366,000, femoral, popleteal artery disease with the estimated worldwide procedure volume of 283,000, and aortic aneurysm disease with an annual worldwide volumes of approximately 63,000 procedures.

In addition to serving the needs of the vascular surgeons, we believe that our platform will provide expanded procedure capabilities to the cardiologists and interventional radiologists. We believe these physician groups will have strong interest when they see the clinical advantages that our platform provide for the more complex vascular procedures they perform.

As a result, we are confident that over time we will be able to expand the indications of use for our vascular system and convert a significant percentages of procedures in the interventional therapy to robotic technique. As we move forward through the commercial launch of the vascular platform, we believe our recently announced joint development agreement with Philips Medical Systems will be very helpful. Under the agreement, Philips will collaborate and partially fund development costs of our vascular platform based on our achievement of certain development milestones.

We will also collaborate on the integration of our robot with their advanced imaging technology. We are very pleased with the terms of the agreement and believe that it provides the basis for a strong partnership in innovation. We look forward to updating you on the progress of the vascular initiative in future reports.

Before wrapping up my prepared remarks, I would like to briefly comment on the settlement agreement announced late in the fourth quarter that resolved all pending claims between Hansen Medical and Luna Innovations. As part of our settlement, Luna issued Hansen Medical a $5 million secured promissory note along with shares of common stock equal to 9.9% of Luna’s outstanding stock and a warrant to purchase additional shares for three years to the extent necessary for Hansen Medical to retain a 9.9% ownership. In addition to licensing certain Luna intellectual property to Hansen Medical under a development and supply agreement, Luna will develop a fiber-optic shape sensing and localization solution for Hansen.

We believe that over time fiber-optic shape sensing developed under this agreement will play a fundamental role in enhancing robotic catheter performance and capability by enabling real-time position measurements for three dimensional visualization and navigation. We are looking forward to a successful partnership with Luna.

In summary, I would like to highlight our key strategic initiatives as we look ahead to 2010. First and foremost, we are focused on achieving steady growth in the Sensei system sales for the EP market. In the latter part of 2009, we restructures our commercial operations group to improve its focus on selling our Sensei system and our go-to-market strategy will include renewed emphasis on communicating the benefits of our technology, including its growing luminary support, it’s clinical value to patients and physicians, and the value a flexible robotics practice can bring to a hospital.

We will also focus on building utilization within our installed base as well as the collection of data supporting the clinical benefits of our technology. We will communicate this data via publication, podium presence, and peer-to-peer interaction to raise the awareness of our customers’ positive clinical experience.

Operationally, we are committed to controlling expenses. The Company has implemented cost-saving measures in each of its expense categories and we anticipate important reductions in spending in the area of legal affairs and finance due to the completion of the restatement of our financial statements and resolution of our dispute with Luna Innovations.

We will continue to evaluate our cost structure to find areas to reduce cost and increase efficiencies in an attempt to offset additional investments required to achieve our operational and strategic initiatives for 2010 and 2011.

As I discussed in detail, we are very excited about the opportunity to develop a new platform for use in the arterial vascular system. We believe this new platform we are developing and its clinical capability will open up significant markets in complex vascular procedures.

With regard to our outlook for 2010, we believe that we have significant opportunity for revenue growth this year. We estimate our system placed – that systems placed this year will be in the range of 30 to 35 units shipped for revenue. This estimate is based on our recognition of a healthy pipeline, but a somewhat constrained capital equipment environment.

As we have more evidence of overall market conditions and progress – make progress towards our key marketing initiatives, we may choose to revisit our guidance. We believe our overall plan for 2010 balances our need to control spending and at the same time progress in the EP market and vascular platform development. We also believe that this plan will allow us to progress methodically towards our longer term objective of achieve profitability.

With that, I will now turn it over to Steve Van Dick, our Chief Financial Officer, for a closer look at the results of the restatement and our fourth quarter financial details. Steve?

Steve Van Dick

Thanks, Fred. My comments this afternoon will focus on details of our fourth quarter financial results. Let’s begin first with our fourth quarter 2009 income statement. We recorded quarterly revenue of $7.2 million primarily on the sale of nine Sensei systems and 539 Artisan Control Catheters. This represents a 35% increase compared to the $5.4 million of revenue in the same period in 2008 where we sold six Sensei systems and 493 Artisan Catheters.

The average selling price of the nine systems sold during the fourth quarter of 2009 was approximately $615,000. This compares to an ASP of approximately $601,000 in the previous quarter and approximately $676,000 in the same quarter last year. Our average selling prices of a Sensei systems in the fourth quarter of 2009 when compared to the same period last year was lower primarily due to the deferral of approximately $78,000 of revenue per system during the fourth quarter of 2009 for the first year of service.

The Artisan Control Catheters sold in the quarter had an average selling price of approximately $1662 compared to $1681 in the previous quarter and up from approximately $636 in the fourth quarter of last year.

Cost of goods sold for the quarter was about $4.8 million and included non-cash comp – stock compensation expense of $170,000. Gross profit for the quarter was $2.4 million, yielding a gross margin of 33.2%. This compares to a gross profit of $1.1 million and a gross margin of $21.2% in the same period in 2008.

Looking ahead to 2010, we expect that cost of goods sold, both as a percentage of revenue and on a dollar basis will continue to vary significantly from quarter to quarter due to variety of factors including revenue levels, fluctuations in ASPs, product mix, and manufacturing levels.

In reviewing the key expense line items on the income statement, research and development expenses for the fourth quarter were $4.3 million including non-cash stock compensation expense of $25 million. In the same period last year, R&D expense was $6.8 million, which included non-cash stock compensation expense of $0.7 million. The decrease in research and development expenses was primarily the result of decreases in outside services, materials and overhead expenses, coupled with a decrease in employment related expenses due primarily to lower average headcount and a one-week furlough in the 2009 period.

During 2010, the Company expects research and development expenses to increase from 2009 levels, principally due to the development of the vascular platform, the Luna development agreement, and the Company’s 300-patient clinical study.

Selling, general, and administrative expenses during the fourth quarter were $9.4 million and included non-cash stock compensation expense of $0.6 million. Also included $0.8 million of Luna litigation expense and $1.2 million of restatement related expenses. This compares to SG&A expenses of $10.1 million for the same period in 2008, which included non-cash stock compensation expense of $2.7 million and Luna litigation expense of $0.8 million.

The decrease in selling, general, and administrative expenses is primarily due to decreased employee-related expenses related to lower average headcount and a one-week furlough in the 2009 period, and a decrease in non-cash stock compensation expense, partially offset by increased legal expenses and costs related to the restatement of the Company’s financial statements.

During 2010, the Company expects selling, general, and administrative expenses to decline from 2009 levels primarily as a result of a decrease in legal and restatement related expenses.

Other expense, net, for the three months ended December 31st, 2009, was $399,000 compared to other expense, net, of $102,000 for the same period in 2008. The change was primarily due to higher interest expense due to the Company’s borrowings under its equipment line of credit, in addition to lower interest income related to lower interest rates earned on the Company’s balances of cash, cash equivalents, and short term investments. Going forward, we expect our interest expense to decrease gradually as we begin to pay down our equipment loan.

Net loss for the three months ended December 31st, 2009, including total non-cash stock compensation expense of $1.3 million was $11.7 million or a loss of $0.31 per basic and diluted share, based on average basic and diluted shares outstanding of 37.5 million shares.

Net loss for the fourth quarter of 2008 included non-cash stock compensation expense of $3.6 million was $15.9 million or a loss of $0.63 per basic and diluted share, based on average basic and diluted shares outstanding of 25.2 million shares.

Turning now to the balance sheet, cash, cash equivalents, and short term investments as of December 31st, 2009, were $28.3 million compared to $35.2 million as of December 31st, 2008. The lower cash, cash equivalents, and short term investments balance is primarily due to the Company’s operating expenses during 2009, which more than offset the proceeds from a secondary public offering of common stock in the second quarter of 2009 that included the sale of approximately 11.7 million shares with net proceeds to the Company of approximately $35.3 million.

In addition, we have an existing debt facility with Silicon Valley Bank, which included a line – an equipment line of credit that converted to installment debt beginning April 1st, 2009. During the fourth quarter we paid down that debt by approximately $0.9 million, leaving a balance of approximately $9.8 million as of the end of the year.

Before wrapping up my prepared remarks, I have one final note. As you may be aware, earlier this afternoon we issued a press release, announcing my resignation as Hansen’s Vice President – Finance and Administration and Chief Financial Officer. Even though this call will be my last act as Hansen’s CFO, I will remain as a full-time Hansen employee through the end of this month. After that, I will continue working with the Company on a consulting basis to ensure a smooth transition and will be available to the Company as a consultant for up to one year.

I believe that with the collective efforts of Hansen’s Board, executive management team, and Hansen’s strong finance and accounting group, this transition will be seamless. I have serves as Hansen’s CFO since December, 2005, and I am proud of our team’s effort in bringing the Company’s technology to the marketplace.

Looking ahead, I believe Hansen’s future is bright, and I am confident that the Company’s flexible robotic technology has the potential to make a significant impact on the practice of interventional medicine.

Thank you for your attention, and at this time, I’d like to turn the call back over to Fred.

Fred Moll

I want to thank Steve for his contribution and pioneering work with the Company in the last four and a half years. Steve has been an integral part of the leadership team that has seen our robotic technology make inroads into the practice of electrophysiology and interventional medicine. We will miss Steve and wish him well.

We are fortunate to have Peter Osborne join us as our interim CFO. Peter joins us from VNUS Medical Technologies where he was the CFO overseeing VNUS’ financial operations amidst 38% unit growth and was part of the team that successfully sold the business last year to Covidien. Peter’s broad business experience in financial reporting, financial operations and management, and business process improvement combined with his experience in corporate transactions, will complement our team as we continue the evolution of our business.

I now like to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Chris Pasquale with JP Morgan. Please go ahead.

Chris Pasquale – JP Morgan

Hi guys, thanks for taking the questions.

Fred Moll

Sure.

Chris Pasquale – JP Morgan

Fred, just to start off with, can you talk a little bit more about your U.S. IDE? Are you – is the study you are proposing randomized or you are evaluating a specific class of AFib patients.

Fred Moll

It is. Without going into too much details, it is – obviously has an inclusion criteria that restricts somewhat the patient population, but it will – it will be for paroxysmal patients and it will be randomized against manual technique in sort of the two-to-one ratio.

Chris Pasquale – JP Morgan

Okay. And are you guys going to specify a specific technique or will it just be PVI, will it be operator’s choice?

Fred Moll

I believe it is pretty much operator’s choice of their technique.

Chris Pasquale – JP Morgan

Okay. And then just on the guidance, 30 or 35 systems placed, can you talk a little bit about your visibility, how confident you feel in that number given some of the disruption over the past year?

Fred Moll

Yes, I am very confident in the number. You know, we have an internal – the sales department has an internal target that’s higher than that, but given our history and the fact that I am very aware that with regard to projections, we lost some credibility by being way off for a couple of quarters last year. We don’t want to repeat that and so I am trying to be very conservative about what I truly believe we can do. We feel good about the improving condition. I think it’s still a challenge. We are selling capital equipment, but improving conditions combined with the real improvement in utilization and what we are hearing from the customers and some of the really extraordinary success we’ve had in our super user group, we really believe we have a procedure that is exportable from the super users to others and that – with a lot of hard work we can really build some very good progress in both utilization and system placements, and I think our focus on really digging deep on utilization and have that effect and drive the peer-to-peer interaction which then sort of pushes people that may be are on the fence with regard to either – whether robotics make sense or which – what robotic system they want, or what navigation system they want, I think we can do a very good job in 2010 in pushing the world our way.

Chris Pasquale – JP Morgan

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Tim Lee with Piper Jaffray. Please go ahead.

Tim Lee – Piper Jaffray

Hi guys, good afternoon, it’s Tim

Fred Moll

Hi, Tim.

Steve Van Dick

Hi, Tim.

Tim Lee – Piper Jaffray

I just wanted to followup on the U.S. study. I didn’t catch what device that was. Is that with the Lynx catheter or is that with the Artisan coupled with the ThermoCool?

Fred Moll

So, currently it is the Artisan coupled with the ThermoCool. Now we may consider an arm of this study that includes the Lynx catheter. We are still discussing that internally and with the FDA and we will – as we get more experience, we’ll make a determination, but we are going to start the study with the Artisan catheter.

Tim Lee – Piper Jaffray

And will that be a PMA or a 510(k)?

Fred Moll

So the – Tim, we believe it’s a 510(k), but the FDA will neither confirm or deny whether that is the case, and so we plan to run it as a PMA trial, but will submit data for 510(k) clearance and hope we are successful in that, but I at this time – I don’t have a good way of predicting whether it goes one way or the other.

Tim Lee – Piper Jaffray

Got it, thank you. And just in terms of your balance sheet and your cash position, and your cash use, I think you’ve got $28 million on the balance sheet right now, just given your current outlook, what level of – how many – what kind of funding will that provide and do you need another capital infusion?

Fred Moll

So, we are – we have cash that will take us through 2010 and we are committed to properly funding the Company and we, as you know we put up a Shelf Registration just recently and we are evaluating both conventional and non-conventional and strategic options for funding as we go through the year and we will do what’s right for the business to keep us well funded in moving forward.

Tim Lee – Piper Jaffray

Got it, thank you. Just one last one if I may. You kind of touched on the kind of the hospital capital equipment market kind of a little better and I know in recent quarters you saw the selling cycle extend. Has that stabilized or has that even come in a little bit?

Fred Moll

Yes, I think it’s definitely stabilizing and we are seeing improvements in some read [ph] into the country. So generally we’d say it’s getting better and that’s measurable.

Tim Lee – Piper Jaffray

Great, thank you.

Fred Moll

Yes.

Operator

Thank you. Our next question comes from the line of David Lewis with Morgan Stanley. Please go ahead.

Ryan Chu – Morgan Stanley

Hi guys, it’s Ryan in for David. Can you hear me okay?

Fred Moll

Yes.

Steve Van Dick

Yes.

Ryan Chu – Morgan Stanley

Great. I guess I will start off with a followup on Tim’s question regarding the balance sheet. Could you maybe quantify for us the full year legal expenses or items that you expect to not recur in 2010?

Steve Van Dick

Yes, in terms of the main legal expense, in 2009 we spent a total of just under $6 million on the Luna litigation. And even though there will be some lying [ph] down expenses in the first quarter of 2010, it’s – it is not anticipated that we are going to reach anything at that type of level, probably the largest. And then the second piece of the restatement expenses in 2009 we spent a total of about $1.7 million, $1.8 million on restating our financial results. And again we have no expectation if that is going to go into 2010.

Ryan Chu – Morgan Stanley

Okay, great, that’s very helpful. And then one housekeeping item, and then I have one quick followup as well, in terms of the gross margin for this quarter, it was up pretty significantly. Is there any accounting treatment for the units or the systems that come out of deferred revenue that would have increased (inaudible) the gross profit this quarter?

Steve Van Dick

It’s a little bit of a benefit to the – when we set up the – not the deferred gross margins in more at a standard cost and so for example if you look at the 12 units that we have in deferred revenue right now, most of those are international units. They have an average ASP of those 12 units of about $560,000 but the margin associated with those units when they peel out will be right around 60%. And so we get a little bit of a bump on units that go in and out of deferred revenue because they only go in at kind of a standard margin and the period costs or the excess – excess capacity or period cost or variances hit the current quarter’s P&L.

Ryan Chu – Morgan Stanley

Okay, that’s helpful. And then just if you could estimate in broad terms what type of impact an adjusted gross margin for the deferred systems in first quarter will be? And then last question, I will get back in queue, for your guidance in 2010 for 30 to 35 units, who is the incremental buyer of those units, is it predominantly academic centers, or are you seeing more traction in the non-academic space as well? Thanks.

Fred Moll

So – you want to answer?

Steve Van Dick

We really haven’t done an analysis of Q4 revenue in terms of with or without the deferred units, so I’ll have to beg off on that and if you want to followup with me after the call, I can compute that analysis for you.

Fred Moll

So, Ryan with regard to your question on academic versus community hospitals, it’s always been a great mix between the two. We don’t see that changing. We think as more academic centers, high volume academic centers adopt remote navigation, there is a logical sort of spill over and more of a focus on community hospitals, but currently the mix is pretty good and we don’t see that changing very much.

Ryan Chu – Morgan Stanley

Okay, thank you.

Operator

Thank you. (Operator instructions) Our next question comes from the line of Sameer Harish with Needham & Company. Please go ahead.

Sameer Harish – Needham & Company

Hi guys, thanks for taking the question.

Fred Moll

Hi, Sameer.

Sameer Harish – Needham & Company

I thought I would start off with the quarter, if you could, could you break out for us the U.S. versus international systems?

Steve Van Dick

Yes, of the systems that we sold there were – that we recognized revenue on – there were five U.S. systems and four international systems.

Sameer Harish – Needham & Company

Okay. So, if I recall the deferred revenue systems were, the vast majority were international, were most of the systems international recognized off that deferred or did you have any new systems placed there?

Steve Van Dick

Of the nine systems that we – of the six systems that we shipped, three of them were international and all three of those were recognized as revenue in the quarter.

Sameer Harish – Needham & Company

Okay, got it, got it. And in terms of guidance, I appreciate that you are taking a stab at 2010 for the system number. Can you give us any color as to perhaps distribution of the systems that you are thinking about for the year kind of evenly distributed or more back half loaded?

Fred Moll

You know, I think, last year being sort of an exception, I think this business is historically very much second half loaded. And so we expect that to be the pattern.

Sameer Harish – Needham & Company

Okay, great, thank you very much.

Fred Moll

Yes.

Operator

Thank you. And our next question comes from the line of Jose Haresco with Brean Murray. Please go ahead.

Jose Haresco – Brean Murray

Hi, guys, good afternoon.

Fred Moll

Hey, Jose.

Jose Haresco – Brean Murray

Couple of questions on the vascular product, one, how much reengineering do we have to do with the current catheter system and do we need – are you also having to reengineer the side arm? And two, can you go over a little bit more into details as to how Philips is involved (inaudible) process and perhaps give a sense of how much of the cost that they are willing to help fund as we go into these series of indications?

Fred Moll

Yes, let me – as I just upfront apologize for not being able to say more about the Philips agreement. We are very excited about it. We are excited about the collaboration. It is a significant help with regard to the financial support for the project, but at their request we are not giving specifics about the dollar levels that they are involved.

But the vascular project is – it’s a new platform. And by that I mean it requires modifications of both the catheters that we currently sell today as well as what we call the RCM or the robot that is placed over the patient that drives the catheter. And so it is a significant development that we’ve been working on now for a year and a half or two years and made a lot of progress and believe that 2010 is the timeframe in which we can finish development and deliver the product in the 2011 timeframe.

Jose Haresco – Brean Murray

Okay. On another note, do we know yet if there will be data at HRS out of U.K. or is that still something that is kind of up in the air?

Fred Moll

No, I think that’s I think we will have data from the U.K. at HRS.

Jose Haresco – Brean Murray

Okay, great, thanks very much.

Fred Moll

Yes.

Operator

Thank you. (Operator instructions) And we have a followup question from the line of Chris Pasquale with JP Morgan. Please go ahead.

Chris Pasquale – JP Morgan

Hey guys, if anyone else wanted to ask, I will put [ph] another couple in here. The one system that you shipped during the quarter but didn’t recognize and you said it was active.

Fred Moll

Yes.

Chris Pasquale – JP Morgan

What’s the hurdle for recognizing that? Did it become active after the quarter closed or is there another milestone?

Fred Moll

No – we’re – this is Methodist Hospital in Houston, Texas, and we are still negotiating a research and development agreement with them. And we are also – they are becoming a Center of Excellence for us. And so it’s – and so those contracts are signed we’re unable to move forward with the revenue recognition although we believe their pay are very signable [ph] in the next quarter or so.

Chris Pasquale – JP Morgan

Okay. So, it sounds like a bit of a special case.

Fred Moll

Yes.

Chris Pasquale – JP Morgan

And then just lastly, Fred, can you talk a little bit about the rationale behind Lynx? One of your selling points historically has been this open architecture design and acting as a facilitating technology rather than getting directly involved into therapeutic role. What do you think you bring to the table with Lynx that other irrigated catheters don’t? Do you envision the Company moving more into the therapeutic realm as you go forward, that will be helpful?

Fred Moll

Yes. So I think Lynx is a real opportunity for us. Although we – as we say, our position from a standpoint of the market in the U.S. is open – an open architecture and that has served us fairly well. The opportunity to – because of the lack of regulatory constraints in Europe, we are able to, and have developed our own irrigated ablation catheter, which we think will perform extremely well, and has in the testing we’ve done today, and given us the ability to significantly increase our ASP for the product. It also, as you can imagine, is customized to our system such that we are able to significantly reduce the overall profile of the device and one of the comments we hear certainly in the U.S. and overseas is Jee! Love your catheter, but in an ideal world it would be smaller. And that’s one of the design objectives of the Lynx catheter was to decrease the size and that’s an attractive feature for a lot of clinicians. The second one was to increase the ASP. And the third one really is to in that sense grab more of the business for us in a procedure rather than giving a significant amount of procedure to other catheter ablation companies.

Chris Pasquale – JP Morgan

What do you anticipate the ASP being?

Fred Moll

So, honestly we haven’t settled on it, but we believe that – I will put it this way; it will be a significant uptick from where we are selling our Artisan catheter.

Chris Pasquale – JP Morgan

Okay, great, thank you guys.

Operator

Thank you. And at this time I show no further questions in the queue. I would like to turn the call back over to management.

Lasse Glassen

Appreciate everyone’s participation in our call today and we will look forward to speaking with you again on our next earnings call. Thanks so much for your time.

Operator

Ladies and gentlemen, this does conclude the Hansen Medical Incorporated fourth quarter 2009 results conference call. If you like to listen to a replay of today’s conference, please dial 303-590-3030 or 1-800-406-7325 with the access code of 4228940#. We thank you for your participation, and you may now disconnect.

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Source: Hansen Medical, Inc. Q4 2009 Earnings Call Transcript
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