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Hansen Medical Inc. (NASDAQ:HNSN)

Q3 2010 Earnings Call Transcript

November 3, 2010 4:45 pm ET

Executives

Matt Clawson – IR, Allen & Caron Inc.

Bruce Barclay – President and CEO

Peter Osborne – Interim CFO

Analysts

James [ph] – Morgan Stanley

Tim Lee – Piper Jaffray

Sameer Harish – Needham & Company

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Hansen Medical 2010 third quarter and nine months 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 conference over to our host Mr. Matt Clawson, with Allen & Caron. Please go ahead sir.

Matt Clawson

Thank you, Brandy. Good afternoon, everyone. Welcome to Hansen Medical’s 2010 third quarter results conference call. With us today are Hansen Medical’s President and CEO, Bruce Barclay; and the Company’s Interim Chief Financial Officer, Peter Osborne.

Before I turn the call over to management, please remember that our prepared remarks and responses to questions will contain forward-looking statements that are subject to a number of risks and uncertainties, the examples of such statements include statements about our expected operational and financial results, the timing and results of our clinical studies, the receipt and timing of future regulatory approvals, and the timing of future product launches.

Actual results may differ materially from those set forth in these statements due to the risks and uncertainties inherent in our business including

enrollment delays and uncertain timelines, costs, and results of clinical studies and of developing new products; potential safety and regulatory issues that could slow or suspend sales; the rate of adoption of our systems and the rate of use of our catheters at customers that have purchased our systems; our ability to successfully manage our manufacturing and operating expenses; the scope and validity of intellectual property rights applicable to our products; competition from other companies; the effect of credit, financial and general economic conditions on capital spending by potential purchasers of our systems; 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 weakness 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 three months ended June 30, 2010 as filed with the SEC on August 6 of this year.

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 CEO, Bruce Barclay. Good morning, Bruce.

Bruce Barclay

Thanks, Matt. Good afternoon everyone and thank you all for joining our third quarter results conference call. Before I begin my prepared remarks I want to introduce Matt Clawson and welcome him to the Hansen team. Matt is a partner at Allen & Caron, our new Investor Relations and corporate communications firm. Many of you on the call both on the buy side and on the sell side know Matt and his firm and have had a chance to talk with him already. And we are very pleased to have them working with the company and going forward on our IR and PR needs.

I am happy to be reporting our third quarter results, my first full quarter as CEO. Over the summer months and end of the fall, I continued working to get to know the needs of our various constituents, internal and external and overlaid that information on the relevant market dynamics that are in force today.

I have also come to understand in a much more specific way, the opportunities and challenges facing the company. The good news is that I am more optimistic than I was even three months ago about our ability to succeed and ultimately create sustained value for our shareholders. The record number of procedures performed in the third quarter is a strong testament to physicians’ growing confidence in the safety and effectiveness of our products as well as their institutions understanding of the positive value proposition that we bring.

That strong procedure growth was only one facet of the progress we made at the company in the last three months. We’ve been busy working to re-establish momentum in all areas of the business and rekindle the enthusiasm of our customers, employees and investors that was so strong only a short time ago. What we have at Hansen is a game changing technology in interventional medicine.

So as I said in our last call, there is much work to be done at the company in order to realize that full potential. As you can see from traditional P&L metrics we are not yet to the point where we are seeing a steady ramp on the top and bottom lines. The current lumpiness is a result of the continuing uneven commercial ramp of the Sensei systems.

That said the uneven topline results will likely mask some significant achievements in our commercial, regulatory and operational areas and those who have passed those sales figures should recognize that progress and its underlying importance in this and coming quarters. My focus is on improving our execution in all areas of the business and meeting our commitments to our customers, our partners and our shareholders.

As a reminder, the three main strategic priorities that I’ve set up through the reorganization are one, growing our business and EP; two, developing and commercializing our vascular platform; and three, achieving operational excellence, including growing our margins, reducing our cash burn, and eliminating non-value-add activities.

Last quarter, I identified some of the specific goals that we’ve established for the remainder of 2010. I also made the commitment to update you on our progress against these timelines, and so I want to start there first.

Hopefully, you’ll begin to see that we’re all working to change the culture at Hansen as it relates to commercial execution, which is the path to building sustainable shareholder value. Our first goal was to meet our system shipment goals. We shipped three systems in the quarter, going forward we have a full pipeline of possible transactions and our channel activity is growing.

I do expect continued growth in our installed based through additional system shipments each quarter and upward trends and procedures as our installed base grows, our current users become more efficient with the system and our sales and marketing initiatives evolve and gain traction.

The second goal is to launch new products in EP. In September we announced the first sale of our Lynx Robotic Ablation Catheter and the successful treatment of the first patients using the device. The roll-out of the Lynx Catheter in Europe marks an important next step in our drive to expand our core target market from our open architecture robotic navigation technology to include proprietary therapy devices.

The device is currently in limited release, but the early physician feedback has been very positive.

New Lynx device has a smaller profile with a flexible, integrated, irrigated ablation catheter designed to not only improve the treatment of arrhythmias, but also drive greater adoption of Sensei X Robotic technology into European EP labs. We also receive a higher price for the Lynx catheter than the Artisan catheter, our robotic navigation technology.

In addition to Lynx, we also introduced software enhancements to be used with the Sensei X system to expand compatibility with our CoHesion 3D Visualization Module, and St. Jude Medical’s new EnSite Velocity Mapping System to create better 3D visualization capabilities for the electrophysiologists. Cases were successfully performed in Q3 in both the U.S. and Europe with this new capability.

Our third goal was to obtain final IDE approval from FDA to allow for continued enrolling of patience in our A-fib clinical trial. Earlier this week, we announced receipt of our unconditional IDE approval from the FDA authorizing the Artisan AF trial, a clinical trial to investigate use of the Sensei X and Artisan Control Catheter for treatment of atrial fibrillation. The study which is underway, we’ll enroll up to 300 patients at 14 leading hospitals for a prospective randomized study of Sensei X in tandem with the Biosense Webster NAVISTAR THERMOCOOL Catheter. The trial was designed to evaluate robotic technique versus manual technique for the treatment of AF.

Fourth, we aim to complete our first-in-man study with the New Flexible Catheter Vascular Robotic System. On October 4, we announced the completion of our first-in-man study, during which 20 endovascular procedures were successfully performed with our New Vascular Robotic System. The procedure went well and the importance of entering the vascular market can’t be overstated. I’ll add more on that in just a minute.

Our fix stated goals to file for approval of our vascular platform in both the U.S. and Europe. With the first-in-man experience behind us, our teams are now busy doing the work necessary to finalize the product and make a strong and powerful submission to the regulatory bodies. We are still on track to make those submissions in order to be in a position to initiate our commercial launches in the U.S., and in Europe in mid 2011.

Finally, we set an ongoing goal of prioritizing our expenses to focus on the programs that create the most value for our company, and ultimately reducing expenses overall. We will give you more color here, but we have made progress, and we’re – and we will continue to target costs and reformulate spending priorities as the year progresses, and into 2011.

In particular, operating expenses in the quarter decreased $2.9 million sequentially from the second quarter of 2010, and 2.6 million year-over-year from Q3 2009.

Turning now to the third quarter results. We shift three Sensei systems and recognized revenue on two systems, and sold 581 catheters. In addition, given that driving clinical adoption is a key metric for us. I’m pleased to report that there was 629 procedures performed by our customers during the third quarter, a record number for Hansen Medical, and are 42% compared to 443 procedures performed in last year’s third quarter.

Year-to-date, 1,737 procedures have been performed, a 48% increase compared to last year’s nine month total of 1,173, and we’ve already surpassed the total for the full year of 2009 through Q3 of 2010.

Again, we do this improving utilization trend as indication of the growing comfort of physicians with the safety and effectiveness of the system, as well as the positive economics that can be generated at the hospital. On a cumulative basis, through the end of the third quarter, we shipped a total of 94 systems worldwide, and recognized revenue on a total of 79 systems since first commercialization approximately three years ago.

We continue to experience a six to 12 month sales cycle for our Sensei system, and sometimes this extends beyond even 12 months. However, we do believe that the marketplace conditions are slowly improving, and we expect system shipments to trend upward from here though not necessarily in a straight line.

In addition, through the third quarter, we have now converted a total of 61 customers to extended service agreements up from 60 customers at the end of the second quarter. Again, we believe that the trends in the fourth quarter should improve both in terms of systems and recurring revenue and with the advent of product introductions and market entries in the new-year that positive trend should accelerate in 2011.

As I mentioned a moment ago, we received unconditional IDE approval from the FDA for Artisan AF Trial. The goal of this trial is to get new labeling for our Sensei X in electrophysiology as well as to provide important data to clinicians regarding the utility of our technology in the treatment of AFib. I applaud our regulatory team here for accomplishing this milestone and I plan to update you on enrollment and study progress in the coming months as we are considering a number of ongoing forward options with the trial.

Now I’d like to update you on what is fast becoming the most exciting aspect of the Hansen story. It has been a very active couple of months for clinicians and our technical teams here at Hansen involved with our Vascular Robotic Platform. After only a short time following completion of our pre-clinical studies in September we successfully completed 20 vascular procedures in patients with our new Flexible Catheter Vascular Robotic System at a European Medical Centre, the University Medical Center in Ljubljana, Slovenia.

Our new vascular system features a flexible telescoping 6-French sheath and reader catheters and importantly both have distal tips that can be robotically articulated. Our study demonstrated the potential of the system to improve the ability of physicians to safely effectively and efficiently treat vascular disease while simultaneously exposing their patients, physicians and hospital staff to less radiation.

The Hansen Medical vascular system was used to safely and successfully cross 20 out of 20 lesions in a retrograde approach through tortuous iliac arteries with real world lesions. The 20 endovascular procedures in the study included complex and diseased anatomy including chronic total occlusions with lesions from task A to task B. As you may know task B lesions are often treated surgically not through an endovascular valve. There were no device related adverse events.

In this early experience, endovascular procedures using remote robotic catheter navigation was feasible, safe and effective and generated positive physician feedback regarding ease-of-use for navigation of torturous and difficult anatomists. Dr. Alan Lumsden from the DeBakey Heart & Vascular Center in Houston Texas and Dr. Borut Gersak from University Center, Medical Center in Ljubljana, Slovenia are the studies principal investigator. Dr. Milenko Stankovich from University Medical Centre and Dr. Jean Bismuth from the DeBakey Heart & Vascular Center in Houston completed our first-in-men physician team and all successfully operated the system during the study.

We’re very pleased with the feedback from the physicians who conducted the study. These physicians were impressed with the system’s superior performance even in complex and disease anatomy and believe our technology has the potential to standardize catheter navigation and make procedure safer and more predictable.

I believe that our successful completion of this key milestone is an important next step in the extension of our flexible robotics technology to the larger vascular market. Our entrance into the vascular market is a key strategic milestone for Hansen Medical as it is more than 10 times the size of the current addressable market and have a new set of physician customers. The vascular market is large and rapidly growing driven in large part by an ageing population, the prevalence of diabetes and obesity and an increase in disease awareness. Of the more than 2 million vascular procedures done each year, we believe approximately one-third to one half of them will potentially be addressable by Hansen Medical’s Vascular Robotics System.

As we’ve said in the past, our initial physician target group will be vascular surgeons with endovascular skills. The vascular surgeons maybe far more receptive to the new technology as a specialty, as a group, it has significant interest in augmenting its catheter skills as compared to interventionists although we are seeing good interest from interventionists as well.

We believe that our technology and its ability to standardized procedures will provide the means for a whole new segment of vascular surgeons, the opportunity to safely and effectively perform more complex cases that they might have either converted to open surgery or referred away in the past.

As we move forward towards the commercial launch of the vascular platform, I’m pleased to report that our previously announced joint development agreement with Philips Medical System is on track. Under this agreement, Philips is partially funding development costs of our vascular platform based upon our achievement of certain development milestones. We continue to receive milestone payments as we execute on our clinical efforts.

We believe our performance of the first-in-man trial meets the next milestone requirement under our agreement and we have submitted the required paperwork to Philips for their consideration. Well, we can’t be specific about the dollar amount just yet. We currently expect to receive payment in the first quarter of 2011.

On the regulatory front as I mentioned, we expect to file soon for European approval and U.S. clearance and are targeting receipt of a CE and FDA clearance to allow for commercialization in mid 2011.

Our stated goal to reduce our cash requirements going forward, we are finding ways to achieve these savings without materially affecting our ability to deliver on our EP and vascular initiatives and as importantly, without significantly impacting our customer related activities such as sales, clinical support and field service. In particular, our significant investment in R&D is continuing and as you saw in our press release last week, we are making good progress in protecting those inventions by the recent issuance of 11 new patents in the U.S. and covering our technology.

In Q3, we did make solid progress on operating expenses which came in around $10 million. This compares favorably to the $13 million from last year’s Q3 and the second quarter of this year. These decreases and other efficiencies that are taking hold will have a positive impact on cash use especially as system shipments increased in coming periods. I expect to be in a better position to provide more specific details on these initiatives on future calls.

The way to the cash preservation is the opportunity to generate additional capital and future revenue from our existing non-core intellectual property assets. Included in that effort is some of the intellectual property related to our settlement from Luna Innovations, Fiber optic shape sensing and localization or FOSSL, F O S S L is a novel technology that Hansen Medical and Luna Innovations are advancing for use in medical applications.

FOSSL is a potentially ground breaking technology that may in the future allow us to identify the shape, location of the tip and conformation of flexible tools used in medical procedures without X-ray’s.

Why is this important? A number of factors have been driving physicians to less and less invasive procedures over the last 50 years. Minimally invasive procedures however, are still limited by imaging and localization, which remain critical elements to knowing where flexible tools are in the body. Since the incision is so much smaller and direct visualization is not possible, interventionalists, surgeons and other physicians have to rely upon imaging to know where their instruments are and the shape of instruments they are manipulating. Radiation exposure to the patient and physician is the result most of the time and this usually provides only two dimensional information.

Instead imagine a piece of optical fiber that is the diameter of a human hair, one meter in length and is flexible enough to wrap around a pencil without breaking. Imagine putting that fiber into any flexible instrument connecting one end to a fiber cable and using a special box in spite of a VCR to read output from the fiber 10 to 60 times a second. Then imagine looking at a display that shows the three dimensional shape and position along the length of fiber again all without X-ray. This is what FOSSL can potentially do for flexible tools whether they’re manually mapping or ablation catheters, surgical drills or instruments for vascular catheters or devices. The potential benefits to patients and physicians that treat them are substantial primarily related to reducing use of radiation in minimally invasive procedures.

I’m pleased to report that the technical teams are making good progress in the development of this technology. I can also report that we have received good interest from multiple companies and we plan to continue these discussions until we define and execute on the best way to monetize this technology.

Following, as most of you remember from the Q2 earnings call, I withdrew all previous results guidance until I had a better sense of the business going forward. I want to let you know that we will be reestablishing guidance for 2011 following our Q4 results as it is important that we support our shareholders with the visibility on the metrics that we believe will drive this business going forward. As such, I will announce on our year-end earnings call what the outlook will be for 2011.

In summary, the third quarter has been extremely busy and productive for Hansen Medical and our clinical partners. Generating the foundation for systematic growth and profitability is difficult work, and in the case of Hansen, expensive work. That said, the pay off is potentially enormous as we develop and enter some of the most attractive and important medical markets armed with a major innovation, which I believe will someday be the standard-of-care for use of flexible catheters in interventional medicine.

We invite those of you who have been watching the company for a while or are new to the story to assess our progress in this and in coming quarters to hold us to our commitments and do continue to voice your feedback as we progress.

With that, I’ll now turn the call over to Peter Osborne for a closer look at our third quarter financial results. Peter?

Peter Osborne

Thank you, Bruce. Let’s begin with some additional insights into our third quarter income statements. We’ve reported quarterly revenue of $3.5 million, primarily on the sale of two Sensei systems in 581 catheters. Third quarter revenues decreased 23% compared to the $4.6 million of revenue in the same period in 2009, where we sold five Sensei systems and 497 catheters.

Contributing to third quarter revenue was one system that we shipped in third quarter, and a system from deferred revenue that had been shipped in the prior quarter. As of September 30, 2010, the company had a total deferred revenue balance of $10.4 million. The company has shipped 15 Sensei systems that have not yet been recognized as revenues.

As Bruce mentioned in his remarks, we shipped a total of three Sensei systems during the quarter, one of which was recognized as revenue and consistent with our revenue recognition policies, revenue will be recognized on the remaining two systems as they are installed and physicians are trained.

The average selling price inclusive of maintenance for the three systems shipped in the quarter was approximately $623,000. This compares to an ASP of approximately $658,000 in the previous quarter, and approximately $667,000 in the same quarter last year.

The sequential and comparable quarter declines in ASP are due primarily to a greater proportion of sales in the quarter being made to distributors. The catheters that sold in the quarter had an average selling price of approximately $1,610, similar to the $1,600 in the previous quarter, and $1,680 in the third quarter of last year.

Gross profit was $338,000 or 9.7% of third quarter revenues, compared to gross profit of $1.3 million or 28.4% of revenues in the same quarter last year. We expect that cost of goods sold as a percentage of revenue and on a dollar basis will continue to vary from quarter-to-quarter as manufacturing levels fluctuate, and as revenues fluctuate due to changes in product mix. The timing of revenue recognition and (inaudible) system and average sales prices per system and per capita.

Prior to providing you the details of our third quarter operating expenses, I would like to provide you with a quick summary of the financial accounting of our joint product development agreement with Phillips, which sits into context, the comparison of quarterly results.

Our joint product development agreement provides for uneven cash payments along certain milestones estimated to occur through Q2 2011, which are accounted for on a contingency adjusted performance model as offset to R&D expense. Whilst the funding from Philips is not significant to our overall development expenditures, certain quarters will show fluctuations in reported costs because the required financial accounting associated with the joint development agreement.

Total operating expenses were $10.4 million in the third quarter, compared to $13 million in the third quarter last year. Included in operating expenses in third quarter are R&D expenses that are net of our reported offset of $1 million under the company’s joint development agreement with Philips.

The principal other reasons for the decreases in operating expenses were lowest selling, general and administrative expenses attributable to decreased employee related expenses and travel and outside services, a decrease in legal cost associated with the 2009 Luna litigation and a decrease in expenses associated with the restatement. During the remainder of the year, operating expenses are expected to decline from fourth quarter 2009 levels primarily due to lower projected legal and restatement related expenses.

These reductions will be partially offset by higher R&D expense due to the ongoing development of the vascular platform that A-fib clinical trial sponsored by the company and engineering activities to support the fiber optic shape sensing and localization technology under our Luna Innovations development agreements.

Other expense net for the third quarter was 2.1 million compared to other expense net of 194,000 for the same period in 2009. The increased expense was primarily due to 1.9 million write-down of the company’s equity investment in Luna as the impairment of its value was considered other than temporary during the last quarter.

At the bottom line, net loss for the third quarter of 2010 including non-cash stock compensation expense of $1.3 million was $12.1 million or a loss of $0.23 per basic and diluted share based on average basic and diluted shares outstanding of 53.8 million shares. In comparison, the net loss for the third quarter 2009 including non-cash stock compensation expenses of $1.6 million was $11.9 million or a loss of $0.32 per basic and fully diluted share, based on average basic and diluted shares outstanding of 37.4 million shares.

Turning to the balance sheet, we had $10.4 million of deferred revenue on the balance sheet, which includes systems which we have shipped, but have not yet completed the revenue recognition process. A majority of the systems currently classified as deferred revenue are with international distributors, with whom we cooperate. However, the ultimate timing of revenue recognition is based on their efforts in placing the system with end-users.

Cash, cash equivalents, and short-term investments as of September 30, 2010 were $35.3 million, compared to $28.3 million as of December the 31st, 2009. The higher cash balance is due primarily to the net proceeds of approximately $29.8 million raised from the public offering completed in April 2010, partially offset by the company’s operating expenses during the quarter. We have an existing debt facility with Silicon Valley Bank that completed to installment base in 2009. During the third quarter, we paid down the debt by approximately $900,000 leaving a total balance of approximately $7.1 million as of the end of the third quarter.

During the third quarter, our cash used by operations was approximately $8.2 million in the quarter compared to approximately $8.1 million in the second quarter of 2010. Cash used by operations increased in the third quarter primarily due to the fact that we shipped fewer systems to collect cash on hand in Q2 than in Q1.

Excluding the financial accounting effect of funded joint development to offset to R&D of approximately 1 million, we’re encouraged by the 1.9 million decrease in Q3 operating expenses, when compared to Q2. Most of these operating expense reductions were achieved through eliminating non-core activities and product developments focusing our marketing program efforts in critical areas managing head counts and reducing the use of third-party service providers wherever possible.

That said, we continue to actively challenge all our operating expenses in order to control costs and reduce our cash burn while maintaining our ability to deliver on our EP and vascular initiatives. We still need to ensure we maintain our customer facing related activities in sales, clinical support, and field service.

We recently received notification from the Department of Treasury that we’ve been awarded a grant of $245,000 under the Qualifying Therapeutic Discovery Project, which we expect to receive in the fourth quarter.

Before opening the call to questions, I wanted to highlight Bruce’s earlier comments on our activities around expense management and long-term shareholder value creation. We continue to be mindful of the company’s cash position and are actively pushing on many fronts of the business that include monetizing our existing non-core IP assets, reducing expense levels, increasing EP sales levels, driving catheter utilization and as we look into 2011 reporting on the first sales of our Vascular Robotic System. We’ve reported on progress on some of these elements to date and we expect to update you on our visibility on our cash resources in the New Year, when we review our Q4 and full-year 2010 results.

This concludes our preferred remarks. Thank you for your attention and at this time we’d like to open the call to questions. Operator?

Question-and-Answer Section

Operator

Thank you, sir. (Operator instructions) Our first question comes from the line of David Lewis with Morgan Stanley. Please go ahead.

James – Morgan Stanley

Hi, this is actually James [ph] in here for David. My first question is on operating expenses. Is there a way you could be a little more specific in terms of where you’re doing little better in terms of non-core expense in SG&A? And then also heading forward given probably an expected pickup in shipments, and some increase in clinical activities, how sustainable is the current level of operating expenditures?

Peter Osborne

So let me take – James, the first crack of that. Most of our say things in this current quarter that we’re reporting on were really achieved from refocused product development activities, and just focusing our people, and our efforts around, improving our EP vascular offering, and giving vascular to its next level. And now we would expect those efforts to continue in savings and savings from that to continue in the future.

Bruce Barclay

And in terms of sustainability going forward, this is Bruce, I can talk that a little bit. And I think it really transitions into the broader question of cash preservation for the organization. We’ve got a very mindful of cash burn of the company and it is a constant focus of the organization. There are lots of variables ongoing with that from trying to drive the top line from a revenue standpoint in EP business, getting ready to launch our vascular products in the next year in both the U.S. and Europe. So that IP we’re trying to monetize, and then obviously we are continuing to focus and identify expense cuts where we can.

There is a lot going on to the organization right now, and a lot of good things going on with the organization right now. So we need to be very surgical in terms of where we cut and where we don’t. And I think that activity began in the last quarter, it’s continuing in this quarter and will continue in quarters going forward. So, we are continuing to look at areas we can cut expenses in, but yet still be supported of the business long-term, because ultimately we think that, that’s going to be necessary of the successful long-term.

James – Morgan Stanley

Great. Understood. And then on kind of on the commercial side of the business, putting aside progress on clinical projects, is there anything that you’re adjusting operationally or from a selling strategy to drive, to drive more traction in the AF business, could you give us some detail on that?

Bruce Barclay

I’m sure there’s a number of different activities that we’re doing in the EP space and I’m sure, I won’t be able to touch them all. But we’ve gone back and we’ve looked at performance in each territory in the U.S. and Europe and where we’re being successful, and where we’re not being as successful in making adjustments relative to coverage and personnel. We’ve got a new training function that we are in the process of creating better focus and performance around and also adding some additional resources to going forward. And we should have some additional moves on that in the not too distant future. We talked about new products both in the U.S. and Europe as being a substantial driver for the business. You know we’ve executed a new lease for a new training facility and headquarters in Europe, which we’ll be announcing the completion of in the not too distant future.

We are looking at going direct in some current distributor markets and then also entering some new markets as well that we’re present at, at all. We’re continuing to leverage our super users and our luminary support looking at accounts maybe aren’t quite as active trying to be able to be more active there. And then we have many, many activities going on in marketing. There are multiple marketing initiatives from things like the new and improved website, which everyone has seen and I’ve gotten great feedback on the ultimate number of things that maybe aren’t quite as visible, but that are supportive of our U.S. and our international team. So, a lot of activity around EP. We have a number of very important initiatives. We’re starting to see some attraction, but also some of these things just take time to rollout and fully implement.

James – Morgan Stanley

Great. Thank you, very helpful. I will jump back in queue.

Bruce Barclay

Thanks for the call.

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 and thanks for taking the questions here. Just first just kind of follow-up on the commercial side, much, much stronger catheter sales than we were modeling, I guess was there anything specific that was driving that demand or is it isolated to a couple centers, are you seeing broad-based demand or broad-based increases, and just any other color you can provide on that purpose?

Bruce Barclay

Sure, now happy to do that. I appreciate you calling; I thought you might be at the parade this afternoon. A number of factors there Tim, installed base is growing. We are getting more utilization out of our key super users; as they continue to grow their business with us through no marking efforts that they put on at their individual institutions to additional physicians at those sites using the system. We’ve got accounts that may be gone quiet as active before becoming more active as those physicians get more comfortable with the system and drive more cases through the robotic technology. We have a new Lynx catheter in Europe that well, didn’t drive a lot of volume in Q3. It will drive a lot more volume going forward. We believe really was only went up in a limited launch in Q3 in Europe and that we’ll continue to roll that out slowly until we fully launch it in early 2011. Obviously, the procedure volume going up and also play heavily into the catheter utilization. So a lot of activities that I think probably no one maybe drove the volume, but a lot of good activities that we’re very encouraged by.

Tim Lee – Piper Jaffray

Got it. And then just kind of following up on Lynx, just what are the current plans for that product in the U.S. or is it just given the cost associated with it to bring to the States or is it currently on the back burner, just again any color there please?

Bruce Barclay

Well we are still in the learning phase with Lynx outside the U.S. We’ve done a number of cases, but still it’s very early. Feedback has been very positive, we want to complete that and then do a final assessment of the learning there. But if the early indication, any indication of what we expect going forward then this is going to be a very significant product for us going forward and we would love to figure out a way to bring it into the United States. The fact that we’ve now gotten all the questions answered for our Artisan AF trial, is now a nice opportunity for us to go back and think about what it’s going to take to maybe get that into the U.S. trial. We’ve got a very strong regulatory team here that is thinking about that and I’m not in a position to share details, as we make progress on that going forward, we’d be happy to update investors. So early feedback looks very good on the product and to bring it in the U.S. would be very exciting.

Tim Lee – Piper Jaffray

Okay. And just one last one, if I may, I think if you back out the milestone payments, I think the OpEx in the quarter was around $11.5 million. So should we think about at least in the near term this kind of like new baseline and you show improvements off this number or how should we think about expenses here for the next couple of quarters?

Peter Osborne

So our OpEx was roughly 10.5 million and...

Tim Lee – Piper Jaffray

I was adding back the extra milestone I guess, it wouldn’t be 11 million, right?

Peter Osborne

Okay, right. I think our R&D expenses will be flattish going out in the sort of near-term. There are lots of activities that are going on and we continue to manage them and I wouldn’t point out – be any more specific than that.

Tim Lee – Piper Jaffray

Okay. Thank you.

Bruce Barclay

Thanks Tim.

Operator

Thank you, our next question comes from the line of Sameer Harish with Needham & Company. Please go ahead.

Sameer Harish – Needham & Company

Hi, good afternoon guys.

Bruce Barclay

Hi.

Sameer Harish – Needham & Company

I thought, I would ask and I know you’re not planning guidance for the year, but just wanted to get a sense, are you still expecting systems to grow in the second half from first half?

Bruce Barclay

We have a very robust pipeline. We have a lot of activity in the pipeline and we think that the sales cycle with that also makes it difficult to decide exactly what we’re going to do in Q4 versus Q1 going forward. So difficult to say at this point, it’s not out of the question, but that’s difficult to provide a precise answer to that.

Sameer Harish – Needham & Company

Okay. And just in terms of system placements, are you seeing any impact of the vascular program on the systems perhaps some centers that were looking to perhaps use the system for vascular and as opposed to EP, maybe holding off on ordering systems right now as they see more visibility on vascular?

Peter Osborne

Not at all.

Sameer Harish – Needham & Company

Okay. So there is no cross there whatsoever?

Peter Osborne

No, no. We’re very conscious to not do anything commercially with our vascular system, we have to be careful about that since they’re not filed or approved at this point.

Sameer Harish – Needham & Company

Okay. And just in terms of taking a look at vascular for next year, do you think, sort of I think, guidance was kind of a mid-year or kind of rollout of the product. Do you think that 2011 will be a year where we start to see some material contribution from vascular or more of a slower start and a larger contribution coming maybe in 2012 or beyond? And to that, just give back and extra question there. What are the lessons learned from EP as you look to release the vascular product? Anything that we should take away from that standpoint?

Peter Osborne

Sure, so we’ll provide more outlook and guidance on the vascular system in our year end call. At this point, I would say there are too many variables to speculate on. I think with both systems, it’s very important that we really be thoughtful and deliberate about how we roll the systems out, make sure we’re providing sufficient training to our users on this system, make sure that we’re proving them sufficient support from a clinical standpoint as they begin to do cases with this system. So, that’s our focus, I mentioned our increased emphasis on training and clinical research here, and that’s one of the goals of the new team we’re putting together there as to be able to provide additional support on that vascular system as we rollout.

Sameer Harish – Needham & Company

Great, thanks guys. I’ll get back in queue.

Peter Osborne

Thank you.

Operator

(Operator instructions) And we do have a follow-up question from the line of Sameer Harish with Needham & Company. Please go ahead.

Sameer Harish – Needham & Company

Okay, guys. I thought, I would ask a question on that the AF trial, maybe I just missed this from before. But can you talk about the strategy with the FDA in terms of the safety and efficacy, primary end points, are they both necessary to meet their end points to get approval or can you maybe do adjust safety and not efficacy. And in terms of the – I assume the safety is non-inferiority, how is the efficacy side of it, is it non-inferiority or are you looking for clinical benefit there?

Bruce Barclay

Sure. There are primary end points in the trial, one is safety, which essentially is defined as no major adverse events in the trial acutely I believe. And then the second one is efficacy, which essentially means freedom from atrial fibrillation for the first year. And the trial is basically set up as a 300 patient randomized trial 2:1. So basically, 200 patients will be randomized into robotic technique and the other 100 will be randomized into manual technique. And then we’ll follow the patients over four or five different time points along the way. So two primary endpoints, one safety, one efficacy.

Sameer Harish – Needham & Company

Okay. In terms of terms of you know how the FDA is going to look at this, do you know if they’re looking for a clinical benefit in terms of AF, at first year versus manual or is it just non-inferiority?

Bruce Barclay

I don’t have the detail of that right now Sameer.

Sameer Harish – Needham & Company

Okay, got it. A question for Peter. You know last couple of quarters we saw some pretty significant working capital gains and it seems to have slow a little bit in this quarter. Do you think that some of the work that you’ve been doing for the first half of the year is largely complete or can we see a little bit of additional benefit coming from that side going forward?

Peter Osborne

No, we will continue to manage working capital both on collecting cash and perfectly paying all venders and managing inventory levels. And that will continue to be a challenge for the company. We are launching and managing two products vascular and EP. And so we know we have lot of opportunity in front of us. So I think there is more width to chop there for us. And we are definitely focused on that and we will continue to make progress on working capital.

Sameer Harish – Needham & Company

Okay. And now just sort of – I don’t want to go too much into the vascular side, but if you just thinking kind of long-term, as you ramp into vascular, do you think that there may be some impact on working capital needs, inventory buildups or some other aspect that would make sort of deter working capital for a short period of time?

Peter Osborne

We are actively looking at that, but I think we’ll share some more color commentary on that at our year-end call when we look at the year-end results and our outlook for 2011 and we should be in a position to talk more – in a more specifically in that regard, Sameer.

Sameer Harish – Needham & Company

Okay, great. Thank you so much.

Bruce Barclay

Thank you.

Operator

Thank you. And at this time, there are no further questions. I’d like to turn the call back over to management for any closing comments.

Bruce Barclay

Great, thanks, operator. Thank you all again, for joining us for our Q3 conference call and for your support of Hansen Medical. We look forward to updating you all on our progress against our initiatives, our new programs and our new directions going forward. I look forward to talking with you again in the New Year and reviewing our Q4 and full year 2010 results.

Operator

Thank you. Ladies and gentlemen, this concludes the Hansen Medical 2010 third quarter and nine months results conference call. Thank you for your participation. You may now disconnect.

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