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Hansen Medical, Inc. (NASDAQ:HNSN)

Q2 2011 Earnings Call

August 3, 2011, 5:00 p.m. ET

Executives

Matt Clawson – IR, Allen & Caron Inc.

Bruce Barclay – President and CEO

Peter Mariani - CFO

Analysts

Brooks West – Piper Jaffray

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Bill Carlisle – Morgan Stanley

Operator

Good day Ladies and Gentlemen, and thank you for standing by. Welcome to the Hansen Medical 2011 second quarter and six month results conference call. [Operator Instructions].

This call is being recorded today, Wednesday, August 3rd of 2011, and I’d now like to turn the conference over to Matt Clawson of Allen and Caron. Please go ahead.

Matt Clawson

Thank you, Alicia. Good afternoon everyone. Welcome to Hansen Medical’s 2011 second quarter results conference call. With us today are Hansen Medical’s President and CEO, Bruce Barclay and the company’s Chief Financial Officer, Pete Mariani.

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. Examples of such statements includes statements about the expected timing of commercial availability of our Magellan Vascular Robotic System, the level of clinical interest in our Vascular Robotic System, and expectations regarding commercial success of our Lynx irrigated catheter.

Important factors could cause actual results to differ materially from those indicated by forward-looking statements, include among others, the development of new products and applications of technology are subject to design, engineering, and manufacturing challenges that could delay clinical studies, regulatory filings, and commercialization, potential safety and regulatory issues could delay, suspend, or terminate clinical studies, regulatory approvals, [technical difficulties].

Operator

Ladies and gentlemen, I apologize for the technical difficulties. Mr. Clawson, please continue.

Matt Clawson

Thank you, Alicia. I’m sorry folks. It seems that the provider had a system-wide failure, so anyway, without further ado and apologies here, we’ll begin over with forward-looking statements to make sure we got that all covered.

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. Examples of such statements includes statements about the expected timing of commercial availability of our Magellan Vascular Robotic System, the level of clinical interest in our Vascular Robotic System, and expectations regarding commercial success of our Lynx irrigated catheter.

Important factors that could cause actual results to differ materially from those indicated by forward-looking statements, include among others, the development of new products and applications of technology are subject to design, engineering, and manufacturing challenges that could delay clinical studies, regulatory filings, and commercialization, potential safety and regulatory issues could delay, suspend, or terminate clinical studies, regulatory approvals, or sales, uncertain timelines, costs, and results of clinical trials, and development of new products, our ability to plan and manage cost reduction or operational efficiency initiatives, the scope and validity of intellectual property rights applicable to products being developed, and our ability to maintain our remedial actions over previously reported material weaknesses and internal controls over financial reporting. These and other risks are described in greater detail under the heading risk factors contained in our periodic SEC filings including our quarterly report form 10-Q filed with the SEC on May 10th, 2011.

Given these uncertainties, you should not place undue reliance on the forward-looking statements retained in this conference call. We take no obligation to revise or update information herein to reflect events or circumstances in the future even if new information becomes available.

Now with that, it’s now my pleasure to turn the call over to Hansen Medical’s President and CEO, Bruce Barclay. Good afternoon, Bruce.

Bruce Barclay

Thank you, Matt. Good afternoon everyone. Thank you all for joining us for our second quarter 2011 conference call.

Before I discuss our second quarter results, I want to take a moment to introduce our new Chief Financial Officer, Pete Mariani. We took our time in conducting our CFO search, but having completed a very thorough search process, we are thrilled to have Pete on board here at Hansen. The deliberate pace of the search was designed to make sure that we found the right person for the role. And I can speak for the entire board including me that Pete is that person.

We were adamant about finding an executive that had impeccable integrity, exceptional financial skills, applicable medical device experience, and importantly had significant success in scaling a business… [technical difficulty]

… process we have not received a response to 510K submission. We are still targeting a U.S. commercial launch in the second half of this year. We understand that this is of interest to you in the investment community and so we will update you on any material news that comes out of the FDA when it is received.

As you read today’s press release, financial results in the quarter representing only the EP business were solid and showed areas of improvement year-over-year. We are especially pleased that we are on pace with ten systems recognized as revenue thus far in 2011 to break through the 12 systems we recorded for all of 2010. We are encouraged that the pipeline in that business has beginning to show some positive momentum.

Further, there is growing third-party clinical work by physicians as the total number of procedures performed on patients with our products is now in excess of 6,000.

In addition, through our procedure growth and clinical studies, physicians at other centers are generating data of their own that support the benefits of Robotic EP procedures. I can’t be specific about the nature and timing of those studies. I look forward to sharing the information as soon as it’s available and leveraging that data in the marketplace.

Finally, we are continuing to see positive clinical use and good uptakes of our Lynx Robotic ablation catheter in Europe. And we will update you on the progress of that product going forward as well.

We’re mindful of the fact that we had a slightly lower catheter number in Q2 compared to Q1. And have pulled back in procedures in Q2 compared to Q1, but this has been the pattern in the second quarter in the past. This is in part due to the number of important clinical meetings that occur each spring taking these physicians away from their offices and patient procedure dockets.

We also note that our un-commercial operations have been in transition as our new Vice President of Commercial Operations, Mike MacKinnon has been implementing improvements through his first six months with the company.

Overall, we continue to be encouraged by the momentum that is developing across the business especially with the opportunity that comes from new system introductions.

In summary, we’ve made excellent progress implementing our strategic vision in both of our product categories in the first half of the year. And we expect to continue to show progress across the coming quarters.

I will outline our commercial plans in vascular before we open up the call for your Q and A, but first I’ll ask Pete to walk through the results for the period.

Pete Mariani

Thank you, Bruce.

Before I step into the numbers, I’d like to say thank you to those in the investment and research communities that have introduced themselves in my first six weeks here at Hansen. Having come from larger organizations where managing innovation, growth, and scale were principal challenges, I have been impressed with many of the key assets already in place here at Hansen. The company is on the verge of an important commercial launch into the large global market that I’m very familiar with. And the organization is already well equipped to handle that growth.

I’m very pleased to be joining the Hansen team. Like many of you, I am fascinated with the intersection of technology and healthcare. And the opportunity that is presented to improve outcomes, especially the quality of life for patients and physicians. And doing so in a manner which improves efficiency in the hospital and reduces the overall cost of care. I believe Hansen’s flexible robotic catheter technology provides a great platform to improve the quality and efficiency of healthcare for patients, physicians, and healthcare systems.

I also believe that the technology, products, and intellectual property assets at Hansen have tremendous upside to the current valuation. And that a disciplined strategy combined with consistent execution can produce great value for our shareholders.

Bruce and I believe that now, as the organization is launching a new product category and continues to build momentum in the EP market, is the time to redouble our efforts to chart a path to profitability. We are working to define this with the organization. However for now, we want you to know that this is a priority for us. And as this plan comes together, we will be able to provide more visibility to you.

Now let’s move on to the results for the second quarter.

We recorded quarterly revenue of $5.3 million primarily on the recognition of revenue of five Sensei systems and the sale of 682 catheters. This is relatively consistent with our results for the first quarter of 2011 where we also recognized revenue on five Sensei systems and 693 catheters.

On a year-to-date basis, we have recorded revenue of $10.6 million primarily on ten Sensei systems and a record 1,375 catheters. This amounts to a year-to-date growth in revenues of 10%, systems of 25%, and catheters of 15%. And of the five systems in our second quarter revenue, three were shipped in the quarter and two had been shipped in prior quarters.

The average selling prices on the three Sensei systems shipped in the quarter inclusive of maintenance was $693,000 compared to $511,000 in the previous quarter and $658,000 in the same quarter of last year. Variance in average selling prices are primarily reflective of the mix of revenue units between those sold directly to the end customers and those units sold to our international distributors, which are typically completed at comparatively lower prices.

The catheters sold in the quarter had an average selling price of approximately $1,638 down 2% from the $1,673 in the previous quarter. And up 3% from the $1,596 in the second quarter last year.

Gross profit was $1.4 million or 26% of second quarter revenues compared to gross profit of 16% in the previous quarter and 36% in the same quarter of 2010. Variances in the gross profit percentage are primarily reflective of the variance in average selling prices received on robotic catheter systems as well as variances in manufacturing activity.

We expect that gross margins will continue to vary from quarter to quarter as manufacturing levels and revenues fluctuate due to variations in the mix and timing of shipments and revenue recognition on shipped units.

Total operating expenses were $9.8 million in the second quarter compared to $12.2 million in the previous quarter and $13.3 million in the same quarter of last year. These amounts include financial accounting credits or reductions to expense resulting from the accounting for our joint product development agreement with Philips totaling $2.8 million in the current quarter, $2 million in the previous quarter, and $200,000 in the same quarter of last year.

Q1 2011 operating expenses net of these Philips credits were higher than Q2 operating expenses primarily due to the higher employee stock compensation cost and expenses associated with the development of the company’s Magellan robotic system including the submission of regulatory filings in engineering activities that support the fossil technology.

Net loss for the second quarter of 2011 including total non-cash compensation expense of $1.4 million was $8.8 million or a loss of $0.16 per basic and diluted shares outstanding of $54.7 million.

In comparison, net loss for the second quarter of 2010 including total non-cash stock compensation of $1 million was $10.9 million or a loss of $0.22 per share or per basic and diluted shares outstanding of $50.1 million.

In the first quarter of 2011, the company recorded net income of $11.7 million or income of $0.22 per basic and $0.21 per diluted shares outstanding of $54.1 million and $55.5 million respectively.

The 2011 first quarter net income was primarily attributable to a $23 million gain on the sale of the non-robotic rights associated with the fossil technology. And we currently do not expect to achieve quarterly net income this year or for the year as a whole.

Turning to the balance sheet, cash, cash equivalents, and short-term investments as of June 30th, 2011 were $37.2 million, a decrease of $7.9 million compared to the $45.1 million balance at the end of the previous quarter.

During the quarter, however, we received an additional payment for the remaining $3 million on the note receivable from Luna and reduced the recorded market value of our investment in Luna stock by $1 million.

These two transactions increased the net balance of cash, cash equivalents, and short-term investments by $2 million.

As of June 30th, we have $8.4 million of deferred revenue on the balance sheet, which includes 11 Sensei systems, which have been shipped, but not yet completed the revenue recognition process. The 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 primarily dependent on their efforts in placing the systems within their end users.

During the second quarter, we also paid down our debt by approximately $900,000 leaving a total debt balance of approximately $4.5 million.

During the second quarter, our cash used in operations after adjusting for cash received from Philips joint development agreement was approximately $9.1 million compared to $12.5 million in the previous quarter and $8.1 million in the second quarter of 2010.

As was noted in the first quarter earnings call, cash used in operations in the first quarter was higher due to the number of factors including lower customer cash collections, increased expense in vascular robotic system development, and the timing of other disbursements.

The company continues to manager overall expenses and cash within planned levels. And as noted earlier, we are encouraged by the growing momentum across the business and the opportunity that this presents to begin to chart a path to profitability for the company and our shareholders.

That concludes our summary of the financials. Now I’d like to turn the call back over to Bruce to discuss the commercial activities surrounding our vascular launch in Europe. Bruce.

Bruce Barclay

Thanks, Pete.

In the year since I arrived, we’ve been busy laying the groundwork for a new product launch in the vascular market. Much of that groundwork is behind us. And I’m proud to say the organization delivered on the promises I made last year regarding the development and regulatory milestones that we have achieved in Europe.

As you all know, once the regulatory clearance is gained, the celebration is brief because commercial execution is the ultimate goal at Hansen. And what will drive our continued growth in shareholder value.

On that front, I want to outline our commercial plan and timeline for the CE marked countries.

As we described in our July 25th press release in announcing the receipt of our CE marked for the Magellan robotic system, while the CE mark enabled us to commence full commercial launch of the system in the European union, the company will commence commercialization of selected centers initially, which will launch expected in the first half of 2012.

Our new London education center and European headquarters will service the hub for the commercial, training, and physician support activities in association with the initial launch. This was a key purpose of the center when we established it late last year.

This initial launch is designed to bring to the market our unique proprietary and we believe groundbreaking solution to improved vascular interventions in a predictable and controlled way. Our plan is to initially partner with selected physicians that have experience with novel products that help generate compelling clinical evidence, participate fully in, and improve our physician training processes, and ultimately publish their results all to shape the product experience for the broader set of physicians when we begin our full launch.

These key initial sites will also provide input into future product developments. As we conducted market research on our vascular system over the past year, we’ve developed a long list of target physicians with this background that we will now be working with. And their hospital administration to sell, install, and train on our vascular systems. Our experienced capital sales team will leverage its existing knowledge and relationships in the hospitals.

Finally, we have added additional clinical support individuals, which we will continue to add as needed going forward.

As part of our commercialization activities, today I’m also pleased to announce the formation and membership of our scientific advisory board for our vascular business. Our SAB will provide input in a variety of ways. And in particular will collaborate with Hansen medical in establishing its communication and research agenda within the vascular clinician community. The SAB will advise the company on development of new vascular products. And help Hansen medical demonstrate the potential value of its first vascular product, the Magellan robotic system.

Dr. Allen Lumsden, Chair, Department of Cardiovascular Surgery medical director of Methodist DeBakey Heart and Vascular Center in the Methodist Hospital, Houston, will chair the scientific advisory board. In addition to Dr. Lumsden, the scientific advisory board includes Dr. Frank J. Veith, professor of surgery and the William J. von Liebig and Vascular Surgery at the Cleveland Clinic, and professor or surgery, New York University medical center, Dr. Michael R. Jaff, DO, the medical director of the vascular center and the medical director of the vascular diagnostic laboratory and vascular ultrasound core laboratory at Massachusetts General Hospital. Dr. Daniel Clair, chairman of the Department of Vascular Surgery, the Cleveland Clinic, and finally, Dr. John Laird, medical director UC Davis Vascular Center and professor of medicine. We are honored to have this group of esteemed physicians all noted throughout the vascular and interventional community as close advisors and ambassadors as we work toward bringing our vascular products to market. And we very much look forward to working with them.

While this group certainly has global influence and will help support our strategy around the world, we will establish an SAB consisting of international physicians. And we will announce that board when it is formed.

Before I open it up to questions, I would like to make one more point on the organization. If you’ve been keeping track of company news, you will have noticed that we have recruited and hired a series of top industry professionals to head up our key operating and commercial groups, and complement our existing exceptional leadership team. In addition to Pete, these changes have included the hiring of Mike McKinnon. Jean Chang was brought in to manage the engineering function, and Rita Jacob was added to run our clinical engineering, clinical affairs, and training programs. While these additions have been made steadily over the years since I arrived, the sum result is a significant upgrade in leadership in the executive suite, and in those various functional departments. And note this to echo something that Pete said earlier in his comments, that this team is not only capable of managing the corporate growth we anticipate in the coming years, but also of efficiently operating a much larger organization and doing it profitably. Organizationally, the pieces are coming together. We are all looking forward to the future at Hansen to demonstrate that we can execute commercially on multiple fronts.

At this time, I’d like to now open up the call to any questions. Operator.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Brooks West with Piper Jaffray. Please go ahead.

Brooks West – Piper Jaffray

Hi, guys. Can you hear me?

Bruce Barclay

Yes, we can, Brooks.

Brooks West – Piper Jaffray

Great. Thanks for taking the questions. First, I wanted to start on the base cardio business and then maybe transition over to vascular. On the utilization in the quarter, I understand Q2 is usually a little soft. How should we think about that business coming back in the second half and I guess as a follow up to that, is that business going to kind of fade here as we shift focus to the vascular?

Bruce Barclay

Thanks for the question. No, we don’t anticipate it fading at all. In fact, we see a number of signs where we are making good progress. We’re investing heavily in our U.S. organization as we’d mentioned before. Mike McacKinnon’s edition has been exceptional in terms of being able to come in with the experience we need and be able to look at what’s working and what’s not, and making changes accordingly. So there is still transition going on there, but we absolutely believe that the changes that Mike is making with his team are the right ones to pay dividends not only for our EP business, but also for our vascular business going forward.

We continue to have a strong pipeline. The pipeline is getting stronger, you know, the history has been that it’s difficult to pinpoint the timing of some of the transactions that we anticipate in the EP space, but we are delivering new systems, we are installing more systems, whether they’re currently being delivered in the quarter or from prior quarters, and we do see that business growing as well.

So I’d say the softness in the quarter on procedures is not unexpected. Obviously we need to keep a close eye on that and make sure we’re continuing to push that going forward. Most of that came from the U.S. for the reasons that we’ve started. We continue to see strength in Europe as well.

So you know, we continue to see positive momentum on the EP side.

Brooks West – Piper Jaffray

Great. And then any detail we could tease out on the Lynx catheter, you know, percent of sales or kind of underlying growth for that product?

Bruce Barclay

You know, we’ve not pulled that out yet. We continue to have good clinical uptick in Europe. I’ll remind you that it is a European product only at this point, where we have fewer installed systems than we do in the U.S. But we continue to have good uptake and transition. So hopefully as those number continue to grow, we can think about breaking those out. But nothing specific at this point.

Brooks West – Piper Jaffray

Okay. And on the field force, then, as you prepared a launch of that vascular system, is it going to be the same sales force and clinical tech that are going to be supporting that system? Are you going to have a bifurcated force? And can you kind of describe, I mean, how many people do you have in the field right now and what might that look like, you know, toward the end of the year?

Bruce Barclay

So, let me speak to Europe only because we are continuing to transition that in the U.S. But we have brought in more people in Europe with vascular backgrounds to help with that component. We’ve invested heavily on the training side, both Rita and some of her team members come out of the vascular community and so we are specifically investing with tham and inside the organization on the training side with vascular.

You know, the sales organization in Europe consists of two components. There’s the capital sales piece and then the clinical sales piece, which also does the case support side. And we really believe that there’s good leverage there on the capital support piece because a lot of the same hospital administration that they’ve credit relationships in the past with for Sensei will apply as well to Magellan as we go forward with that.

We’re also, you know, being somewhat selective in terms of the sites we go to and the physicians we interact with in Europe initially. So we’re keeping a close eye on the number of – especially clinical folks that we have there so that we’re not missing opportunities going forward, but between addition of a couple of folks, some very, very good training for them in the vascular space with the Magellan system, and then obviously for the last year or so we’ve been in communication with a number of physicians both in the U.S. and Europe creating this target list of physicians. We think we can hit the ground running so to speak in terms of our European launch in Europe of the Magellan system.

Actually, there is always some delay in capital acquisitions. We have to balance that against what I said, but at the end of the day, we feel like we have sized the organizations correctly for the opportunity in front of us initially and we’ll continue to monitor that going forward.

Brooks West – Piper Jaffray

It sounds like separate than – separate forces for EP versus vascular?

Bruce Barclay

No, I’m sorry, I wasn’t clear, Brooks. We’re using the same force, the same people.

Brooks West – Piper Jaffray

Okay. Okay, and then I guess the last question and I’ll let somebody else jump on. The cash burn, I guess the adjusted for Philips in the quarter, is that kind of a number that should be good for the next couple quarters or how should we think about that going forward? Thanks.

Peter Marioni

Well, I think – this is Pete, you know, the cash burn, we don’t – we’re not going to give guidance to the future on the cash burn other than to say, you know, our burn if very dependent upon the success of the launch of the next generation products. We’re manage, continuing to manage our expenses and as we continue to build momentum in the business, we’ll see the burn coming down.

Brooks West – Piper Jaffray

Okay. Thanks, guys. Thanks for the call.

Operator

Thank you. And our next question comes from the line of Jeffrey Cohen with Laden, Burke Thalmann Financial Services.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Hi. Thank you for taking my questions. No breakout of Lynx sales thus far, any update or commentary on a U.S. approval for Lynx or filing I should say?

Bruce Barclay

Nothing new there, Jeff. We’re continuing to work on that within the organization. We hope to have some more information to report in the future, but at this point, nothing new to report. It was still of interest to use, it still is something we want to do, but just nothing new to report yet publically.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Okay. Procedures, so cumulative, I’m getting shy of your 6,000 number. I’m at 5,892 but any commentary or thoughts on inventory build a little bit up to call it 2,200? Or is that just normal for the quarter?

Bruce Barclay

We will check our math on procedures, but I think we’re above 6,000. But we will check that.

Peter Marioni

Yeah, I’m pretty sure about that.

Bruce Barclay

In terms of inventory, I’m not sure I understood your question, Jeff.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Procedures versus catheters sold.

Bruce Barclay

Oh, I see.

Peter Marioni

I think the way we would look at this is, you know, where we are in the business, you’re going to see variances from quarter to quarter. I think one of the ways I look at this is big picture, over a year ago – over a year ago we had, the company pod was more than two quarters worth of catheters in the field. Over the last year, that’s come down to a point where we think it’s probably a little less than one quarter, and that’s probably the right level, and we’ll see fluctuations quarter to quarter around that number.

Bruce Barclay

Yeah, he’s absolutely correct on that. I’d say – we also have less visibility with our distributors, Jeff, in terms of how they inventory and how they buy a new catheter. So you know, there’s not perfect visibility there, but Pete’s correct, it is variable from quarter to quarter but nothing we’re concerned about.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Okay. So the backlog goes to 13 to 11 for the quarter on five sold. The three shipped ASAPs were 693,000 and where they all U.S. or Europe?

Bruce Barclay

Yeah, I don’t think we broke out shipped versus total.

Peter Marioni

Yeah, the three – we did – the 693 is the amount recognized, not recognized but on the three units, Jeff. And that’s two U.S. and one international.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Okay. And then what about the two sold? Did you – can you say U.S. or international?

Peter Marioni

No.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

No, comment. Okay. And the – you talk about a launch in Europe for the second half of ’11, and you talk about “selective centers”. Should I think of that as a single digit number or a double digit number?

Bruce Barclay

Not ready to give you that visibility yet, other than just to remind you what the goals here is initially, which is to establish successful centers and establish successful users of the product so that they can generate good data, help us with training, help us refine the product going forward as we continue to do product development. So we want to be able to manage that initially so that when we’re ready to turn it on, then we’ll have good data, good users and good representatives behind the product.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Okay. Just two more questions. So [inaudible] coming with the same one year prior to an extended contract service?

Bruce Barclay

Yes, that’s the anticipation.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Okay, and lastly, the – you had talked about a response from the FDA versus a U.S. commercial launch. My understanding was the period of time between those two was extremely small. Is that still the case?

Bruce Barclay

Sorry…

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

I mean, in the case of Europe, your response was your launch, essentially. Your approval was your launch when you talked about a U.S. commercial launch? If you got an approval by the FDA tomorrow, what do you expect would be time lag on an official launch or a first sale? Can you comment on that?

Bruce Barclay

Well, we believe we’re ready whenever we get the final clearance from the U.S. for certain, but we have no idea what the response will be at this point because we haven’t received on yet, so I really can’t comment beyond that. We have an organization that’s ready to go when we get the approval, the clearance.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Okay, but the [inaudible] of a response would be approval, non-approval or request for more information?

Bruce Barclay

Yes. Yes. That’s correct. Either it’s cleared, or we’ll get more questions.

Jeffrey Cohen – Laden, Burke, Thalmann Financial Services

Perfect. Thank you very much. Sorry for all the questions.

Bruce Barclay

Okay, thanks, Jeff, for calling in.

Operator

Thank you. (Operator instructions). Our next question comes from the line of Davis Lewis with Morgan Stanley. Please go ahead.

Bill Carlisle – Morgan Stanley

Good afternoon, gentlemen. This is Bill Carlisle on for David Lewis.

Bruce Barclay

Hi, Bill. Thanks for calling in.

Bill Carlisle – Morgan Stanley

So first on the Magellan, I understand as you guys said, you have not received any response from the FDA on the 510K submission. But is there any clarity you can provide on, you know, what data you may have submitted with that 510K, was it limited to first demand study, or was there anything else that went along with that?

Bruce Barclay

I can’t provide any more clarity than what we’ve discussed in the past. We did – we do feel like we made a very strong submission. We felt like it was a thorough submission and you know, we’re proud of what we submitted. Beyond that, I can’t comment in detail on what was in it.

Bill Carlisle – Morgan Stanley

Okay, fair enough. Then second question is how to think of kind of the operating expense credit you have received over the past few quarter in relation to the joint development agreement with Philips? Are these going to be ongoing credits that you know, take place over a number of years, or will see these peter out as the Magellan reaches launch?

Peter Marioni

No, number our – under the agreement that was struck in – the last Philips agreement that was struck last year, we recorded some money in the first part of this year and under the accounting required for that transaction, we had to amortize part of that through what we would expect to be the end of the third quarter of this year.

So we’ve got one more quarter of these credits that will come through.

Bill Carlisle – Morgan Stanley

Okay. Would a normalized level of spending then basically be what you’re at right now just absent these credits?

Peter Marioni

That’s right.

Bill Carlisle – Morgan Stanley

All right. Thank you very much.

Peter Marioni

And then in addition to that, I want to remind you there is one final tranche of the agreement with Philips of new cash that would come in on a file milestone, which we have disclosed in the past, we expect to incur sometimes in this year. The amount of that, we’ve disclosed in the past, would be in the low single-digit millions of dollars.

Bill Carlisle – Morgan Stanley

All right. Terrific, thank you.

Bruce Barclay

Thanks for the call.

Operator

And gentlemen, there are no further questions at this time. Please continue.

Bruce Barclay

Thank you, operator. And thank you all again for joining us for our Q2 2011 results conference call, and for your interest in and support of the company. We look forward to updating you on our progress against our strategic initiatives and to provide further evidence of our commercial execution. Thank you.

Operator

Ladies and gentlemen, this concludes our call for today. If you’d like to listen to a replay of today’s conference, you may dial 1-877-870-5176 and enter the access code 4459833. Thank you very much for your participation, you may now disconnect.

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