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Hansen Medical, Inc. (NASDAQ:HNSN)

Lazard Capital Markets 8th Annual Healthcare Conference Call

November 16, 2011 3:00 PM ET

Executives

Bruce Barclay – President and CEO

Peter Mariani – Chief Financial Officer

Analysts

Maury – Lazard Capital Markets

Maury – Lazard Capital Markets

Next up we’re going to hear from Hansen Medical, and Bruce Barclay, who is the President and CEO. We actually also have Peter Mariani an attendance in the audience here. There is going to be some time for questions after Bruce’s presentation. So Bruce take it away.

Bruce Barclay

Good. Thank you, [Maury]. Thanks for inviting us again this year. Happy to be here. As [Maury] said, with me today is our CFO Pete Mariani. Well, some of the statements made during this presentation maybe considered forward-looking, the slide as well as our securities filings contain important information that relating to the company, and I would encourage you to consider this information carefully.

Hansen Medical is a leading provider of flexible robotics poised for growth in the $1 billion plus medical robotics market. Well, flexible robotics is truly a platform technology with many clinical areas where it could be use. We are focusing our efforts in two key businesses.

First is electrophysiology or EP for short and vascular for EP. In 2007 we launched our first robotic catheter system in U.S. and Europe, which we called the Sensei Robotic system. Our clinical use is growing and in four short years the Sensei system has been used in nearly 7000 clinical cases. We’ve generated a significant install base having ship more than 100 systems worldwide since that time and we are adding to that every quarter.

With those cases is coming a drilling body of data showing the clinical benefit of the product in patients with atrial fibrillation or AF. Our strategy is to leverage our robotic technology in the new markets and we are excited about the opportunity in front of us with our new robotic platform, which we call Magellan to access a larger new clinical application in vascular diseases.

In fact, having just received our CE Mark in Europe and initiated our focus clinical commercial launch. We are very pleased to announce and we install our first system in Europe in October and last week we successfully completed our first clinical case.

Finally, we continue to invest heavily in our pipeline. We are developing a suite of catheters for use in multiple EP and vascular clinical applications.

Further, we have developed what we believe to be a game changing technology in terms of visualization which we call shape sensing, which has many potential benefits, including the reduction of radiation exposure to patients and physicians a like and we’ll talk about each one of this in detail in just a few minutes.

So as you may know the company was founded in 2002 by the founder of Intuitive Surgical and some of the early employees at Intuitive as well and since that time we achieved a number of important milestones to solidify our position as a leader in flexible robotics.

The company realized early on it could not alone develop technologies which would revolutionize the way medicine is practicing, so we created a number of partnerships along the way that help us commercialize the technology and visualize the technology within possible suite. These partners include Philips, Siemens and GE in the capital space and Intuitive Surgical and other for access intellectual property and new technologies.

2011 has been an exceptional year for us since we announced an important agreement with Philips in February of this year, relating to our shape sensing technology, as I mentioned earlier, we are beginning to commercial our vascular product in Europe.

Since joining Hansen last year, we have focused the business on three strategic initiatives as we chart our path to profitability. First, is to grow our existing business in EP and I’ll discuss how we are doing that shortly by compelling clinical data, new products, improved execution and outside the U.S., where we have products and benefits not yet available in the U.S. we are looking to expand both our direct and distributor presence.

Second to launch and grow our new platform in vascular and we are -- as I said early in our launch of our vascular system there and we anticipate U.S. clearance in Q2 of next year.

And finally, as we’ve discuss, we are focused on achieving operational excellence in everything that we do. In this third growth initiative we done much since I joined to focus on commercial execution and in particular I’m proud of the new leadership team I’ve assembled to focus the organization on charting our path to profitability.

So let’s first look at electrophysiology and for those of you not familiar with the product, it consists of two components. On the left of the slide you’ll see the capital equipment which consists of workstation where the physician sets comfortably not wearing lead out of the radiation field, manipulating the catheter with the joy stick.

And then the second component on the capital side is that robotic arm that you see positioned over the patient bed. The disposable product is either our navigation catheter we call Artisan or therapeutic catheter called the Lynx, which actually has an ablation to which we sell in Europe and that you will see as the small black piece of, so again, if you will coming of at the end of that robotic arm.

So EP market we participate in today’s large and growing atrial fibrillation is the most common cardiac arrhythmias effecting nearly 3 million people in the U.S., but only a fraction of those patients are being treated with catheter replacement today, believe by many to be a much better therapy long-term as compared to drug or pharmaceutical, as such we believe there is substantial room for growth in this market.

Let’s talk now about the specific benefits that conditions have seen with this system. Today intervention less manipulate flexible catheters at a distance, while standing next to the patients we are glad to protect them from harmful X-rays that are use to visualize the procedure. With robotic catheters from Hansen, physicians can enable more interventional treatment of complex cases and more precisely control the tip of the catheter in a standardize manner while sit at the workstation out of the radiation field.

There are number of publications on the system showing its safe and effective use in AF treatment, reduce procedure time and radiation exposure to both the patient and the physician, and all that in the existing EP lab not requiring expensive room modifications.

As I mentioned earlier there have been nearly 7000 clinical procedures perform to date with the Sensei system, Sensei was first launch in 2007. In 2010 utilization grew nearly 50% over 2009. In the first three quarters of 2011 we continue to see growth in utilization compared to the same period in 2010.

There is a growing body of worldwide clinical evidence showing the safety and effectiveness of the Sensei system in AF with over 11,000 patients now treated in multiple clinical studies. Currently, there are four clinical studies in progress design to continue to evaluate the product.

Monday at AHA of this week there was a presentation of clinical data from a worldwide multi-site survey of Hansen cases in patients. In this presentation data from over 1,700 robotic patients shows low complications for Hansen robotic procedures and importantly improvement in treatment from atrial fibrillation at 12 months. The data also shows that as operators performed more procedures, the advantages in robotic technique improve with looking at both acute complication and AF benefit.

So the condense hospitals at the value proposition in medical robotics is worth purchasing a system, we need both compelling clinical evidence and also financial evidence of its benefit. And important paper was published in May of this year, showing the financial payback of the Sensei system with one of our new users, in this case Dr. Bill Nesbitt in Arlington, Texas.

In the paper the author showed how the robot allowed them to grow patient volume by 76% in the first year and increase device utilization through less fatigue, more clinical case predictability and increase community awareness to reduce the payback from anticipated three year period to less than one year. In sum, we believe that the clinical and financial data supports the long-term benefits of this system in the EP market.

We are also expanding the use of electrophysiology products outside atrial fibrillation by investigating their use for the treatment of ventricular tachycardia or VT. VT is an abnormally rapid heartbeat that can lead to sudden cardiac death, which claims about 250,000 lives each year in United States alone.

Patients with VT often receive an ICD or Implantable Defibrillator that can prevent death, but this shocks can create painful and debilitating shocks, early data from the DeBakey Group in Houston has shown the potential of the robotic systems from Hansen to treat VT and we recently announced we are partially funding a physicians sponsored VT study in Europe to further evaluate this opportunity.

Let’s now turn to the vascular opportunity. Well, we believe that we will continue to grow our EP business for the reasons I have mentioned. I’m especially excited about the opportunity we are pursuing in the vascular market with our Magellan Robotic System.

We preserve the number of benefits in the Sensei system we believe the Magellan has the potential to revolutionize the way endovascular procedures are performed. The system has the potential to enable new procedures, offer less invasive treatment options that today are conducted through open surgery. In addition, early research with the system has shown the potential to cause less vessel wall trauma, which many believe could reduce incidence of resources within the artery.

The robotic catheter use with the Magellan System is call the NorthStar and the combination of these devices has a number of key enhancements, including robotic control of three different components, a much lower profile catheter and longer travel to allow the catheter to reach more distal anatomy in vasculature.

By leveraging what we’ve learned over the past four years in EP. EP has very much become a beach head to the larger vascular market. In 2009 over 3 million patients received some form of interventional vascular procedure representing a much larger catheter based opportunity than EP is today.

Our initial clinical focus will beyond lower extremity Peripheral Vascular Disease or PVD and even these initial targets we expect to be about three to five times larger than our current EP market.

Our cumulative work to this point based on preclinical data and our initial first in man study consistently demonstrate the potential of the product and confirm our excitement about the opportunity here. In 2010, results of a preclinical study performed by physicians and published in the Journal Vascular Society showed that the least skilled physician to the most skilled physician improved operator performance and technique with the robot. The most interesting was the fact that the less skilled vascular surgeon demonstrated their robotic technique was better than manual technique of the most skilled highly practitioners in this study.

Again, last year we announced further results were trained vascular surgeons and interventional radiologist used the bench top model to access aortic stent grafts more successfully with the robot with manual technique as measured by procedure time, catheter movement and vessel access, all of which showed improvement that you can see here.

Obvious both led up to our first in man study in September of 2010, 16 patients, 20 separate cases, all with excellent outcomes, all four physicians drove the robot even though the physicians that participating in the study had very different interventional experiences.

Next slide summarizes where we are currently in the regulatory status with the Magellan System. In Europe, we received the CE Mark for the robot catheter and the related accessories. We have initiated a focused commercial launch to selected sites. I’m pleased we’ve installed our first system at St. Mary's Hospital in London and first successful clinical cases were performed just last week.

In the U.S. we filed our 510(k) in April and in September we received our initial response from the agency. They confirm the 510(k) pathway with the correct one and indicate that there were new clinical data required. They did request additional non-clinical test data.

In our Q3 earnings call we announced that we expected to gain a clearance from FDA in the second quarter of 2012. We’ll be exhibiting this product at the VEITHsymposium this week here in New York and Professor Cheshire is planning to present the early clinical cases performed at St. Mary’s Hospital just last week.

As we discussed in the past our commercialization strategy is initially in the U.S. and eventually in the -- initially in the Europe and eventually in the U.S. is to be focus and deliver to make sure that we are learning and generating positive cases and clinical experiences for others to build on. In terms of our commercial distribution organization we’ve already begun to hire and train vascular sales people as well.

Given the platform potential of the technology, there are many clinical areas where this technology maybe used. In this cased published out of the DeBakey Group in Houston, a difficult pulmonary artery stenosis were successfully accessed after manual technique fail resulting in a successful case requiring no surgery for the patient.

In the case, published in 2011 out of St. Thomas’ and at Kings College in London the physician used flexible robotics to save the patients kidney again without surgery, where standard guidewire techniques had previous failed. We’re also very excited and very pleased to have great capable and strong scientific advisory board in U.S. led by Dr. Alan Lumsden who is the Chair of Cardiovascular Surgery at the DeBakey.

Let me finish my talk on the business component of the company by looking at our, what we believe game changing technology called Localization and Shape Sensing. There are number of potential benefits to the system including radiation reduction and the ability to drive the robot, less more of the 3D environment and exist a day with the 2D radiation.

Generally what the technology consist of is a fiber optic about the diameter of the human hair incorporated in a catheter. And then that catheter is connected to a laser outside the patient and a light is reflected down the fiber optic, with that we’re able to track, tip, shape, location continuously of the catheter, well, it’s inside the patients body without using X-ray and again the benefits are significant which you think about the ability to do an interventional case with little and no X-ray in the future.

In February of this year, we were very fortunate to have signed an agreement with Philips Healthcare on the FOSSL technology, we licensed them the non-robotic application for the technology for $29 million upfront and the right to receive up to $78 in milestone as they commercialize and license the technology.

Let me quickly turn to the financial, we recently reported our Q3 results in early November, so I won’t dwell on this, what we saw in Q3 were our revenue grew 53% year-over-year and it was essentially flat sequentially. For the year revenue was up approximately 20% over 2010. We also delivered record catheter sales and record procedure numbers in 2000 -- Q3 of 2011.

Looking at our balance sheets, we ended the quarter with $26 million in cash and cash equivalents, and in the fourth quarter we close on an additional $10 million private placement. And a $3 million final milestone payment from Philips, which gives us a very strong cash position. This gives us we believe at least through or into Q4 of 2012, which is through our anticipated U.S. launch of our Magellan System and well through our initial launch of the Magellan System in Europe.

As we’ve said in the past we are continuing to look at ways to further strengthen our cash position including business development transactions like the Philips arrangement and equity and debt structures. However, the private placement we just completed and with our large cash balance, our focus is on non-dilutive sources of cash, will make sense for the company.

So just to summarize here, as I mentioned early on, we are working very closely to turn our path to profitability, very much depends upon our continued growth in the electrophysiology market and our successful launched of the vascular system in both U.S. and Europe. We’re continuing to manage our product costs and our expense with the organization and make investments, where we think make the more sense for the organization.

In the summary, Hansen Medical represents a compelling investment opportunity, especially at the current values. We have a large and growing install base of systems in the electrophysiology market and clinical success continuous to grow with that product.

We’re launching new EP products, growing our body with clinical data and putting our execution. Our new Magellan System is on the market in Europe. We have installed our system successfully and we’ve completed our first clinical cases as well. We expect to have the product available in U.S. in the second quarter of 2012, representing access to a much larger market in a brand new set of customers. And finally, our technology creation remains robust.

So thank you again for your interest in Hansen Medical and happy to answer any questions that you might have.

Question-and-Answer Session

Maury – Lazard Capital Markets

Any question from the audience? Of course, I have one for you. Maybe it’s too early but what was the first procedure that you were seeing being used on the Magellan System in London?

Bruce Barclay

So these were cases that we performed late last week and actually Dr. Cheshire has asked us not to talk about those until he can actually present those at the VEITH conference. He does have time on the podium Friday morning at the VEITHsymposium and he’ll talk in detail about what he’s done and what he anticipates doing going forward.

Maury – Lazard Capital Markets

Okay. We’ll hear in couple of day?

Bruce Barclay

They all turned out well.

Maury – Lazard Capital Markets

Okay.

Bruce Barclay

Yeah, please.

Unidentified Analyst

(Inaudible)

Bruce Barclay

Yeah. Outside United States in the vascular markets, generally you will hear that outside the United States is about as large as the opportunity in the United States, so it’s quite significant, especially when you think about with the interventional procedures that are being done today, but it’s also our belief that we will be able to convert some cases out of today than with open surgery in the interventional procedure, so we think the opportunity is quite robust.

Our initial focus, as I mentioned is on Europe and Europe is about two-third the size of United States. So if you think about interventional market in U.S. being about a 1 million procedures in total, about 750,000 total procedures in Europe in the interventional space. Our initial focus is on lower extremity, which is maybe around half, but again, we’re talking about 4 to 500,000 procedures potentially in our initial target market.

So very, very large market and again, relative for our company, our estimation is that there were about a 120,000 total catheter procedures done worldwide in the EP market. So as you can see just Europe by itself creates a much, much larger opportunity for the Magellan System and that was clearly one of the reasons why we went into that.

Unidentified Analyst

Could I?

Bruce Barclay

Please.

Unidentified Analyst

(Inaudible)

Bruce Barclay

Sure. So our list for the Sansei system in the U.S. is around $900,000. Our average selling price we update investors on a quarterly basis in our conference calls, it can range from the high $500 to the low $600 and the difference is that when we sell the distributors outside the United States, we obviously have to come off that list price, so if there is some margin for them as well. And so, we’ll update periodically on that number on a quarterly basis.

The Magellan System, we anticipate being able to sell that for a much higher price. Our list price is around a $1.5 million for that product. We believe that given the advancement of the technology the much larger market and the much more significant patient need that it can come at higher prices and that’s the list price.

Unidentified Analyst

(Inaudible)

Bruce Barclay

Yeah. So the disposable piece, again, we report on the EP system is around $16, $1,700 per catheter on the EP side and our list price on the vascular side would be right around $4,000.

Unidentified Analyst

(Inaudible)

Bruce Barclay

Yeah. So the question is around, what are the internal controls sends our initial activities running our financial restatement? I can say that we have very significant financial controls, I actually came into the company as the peak, after that occurred and so did substantial due diligence before we came into the company and I can tell you once I came into the company, I was impressed that how serious the Board and the company and the financial organization takes our obligation relative to that financial reporting.

So we have very strenuous activities around, the placement of systems and the training of physicians around those systems, and all the requirements that are necessary to eventually recognize revenue on those systems once they are installed.

In addition, when you may know is that there was a change in accounting principle earlier this year, in fact, January 1 of this year, which doesn’t require installation and training of physicians, the people recognized the Sansei system and peak competitor articulate this to me. But, nonetheless, we still have a very rigorous system inside the company and with our auditors just to confirm that in fact, we are properly recognizing revenues on those and I have every confidence that we are following those guidelines and requirements. Yeah, please.

Unidentified Analyst

(Inaudible)

Bruce Barclay

So we have actually begun to change the shift of expertise in both the U.S. and in Europe. One bringing in more people with established and successful sales experience generally, not just good clinical experience, but also clinical and sales experience.

And then secondly, we’ve also brought in people with specific vascular experience, that will sell products to interventional cardiologist, radiologist and endovascular surgeons in the market that we anticipate being in the U.S. and we’re now in Europe.

And we’ll continue to watch that as the launch goes forward and we began to capture success there we will modestly ramp up as we need to, but we are really changing skill sets going forward. EP is the one important market for us. So as we bring people in with vascular, they’re trained on EP and as we bring new EP people and they are trained on vascular and we will do focusing them.

Maury – Lazard Capital Markets

So the responsibility will be to sell both systems, how will duty be, I mean, because they are selling to different people?

Bruce Barclay

Yeah. So if you think about how we’re launching the product in terms of an initial focused launch, we have an existing set of clinical sites and physicians that we are asking our sales people to approach initially. So we’re not asking them to initially go out and plough for new ground. We’re simply saying go and approach these specific sites.

And so, we don’t anticipate resources being constraint at all in this initial. We’ve got a healthy list and a lot of ambition to get systems placed in these key accounts, but at the same time, we want to make sure they’re placed in right accounts, their training is done appropriately that we go to physician that are comfortable adopting new technologies and if they’re eventually successful in there application and from there we’ll add sales force, sales people as needed.

Maury – Lazard Capital Markets

Lot’s of growth, and thank you so much.

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