Hansen Medical, Inc. (NASDAQ:HNSN)
JP Morgan Healthcare Conference Call
January 12, 2012 2:30 PM ET
Bruce Barclay – President and CEO
Unidentified Company Representative
Okay. I think we’re ready to get started with the next presentation. Coming to the stage now we have Hansen Medical. And presenting for them is Bruce Barclay, their President and CEO. We’ll take questions mainly afterwards in the Yorkshire room. Bruce.
Thanks Chris, good morning everybody. Thanks for being here this morning. We’re happy to be here. With me this morning is Pete Mariani, Pete is our Chief Financial Officer and you’ll hear him. And he’ll be available to Q&A here following the prepared remarks.
I will be making forward-looking statements this morning. I would encourage you to read the information in this slide and also in our Securities filings as they contain important information.
So, Hansen Medical is a leading provider of flexible robotics. We believe poised for growth in the $1 billion plus medical robotics market. We very much believe flexible robotics is a platform technology. We have chosen though to focus ourselves on two key clinical areas.
First is Electrophysiology or EP for short and the second is the Vascular Opportunity. First in Electrophysiology, we sell the product called the Sensei Robotic system, we’ve been selling that system in the US and Europe since 2007. We have a growing clinical utilization having conducted more than 7,000 procedures with that system in patients around the world. And that clinical utilization is growing every month.
We’ve also got a significant installed base of robotics systems in electrophysiology market. We’ve shipped 104 systems through September of 2011. And we are shipping more systems every quarter.
We’re also very excited about a new opportunity for the company in the, Vascular space. We’ve recently got a CE mark approval for our vascular robot which we call the Magellan System. In Europe, in Q4, we have placed our first system, we’ve got clinical cases coming out of that first system as well and we’ll talk much more about that in a few minutes.
And lastly, we continue to invest heavily in R&D. We believe our pipeline is very important to our future success, we are developing products for use with those two robotic systems and we have a – what we believe a game changing shape sensing technology which we call FOSSL for improved visualization of catheters used in minimally invasive procedures and again, we’ll talk more about that in just a minute.
So, the company was founded in 2002. We’ll celebrate our 10th anniversary this year. Since that time, we’ve achieved a number of significant accomplishments which we believe that positions us well to be the leader of – in the flexible robotic space. You don't change the way medicine is practiced relative to medical robotics without a lot of good partnerships and we have several of them.
On the capital side, we’ve got partnerships with Philips and GE and Siemens. On the intellectual property and products side, partnerships with Intuitive Surgical, we have an important cross-license from them to some patents and Luna Technologies on our FOSSL.
2011 was a very good year for us. We continue to improve and grow our electrophysiology business in 2011. Obviously we got our Magellan System launched in Europe and towards the end of the year. And in the early part of the year, we signed an important license agreement with Philips Healthcare, relative to the shape sensing technology and we’ll talk more about that in a minute as well.
So, I’ve been with the company a little over a year. We are focused very much on these strategic growth initiatives, driving our EP adoption, launching our vascular business and achieving operating excellence in all that we do. We’ll talk more about these later in the slides. But relative to driving our EP adoption, we are – have launched new products but we’ll be launching new products going forward. We continue to invest heavily in clinical data and the publication of that data when it comes out.
We’ve done a significant upgrade of our commercial team especially in the US, we’ve hired and have established in my opinion one of the best training centers for a company anywhere. And it really I think goes to a lot of success we’ve seen in EP and we’ll see in the vascular space. On the vascular side, again, it’s all about Magellan and we’ll go into detail on that and lastly, operational excellence.
Relative to that last component, since I’ve joined the company, we have added a number of new experienced senior officers to the company. We’re very proud of our leadership team at Hansen Medical and we are very focused on commercial execution.
So, let’s talk about electrophysiology. Many of you are familiar with the Sensei Robotic system, I’ll just focus on this quickly for a second to remind you all, consists of two components. There is a capital component and a disposable component.
The capital consists of two components there is a workstation which you see in this picture, as a physician setting at a console, joystick in his hand. He’s got visual cues in front of him that you would have if you are standing beside the patient. And he’s able to manipulate the catheter up to 100 feet away from the patient’s bed, outside the radiation field not wearing lead.
The second component on the capital side is that arm that you see suspended over the patient bed that is the robotic arm. You’ll see a small black string coming off of that that is actually the catheter itself that is the disposable part of the system. Disposable for electrophysiology could be one of two catheters, either our Artisan catheter which is our largest selling disposable product at this point. It’s an open architecture system that allows the physician to use their ablation catheter of choice, St. Jude Medical or Biosense-Webster Ablation catheters.
In Europe we have a second product which we call the Lynx. It’s an ablation catheter that’s also robotically steered and that was launched in early 2011. So, we believe there is much, much upsides the EP market. Atrial Fibrillation is the leading cardiac arrhythmia in the United States. Approximately 3.1 million have some form of atrial fibrillation. And you can see from the donut on the left, the lighter blue is continuing to represent those patients that are not receiving catheter ablations today.
So, that segment where catheter ablations are being received today represents about 100,000 to 125,000 patients worldwide. We believe there is significant upside to that going forward through our published data that demonstrated in my view that catheter ablations are much more effective than either not treatment or treatment with drugs. So, we expect to see that growing.
So, what are the clinical benefits to the Hansen System? We believe that there are several clinical benefits. And many of these apply to our vascular system as well. There are a number of published data out there that shows the system is safe and effective and we’ll talk about one of those papers that came out late last year in a few slides.
We’ve been able to demonstrate reduced procedure time with the system, reduced fluoroscopy time, obviously less radiation exposure for the physician and much of their staff as they sit outside the control room. And you see some other benefits listed here as well. It’s very easy to install into an existing electrophysiology lab, it can be done in a day or two. And there is no expensive room modification required at all.
So, I mentioned at the beginning, that we’ve done over 7,000 procedures with the systems since its initial launch in 2007. 2010, as you can see, we saw a significant growth, 50% growth over 2009. 2011, year-to-date these are through September data, through Q3, we had delivered both record procedures and catheters through Q3 and we’ll update everyone on our Q4, in our earnings call next month, so, good uptake of the system.
Mentioning clinical data, to be able to sell the system you need to have record clinical data and you also need to have very good data relative to financial and economic benefit and we’ll talk about both of those next.
So, we’ve had over 1,100 patients enrolled in protocol based clinical studies with the Magellan System. You can see some of the results in the middle of the slide here, 100% technical success, significant acute success, reduction in flouro, some of the benefits I just mentioned previously. These data have generated 19 publications and they are continuing to come out. And we’re still funding four clinical studies at this point.
So, an important paper came out at the, American Heart Association Meeting in Orlando in November of 2011. This is a retrospective look at data from the – from some of the sites, 12 sites initially that used the system from 2007 through 2009, so it’s the early patient data. And what this paper showed were two things. One is that the Sensei is as safe as manual technique for these 1,728 patients and the use of historical control to compare this against. And they showed slight efficacy improvement for those 1,700 patients relative to manual as well, with an average follow-up of 15 months, that was conclusion one.
Conclusion two, was as the operator gained more experience, as they got more comfortable with the system, worked through the learning curve and began to develop improved technique, the author saw statistically better safety, statistically better efficacy, compared to manual going forward. So, obviously these were very important data. And remember these are the first patients treated. Since that time we’ve launched new products, we’ve done much better with training and best practices have continued to improve as you would expect with a new technology. So, it’s a very exciting data, very important data for us in our EP business.
So, how does the hospital make money? We saw a paper published mid last year from a first year user Dr. Bill Nesbitt in Arlington Texas, and these are basically the results of that. What Dr. Nesbitt saw was a 76% increase in EP patients for the first year that he the robot. How did he get that increase? He used the Sensei as a centerpiece of his marketing in the Dallas Fort Worth area. And in his first year, did 82 patients with the Sensei system.
Importantly though, he did those additional patients by himself. So, what he was able to do with the Sensei was to figure out a much more predictable schedule, he was much less fatigue, he wasn’t wearing lead, he wasn’t doing cases standing on his feet all day. And what’s intended to be represented on the right is a look at his schedule for a couple of days, pre-Sensei and post-Sensei. And what he saw was the ability to put more patients through the Sensei system but it also freed up time for him to do more ICDs and Pacemakers in his business as well.
So, the ultimate output of this and the conclusion from the paper was that, they had originally modeled a three year payback for the Sensei system and in fact they were able to pay back the system in less than a year as a result of this increased patient flow. So, brand put an output for us and again, something that our sales team is using very effectively.
So, we’re not standing still just with A-Fib, we’re also looking at using the system for treatment of ventricular tachycardia or VT. For those of you don't know, VT is an abnormally rapid heartbeat, it can lead to sudden cardiac death, approximately 250,000 people in the US each year die from sudden cardiac death. Often times, these patients will receive and ICD, ICDs can produce painful and debilitating shocks.
What we saw here in some of this early work that came out of the DeBakey in Houston was 20 of the 23 patients in their initial study at 15 months follow-up had no recurrence of VT. They are continuing to enroll in that small center study in Houston. We also are now funding a small study in Europe called the Erase VT, which is looking at 200 patients for that application. So, it’s early but we’re encouraged by this additional application of the technology.
So, let’s switch gears, let’s talk about vascular now. And we continue to see good growth in electrophysiology but we’re incredibly excited about this opportunity we have in front of us with the vascular system
The Magellan Robotic system truly is the next generation in flexible robotics. We do believe it has the potential to revolutionalize the way into vascular procedures are performed. It’s based significantly upon the Sensei System but there are a number of enhancements to the system.
It has a much smaller catheter it allows us to get into much smaller vessels inside the arterial system. It has longer travel on the robot, which again allows you to get into a more distill anatomy. And importantly, it’s got the ability to articulate the catheter and guide-wire in three different aspects, all independently.
We’ve got an inner catheter and an outer catheter that can be rotated at their distance they have. And you can advance the guide-wire and rotate it left and right as well robotically. So, a very sophisticated system and specifically designed for the vascular anatomy. The catheter that goes with that is the NorthStar catheter. And it has those features I just described.
So, what is the market for the vascular system? We very much believe electrophysiology is the beachhead. We learnt a lot about launching that system in the US and Europe and we’re taking that learning and applying it this much larger vascular market. In 2009, approximately 3 million procedures were done on the interventional side both peripheral and coronary. And so, as you can see, we believe this is a much, much larger opportunity for us than the electrophysiology market has been for us to this point.
Our initial focus is on peripheral vascular disease, renal iliac, SFA and popliteal arteries. This market just by itself is five to seven times larger than the electrophysiology market. And again, a much greater opportunities for us than EP, has been to this point.
So, before we got our CE mark and began doing clinical cases with our first installation, there were a number of pre-clinical tests done, first a man test done and I’ll show you a couple of the slides here because I think they represent well how we believe we can market this system going forward.
This slide represents early animal study done by practicing interventional radiologist and vascular surgeons. And what they looked at was three different skill sets of physicians either fellows attending or the most experienced physicians, had them do an animal study manually with catheters and then also with the robotic system. And what they saw, not unexpectedly is that, the robotic system gave them much, much better operator performances based by vessel access time, the ability to stay off the wall of the artery, reduction of radiation, etcetera. And that is the operator score that you see.
What they didn’t expect was a second conclusion from this, which is that the robotic outcome for the least experienced physician was actually better than the manual technique of the most experienced physician. This has been replicated by us as we’ve shown the system to and had additional physician usage since this time. In fact, that we would call this, you know, leveling the playing field.
There is a way for physicians that are maybe less experienced or have lower practices or maybe aren’t quite as skilled as the more experienced physicians to be as competitive and to help draw more patients into the system. That study also showed substantial improvements in procedure time, catheter movements and vessel access.
All that initial data led us to our first enhanced study with the part of Sensei to the Magellan system. In Slovenia we did 16 patients, 20 endovascular procedures, all went very well. And probably the most notable thing from this study is that we had four physicians, two from the US, two from Europe, with very different skill sets.
We had very experience interventionalist and then we had – one individual had never actually done an interventional case before. He went through the training in Mountain View, did additional training at the site, and treated four or five of the patients himself and did very well so, very good early data for us.
All that led up to our commercialization of the system. We filed in Europe and US, in early 2011. In Q4, we received our CE mark for the Magellan System and the accessories in catheter. We’re successful with our first sale of the Magellan System into St. Mary’s Hospital in London. And hit the first clinical cases by Professor Cheshire at St. Mary’s. We presented at the VEITHsymposium, one of the largest symposiums of endovascular surgeons in the world, in November of 2011. So, a very, very successful start and Professor Cheshire is still performing cases as we speak.
The US side, we filed an April 2011, we got our response in September confirming that the 510K approach was the appropriate one that that no clinical data was required. The data request additional non-clinical data and so we are generating that and we anticipate that we will get clearance in Q2 of 2012, and we are prepared to launch that system in the US once we have the FDA clearance.
We’ve talked before about our commercialization strategy with our investors. It’s very much of a limited focused launch. We are going to size with physicians that are known early adopters of new technology that are willing to go through our training system. They’re willing to have us participate in some of their early patient selection process to make sure that the training and smooth and successful and they have positive clinical experiences. And that we can continue to learn from and disseminate other users as well.
We have a direct sales force in the US, direct sales force in Europe. We do have some distributors for smaller countries outside the US. And they are anxious and ready to get the system when it’s available.
So, one of the questions we get often is where is this system going to be used and what are the clinical anatomies? You saw from the graphic that we put up. And the approval that we have in Europe is, for all the peripheral vascular. So, non coronary, non-neuro but there is still a lot of anatomical geography there that the system can be used. And we anticipate it being used throughout the anatomy, the peripheral anatomy.
One approach as I said if for physicians that are less experienced, less capable on the endovascular side. But also we expect physicians who are extremely capable to be able to use it as well. Two publications came out from the use of flexible robotics. Both in cases, where they could not access the lesion with the wire, they were looking at sending both of these patients to surgery.
And they were able to – with flexible robotics access the lesion and complete the case interventionally without opening up the patient. This is from the DeBakey in Houston. This was a pulmonary artery lesion that they successfully crossed and the second is from Kings College in London, a very acute renal artery.
I’ll end up on vascular with what I believe is one of the greatest assets of the company which is our US scientific advisory board. We are incredibly blessed and honored to have Dr. Lumsden, chair of this group of very distinguished individuals, very well known individuals in the endovascular community. And they have been a great source of support ideas and help, and will continue to be going forward.
Quickly, talk about shake sensing. We call this FOSSL we believe very much this is a game changing technology. There are multiple benefits we see to this technology, primarily two, one is that you can actually do an interventional case inside the body without using X-ray. You can track this catheter from a computer screen. And secondly, it allows you to do, especially robotic cases in 3D. It actually allows you to see a 3D image as opposed to 2D, which is done today with Angio.
The technology is relatively straight forward although incredibly sophisticated. It is a long fiber optic, a diameter of about a human hair. You implant that inside of approximately 3-foot long catheter. And you’re able to track real-time the shape, tip location and configuration continuously while you’re advancing the catheter inside the system
This is the technology that we license to Philips in Q1 of 2011 for non-robotic applications. We received 29 million upfront, 78 million in future milestones as they or their partner, begin to commercialize the technology.
Quickly, on the financials, we did not update before coming the conference. So, what you have here are our third quarter results. As I said before, we’ll be releasing our Q4 and yearend results February next month.
So, what we saw in Q3 was a 53% increase in revenue year-over-year. Full year was 21% growth in revenue for those first three months of 2011. We ended the year with $26 million of cash in the bank. And as many of you saw, we did a number of three separate events in Q4 of last year, bringing in an additional approximately $39 million into the company.
We completed our final milestone from Philips under our joint development agreement with them. We did a private placement of $10 million and then we took on some debt, approximately $30 million, paid-off our existing debt and netted approximately $26 million. So, I will update you on our cash position next month. But the good news here is that we have a very strong cash position, more than enough to get us fully launched in Europe and US and that was important to us to have that in place.
So, in summary, we achieved a number of significant accomplishments we believe in 2011. We believe we have a number of important value drivers identified for the company for 2012, as we chart our path to profitability.
Continued growth our EP business, the ability to get our 510-K clearance in the US for Magellan and launch that product successfully then the continued placement of robotic systems in Europe. And the continued generation of good data from clinical sites.
So, why Hansen Medical? We believe this is an excellent investment opportunity especially at the present levels. We are growing our electrophysiology business with better execution, better products, focused training. And we are making progress.
Our vascular opportunity, we believe it speaks for itself. Wonderful market, excellent technology and significant clinical need and a way for both the patients, the physicians and the hospitals to benefit from this technology.
And lastly, we continue to invest heavily in R&D. We’re developing an entire suite of catheters to go with our robots for multiple clinical applications. And again, our game changing, shape sensing technology we believe is the way with the future, for visualization of these procedures.
Thank you all very much again for being here. I look forward to answering your questions.
[No Q&A session for this event]