Hansen Medical: Revolutionizing Physicians' Capabilities With Robotics

Includes: HNSN
by: Anita Dushyanth


Hansen Medical Inc., based in Mountain View, CA, develops robotically steerable catheters for electrophysiological (EP) and peripheral vascular procedures.

Hansen's flagship products, the Sensei® X and Magellan Robotic Navigation Systems, have been adopted into clinical practice in the U.S. and Europe, as well as other global regions.

Early preclinical and preliminary clinical data from using Hansen's systems indicate evidence of safety, efficacy, convenience of operation, and decreased radiation dose to the operator.

We use a 10-year DCF model to value Hansen Medical. We model revenue to be $17 million in 2016, $58 million in 2019, and rise to $480 million by 2025.

Based on the recent buyout announcement, we expect the stock to trade near $4 per share.

Hansen Medical Inc. (NASDAQ:HNSN) based in Mountain View, CA develops robotically steerable catheters for electrophysiological (EP) and peripheral vascular procedures. Navigating the labyrinthine vasculature with a catheter is challenging and complex. Stability is of prime importance in interventional procedures employing catheters since vessel walls are narrow and can be punctured easily. Robotic catheterization was introduced to facilitate and enhance the performance of minimally invasive procedures (endovascular procedures using catheters).

Hansen's systems are intuitive, have six degrees of freedom of movement and offer 3D live views of the internal vasculature during catheter navigation. Robot steered catheters may offer benefits such as short procedure times, decrease in forces exerted by the catheter tip on the vessels, enhanced accuracy in positioning of the catheter and remote operation that spares the operator from heavy radiation doses.

Hansen's robotic system provides an ergonomic design, which allows the operator to sit comfortably while maneuvering the catheter. Tactile feedback enhances dexterity and further scales movements such that large movements of the hand are translated to micro movements within the anatomy. Further, the 3D visualization provides enhanced magnification and resolution as compared to conventional systems.

Hansen Systems' user interface is intuitive, in that, as the orientation on the control console changes, the catheter movements are harmonized with the map s orientation, thus accurately reflecting the directional translational movements. The system's robotic arm is attached to the patient s bed and works with Ensite NaVx, CARTO, as well as standard mapping and ablation catheters.

The company's flagship products, the Sensei® X and Magellan Robotic-Assisted EP Navigation Systems operate as a flexible, robotic platform. The Artisan is a guide catheter inside a steerable sheath that transmits the operator's movements to direct the catheter in three dimensions. Hansen's systems have been adopted into clinical practice in a few centers across the U.S. and Europe, as well as other global regions. Early preclinical and preliminary clinical data from using Hansen's systems indicate evidence of safety, efficacy, convenience of operation, and decreased radiation dose to the operator.

The Sensei X system is used in cardiac ablation procedures in the treatment of atrial fibrillation (AF). The Magellan system has been used for interventions associated with renal and lower extremity arteries as well as in the treatment of enlarged prostrate, uterine fibroids and liver cancer.

The Sensei Robotic Catheter System and the Artisan Control Catheter received FDA 510(k) clearance for mapping and the CE mark approval for mapping and ablation procedures in 2007. Currently, the company is conducting a clinical study to support an IDE application for performing EP procedures using the Sensei system in the U.S. The FDA cleared the Magellan robotic system and catheter for use in peripheral vasculature procedures in 2012. Hansen's products are used in a wide variety of endovascular applications in the few sites where they have been installed around

the globe. Thus far, more than 110 systems have been installed globally. Over 14,000 procedures have been performed in 26 studies and close to 3,000 patients have undergone the procedure. The device is covered by 125 issued U.S. patents and 89 pending U.S. patent applications, 37 granted foreign patents and over 53 pending foreign patent applications.

Hansen has a number of competitors in the remote catheter navigation space. Foremost among them are Stereotaxis, Catheter Robotics, Aeon Scientific and Corindus. While all these companies compete with Hansen for similar procedures, there are significant differences in their technology and application.

In a manual procedure, feedback is received through the sense of touch and the catheter is manipulated using fluoroscopic 2D visualization. Amigo s system does not incorporate this type of haptic feedback. Therefore, with this system physicians must rely heavily on the visuals for navigation. Instead of providing a visible graph on the monitor that displays the tissue contact force, the Sensei X uses IntelliSense Fine Force Technology that offers tactile vibration as feedback. Hansen's Artisan catheters use the IntelliSense pressure sensing mechanism, which mitigates the risk arising from absence of haptic feedback. The tactile feedback makes the controller vibrate when contact force exceeds the preprogrammed limit. Niobe and Magnetecs systems do not offer the direct sensor but uses properties of magnetism to control the catheter movement.

The user interface of these systems is different and the physicians need to learn the various navigation techniques. Integration of robotic catheters to 3D visualization and mapping systems help perform complex procedures. The Amigo system does not integrate with the commercially available mapping system. Hansen's systems integrate with CoHesion software and EnSite mapping system to make manipulation intuitive. All catheter movements are performed relative to the orientation map. Niobe system integrates with CARTO (Biosense Webster) mapping system and makes the catheter manipulation intuitive similar to the Hansen system. Magnetecs system also integrates with the EnSite system and a fluoroscopic unit. Niobe and Magnetecs systems use a mouse to direct the magnetic vector to control catheter movements. Therefore, this is not very intuitive and requires some practice.

A study conducted to assess the learning curve associated with the use of conventional, manually steerable, and robotic endovascular catheters (Sensei X system) on a silicone phantom with a 5-week training program demonstrated that physicians using remote catheters significantly showed superior performance with a shorter learning curve. Remote catheters seemed to be very intuitive to use, and the ability to acquire the advanced skill occurred with minimal training. The results indicated the enhanced ease of movement and accurate navigational capabilities associated with Hansen s robotic catheters. This allows the possibility of more physicians adopting this technology to address complex endovascular procedures. In low volume centers, there appeared to be a learning curve of approximately 50 procedures using Hansen's systems.

All of the systems involve high initial capital costs for the hospitals. While Hansen s systems do not require specific redesign of the laboratory, Niobe and Magnetecs systems do and that adds to the cost of initial capital investment. Hansen's system, priced at roughly $625,000 is more expensive than the Amigo (~$400,000) but cheaper than the Niobe (~$2.8 million) system. However, the disposables for the Niobe system (~$1,200) are priced cheaper than that of Hansen s (~$1,600). Since the Amigo system differs in functionality and utility from Hansen s systems, we are not including it in our cost analysis in the table below. Assuming a total life of 10 years for the systems, we get a wide range of cost per procedure as shown in the table below depending on the number of procedures performed per system per year. At low utilization rates, purchasing the Hansen system is clearly the cheaper option. The Niobe system becomes a better option from a cost perspective if utilization increases over 215 procedures/system/year.

The Niobe system began commercialization in 2003 and is intended for navigating through tissue to the anatomical region of interest in the right and left heart, coronary vasculature, neuro vasculature and peripheral vasculature. Currently, we estimate that the Niobe system is being utilized at a rate of 200 procedures per system per year while Hansen s system has a utilization rate of only 25 procedures per system per year. If Hansen is able to expand the intended use of the device for multiple indications, we expect utilization to increase significantly. Even at a utilization rate of 200 procedures performed per system per year, purchasing a Hansen system is economically viable for the hospital.

Medicare does not offer additional reimbursement for robot-assisted procedures. Additionally, reimbursement rates vary widely among national private payers depending on the procedure performed and contract terms. This scenario has resulted in a slower diffusion of the product into the market. We suspect that if and when Hansen obtains clearance from the regulatory agencies for expanded labeling of their product for multidisciplinary use beyond the current indications, there could occur an uptick in utilization. Clinical data could then be gathered from these additional cases and submitted as evidence of effectiveness to the insurance agencies. Consequently, insurance payers may raise the reimbursement rate to cover the cost of using innovative system like Hansen's.

Based on our in-depth research we believe that EP procedures comprise a large market and robotics in the healthcare sector is disruptive but still in a nascent stage. Hansen-s systems are a part of this rapidly growing industry. Despite the advantages offered by Hansen's robotic catheters, the adoption rate has been slow. However, as the technology matures and more surgeons embrace Hansen's products we should see an increase in sales in the long-term. Despite these short-term challenges, we think Hansen offers an investment opportunity considering the large endovascular market that the company is addressing. By demonstrating the key benefits of the Sensei and Magellan systems, the company could establish their systems as the preferred procedure for cardio and peripheral catheterization procedures.

Financial Update

Hansen Medical reported financials for fiscal 2015 on April 25, 2016.

Total revenue came in at $16 million from the sale of nine Magellan Systems and two Sensei Systems and was close to our estimates ($15 million). For fiscal year 2015, U.S. region accounted for 44% of revenues and international countries, Italy and Belgium, accounted for 11% and 10% of total revenues, respectively. Product revenue was ~$11 million and revenue from service was ~$5 million. Product revenue decreased 22% year-over-year.

OpEx came in at $37 million (~$14 million in R&D and ~$23 million in SG&A) and was lower than our $39 million estimate (~$15 million in R&D and ~$24 million in SG&A). We had allocated additional R&D spend towards development of the next generation of products. Additionally, in November 2015, the firm reduced operating expenses, closed one office in United Kingdom and recorded charges of ~$1.7 million as restructuring expense.

Excluding non-cash expense related to conversion of Series A preferred stock, net loss and EPS were $46 million and $(2.74). Hansen exited 2015 with $20 million in cash and cash equivalents.

Business Update

In February 2016, the FDA cleared the Magellan Robotic Catheter eKit (MRC eKit) for sale in the U.S. The MRC eKit allows physicians to use third party microcatheters with the existing Magellan Robotic Catheter 6Fr architecture. Shortly after receiving approval in the U.S., interventional radiologist, Dr. Ripal Gandhi, successfully performed the transarterial chemoembolization (TACE) procedure using the MRC eKit at Miami Cardiac & Vascular Institute (OTCPK:MCVI) in Miami, FL.

As anticipated, Hansen Medical submitted a 510(k) application to the FDA for peripheral vascular as well as neurological indications for the Magellan Robotic System on April 26, 2016.

The acquisition of Hansen Medical by Auris Surgical Robotics, Inc for an equity value of roughly $80 million was announced on April 20, 2016 and is subject to closing conditions including Hansen Medical shareholders approval. The deal is expected to close by mid-2016. Holders of approximately 65.4% of Hansen Medical's outstanding shares have agreed to vote in favor of this transaction. Additionally, certain significant stockholders of HNSN have agreed to invest about $49 million into Auris at the closing of the transaction.

Shareholders of HNSN will receive $4.00 in cash for each share of common stock they own, which is a 40% premium to the company's six-month average trading price. HNSN's stock has traded as high as $8.50/share on April 27, 2015. The lowest price the stock traded at was $1.28/share on January 14, 2016 and since then has traded at an average price of $2.40/share. Since the merger announcement, the share price has largely remained at around $4.00/share.

In connection with the transaction, Sidley Austin LLP is serving as legal advisor to Hansen Medical and Morris, Nichols, Arsht & Tunnell LLP is serving as legal advisor to the Special Committee of the Board of Directors of Hansen Medical.

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