Peter Mariani - CFO
Bruce Barclay - President & CEO
Nick Cheshire - Professor, St. Mary's Hospital, Imperial College Healthcare NHS Trust
Chris Pasquale - JPMorgan
Misha Dinerman - Piper Jaffray
Jeffrey Cohen - Ladenburg Thalmann
Robert Carlson - Janney Montgomery Scott
Hansen Medical, Inc. (HNSN) Q2 2012 Earnings Call August 8, 2012 5:00 PM ET
Good day, ladies and gentlemen. Thank you for standing-by. Welcome to the Hansen Medical 2012 second quarter results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions)
I would now like to turn the conference over to Peter Mariani, CFO. Please go ahead, sir.
Thank you, operator. Good afternoon everyone. Welcome to Hansen Medical’s 2012 second quarter results conference call. I am Pete Mariani; the Chief Financial Officer of Hansen Medical and with me today is Bruce Barclay, Hansen Medical's President and CEO.
As we begin today's call, please remember that our prepared remarks and responses to questions will contain forward-looking statements that are subject to certain risks and uncertainties. All statements other than statements of historical fact could be deemed forward-looking statements, including statements containing the words, plan, expects, potential, believes, goal, estimate, anticipate and similar words.
These statements are based on the current estimates and assumptions of our management as of the date of this call and are subject to risks, uncertainties, changes in circumstances and other factors that may cause actual results to differ materially from the information expressed or implied by such forward-looking statements.
Examples of such statements include statements about the potential benefits of the Magellan Robotic System on vascular procedures, expectations of shipments of our Magellan Robotic System, the company’s ability to improve margins, lower expenses and improve cash burn and the sufficiency of the company’s cash resources for supporting the initial launch of the Magellan Robotic System.
Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, among others, engineering, regulatory, manufacturing, sales and customer service challenges in developing new products and entering new markets; potential safety and regulatory issues that could slow or suspend our sales; the effect of credit, financial and economic condition on capital spending by our potential customers, the uncertain timelines for the sales cycle of newly introduced products, the rate of adoption of our systems and the rate of use of our catheters, the scope and validity of intellectual property rights applicable to our products, competition from other companies, our ability to maintain our remedial actions over previous reported material weaknesses and internal control over financial reporting, our ability to manage expenses and cash flow and obtain additional financing and other risks more fully described in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended March 31, 2012 filed with the SEC on May 07, 2012, and the risks discussed in our other reports filed with the SEC.
Given these uncertainties, you should not place undue reliance on the forward-looking statements included in our remarks in responses to questions. We undertake no obligation to revise or update information herein to reflect events or circumstances in the future even if new information becomes available.
In addition, today’s call includes comments from an invited physician speaker, and his comments also contain forward-looking statements that are subject to risks and uncertainties. The comments of the speaker are his own and should not be attributed to the company.
And with that, I will turn the call over to Bruce.
Thanks Pete good afternoon everyone. Thank you all for joining us today for our second quarter 2012 conference call. Today’s call will consist of an update on the initial commercial launch of our Magellan Robotic System with particular emphasis on our US launch, a discussion of our achievements for the second quartet, a review of the EP business and lastly a look at our plans for the remainder of 2012 and beyond. I will then turn the call over to Pete, who will provide a review of our financial results for the quarter. Pete and I will then take your questions at the conclusion of our prepared remarks.
But before we get to our review of the business, we are fortunate to have on the phone with us today from Europe Professor Nick Cheshire, M.D. of St. Mary's Hospital part of the Imperial College Healthcare NHS Trust in London, an academic health science center. Professor Cheshire is also head of Circulation Science at Imperial College Healthcare. Under Professor Cheshire’s direction, multiple physician disciplines including vascular surgery and interventional radiology have been pioneering the use of intravascular robotic.
St. Mary’s was the first hospital in the world to have a Magellan Robotic System and to begin successfully treating patients with it. As a reminder, Professor Cheshire is an Independent Clinician and Professor of Medicine and has no direct affiliation with Hansen Medical. Professor Cheshire will speak today on his experiences with the Hansen Medical intravascular robotics technology in both preclinical and clinical settings, the benefits he has seen to patients and his hospital using this system and his views on the potential value of intravascular robotic.
Professor Cheshire first let me thank you for letting us interrupt your holiday with your family and for joining us for what is very late in the day in Europe. Please go ahead when you are ready.
Thank you Bruce and good evening everyone. I have a number of comments to make and I will address them under several headings.
First of all our team, I am fortunate to be heading across disciplinary team of physicians and nurses at St. Mary’s all of whom have been heavily involved in intravascular robotics and so what I will speak of today will be based on our collective experience.
My team and I completed training late last year and since that time consecutively used the system in peripheral vascular aortic and then other endovascular cases, each category require increasingly high endovascular precision. Along the way, we discovered a number of useful techniques to help in the clinical theater.
Initially, our team began their clinical experience with simple cases mostly lower extremity peripheral arterial disease, before we progressed to more complex cases like stentograph procedures in the abdominal and thoracic aorta.
We have now advanced our robotic skills to successfully treat patients requiring the highest degrees of endovascular precision. These are cases with difficult anatomy, multi-level disease or other variables which add to procedural difficulty.
Our second group of comments will pertain to our hospital. So those not familiar with St. Mary’s, we are a large busy hospital in the center of London treating a whole range of peripheral vascular diseases. And keeping most units we work closely with our large cardiology and cardiac surgery services. It may be just a general acute hospital that diagnoses and treat a variety of adult and pediatric conditions. It is known for a number of important discoveries, most famously, Penicillin was discovered by Sir Alexander Fleming on our site in 1928, for which he received the Noble Prize.
In vascular disease the world’s first carotid operation to prevent stroke was performed at St. Mary's in 1954. This is now the commonest faster operation, not just in the USA, but throughout in the world and my predecessors in our unit, pioneered UK and European aortic surgery and endografting.
In the 21st century, we at St. Mary's view robotics as a critical platform to advance its record of achievements and industry first. In particular, St. Mary's has already led the way in the use of robotics for general surgery and was the first hospital in the UK to use the Da Vinci robot for keyhole surgery.
Now similar activities have occurred with the Magellan System. We were the first to report on the feasibility of intravascular robotics and achieved a complex endografting. Our team consists of vascular surgeons like me and interventionalists, and we have now performed both simple and complex cases.
St. Mary's is one of several hospitals in the Greater London Area and so a measure of competition between hospitals for not just patients, but also physicians, funding, both public and private and for research programs. We view robotics as something that definitely differentiates us from our competitors which allows us to build our prestige throughout Europe and the world.
Regarding our pre-clinical experience, my team and I received many invitations to speak. In the last year or two, I have given over 25 lectures on the use of intravascular robotics all over Europe, in China, in Australia, in the USA, at Houston, New York both of these several times Las Vegas, Chicago and the list continues. We have published extensively; in particular we published over 10 papers from our team on the beneficial and trust robotics.
In one of our earliest papers, we showed that in bench-top and in animal models, physicians of varying degree of expertise all performed better with robotics compared to conventional manual endovascular techniques. In fact, this study showed the robotic performance of the at least experience physicians was stood or better than the manual technique of the most experienced ones.
Our study also showed significantly short procedure time, reduced radiation exposure and fewer arterial wall hits when the robot was used. There is a large market for high precisions endovascular procedures and a groining growing group of physicians doing endovascular case who require the latest technology to become a high precision expert.
This alone makes robotics clearly needed and valuable. Given that the robot can reduce or minimize the need for open surgery, this technology really builds upon the whole endovascular evolution that we are currently going through.
Endo treatments are associated with better survival rates and shorter hospital stays than open surgery, so more and more cases have been performed with minimally invasive techniques driving significant efficiencies and improved value for patients and the hospital costs. Why did we purchase the Magellan Robot, we purchased it to manage the cost based on our positive preclinical experiences I was convinced of its significant benefits.
We can perform cases quicker and with less radiation exposure and more confidently tackle complex cases to avoid open surgery. The Robot is already helping drive patient volume and should allow us to improve our profit margins within this hospital.
Our initial clinical experience is we've had a very positive set of initial clinical experiences with the Magellan Robot. We've used it in over 20 patients and in each case we have access to more than 30 total anatomical targets.
So our actual clinical experiences are much greater than the number of patients. Our initial use has been very deliberate. As we become better and more familiar with the capabilities of this system we are now ramping up our use and collecting more data for reporting. In the clinical setting, we have seen the reduced procedure times, lesser radiation exposure and less conventional cavity use that we saw in our experiments.
This is a specialty as we treat multiple clinical targets within the same patients. Here are some examples of cases performed at St. Mary's with the Magellan Robot. On specific use where we've seen significant benefit is aortic aneurysm cases. We performed between 200 and 250 aortic repairs per year. I would anticipate using the robot in 50% to 60% of these cases based on the clinical advantage we've seen so far with the system.
For the most complex end of this case mix, we would expect to use a robot in even higher percentage than this. For example in a number of our fenestrated endograft cases, we have been able to use our Robot to access the renal artery in less than half the time of the Robot had achieved manually.
Many of our robot cases allow access of the multiple camulation targets inside the patient. Even though only one NorthStar Robotic Catheter and one guidewire we used for each procedure.
This is another advantage of Magellan. It's quite common in manual cases for multiple catheters and guidewires to be used when there are multiple clinical targets in the patient. This adds time and cost to the procedure.
Regarding the value of the Robots in our hospital, after our first few cases, the hospitals marketing team at St. Mary initiated a public relations campaign around our use of the system. The ensuing coverage from the BBC and local and national newspapers has raised the awareness of St. Mary's and the robot throughout Europe.
We had many patients come to the hospitals requesting the Magellan system. For example, in the five days following the publication on one specific article. We have 45 patients who already have aneurysm from elsewhere around the country bringing up to request to consultation with us that was just in the first five days. There is no doubt this has made us more competitive and ultimately we believe more profitable because of our ability to be more efficient.
So, Bruce that concludes my remarks. Now, I'll turn the call back over to you.
Thank you very much Professor Cheshire. Again thank you for your time today and for letting us to interrupt your holiday and I hope you enjoy the rest of the holiday. Thank you.
Before we move on, I would like to highlight a few things that Professor Cheshire touched on. His comments illustrate both the clinical benefits and the economic rationale which we believe will drive the sale of the robotic system to hospitals. In particular for clinical interest as a result of the high precision of the device resulting from distal tip control with solid catheter stability he described the potential of the system to reduce the incidence of open surgery, to reduce endovascular procedure times especially in complex cases, to raise the level of skill of the less experienced operators and of course to reduced radiation exposure. I think it’s important to note that he sees this as a platform for multiple clinical applications and believe the Robot can drive endovascular revolution that began sometime ago.
Professor Cheshire anticipate using the robot in the majority of its 200, 250 annually audit repair cases at the hospital is a true testament of the value he sees in the system. From an economic standpoint Professor Cheshire has experience supports our value proposition as he views robotics as a strong competitive differentiator as experience increasing patient interest and volume because of it and see potential for improved hospital margins due to reduced procedure times.
With that we will get back to the remainder of our update. The second quarter was an important one for us, as we achieved one of the most significant milestones in the company’s history with the receipt of the 510-K clearance from the FDA for our robotic system.
While we are still in the early stages of the US launch, we are very pleased with the significant and growing clinical interest in the Magellan system. Flexible robotics and vascular applications is a key growth driver for our business and we remain excited by the opportunity to transform vascular intervention procedures using intravascular robotics.
As you heard from Professor Cheshire, the Magellan system offers physicians the ability to more precisely navigate vessels using a simpler more instinctive approach.
Our proprietary technology offers simultaneous and independent distal tip control of a catheter and a sheet as well as robotic manipulation of standard guidewires all with good stability. This independent catheter tip articulation provides physicians with more accurate and more predictable control of the catheter.
This leads to faster, easier and safer vessel navigation which may result to in less vessel trauma, reduce patient healing time, faster more predictable procedures and improved case throughput. Finally with Magellan, physicians can now perform procedures in a comfortable setting from a centralized remote workstation potentially lowering radiation exposure in reducing procedural fatigue.
In addition to physicians and patients, out of which Magellan Robotics System allow hospitals and health systems to improve the efficiency and utilization of their most profitable assets, the operating room and the cath lab. By reducing procedure times and streamlining endovascular interventions our technology can help drive incremental procedures for hospitals which increase in the efficiency and utilization. It is more important than ever that hospitals and health systems ensure sound financial judgment in all purchase decisions, and we believe the Magellan Robotics Systems will allow hospitals to gain increased efficiency and utilization of their current facilities and potentially delay the expensive capital outlays to build additional operating rooms and cath labs.
This is a compelling value proposition. This is a large market with multiple physicians specialties using the system. Of the more than three million vascular procedures performed each year approximately one third or one half of them are in the peripheral vasculature which is the target market for the Magellan system.
I will provide an update on our commercialization efforts in the US which just commenced in June of this year. As we've said before our strategy for the initial launch in the US is to partner with influential physicians who are thought leaders in this space and who are known early adaptors of new technology.
In doing so, we expect to generate positive clinical experiences and data to drive both interest and adoption among physicians. We continue to have positive dialogue with our top accounts and have several price flow quotes out potential customers in the US and Europe. All this has us confident that we will ship multiple Magellan systems this year.
However given the customary six to 18 months sales cycle for capital equipment, the exact timing of these shipments is uncertain. Of course in the near term we continue to face increasingly unstable economic crisis in Europe. Not surprisingly the uncertainty in that region has many hospitals completing a very thorough analysis of their capital investments which is extending the normal sales as a result.
We continue to work with hospitals to provide them with the data they are asking for and to be informed about the benefits of our system. We are also using the clinical data to support our commercialization efforts in the US. It's important to note that volume of our initial system shipments in Europe does not need to be significant in order for us to ultimately be successful there.
Our top target accounts in the region are the key thought leaders in the industry. We continue to have an ongoing dialogue with these individuals and they continue to evaluate our technology as we provide the information they need to work their way through their hospital approval processes.
We continue to pursue regulatory approval on Magellan and other countries as well. In fact the Magellan and related capital accessories were all recently approved in Canada. Let me now take a moment to provide you with a little color on our EP business. With 704 catheters sold we posted solid growth of 23% sequentially and in addition 3% growth year-over-year.
Additionally, we had strong sequential growth in worldwide procedures of approximately 7% in the second quarter, a good growth in the US in particular, as we gained stability with our domestic sales force. Given that the first quarter saw hospitals in both US and Europe reduce their inventories for the first time following five consecutive quarters of growth encouraging to see a return in the second quarter to a higher number of catheters sold in procedures performed and a return to growth for hospital inventories.
As we discussed previously, we’ve been very focused on operational efficiencies over the past several quarters. We took another positive step in that effort during the second quarter as we further realigned our resources in support of the commercial launch of the Magellan system and continued to proving efficiency of our business.
As part of these efforts, we terminated several full time employee contract and temporary positions and closed several open requisitions positions to others, almost exclusively in non-commercial roles. This has provided us with additional flexibility to add more support and resources to our global sales and commercialization effort as needed while reducing our overall expenses.
Specifically, we expect to add skill sales and marketing professionals as well as clinical professional that support cases for physicians and staff as the need manifests itself as sales grow and systems get placed.
This continues the efforts we discussed in previous quarters and better aligns our refocus with the commercial needs of the business while continuing to support important research and development efforts.
These efforts contributed in parts to the $4.6 million improvement in cash burns sequentially during the second quarter. We believe that these activities together with the anticipated growth in product sales, position us well for delivering improved margins, lower operating expenses and continued improvements in cash burn through the remainder of the year. And importantly we continue to believe that we have sufficient cash on hand to support the initial launch of Magellan in the U.S.
Before closing I am also pleased to announce the recent appointment of two healthcare industry veterans Dr. Stephen L. Newman and Mr. Nadim Yared to our Board of Directors, both Dr. Newman and Mr. Yared have extensive operational and commercial expertise as executives and board members of various healthcare organizations and we are fortunate to have them on our board.
Dr. Newman's substantial hospital management expertise and Mr. Yared's significant medical device sales leadership should be instrumental to Hansen as we continue to execute on our commercial strategy. We welcome them both to the board.
In summary, I believe that the current strength of the business lies in the US 510(k) clearance in June of our Magellan robotic system. The robust customer pipeline resulting from the growing clinical and executive support of the Magellan value proposition that was discussed by Professor Cheshire today.
The rebounding of our US EP procedures particularly from the improved stability of our US sales force and growth in worldwide catheter sales reflecting increases in hospital catheter inventories, the realignment of our spending that provides flexibility to direct additional resources to support the Magellan launch as needed, the additional operating efficiencies which position us to improve margins, lower spending and improved cash burn in the second half of the year and finally a cash balance that we believe will be sufficient to support the business at least through the initial launch of the Magellan in the US.
With that I will turn the call over to Pete to discuss the financials.
Thank you, Bruce. We recorded quarterly revenue of $3.5 million primarily on the recognition of revenue on two robotic systems and the sale of 704 catheters. Revenue declined 34% over the second quarter of 2011 and 25% compared to the first quarter of 2012 due primarily to lower system sales.
The company shipped one Sensei Robotic System which was recognized as revenue in the quarter. Catheter sales and procedures rebounded nicely in the quarter. We sold 704 catheters, up 23% sequentially and 3% year-over-year and physicians performed approximately 637 procedures in the quarter essentially flat on a sequential basis, but up 7% year-over-year.
On a year-to-date basis, we have recorded revenue of $8.2 million primarily on the sales of four Sensei systems and two Magellan systems as well as 1278 catheters. Gross profit was $753,000 or 21% of second quarter revenues compared to gross profit of $1.4 million or 26% of revenues in the second quarter of 2011 and $732,000 or 16% of revenues in the previous quarter.
The year-over-year decrease in margins is primarily due to the decline in the number of systems recognized as revenue and revenue mix partially offset by improved manufacturing efficiencies. Research and development expenses for the second quarter were $4.6 million compared to $2.6 million for the same period of 2011.
During the second quarter of 2011, we received $2.8 million of funded research and development credits from Philips as part of our now completed joint development agreement. This payment was recorded as a reduction of R&D expense which explains the significant year-over-year decrease in this category.
Excluding these research and development credits, R&D expense during the second quarter of 2012 were $900,000 lower than the previous year period, reflecting lower development expenses in the current quarter related to our Magellan Robotic System.
Total operating expenses were $11.3 million in the second quarter, down $0.5 million sequentially and up $1.5 million compared to the same quarter of last year.
As noted above, the year-over-year comparison was adversely impacted by the $2.8 million of research and development credit we received from Philips in Q2 of 2011.
Operating expenses included total non-cash stock compensation expense of $1 million in the second quarter of 2012, and compared to $1.4 million in the second quarter of 2011 and $279,000 in the first quarter of 2012. The reduction in current quarter versus last year is primarily the result of lower equity awards in the quarter compared to the prior year.
The first quarter amount is lower primarily due to a one-time adjustment of $740,000 related to previously recorded expenses for the company’s employees stock purchase program.
As Bruce mentioned, we’re continuing our efforts to realign spending in order to bring more resources to our commercial operations in support of the Magellan launch, while driving efficiencies across the company in order to lower total operating expenses and improve our cash burn.
The actions taken in the quarter impacted less than 10% of physicians in the company, and will allow us the flexibility to bring additional commercial resources as warranted.
We currently expect that the net impact of these and related actions will allow operating expense within the second half of 2012 to be approximately 10% below that in the first half. Net loss for the second quarter was $11.5 million or $0.19 loss per share based on average shares out standing of $61.2 million. This compares with net loss for the second quarter of 2011 of 8.8 million or $0.16 per share based on average shares outstanding of $54.7 million.
Turning to the balance sheets, cash, cash equivalents and short term investments as of June 30th were $29.4 million compared to $38.5 million balance at the end of previous quarter.
Accounts receivable decreased to $4.7 million at June 30 from $7.5 million at March 31 and $5.5 million at December 31, 2011. As noted in the previous quarter we collected 1.5 million of receivables in the current quarter that we had previously expected to collect in Q1.
Inventories entries to $8.1 million on June 30 from $7.4 million on March 31 and $6.6 million at December 31 2011. This increased inventory balance primarily reflects increased inventory bills in support of the Magellan launch.
As of June 30 we have $4.8 million of deferred revenue on the balance sheet which includes 4 robotics systems that have been shipped for which have not completed the revenue recognition process as well as deferred revenue on service contracts.
The majority of the systems currently classified as deferred revenue or with international distributors with whom we cooperate. However the ultimate timing of revenue recognition is primarily dependent on their efforts in placing the systems with their end users. Total debt at June 30, remained at $29.2 million essentially flat with the March and December balances.
In Q4 of 2011, the company repaid its previous $3.6 million loan balance and recorded a new debt facility of $30 million. This facility originally allowed for interest only payment through the first 12 months of the agreement. However under terms of the agreement, the interest only period has now been extended an additional six months through June 2013 following FDA clearance of the Magellan system in June.
Finally in the second quarter, total cash used in operations was approximately $9.1 million, an improvement of $4.6 million compared to $13.7 million in the previous quarter. The improvement in cash burn from the previous quarter is reflective of improved collections, cash management and operating efficiencies across the company.
We believe these efforts will continue to allow us to sequentially improve our cash burn in the second half of this year. Additionally we continue to believe that our cash position will remain sufficient to support the initial US launch of Magellan.
In summary, we have noted in previous quarters that we continue to develop improvements and product design and material sourcing, implement lean manufacturing processes and make strategic investments in support of the commercial success of our vascular and EP platforms and chart a path to profitability.
The realignment plan that we've discussed here today is consistent with these efforts and we believe will allow us the flexibility to bring additional resources to our commercial team as is warranted while continuing to improve margins, lower operating expenses and improve cash burn in the second half of the year.
Our success continues to be dependent upon the clinical adoption and growth of these platforms and we believe that we’re on the right track to support and drive this growth and improve our financial results.
That concludes our summary of the financials. I would now like to pass the call back to the operator for Q&A. Operator?
(Operator Instructions) Our first question is from the line of David Lewis with Morgan Stanley. Please go ahead.
It's Steve (inaudible) taking the call here for David. I wanted to go a little bit deeper on the near-term dynamics particularly around utilization with it still being very early in the Magellan launch in the US. If we look at the trend first quarter and second quarter, second quarter a nice bounce back in terms of catheter utilization. How should we think about that trend? Was the first quarter more of an aberration where we can see a continuing improvement in the trend of utilization, their summer seasonality, how would you characterize their trends?
You know, I think the way we would characterize in the first quarter is that in the first quarter was the first time in five consecutive quarters that catheter sales have been below the procedures performed. And we thought of it at the time as a one quarter adjustment that the hospitals were making and I think we’ve seen that show itself here in the second quarter. We would anticipate and we’ve always said that we expect catheter sales to be in advancing procedures as new hospitals are coming online with their systems taking newer inventory levels and as the procedures are building in the hospitals and so I would expect that we see here in Q2 to continue.
Well, and I also have the opportunity to thank you for having Dr. Cheshire on the call, that was very helpful. But I wondered if you could reflect a little bit on the initial phases of the US Magellan launch. Can you give us a sense for specifically in the US what is resonating in terms of the clinical or maybe it’s a cost benefit proposition from what you have seen with the detailing of the system here in the US how might that be different from Europe and what parts of that picture still need refinement?
Well, we have a learnt a lot about positioning the product both clinically and economically from our European experience, as we launch in the US. It’s important to remember that we just did get approval from FDA for this system in the US in June and so while we had a chance to interact with physicians on the clinical side before the FDA clearance came in through standard conferences and those types of things, we could not approach the administrative side until we had the clearance.
And so given the classic sales cycles for capital in most of these hospitals in the US, I would say we are very encouraged by what we are seeing on the clinical side and on the administrative side it’s really been too soon to close anything in the US.
In terms of the similarity between the two, I think there is a lot of similarity between the two. From a clinical side it’s about how do we reduce procedure time, how we reduce radiation exposure, how do you allows the patient to avoid open surgery, where you can and I think the clinical experience of that at St. Mary’s have all supported those propositions.
And then consistent with that on the economic side is how do you, by reducing procedure times, how do you make those most valuable assets in type of hospitals, the OR and the CathLab more efficient in their use and so you are getting more cases put through the system and you are also seeing more normal body patients or cases coming the system, just given the ability to market the new technology that the Magellan offers.
So from an economic side we are seeing a lot of very similar attributes between the two, I think the big difference is obviously the economic environment in Europe has been very, very difficult for us right now and we continue to work with hospitals to get them what they need, go through their processes but we are clearly being impacted by the crisis in Europe right now.
In the US, well far from perfect we don’t see at least to this point that same level of economic concern and I would also say the market is substantially larger in the US as well and so we have multiple conversations and multiple quotes out in the US. So we had to some place, we started in Europe, we learned a lot from that; we are taking all that learning to the US and because of that we should be able to expedite things in the US more.
Thank you. The next question is from the line of Chris Pasquale with JPMorgan. Please go ahead.
Chris Pasquale - JPMorgan
Bruce, when you came to the company you laid out three main priorities one of which was commercializing the vascular system which you now achieved and congratulations on that. But the first priority you listed was to grow the EP business and procedures have now been flat for three quarters, system shipments are down and it sounds like you are now talking about shifting even more resources, if I am hearing you correctly away from EP to support the vascular launch. So I am curious how would you rate your progress toward that goal at this point and what’s the company’s commitment to EP going forward?
We are very committed to EP. We have been shipping EP systems every quarter. We've been placing systems that we either in shipped that quarter or shipped in previous quarters, every quarter even US or Europe or other geographies as we've expanded outside the US into additional geographies. So we are placing more systems consistently.
The procedures have been flat and to that extent none of us have been happy about that. We've been pushing on everything that we can to change that. We've added expertise. We've added training. We've added in fact some new product to come on to the market. We've also had important clinical data published which is our 1,700 plus robotic patient clinical data that came out in June and so we feel like we are doing all the right steps.
We are also feeling like compared to Magellan and the vascular market that it is a smaller market and it has been one that we believe we can get incremental growth from, but certainly not the type of growth that we see from Magellan. So we are continuing to work hard in the EP space. We continue to have confidence that we can make progress, but have also been very honest in saying that we don't see it as the growth opportunity that we believe vascular and Magellan can bring.
Chris Pasquale - JPMorgan
Do you think you have the resources to be able to keep that dual focus or I mean if EP is not the future would we better serve focusing entirely on vascular?
Well, that's a good question and I would say that's part of the message here in the second quarter as we are bringing up more resources from non-commercial sources inside the company to be ready to grow the commercial capability as we need it.
Right now we do believe we've got sufficient resources for vascular and EP, but the high-class problem I guess you would say that we would have is, as vascular starts to grow in the US and we got to figure out where we're going to either add resources and more importantly how we’re going to pay for those added resources if we need to but right now we do feel like we’re adequately resources and you know, we continue to obviously monitor that closely but having the ability to take some expense from other parts of the organization and moving it into commercial as we needed was part of the benefit of the free alignment that we did in Q2.
Chris Pasquale - JPMorgan
Okay, and then just lastly, you made some progress with you cash burn this quarter but it still appears, if things keep going the way they are, you’re going to have to consider options for additional financing at some point in the next few quarters, understanding if you are okay with your situation today and the last year, you explored some creative solutions for non-dilutive financing to help bridge that gap, where are the odds that something like that could still be an option and how are you guys thinking about exploring different possibilities?
Good question and the way we do look at this, we still would say that we have options for non-dilutive financing through some technology deals, the way we would characterize that before is deal similar to what we’ve done with Philips in the past. Those possibilities still remain. I would not venture to place odds on that at this point. I don’t think that will be appropriate. But we continue to look at every options available to us and if you consider the proper financing for the company. We do feel good about where we are with the cash today. We feel very good about the clinical interest that Bruce was talked about here in the US and Europe and the ability to close deals in the year and we'll see how that actually progress over the coming quarters.
Your next question is from the line of Misha Dinerman with Piper Jaffray. Please go ahead.
Misha Dinerman - Piper Jaffray
Did take notice of the fact that you guys added two new board members including Dr. Stephen Newman, just wondering if you just provide any additional insight given his background as far as hospital decision making processes and what you might be able to put forward to help overcome the purchase price?
Well it’s been a great benefit for the company to add Dr. Newman and to add Mr. Yared as well they have both been terrific additions and they follow too also terrific additions to the board in Bill Rohn and Mike who were earlier in the year. Stephen has just only started with the board and so we have not had as much time as I know we have with him going forward, but he has already definitely brought a perspective to our company and to our board that is very important for us in terms of his not only operational experience in running businesses but also just to his knowledge and experience in the healthcare environment from a hospital side, so he is absolutely been a contributor to this point and I think will continue to be a contributor going forward especially as we continue to shape our value proposition for the Magellan.
Misha Dinerman - Piper Jaffray
Okay, great thank you. And then just another question as far as I guess investigator studies and generating more data is there anything that’s going on now is worth taking note of?
Well I think what we are looking at doing both in Europe and in the US is to take some of the data that we have seen generate in the preclinical setting and move it into the clinical setting and so the ability to do short studies and frankly acute studies that will allow us to track reduced procedure time particularly in different clinical settings reduce radiation exposure all things that we can do in the clinical setting.
We believe that those data are going to be consistent with what we've seen in animal models, in the bench top studies but obviously it will be more relevant as we move that into the clinical setting. So in addition to the conversations we are having in the US replacing systems, we are also having parallel conversations with many of those sites about their interest in research going forward.
We also will be implementing what we are calling our registry which will allow us to capture all the data for all the patients that are being treated in the US and Europe and so from that we will capture a number of different metrics like the procedure time, catheter set up time, all the data radiation exposure, all the data that you would imagine gets collected during the course of the clinical case and that once we reach an appropriate body of that data then you will pull that together and start to allow the physicians to speak and publish off of that.
So one of the benefits of approaching this launch as we described it in the past as an initial commercial launch is to really focus on physicians that historically haven't required a lot of data. They are early adopters of new technology, a lot of what they do is based on feel and their experience and frankly the data that we've generated to this point has been sufficient for many of them and so right now the conversations are more centered around their administrations within their hospital on how the best way to position the purchase of the robot and the timeframe to pay for and that type of things. But we will need that data eventually as we continue to evolve down the pathway of additional physicians that will require more data.
Misha Dinerman - Piper Jaffray
And then through just quick housekeeping items, I guess first the cash burns you guys reduced it from about $14 million to $9 million. Is that sustainable going forward? Should we look at that?
What was the comment; the prepared remarks that we expect the sequential improve cash burns. Certainly second half versus first half and even quarter-to-quarter.
Misha Dinerman - Piper Jaffray
And then my last question was just on where the actual sales took place of the one Sensei for the quarter. Was that domestic or international?
The next question is from the line of Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Jeffrey Cohen - Ladenburg Thalmann
The flat utilization from 636 to 637 in EP for the quarter is it your sense that cases are not growing or your sense that units are not being used as much or demand is not there or what kind of conclusion can you draw from this?
Yeah, there is a lot going on inside that number. What we said in the first quarter was that we saw a very strong utilization in Europe and less so in the US and part because of some of the instability we experienced in our US field organization. What we saw in the second quarter was still good use in Europe but less so than what we saw in the first quarter and we think that that’s not sustainable.
We think that's going to pick up again in the second half of the year but the big difference was what we saw in the US we saw substantially better utilization on EP side in the US and again we think that in part because of the growing stability of our US sales organization as we continue to see them support the EP business.
Historically, if you look at the last three years, the second quarter has always been the lowest year in utilization. Don’t know if that will be true this year or not but I think the encouraging piece is of those three years, this was the highest level of EP utilization in the second quarter compared to 2010, 2011. So we are encouraged by what we are seeing here early on in the quarter, but obviously we won't know until the quarter closes.
Jeffrey Cohen - Ladenburg Thalmann
It was the highest utilization yet for the US or for Europe or for both?
Jeffrey Cohen - Ladenburg Thalmann
Combined. Okay and typically Europe has picked up in Q3 historically?
I believe so. Obviously there is lots of holiday time in Q3 in Europe so I would need to check that number, Jeff. What I definitely know is that worldwide the Q2 procedure number for the last three years has been the lowest. Again I can't predict that for 2012, but if history is a predictor, then the second half of the year should be there.
Jeffrey Cohen - Ladenburg Thalmann
And not that I am looking for a breakout, but it looks to me based upon previous ASPs for catheters and previous levels of service revenue that the ASPs for Sensei appeared to be down for the quarter. Is that an accurate assessment?
Well as you know we are trying to get away from that, but from giving ASPs on the systems, but I appreciate your question. And recognizing that the system that we sold in the quarter was to an international distributor. Yes you are right. It's in the low end of the historical range that we would have traditionally reported before.
Jeffrey Cohen - Ladenburg Thalmann
And lastly, to beat on the hospital approval process again. I mean would you say generally speaking from the discussions you have had so far. Are the decisions now completely in the hands of the hospitals or the decision process -- some portion of it is in the hands of the physicians and clinicians and what kind of data are the -- not necessarily the physician but what kind of data are the hospitals looking for as far as RI radiation et cetera and do you think that hurdle is higher than it has been in the past year and higher because the ASPs are different than Sensei's are higher just because of economic times.
So in the US if I limit it to that for the moment, what we've said in the past is we are targeting these top 20 plus accounts. It's more than 20, but key accounts that clinically had expressed interest in the robot during the last year or so as we've shown the system, the conferences and that type of thing.
So those conversations obviously are in different levels and different hospitals, but I would say in generally we are through the clinical side of that, that the clinicians are very supportive of purchasing the system and now we've moved into the administration side.
And so the type of data they look for is less around the clinical side and more around these things that we've talked about in the remarks today, the things that Professor Cheshire talked about in terms of increased efficiencies, increased utilizations, how do we help drive more patients through the system. Like he was able to show us some of his internal marketing efforts.
And so those are the types of things that we are talking about and then with each account we worked with them on our ROI model. We prepare an ROI model based upon what we believe is relevant metrics are for the return on investment of this type of capital and then we share that with them and they always change the assumptions to be more conservative of course.
But naturally we work with them on that until they are comfortable that they have got sufficient data to make that decision. I would say that's where we are with several of these accounts, but again the approval in June only, here we are in August. We are obviously pushing as hard as we can on a number of different sites, but we also need to be realistic of what these are expensive piece of the capital.
(Operator Instructions) The next question is from the line of Robert Carlson with Janney Montgomery Scott.
Robert Carlson - Janney Montgomery Scott
Just a follow-up on the last question. When a hospital buys one of these systems, who trains the doctor. Is that something that Hansen does or is that a billable event?
Yes we train the doctor and we train the staff. So one of the investments that we have made in the company over the last couple of years that I am particularly proud of is we have substantially beefed up our training in clinical department here at the company and so we have a very skilled group of individuals here that will go to the site, train the physician. Usually there are several physicians, train the staff and then support them in their first few cases and so you know to the extent that we can help them understand which cases might be better for the robot as they start their training.
Obviously they are the ultimate decider of that, but then as they advance in the progression of their cases, then we will transfer the case support over to our field clinical team which then follows up with them on a periodic basis. And so that's all done. Is it billable? No we don't build for that directly. Their success as an account is our success as a company and so we feel like that's an investment that's really important for us to make on our own.
Robert Carlson - Janney Montgomery Scott
Is each system individually built to the hospital standards or is it something we can pre build and have a couple ready to go when we get an order?
Well these systems are pre-built. They are not configurable to anything that the hospital would require different from one to the next.
Robert Carlson - Janney Montgomery Scott
So theoretically is for example Mass General is looking to buy one of these, their doctors can come to Hansen, utilize the equipment there and be ready to go when it's installed.
Absolutely and that is part of the sales process. Often times physicians do visit us here in Mountain View or other sites around the company or country where there might be one to get their hands on the system and they see it at conferences as well.
Thank you. There are no further questions at this time. I will turn it back over to management for any closing remarks.
Thanks Alisha and thanks to everyone for joining us today on our second quarter 2012 conference call. We were very pleased to have had Professor Cheshire on the call with us today to discuss his use of and expectations for the Magellan robotic system at St. Mary’s hospital. We look forward to providing you with the results of our third quarter in November.
Ladies and gentlemen this does concludes the conference call. You may now disconnect and thank you for your participation.
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