Hansen Medical (NASDAQ:HNSN)
UBS Global Life Sciences Conference
September 19, 2012 03:00 PM ET
Bruce Barclay - President and CEO
Good afternoon and welcome to the 2012 UBS Global Life Sciences Conference. My name is (inaudible). I will be your host for this session. Up next we have the President and CEO of Hansen Medical, Bruce Barclay, who be your speaker. There will be a breakout session immediately following this presentation in the outer room immediately down stairs. Thanks.
Thanks David. Good afternoon everyone. It’s a pleasure to be here. Thanks again to UBS for inviting us to participate in this year's Life Science conference. With me today sitting up in the front row here is Pete Mariani. Pete's our Chief Financial Officer and he'll be available with me at the Q&A session which immediately follows. So some of the statements made during this presentation maybe considered forward-looking. This slide as well as our securities filings contain important information in this which I would encourage you to read and consider carefully.
Hansen Medical is a leading provider of intravascular robotics poised for growth in a $2 billion plus medical robotics market. While intravascular robotics is truly a platform technology, with many different clinical applications possible. We're focusing our efforts on two businesses. One, in electric physiology or EP for short in the second in vascular. For EP in 2007, Hansen launched its first robotic catheter system in the US and Europe known as the Sensei Robotic System. The clinical use of this system is growing as it has been used in over 8,000 patients to-date and we generated a significant install base of recurring revenue shipping over 110 systems to this point and that number is growing every quarter. Those cases have generated a significant body of data showing the clinical benefit of this product in patients with atrial fibrillation or AF.
Our strategy is to leverage our technology in to new markets and we have a significant opportunity with our new robotic platform which we call Magellan to access a larger, clinical application in vascular disease. In June of this year we received 510k clearance to market the Magellan system in United States for peripheral vascular disease and coupled with our prior CE mark in Europe, we're very excited about the opportunity in front of us with this new product.
Finally, we continue to invest in new technology. We're developing a suite of catheters for use in multiple EP and vascular applications. We're also developing what we believe to be a game changing technology, visualization technology which we call shape sensing which has many potential benefits including the reduction of radiation exposure during most of the interventional procedure, so more on both those topics in just a minute.
Hansen medical was founded in 2002. We went public in 2006. Company realized early on that it could not fundamentally change the way intravascular procedures were performed by itself and so entered into a number of partnerships with both large and small companies to commercialize the products as well as to develop new products for future applications. These partners include Philips, Siemens and GE on the capital side, St. Jude Medical, Intuitive Surgical, Luna Innovations and others for product channels IP and new technologies.
There are a number of clinical segments within the medical robotics industry which make it a new and very exciting business to participate in. As mentioned earlier, it's expected that more than $2 billion worth of medical robotics will be sold in 2012. Most of those sales will come from Intuitive Surgical which is in the surgical robotics space. We're also in good company in this segment with MAKO Surgical which is in the orthopedic space. Our technology uniquely addresses challenges associated with robotics in the intravascular space.
So intravascular robotics also supports multiple clinical specialties within the hospital. Our EP product addresses the needs of and our new Magellan vascular system addresses the needs of those specialties performing minimally invasive peripheral vascular interventions namely endovascular surgeons, interventional radiologists and interventional cardiologists.
By meeting the demands of these specialties, increased utilization should occur in more varied diseases and with more budget dollars available within the hospital to help pay for this system.
The vascular market is a very large one as well. In 2009, over three million payments received some form of interventional vascular procedure representing a much larger catheter base market than EP is today.
So let`s start with a look at our vascular business and our Magellan product. So we believe there is a very significant unmet clinical need for the use of intravascular robotics in peripheral vascular disease. For many interventionists including those more skilled, cases can be long, complex and unpredictable in both duration and outcome. This unpredictability can lead to lab and efficiencies and efficiencies cost overruns for the hospital.
Second, there can be wide discrepancy in training and skill sets among the various physicians performing these cases today.
Third, given the fact that the operator wears heavy lead and stands next to the C-arm which is the radiation source in these cases, for the entire day, day after day and there are multiple documented cases where physicians suffer from excessive radiation exposure and orthopedic injuries often leading to unexpected costs and to shorten careers.
Finally, complex cases can lead to costly complications including even open surgical procedures which we believe the robot can minimize due to its ability to raise the skill level of the operator and create more consistency and outcomes from physician to physician. Given these multiple unmet clinical needs in hospitals today, we're very excited about this new opportunity in the vascular market which we believe the Magellan system can help address.
So for those you not familiar with the Magellan system, it consists of two capital components shown on this slide. The first one on the left side of the slide is the robotic arm which sits over the patient bed and drives the disposable catheter that extends from the end of it. The other component here, you'll see you on this slide on the right side which is the physician workstation where the physician sits during the procedure remotely, out of the cath lab up to 100 feet away from the patient, not wearing lead.
We believe the Magellan system has the potential to revolutionize the way endovascular procedures are performed. The system has the potential to enable new procedure and offer less invasive treatment options that are connected today through open surgery.
So this slide is a video which shows how the system will be used in a hospital with a physician sitting at a workstation that you will see the robotic arm over the patient. You will see the catheter there being attached to the robotic arm itself. And then the physician can actually control the catheter and the guide wire remotely. So the guide wire, the outer catheter and the inner catheter all can be robotically controlled independently. Here you will see the guide wire moving left and right and then the ability of the physician to either through the keypads or through the joystick to advance the catheter, to manipulate it left and right as you'll see here in the video, in a very, very uniquely to actually manipulate the catheter in a 360 degree path. So six degrees of freedom.
The outer catheter which is a little farther back in the video actually does the same capability. So it has six degrees of freedom as well. So you can imagine sitting at this console remotely being able to steer the distil tip of these two catheters to be able to advance through (inaudible).
So given the platform nature of this robot there are many potential clinical applications for use in the vascular (ph) and as a result of the clinical cases that have been performed to this point, you can see all the different applications here on this slide. Systems been used in each of these 11 different clinical applications in this slide, these range from very simple cases to more complex cases and we're adding to these all the time. So very much of a platform technology.
So to this point we've done both pre-clinical testing and clinical testing and generated data which demonstrates the multiple benefits to patients and physicians at hospitals alike. In 2010, for the results of the preclinical animal study performed by physicians was published in JVS which showed that trained vascular surgeon and interventional radiologists can access or extend graphs more successfully with the robot than by manual technique as measured by procedure time, catheter movements and vessel access. The paper also showed how the least skilled physician can improve their performance and their technique with the robot but most interesting was the fact that the less trained vascular surgeon demonstrated that the robotic technique was actually better than the manual technique of the most experienced physician. So this leveling of the playing field that we think is one which is very important to the system and helps get those less skilled and less experienced physicians up to speed more quickly.
In addition early research with the robotic system and the catheter have shown to cause less vessel wall injury which many believe could reduce the incidence of resonances and placates lodgment within the artery. This benefit which we call center line driving is the direct result of this distill tip control that I talked about earlier with the catheter.
So in order to be successful commercially with the Magellan system, we need to be able to show not only exceptional clinical results, we also have to be able to show a strong economic value as well and we believe we can do that. The Magellan system has a broad value proposition for patients, hospitals and physicians alike and I'll talk about each one of those next.
So first with physicians, the Magellan system has the potential to improve operator performance regardless of the physician skill set, by generating faster, more predictable cases and some case converting these open surgeries to minimally invasive procedures.
Secondly reduce physician radiation exposure and fatigue by seated outside the x-ray field and third, to improve the operator's practice by adding predictability and growing patient volume as part of the hospital marketing program.
For patients, Magellan system has the potential to make cases quicker, more predictable and avoiding open surgery which often comes with long recuperation.
And lastly, looking at hospitals. Magellan system has the potential to create significant value for hospitals by increasing revenue by not only attracting new patients, but also better insured ones since they are often the ones that come from farther distances for the better technology.
Secondly, increasing procedure efficiencies and improving lab utilization. Thirdly, building or maintaining technology leadership within the community and among physicians, and lastly, attracting and retaining physicians and reducing physician turnover.
Hospitals are high fixed cost environments and therefore in investment that improves revenue growth, creates efficiencies, and improves utilization of other hospital services and capacity has the potential to improve the hospitals most profitable assets. The operating room, the hybrid ORs and the cath labs.
And of course we had the experience with this our self through our Sensei System in electrophysiology. An important paper was published last year showing the financial payback of the Sensei System with a new physician user in Arlington, Texas. In this paper the author showed how the robot allowed them to grow patient volume by 76% in their first year, increase device utilization, ICDs and pacemakers through less physician fatigue, more case predictability and increased community awareness to reduce their anticipated payback for the robot from three years to less than one year.
The potential benefit of this model in the much larger vascular market can be very compelling. We've developed an ROI model to use with every hospital conserving the Magellan purpose to demonstrate the economic value that an intravascular robotics program can bring to that hospital. Specifically our model shows that even with a list price of 1.5 million for the robot, catheters at $4,000 each, we can show an internal rate of return ranging from about 20 to 40% and a payback from about two to four years depending on the assumptions made. The model examines three peripheral vascular procedures including aortic cases which are typically lower volume but can be very complex and very time consuming, high volume peripheral vascular cases that can I'll afford costly delays and peripheral enabled cases are those that would have required costly open procedures without the precision and the control offered by the Magellan system. The model also assumes that increased utilization results from additional pacing strong to the hospitals robotic program.
In the model we specifically demonstrate the potential value of a Magellan program through incremental profit contribution from an increase in patients including those better insured patients I mentioned earlier, savings from avoiding costly procedure time overruns including a reduction of staff overtime and contribution from improved lab utilization. We found this model to be very helpful in our discussions with hospital administrators as we demonstrate the potential of the Magellan Robotic System to improve utilization, capacity, profitability in the OR in the cath lab.
In sum, we believe that the clinical and the financial data supports for long-term value of the Magellan system in the vascular market.
So I'll close on the vascular discussion with a quick comment on our very exceptional scientific advisory board that helps us, advise us in the market led by Dr. Allen Lumsden from the (inaudible) hospital at Methodist in Houston. We're very, very happy to have this distinguished group of physicians advising the company.
So that was the vascular opportunity. Let`s now talk about the electrophysiology opportunity and the Sensei System. So like the Magellan system, the Sensei X consist of a capital system made up of the workstation of robotic arm. The second component is the disposable catheter, either for access with the physicians own ablation catheter of choice, we call that catheter, the artisan catheter. In Europe, we also sell, in addition to the artisan catheter, we also sell our own robotic ablation catheter which we call the links and both of those are listen in the slide.
So the EP market, we participate in is large and growing. AS is the most common cardiac anthemia affecting over 3 million people in the US alone but only a fraction is represented by that dark blue portion of the donut on the left there, are actually receiving catheter ablation treatments. There are substantial data that many believe that catheter ablation is a much better therapy for the long term treatment of AF and drugs which is the primary treatment modality today.
Mentioned earlier that since launch in 2007 we've done over 8,000 procedures with the Sensei product and technologies and that number is growing. So we have a very clear plan that we're executing against continued growth in our EP business, we're developing new products. We're generating new clinical data and exploring new markets to use our products in. we're upgrading our commercial teams, US and Europe, improving our training capabilities to get up to speed more quickly on the Sensei System and expanding the countries in which we're selling our products.
So let`s talk specifically about the benefits that we see to the Sensei System. There are a number of publications on the system showing its safe and effective use in the treatment of AF, also reducing the procedure time and radiation exposure to both patients and physicians and their staffs all within the existing EP environment. We also do not require extension re-modification to place a Sensei system. As for the clinical data, there is a significant body of evidence out there showing how it's safe and effective in AF, over 20 publications in over 2,000 patients have been enrolled in these studies to point and again that is the number is growing. And currently our four studies that were partially or fully funding, continuing to add to that body of clinical literature.
So the specific paper referenced on this slide was an article published earlier this year in JCE which represents 1,700 Hansen Robotic patients. Showed a very low complication rate as compared to manual technique and importantly it showed an improved freedom from AF at 12 months for the patients on the robotic side compared to the manual arm. The data also shows that as operators perform more robotic procedures, the advantage in the robotic technique improved for both safety acutely and complications and efficacy long-term.
Lastly, as I mentioned, we're also expanding the markets in which we're using the system. We're looking at using the system for treating VT or ventricular tachycardia. VT is an abnormally rapid heartbeat that can lead to sudden cardiac death which claims about 250,000 lives in the US each year alone. Patients with VT often have an ICD or implantable defibrillator that can prevent death but these devices can also create painful and debilitating shocks.
Early data from the debauchee and Houston has shown encouraging potential of robotic systems from Hansen to treat VT. We also recently announced that we're partially funding a physician initiated VT study in Europe to further evaluate the opportunity.
Let me talk for a second about our pipeline as well. We continue to invest very heavily in R&D at the company. So we're developing multiple catheter systems for use with the Magellan system to truly take advantage of this platform potential for the robot including a lower profile system which will eventually be usable for treatment in the coronary.
Also mentioned earlier that we are continuing to invest in a very exciting technology called Fossil which we believe can be truly game changing in terms of visualization. The benefits are numerous including the ability to reduce the radiation exposure to physicians and also to be to perform these procedures in 3D. Technology consists of a long fiber optic and what you see here in the video is they operate in the lower panel, steering the joystick. On the left hand panel you see the catheter being moved in real life, in the actual movement and on the right side you see a computer screen which has the fiber optic incorporated into the catheter and you can see, you can track the fiber optic on the screen. So again, imagine this catheter inside the body, not using floral (ph) being able to track the catheter real time including the tip location, again all without floral (ph). So very exciting potential for this technology.
This is also a technology that we announced last year that we had licensed the non-robotic rights of the technology to Phillips in exchange for $29 million up front and we're also have the potential to earn up to $78 million in future payments as they commercialize the technology for these non-robotic rights.
Given our early entrance into the flexible robotic segment and our heavy investment in R&D, we have compiled a substantial patent portfolio and it is growing. We own over 250 patents and patent applications as a result of our direct investment in technology creation and we've in licensed hundreds of additional patents from other companies including Intuitive Surgical, Luna Innovations and the like. These patents cover several robotics, building blocks including imaging, navigation, software in addition to fundamental robotics technologies.
So in sum here, let me turn to financials very quickly. Our business model as you may know is the classic razor blade business model, not unlike intuitive and the MAKO surgical business models. Revenues come from capital on the left hand panel here and recurring revenues come from disposable catheters in the middle panel and then service which typically we will charge approximately 6 to 10% of the sale price on an annual basis.
In the interest of time, I won't spend a lot of time on the financials. These were announced in early August with our Q2 results that slide 34 here has on our Q2 results and our year-to-date results from 2010 and 2011.
The next slide looks at our cash position and as you'll see here, we've been very successful in the past, funding the company through mostly non-dilutive means. We ended Q2 with approximately $30 million in cash and cash equivalents. As we announced in our conference call in early August, we see cash burn coming down in the second half of the year compared to the first half as a result of improving system sales and reducing our operating and manufacturing expenses.
We're very focused on charting our path to profitability and given our new product launches and the steps we've taken to reduce cash burn, we believe we're making very good progress on that path.
So through operational excellence, we are reducing costs. We're improving productivity and margins, we're lowering our cash burn and we are scaling our business for growth. One area of focus has been on implementing lean manufacturing principals in the factory to reduce expenses in cash burn which we believe will ultimately drive improved gross margins for the company.
So in summary, Hansen medical represents a compelling investment opportunity we believe, especially at the current price levels. Our new Magellan vascular platform is now on the market in the US and Europe and our clinical cases are growing. The market for the product is very large and the clinical and economic benefits we believe are very compelling to hospitals. We have a large and growing installed base of systems in the EP market and clinical success continues to grow. We're launching new products in the EP space, growing our body of clinical data and improving our execution.
Finally as I mentioned, we are continuing to invest heavily in R&D and growing our pipeline of technologies. Our ultimate goal is profitability. We believe that we are taking a number of steps to chart our path to profitability.
So again, let me thank everyone for being here today. Thanks again to UBS for inviting us to participate. We look forward to answering any questions you might have at the breakout here in a few minutes. Thank you.
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