TransEnterix's (TRXC) CEO Todd Pope on Q4 2016 Results - Earnings Call Transcript

| About: TransEnterix, Inc. (TRXC)
This article is now exclusive for PRO subscribers.

TransEnterix, Inc. (NYSEMKT:TRXC) Q4 2016 Earnings Conference Call March 6, 2017 4:30 PM ET

Executives

Mark Klausner - IR, Managing Partner, Westwood Partners

Todd Pope - President & CEO

Joe Slattery - EVP & CFO

Analysts

Rick Wise - Stifel

Brandon Henry - RBC Capital Markets

Greg Chodaczek - B. Riley

Larry Keusch - Raymond James

Jeffrey Cohen - Ladenburg Thalmann

Operator

Good afternoon, ladies and gentlemen, welcome to the TransEnterix Fourth Quarter and Fiscal Year 2016 Financial and Operating Results Conference Call. As a reminder, this conference is webcast live and recorded.

It is now my pleasure to introduce your host, Mr. Mark Klausner of Westwood Partners. Please go ahead, sir.

Mark Klausner

Good afternoon and thank you for joining us for TransEnterix fourth quarter and full year 2016 conference call. Joining us on today's call is TransEnterix's President and Chief Executive Officer, Todd Pope; and its Executive Vice President and Chief Financial Officer, Joe Slattery.

I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit the Events link in the IR section of our website, transenterix.com.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call are forward-looking statements covered under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the Company's business. The Company undertakes no obligation to update the information provided on this call.

For a discussion of risks and uncertainties associated with TransEnterix business, I encourage you to review the Company's filings with the Securities and Exchange Commission including the Form 10-K for the year ended December 31, 2016, expected to be filed shortly.

With that, it's my pleasure to turn the call over to TransEnterix's President and Chief Executive Officer, Todd Pope.

Todd Pope

Thank you, Mark, and welcome to our fourth quarter and full-year conference call. On today's call, Joe will provide a financial update. Then, I'll provide an update on the progress we are making on our key strategic priorities including a commercial update on the Senhance Surgical Robotic System. We will then open up the line for questions. Joe?

Joe Slattery

Thanks Todd. For the three months ended December 31, 2016, the company reported revenue of $53,000 consisting of deferred and services revenues associated with existing placements.

R&D expenses in the quarter decreased to approximately $7.5 million as compared to the prior year period at $8.6 million primarily from the timing of work conducted to prepare FDA submission.

Sales and marketing expenses in the quarter increased to approximately $3.6 million from approximately $1.7 million in the prior year period primarily related to headcount growth and other expenses from our commercial expansion in Europe.

General and administrative expenses in the quarter increased to approximately $2.9 million from approximately $2.2 million in the prior year period primarily due to expansion in support of our European commercial investment.

Net loss for the quarter was $14 million or $0.12 a share compared to a net loss of $13.6 million or $0.13 per share in the prior year period.

Before moving on to the balance sheet, I would like to discuss two events that occurred since our last call in November and the associated impact on our financials.

In December, we announced the execution of a common stock purchase agreement with Lincoln Park Capital Fund. This equity facility gives us the right and our sole discretion to raise up to $25 million to sales of common stock to Lincoln Park over three years. Since the execution of the agreement, we have raised approximately $4.9 million at a weighted average discount to transaction day closing price of 4.1%.

Also in January, we announced an agreement with SOFAR S.p.A from whom we purchased the Senhance platform in 2017 with a combination of stock, upfront cash, and deferred cash. This new agreement related to the €10 million deferred payment from that transaction which subject to our meeting one of several milestones would have been payable most likely during 2017. The new agreement converted half of that amount into stock and deferred the other half to be due on the later of December 31, 2017, on the achievement of one of the triggering milestones. We currently anticipate making this €5 million payment on December 31, 2017, given that one of the triggering milestones is FDA clearance of the Senhance which we anticipate before year-end.

Moving on to the balance sheet, we finished the fourth quarter with cash, cash equivalents, and restricted cash of approximately $34.6 million. Quarterly cash flows from operations was $15 million in the quarter. Including the restricted cash, we believe that our current cash confound our operations into the fourth quarter of 2017 and assuming we drive down the remaining Lincoln Park commitment, we will be able to fund our operations including the SOFAR payment I just mentioned, beyond the expected Senhance FDA clearance later this year, and into 2018.

We have primarily relied on raising capital through equity offerings and will continue to need to raise additional capital in the form of equity sales to fund our investments in commercializing the Senhance platform. We have an additional $38 million available excluding the amount currently reserved for our existing financings under two shelf registration statements both of which expire in 2017.

In order to allow us to access to public financing markets in the future, we intend to file a new shelf registration statement with the FDC in the coming weeks as a matter of good housekeeping. As a reminder, we have an extended period of time to sell shares under our shelf registration and that any such filing does not represent a signal that we will be issuing equity imminently.

I will now turn the call back over to Todd. Todd?

Todd Pope

Thank you, Joe. As a reminder, our key strategic priorities are as follows. Continue to commercialize the Senhance platform in CE Mark countries through a combination of direct resources and distributors, partner with leading hospitals and surgeons through our clinical leadership program, obtain U.S. regulatory 510(k) clearance for the Senhance System, and leverage the open architecture of the Senhance platform.

Before covering our commercial and regulatory progress, I would like to provide an update on our clinical leadership program and open architecture strategy.

We introduced the clinical leadership program in the fourth quarter. The goals of which are one, partner with leading institutions and surgeons to establish clinical reference sites in target markets; two, meaningfully expand the utilization of the Senhance System across multiple procedures and specialties; and three, generate clinical data to support our long-term growth strategy. In addition to these key goals, these clinical partnerships will enable us to host perspective surgeons and hospital executives for surgery observation and training.

Complementing our first clinical leadership site in Italy, we have recently installed systems in the United Kingdom and France. Earlier in the year, we began performing clinical cases at Imperial College in the UK and we have recently announced our first surgical cases in France at CHU Saint Etienne.

The mixture of cases being performed at each of our clinical leadership sites continues to expand as we have now performed Upper GI cases in addition to colon rectal and GYN which reflects the broad applicability of the Senhance system. Although it is early, these clinical leadership sites are providing some immediate value and we expect to establish a fourth and final European clinical leadership site and another strategic geography in the near-term.

Later in the call, I'll share some specific learnings from these new clinical leadership sites together with our overall commercial progress.

Another key priority going into 2017 was to leverage the open architecture of the Senhance platform. Competing robotic systems are closed or vertically integrated requiring hospitals to utilize only technology offered by the robotic system manufacturer regardless of the technology preference of the surgeon or the current capital equipment owned by the hospital.

With our open architecture strategy, we can rapidly integrate today's leading technologies for use with our platform, which allow hospitals to leverage existing and new investments for use in the robotics program while permitted rapid technology expansion in between our major upgrade cycles.

We have completed the validation to utilize two market leading vision and imaging systems in conjunction with the Senhance system. These technologies the Stryker 1588 AIM platform and NOVADAQ PINPOINT Endoscopic Fluorescence Imaging System enable surgeons to visualize tissue perfusion and anatomical structures. These technologies provide important information to the surgeon in many of the procedures they can be performed with the Senhance system.

Customer reaction of this new capability has been extremely positive and this differentiates us from the competition not only in terms of offering choice by leveraging hospitals existing investments but also in terms of our philosophy as a company to work collaboratively within our customers own ecosystem.

In addition to continuing to expand the Senhance compatibility with additional vision and imaging systems, we're also co-developing advanced energy devices and expanding our differentiated laparoscopic instrument suite in collaboration with companies that offer unique and differentiated technologies. This is a key component to our open architecture strategy to integrate new technology on the Senhance platform while maintaining the direct relationship with the customer.

Before we turn to a commercialization update, I am pleased to announce that we've hired Walter Donders as our new General Manager for Europe. He most recently served as Vice President of Europe for EndoStim, a neuromodulation technology company. Walter has deep laparoscopic surgery experience, having also served as Vice President of Sales and marketing at Gyrus, a company focused on advanced vessel sealing.

In his role in TransEnterix, Walter will be responsible for all aspects of the commercial business in Europe including sales, marketing, training and customer service. Walter has a solid track record of launching new and differentiated medical technology products into markets with established players and successfully building teams to drive adoption and sales growth.

With Walter's leadership, our existing European sales team led by our Vice President of Sales, Steven Boudrez, and a growing number of sales and clinical professionals across Europe, we believe we are very well-positioned to capitalize in 2017 on the investments that we made last year.

Now I'd like to provide an update on our commercial progress. We recently announced the sale of the Senhance System to St. Marien-Krankenhaus, a large multi specialty hospital in Siegen, Germany. They chose the Senhance platform for its robotic precision, advanced visualization and haptic technology. They view the Senhance as offering the latest technology with attractive per procedure economics. Given that this was a traditional system sale with the purchase price in line with the competitions latest offering, we are pleased to see the strong validation of our value proposition.

Their initial focus is on general and gynecologic surgery and their plan is to expand their utilization to other specialties over time. With respect to hospital targeting, our first two sales demonstrating our attractiveness to hospitals both with and without existing robotics programs. Our Italian hospital customer preferred the Senhance for colorectal applications and a head-to-head evaluation of the Senhance against the competition resulting in this hospital expanding its robotics program by adding a Senhance system. Prior to Senhance has been on the market our German customer never seriously contemplated robotics given the high procedure cost. While these are early reactions from a small set of customers, they are common themes throughout all of our customer interactions and they will be particularly important as we expand in the markets with large number of existing Surgical Robotics like the United States.

While we are still in the early stages of commercialization, a key component of our strategy is to expand system placements and drive clinical experience. We are developing a more balanced pipeline and our capital sales team is now spending a higher percentage of its time on converting the mature opportunities into sales.

We are encouraged by the level of pipeline maturity at this stage of our commercialization, given the current tenure of the team is in average of two to three quarters. As we continue to engage with potential customers, we are finding that a number of hospitals are interested in the Senhance due to its unique value proposition. However they do not have the capital reserve to make a purchase in the current fiscal year. In certain situations where we see high value and a long-term partnership with an institution, we have offered operating leases or other economic arrangements that will allow the hospital to immediately implement a Senhance Surgical Program.

Now, I would like to conclude this commercial update by sharing my perspectives on learnings from the past few months. In general, we were experiencing a tremendous amount of interest as the second player to enter the market after nearly two decades with a single incumbent. What is most encouraging is that our differentiation in terms of features, benefits, value proposition, and open architecture is resonating with surgeons and hospital executives.

Since our last call, our clinical activity has increased substantially. At that time, we had two active customer sites in one country. We now have four active customer sites in three countries with eight surgeons regularly performing cases. In March we expect to begin surgeries in Germany after we complete installation and training at St. Marien-Krankenhaus.

We are also seeing the realization of important aspects of our value proposition through our growing European clinical experience. Our unique ability to increase a surgeon sense of security through the use of haptic feedback has been cited by surgeons as a critical safety benefit of Senhance. This commentary has been consistent particularly from colon and rectal, GYN oncologist, and Upper GI surgeons as they all have to navigate critical organs and vessels in each of their surgeries.

Another aspect of our value proposition that is consistently being validated is our ability to convert traditional laparoscopic procedures to robotics. For example, general surgery and gynecology are two specialties that have been significantly underpenetrated by robotics especially in Europe due primarily to the significantly higher procedure cost versus laparoscopy. We continue to discover that procedure cost is the number one reason hospitals had either not yet invested in robotics surgery or have taken steps to limit regular usage of the robot in their institution.

In February at Imperial College, we began performing Colon Cystectomies in addition to other more complex cases. This procedure has historically been difficult to penetrate with robotics given the high procedure cost incurred with other systems. It has been encouraging to see surgeons scheduling Senhance cases for the most commonly performed surgeries without pressure from administration to constrain their robotic usage.

Our other recent learnings confirm our expectation that laparoscopic surgeons get comfortable very quickly given our familiar laparoscopic motion and feel and that Senhance setup and OR times are similar to traditional laparoscopy after the first set of clinical cases.

We are now routinely conducting two cases in a single day on the same system including complex procedures such as total hysterectomies with extensive lymph node dissections oophorectomies along with simpler ovarian cystectomies and colon cystectomies. Having demonstrated excellent surgical outcomes and having addressed these historical robotic challenges of higher cost and incremental procedure time, our new surgeon users are commenting on the value of ergonomics as they consider converting more and more of their laparoscopic procedures to robotics.

As a result, we are beginning to see the potential to change the game in robotics in terms of defining what high volume looks like. For example, one of our surgeons is already performing four to five cases per week after their first case occurred in early February. As system use at this hospital expanded to additional surgeons that are currently being trained, we can envision utilization rates that are much higher.

Turning to the U.S. regulatory process for the Senhance, we are in the final stages of completing our submission and expect to file the Senhance 510(k) with the FDA before our next quarterly earnings call which we will host in early May. We remain on track to meet our goal of achieving a 2017 clearance. Overall, we're extremely confident about the future at TransEnterix. I'm encouraged by our early commercial traction in Europe and enthusiastic about our prospects for this year.

In addition, we are well on our way towards a Senhance FDA submission which we believe will lead to an FDA clearance in 2017.

We will now open the line up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. And we will take our first question from Rick Wise from Stifel.

Rick Wise

Good afternoon. How are you doing? May be Todd start us off talking about sales force, I think you said that can you remind us number of direct sales team members out in the field in Europe and you said that they have two or three quarters of experience. How long does it take -- how much experience required to generate those initial orders does it take two to three, four to five, four to six just may be give us some perspective and I'm going to ask just one more part of that you can talk about it all. And can you give us any color as the sales force expenses is going, any color on the pipeline and how we think about the rest of the year?

Todd Pope

Hey, Thanks Rick. Yes, as we talked about in the past, we have a combination of both direct and distributor sales organizations. So we now have multiple reps in Germany, France, and the UK, the Nordics. That's really important areas for us to go direct and then distributor relationships are in other areas of Europe.

In addition, we have distributors as we talk about in Asia, the Middle East, Australia, and New Zealand. So as we think about your question on pipeline maturity, we still believe that most of these deals matriculate through four to six quarters when they are first introduced to us by the time they make a decision. And we look at our sales force on average been out there about two to three quarters, we feel like our pipeline is going to see some pretty significant maturity on the back half of the year. Certainly we had a sale on the Q3, that product had been out with the account for about a year.

And then our German sales that we announced few weeks ago were introduced to the technology in the second half of last year and that went a little quicker than usual. So each one of these deals takes a little bit of their own personality but we feel really in line with where we wanted to be with our sales force and our pipeline. So did you have a follow-up question?

Rick Wise

Yes, turning to the -- your comments about offering operating leases again sort of a multipart question is this a new business model, should we expect the majority of their sales going forward are going to be operating leases and talk about may be a little about how you're going to finance them, will this be a third-party partner, this has changed the path to profitability how do we think about sales in that context?

Todd Pope

Sure. I mean today our sales up to this point have been traditional with our prices in ASP kind of being in line with the competition's latest offering. For us we see sometimes the hospital has not been thinking about robotics because typically their features haven't been there that have compelled them or per procedure economics has kept them away from the purchase consideration.

When we introduced Senhance they've become really excited about potentially applying robotics in their hospital where they haven't had that in the past. So in turn they haven't set aside money in that particular fiscal year. You can kind of juxtapose that with other accounts that have decided to buy robot they budgeted for the year and were in there competing for the business.

So, I won't say this is going to be a new normal for us with operating leases, we just want to exhibit flexibility when we meet hospitals that haven't really been thinking about it but then they are excited about Senhance and want to try to get it in as soon as possible. In most of those cases, we're doing operating lease or usually looking down for their next fiscal year for them to put aside the budget and then go ahead and pay on a typical ASP.

To your question about third-party, some of those we will do on our own operating leases and others we can operate with a lease that either the hospital has a third-party lease provider they use for other capital equipment or we can provide a partner.

Rick Wise

Okay. And just one last one from me on the FDA, it sounds pretty clear and pretty optimistic Todd that you're going to be able to file in U.S. before if I heard you correctly, before the next earnings call in early May, may be if you could talk about that comment on what sounds like real confidence about that timeline and the confidence that you will get that U.S. approval before year-end, why so confident and just help us think through what's next on that front?

Todd Pope

Yes, so you're reading me right. I'm clear and confident is right, I mean since we've indicated that we are going to file by the time of our next quarterly call, you can guess that we are in the final stages of putting that submission together.

In January, we announced that we have completed our usability studies and more recently after that we have now completed our validation studies. So most of the items that remain to be completed for us are relatively low risk and I don't believe that there is any steps remaining that would materially delay our time to submission.

You have to keep in mind now as we have highlighted some of our clinical experience, we are doing surgery safely and effectively almost every day of the week and we have interacted with the FDA extensively since last summer in our pre-submissions including being able to get the FDA in front of our systems so they could actually have a demo and see why which is very helpful at the American College of Surgery last year.

So we look at it that we successfully completed all of our high and medium risk elements as far as all of our testing requirements and we feel very confident that we are not only going to file before that May call but receive approval before the end of the year.

Operator

We will go next to Glenn Novarro with RBC Capital Markets.

Brandon Henry

Yes thanking for taking my question. This is actually Brandon on for Glenn. So first question on the pipeline, can you talk about what geographies and types of customers you are experiencing the most successes with in terms of interest to Senhance and then which you're not may be experiencing as much success? Then I've a couple of follow-ups.

Todd Pope

Sure Brandon. We really see our targets kind of bifurcating. We either have a customer that's similar to Siegen that had really not thought seriously about robotics after looking at robotics early on. One thing to be for sure, there is probably not hospital anywhere that hasn't been called on to take a look at robotics, so they evaluated it didn't make sense. We come in; we have a different value proposition. We are in there talking to them about a robot that has haptic feel and that sense of security, we have eye tracking camera control, we have a different economic of per procedure model. So this gives these accounts very interested in the case of Siegen they have moved fairly quickly over couple of quarters to purchase a system, so we have one set of customers like that.

We have other targets in our pipeline that are similarly little bit more to Humanitas, they had a system in the hospital primarily being utilized by urology, they refine, they considered other specialties in the past but really didn't feel the value proposition was there. We introduced our technology and they said this would be a nice way to augment their current robotic capabilities. So we were able to sell one in and now they have newer surgeons in different specialties doing different procedures. So those are really the way that our targets have kind of bifurcated in.

Obviously, it's early but we have had a sale in both and we have a pretty rich pipeline in both, so that's the way we differentiate and we are encouraged about having success in both of those customer sets.

Brandon Henry

Okay. And then separately can you discuss on these surgeons, I know it's early but can you discuss how many surgeons who have been trained through the clinical leadership program thus far and what are your plans for expansion of this programs traditional science in 2017. I think you mentioned a fourth site and when do you expect that to come online?

Todd Pope

Well, we've not given out specific numbers at each hospital. I would just say for each one of our clinical leadership sites, we have multiple surgeons trained and multiple surgeons doing cases at these hospitals and we have a -- also a pipeline at our current clinical leadership sites, where we will be training more. And there often times in different specialties that are currently doing them today. And as far as the next clinical leadership site, we expect that to come on board in the near-term. So next time, we're with you and we'll have an update on that.

Brandon Henry

Okay. And then, finally, just in terms of the sales force, what goals do you want to achieve in 2017 with regards to the build-out of the international sales force. And then on the U.S. site should we assume you guys are adding additional U.S. selling resources ahead of the FDA approval of Senhance? Thanks.

Todd Pope

Yes, as far as goals for Europe, we feel good about our footprint right now for capital sales reps. We have a pipeline that is almost a little difficult for us to service right now because often now they want to come in and take a look and see the system in use that's why we've added clinical leadership sites to alleviate little bit of that pressure on the pipeline. So we don't really need to generate more of those, we need to focus on the ones that are maturing and closing into sales. What we're continuing to look at is training in clinical resources because as we are starting to integrate this technology in some of our early sites, people are starting to do cases rapidly, multiple cases in a day, multiple operating days in a week. And so we need the clinical sales force to be out there in these cases handling that, so that's where we are looking to augment our sales force and our team additions in Europe.

As far as the U.S., we are not able to be out there selling prior to approval but we do have market development resources that we put out in the field. We still have our Vice President of Sales, Paul Ziegler, that we brought on over a year ago now in the United States. He is still on building his team out and we're certainly out. We have a podium, a poster strategy, a tradeshow strategy, we're really interfacing with a lot of hospitals not only surgeons but executives in the U.S., not only at Tradeshows, but going out and seeing them, also them coming into our North Carolina to our headquarters as hospitals are thinking about their 2017 purchases, they hear that we're pretty bullish on a FDA clearance by the end of the year and they're looking to buy systems this year. So they have been engaging with us quite regularly. So I feel like we're in a good position to hit the ground running when we do get our clearance here in the States.

Operator

Next we'll take Greg Chodaczek with B. Riley.

Greg Chodaczek

Thank you. Todd just quick on the 1588 and the PINPOINT announcements, can you talk about how that happened and let's say a hospital has a foogi or something else, how difficult is that to use that system with your system?

Todd Pope

Thanks for the question Greg. Yes, we’re really pleased to have gotten the validation for both Stryker and NOVADAQ done in this first quarter, really don't want to get into the specifics of each one of those deals or partnerships but the implementation of our open architecture ranges from taking a product off the shelf and adapting it to the Senhance all the way to signing the development with some of these companies that require co-development agreements. So more generally the way we think about the open architecture strategy is two things really one allow technology that we call surgeon preference to be integrated with the Senhance were possible, vision system, fluorescence, vessel sealing et cetera.

And then secondly, we are trying to be disruptive, the least disruptive as we can go into a hospital operating room. They have their own ecosystem, they want to adopt a new robotics program, we want to go in and leverage their best practices that are already in place. They have OR time that they want to adhere to, room change over time; they have current equipment like their own operating room beds and chocor. We are trying to let them incorporate our system without having to upset that applecart.

And then to your last question, we're going to continue to look at other technologies, we're trying to start with technologies that we hear are broadly being used in a strong surgeon preference and we've announced those first two and then we'll build-out from there. So each system, I don't want to really get into characterizing difficulty to ease but we are certainly being met with open arms from hospitals both the executive and the surgeons, when you tell a surgeon they have a surgeon preference that they currently use on the laparoscopic cases and they can use that camera with the Senhance, they are happy. When you tell the hospital executive that might have invested in multiple towers from a particular vendor and they can utilize that with the Senhance, they are pleased also. So we felt like this would be a real strategic advantage and early feedback is it's very positive.

Greg Chodaczek

Okay. And regarding reimbursement in Europe versus the U.S. and what you are seeing in Europe, can you talk about what the cost per procedure not exact numbers but compare that to last, compare it to your competitor, I know you have -- your systems can be or your focus can be used a lot more than your competitors. I'm just trying to figure out what and I know its early days but if surgeons who are using them, the hospitals that using them how often are they using them, I'm just trying to get my arms around that question?

Todd Pope

Yes, well it's a multi-layered question. So let me take it each part. First of all, I want to remind you and everyone on the call, we do not have reimbursement codes for robotics surgery really anywhere in the world, people continue to forget that almost in all cases when a robot is used, we are applying laparoscopic reimbursement codes.

And in laparoscopy it has been around several decades, there has been a big conversion in many procedures to laparoscopy with that reimbursement has been pushed down and many of the products have gone reusable. So for us, we feel like to really get robotic utilization up and let's phase it, if you look across all the procedures that are done day in and day out at hospitals around the world, robotic penetration is very low right now across the board. So we think if we offer meaningful features as we have talked about in the past haptics so on and so forth, coupled with tools that are reimbursed, tools that are reusable, they can match up a little bit with current reimbursement, we think we can really move some of the barriers and increase utilization. So that's what we are going out and we are being received very strongly with that.

As far as particular cost per procedure, I would just tell you that that really varies depending on if a company is selling directly or they are selling through a distributor in different markets that occur, it really depends on what part of the world in Asia, customers are routinely or patients are routinely asked to pay $10,000 or more out of their own pocket for robotic case. So that really fluctuates it's hard to give you a fleet average but I would say in general we are trying to come much closer to the cost per procedure that they experience with a current lab case. And that's going to be fairly significantly under what the competition is offering on a per procedure case with robotics today.

Greg Chodaczek

And last but not least I know this would be a quick answer, have you talked about what a potential label or what the approval could be for Senhance or FDA?

Todd Pope

We have not, we have not and we will have those discussions with the FDA. I mean we are not prepared to really discuss that publicly. But we have got a broad label in Europe and we think our continued clinical evidence is building is going to be very helpful on our submission.

Operator

And next we will move to Larry Keusch with Raymond James.

Larry Keusch

Thanks. Good afternoon everyone. I apologize, I got disconnected. So if I'm asking question that's already been asked please let me know. But Todd I guess I wanted to start with just any thoughts if you may have on the sort of lessons learned in Europe over the course of the past year as it relates to sort of positioning in the system and what feedback you are hearing on pricing?

Todd Pope

Yes, well we touched on that a little bit but I will just say the main lessons learned for us is what is a good target account look like for Senhance and that is we are having good success with both hospitals that have a system in place already a robot but they want to expand clinical utilization into other specialties. They were also really able to engage accounts that do not have a robot today we really thought we might fall strongly on one of the other side of a good target there. But we have so many hospitals that have wanted to look at implementing a system but just didn't feel like the per procedure economics works for them or they were just too many trade-offs to use the robot versus their current laparoscopy. So I think the one thing that we had a great opportunity to do is take a look at the number of laparoscopic procedures that are done day-in and day-out around the world.

We think we have a robotic platform that is well-positioned to convert those over to Senhance. That is not what you typically hear from robotic companies that are either on the market or thinking about coming to the market it's typically been more looking at open procedures and taking those to robotics.

So that was our initial value proposition and our lessons learned to answer question specifically is, that is resonating. We built our system on laparoscopic motion with a surgeon sits down system it's very familiar they get up to speed quickly and they see a lot of benefits that they might not see from other systems and when you take away that pressure of per procedure economics being quite a bit more with robotics, we think that we're going to be able to get robotic utilization on a far broader number of procedures than currently being done today.

So that's our learnings and it's early -- we -- it's early for us. We've got a handful of systems out there and a handful of countries starting to ramp-up but we think that's going to be very transferable when we get to the States.

Larry Keusch

Got it. That's helpful. And then just ask a couple of other quick ones here. Obviously I heard you talk about the imaging and visualization capabilities that you're able to add to the system through the open architecture. But are there other product enhancements or expansion of the portfolio that we should be thinking about in 2017?

Todd Pope

Well, I think for sure we believe imaging, visualization are really accelerating in the market. There's a lot more players that are looking to get into that space other than the traditional ones, even the traditional ones are starting to onboard more and more technology with their imaging. So for us we think we'd like to participate in that without having develop product ourselves. So we're going to continue to work with leading imaging and visualization companies when they have surgeon preference products we're hoping they can also be able to utilize those with the Senhance.

And then as we discussed before a vessel sealing is an important category, it's a very big market on its own and we expect to have a product out and C Mark cleared in Europe this year. So we think that's going to be an important advancement for the platform as we think about other procedures.

Larry Keusch

Okay. And then two quick financial one, Joe, if my numbers are right looks like inventories in the fourth quarter rose $6 million sequentially so is that correct what's driving the increase their. And then given the timing of the installation that you're talking about in Germany it sounds like it's going to happen sometime this month. Should we expect to see $1.5 million to $2 million revenue contribution in the -- in the 2Q or in the 1Q I should say, I guess?

Joe Slattery

Yes, Larry with respect to the inventory build that's right we had our primary supplier for the Senhance platform we released the PO to support the U.S. launch later this year and planning for the pipeline maturity that we've been talking about and so we have a pretty hefty upfront so that’s going to normalize to some extent over the next couple of quarters. And with respect to that, the Siegen sale actually present themselves today so it will be a Q1 revenue event and as we discuss the -- what we said was that the revenue was in line with other top-tier offerings.

Larry Keusch

Okay, perfect. Thank you very much.

Joe Slattery

The only thing I would add Larry is -- if the invoice value is usually a little bit higher than the revenue recognized because a portion is deferred over the first year or two accounts for the warranty exposure.

Operator

Next we'll move to Jeffrey Cohen with Ladenburg Thalmann.

Jeffrey Cohen

Hi guys, just a couple of quick ones as most of my questions have been answered. So just a follow up on the Q1 recognition, so we should also then see the SOFAR investments in the first quarter, is that correct?

Joe Slattery

Yes that's correct, it's Jeff it won't be in the form of cash right. Yes.

Jeffrey Cohen

Right.

Joe Slattery

Yes.

Jeffrey Cohen

Okay. So it will show up in the first quarter. Okay. And then secondly just getting back to early discussion Todd where you are talking about the composition of hospitals which had dialogue with as far as having current robotic programs or not, could you also give us a bit of color and it seems discussion as far as what type of physicians are you finding or becoming most engaged in the process specific to procedures and at the different facilities?

Todd Pope

Well I would answer that about what type of physicians I would say it's been a broad base of physician interest. So I would say that we like to clarify that is the laparoscopic surgeons. When we think of robotics traditionally we have seen cases in surgeons that are doing open procedures historically and it has certainly been laparoscopic surgeons convert over to robotics but not in high numbers. So I would say for us we have really been focusing on procedures and in turn physicians that do a lot of laparoscopy.

And so when we have been able to set them down in the Senhance let them do labs, let them do surgery and now that we have got some placements and see the early usage, it's been pleasantly surprising to us that they are considering moving more and more of what maybe would be called some of their garden variety volume over to the Senhance not just trying to look for complex cases or not just looking for cases that have high reimbursements. Those are certainly benefited by robotics but also just spending more and more of their usual OR day on the Senhance. I think when you remove some of those barriers of high cost per procedure compared to laparoscopy and you kind of level that out, then the benefits of robotics really start to shine and they start thinking about doing more and more of their cases.

The benefit of that is when you start moving high volume procedures there, they really -- really get, they master the robot quicker and they feel more confidence, so when they do run into larger more complex cases they have really got a lot of case under their belts. So it's early but that is how I characterize the physicians that work on and on that goes across physicians in all areas of upper and lower abdominal surgeries.

Jeffrey Cohen

Okay. And as far as the clinical leadership sites, three thus far are you seeing a lot of engagement both from the surgeons as well as C-level suites as far as hospitals go, how would you characterize that in the difference what you're seeing in Europe versus some other territories in the U.S.?

Todd Pope

Yes, 100% you are never going to put a robot into hospital without strong clinical support and strong C-level support. It's a very high profile decision, you are dedicating space and OR and you are changing the way that you're operating of patients, so there is a lot of stakeholders that get involved with that. So we've been very encouraged that we have value props that resonate a little differently with the clinical community versus the economic community but they both are very strong for Senhance and we think a lot of those will be similar in the U.S. The way I would characterize it different is in Europe in outside of the U.S. There has not been as big of a adoption outside of urology, outside United States.

And United States has been a pretty broad adoption outside of urology and other specialties and so we are able to talk to people for the first time over in Europe about thinking about using robot outside of urology and I think that's going to be a benefit to us in the U.S. We don't have to do as much of an early education in the U.S. We are already thinking about using, they are just trying to understand what the options are when it comes to choice. So we won't have to spend as much of that early missionary trying to talk to people about robotic applications outside of urology when we get to the U.S. that will I think accelerate our capital decision process.

Operator

This concludes our question-and-answer session for today everyone. I'd now like to turn the call back to Mr. Pope for closing remarks.

Todd Pope

Thank you. I'd like to conclude by saying that we're very excited about the future here at TransEnterix and we look forward to updating you on our progress on our next quarterly call. Good afternoon.

Operator

Everyone that concludes our conference call for today. Thank you all for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!