Thursday, July 9, 2009

I Buy Hansen (HNSN)

I bought my first shares of Hansen Medical (symbol: HNSN) today at $2.76 per share. It is a very risky move. It is not clear that Hansen is at a short-term bottom. I don't expect the stock to go up significantly until it reports an increasing number of sales for its robotic surgical catheter systems. That can't happen until after the September quarter ends, and may not be until well into 2010. On the other hand, I am looking at Hensen as a long term investment, and it is going for a small fraction of its 52 week high of $20.20.

Hansen was supposed to be the new Intuitive Surgical (ISRG). Unfortunately its timing was bad. It was starting to sell significant amounts of its products, which only began selling in 2007. Their surgical Sensei Robotic Systems run $600,000 each. When the economic turmoil hit last fall, hospitals started delaying orders. Revenues peaked at $10.9 million in Q3 2008. They seemed to be stabilizing after Q4 came in at $7.3 million and Q1 2009 came in at $7.1 million.

In April Hansen sold more stock, raising an additional $35 million. Which was necessary since they were burning over $5 million in cash per quarter, and the recession made it impossible to know when they might become profitable.

On July 6, 2009, the Hansen announced disastrous preliminary second quarter revenues of $3.1 to $3.3 million.

Hence the low stock price. Hence my buying.

Today the company's market capitalization is $103 million. In my book that still makes it an expensive stock considering that its net loss even in its best quarter so far, Q3 2008, was $12 million GAAP. True, cash burn is not that bad, much of it is depreciation of startup costs. Still if they repeated Q3 for an entire year, they would have just under $44 million in annual revenue.

So why am I buying the stock?

I like robots. The results from surgeries with the Sensei system are getting really good feedback. I think a lot of hospitals want these systems. I think that when credit becomes available again, most of the system sales that have been delayed will come through.

I also think that India and China, as well as the U.S. and Europe, are going to be big markets for these machines. India and China both need to rapidly improve medical care for their middle and upper classes. They are in a position to skip straight to the most modern technologies.

Of course I could be wrong on any of my guesses about the future. There is also danger from competition; Hansen is not the only company making medical robots these days.

The Sensei robots with their Artisan Control Catheters are mainly used for electrophysiology (EP) at present, but other uses are being developed.

So on the whole what I now have in Hansen Medical is a biotechnology startup company that has only recently begun to ramp sales of its products. Better still, I bought my position when people finally stopped pricing Hansen as if it is the next ISRG.

See also my summaries of analyst conferences for Hansen Medical.

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