Hansen Medical Q1: Disaster or Opportunity?

On the surface of things, according to GAAP (generally accepted accounting principles), Hansen Medical (HNSN) had a disaster in Q1 2010. The maker of Sensi Robotic Catheter Systems recognized revenue on only one system in the quarter. GAAP revenues were $2.7 million, down 62% sequentially from $7.2 million, and down 64% from $7.5 million in the year-earlier quarter.
GAAP net income was negative $3.8 million, up sequentially from negative $11.7 million, and also up from $14.1 million year-earlier. GAAP EPS (earnings per share) were negative $0.10, up sequentially from negative $0.31 and up from negative $0.56 year-earlier.

On the other hand, Hansen shipped 7 systems in the quarter, towards the end of the quarter. The system they recognized revenue on had been shipped in the past. Last year they had to adjust their accounting and started recognizing revenue only when a system was fully installed in a hospital and doctors had completed their training on the systems. This is a new company, in terms of actually having FDA permission to sell. As of March 31, 2010, Hansen had shipped 88 systems, but only recognized revenue of 70 of them.

Another measure of how Sensei is being accepted by surgeons is sales of Artisan Control Catheters. Basically, this part of the system is disposable and costs around $1650. Revenue was recognized on 637 catheters, up sequentially from 539 in Q4 2009.

Investing in Hansen is risky; be careful of price points as this is still a money-losing startup company. On the positive side there are a lot of potential medical uses for Sensei systems, on the negative side each use seems to require some re-engineering of the system, and FDA approval, so a lot of money can be sunk into R&D or administration. Partnerships with Philips Healthcare and Siemens Healthcare should help within a couple of years, but until Hansen shows consistent profits the stock will remain vulnerable to sell-offs, and they may keep issuing more to get the cash needed for operations. In Q1 they sold 16.1 million shares for $29.8 million.

I own Hansen Medical stock, but consider it to be one of the riskiest stocks in my portfolio. That is the nature of biotechnology. It takes a lot of R&D and then customer development to get a new technology rolling. On the other hand, as more uses for the Sensei system come online (like vascular surgery), it is possible to see a day when every hospital has one or more Senseis. In that case the company will be a major player and make a lot of investors rich.

For a more detailed report, see my Hansen Medical Analyst Conference Summary, Q1 2010.

And of course check out the Hensen Medical site.

And keep diversified!