Monday, April 25, 2011

Hansen Medical strategy

Kevin asked why Hansen Medical (HNSN) entered the EP (electrophysiology) market first, and not the vascular market, since, the vascular opportunity is more than 10 times the size of the EP market. (See Hansen Readies Vascular Robots, April 11, 2011)

It's a good question, but with Hansen ending April 19, when Kevin asked, at $3.19, and today ending at $3.48, (up 9% in less than a week) hopefully Kevin bought without waiting for my answer.

I was not covering Hansen when the decision was made, but in a general way it matches the strategy often used by biotechnology companies that need FDA approval for their new drugs or medical devices. Management has to consider development costs and likelihood of a success (defined as an FDA approval to market). The first approval always involves a close FDA look at safety issues. These are relative to specific disease indications. A cold remedy has to be perfectly safe. A cure for an aggressive, malignant cancer that has serious side effects can sometimes get approval if it offers enough life extension to a subset of patients.

Going for vascular surgery for a first approval would have added the risk of surgery to the risk of having a new machine. The important thing for Hansen was to get the basic concept of a catheter robot approved. Since manual catheter EP is fairly safe as invasive procedures go, there was a good chance the only difference with robotic catheters would be more precise control of the catheter. Which is what happened.

Having a validated the Sensei surgical robot, Hansen gained experience in the field by having relatively large numbers of doctors perform EP procedures with Artisan catheters. In something as new as a robot for surgery, there is always room for improvement.

Each type of surgery needs FDA approval, and the tools at the end of the catheter would vary with the type of surgery. With the EP approval Hansen Medical received approval of the basic idea of a robot controlled catheter. When the FDA and EMA (in Europe) look at newer indications, they won't be worried about the basic Sensei system. They will worry mainly about whether there is benefit to doctors and patients from the new surgical procedure.

In addition, Hansen has proven its visualization technology. That has allowed it to raise a lot of cash by licensing that technology. All in all, in retrospect it looks very sensible. Hansen still has to increase its annual robot sales by a factor of about 10 to become profitable, but the technology is proven. If the FDA and EMA approve vascular surgeries, we could see quite a ramp in 2012. For long term investors like myself (I only started buying the stock in 2009), it is not even a vascular story. It is a platform story, with the ramp not being just robots and catheters sold, but whole new types of surgery approved by the FDA at intervals. I like platform stories.

See also:
Hansen Medical
Hansen Medical analysis at Openicon

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