Friday, February 24, 2012

Hansen Medical Q4 up on Vascular Surgery Robot Introduction

Hansen Medical Inc. (HNSN) manufactures catheter based medical robots. It is effectively still a startup company, since it typically loses money each quarter. For several years it has marketed its Sensei robot for electrophysiology procedures, which measures electrical activity inside the heart. Meanwhile it has developed its robotic catheter technology for use in vascular (blood vessel) surgery. Last year its Magellan vascular robotic catheter system was approved in Europe. The company hopes it will be approved in the U.S.A. by the FDA some time in the second quarter.

Financial results for Q4 2011 were much better than expected. Six robotic systems were shipped, while revenues were recognized for eight systems. Revenue recognition lags sales due to accounting rules. Of the six systems shipped, four were the Sensei electrophysiology systems and two were the new Magellan systems. One of the vascular robot systems was sold in the U.S., so technically it is a research system rather than a commercial medical system.

Compare that to Q3, when only 2 systems shipped, which is more typical of shipments these last couple of years. There is typically some positive Q4 seasonality since the systems are capital intensive and dependent on hospital budget issues.

Despite the improvement profitability is probably not going to be a 2012 phenomena. With revenue of $6.2 million in the quarter Hansen showed a net loss of negative $9 million.

If and when the FDA approves Magellan for commercial use we are likely to see a good, but slow, ramp of system sales. In Europe Hansen is working closely with surgeons at St. Mary's Hospital in London to get data on surgical procedures and to train more surgeons. Discussions are underway with hospitals both in Europe and the United States to buy and install the robots. Willingness to move to robotic surgery is high given the success of Intuitive Surgical (ISRG) systems. Because Hansen Medical robots are catheter based they target a different set of procedures than the Intuitive systems.

So revenues are likely to be lumpy in 2012, but accelerating in the second half of the year.

One sad note at the February 22nd analyst call concerned the Lynx ablation catheter, which allows for treatment of some heart conditions using the Sensei robot. While procedures are being done in Europe, Hansen has de-prioritized getting FDA approval for the device in the U.S.A. Hansen had a cash balance of $52 million at the end of Q4 and is prioritizing cash use for ramping the Magellan system in Europe and getting commercial approval in the U.S. Given the time and cost requirements for FDA approval, Lynx will have to wait.

Hansen Medical is not a stock for conservative investors. It has astonishing potential, long term, but it is also a long way from financing itself through profits. It should only be bought by investors who know how to manage risk.

Disclaimer: I am long HNSN. I will not trade in the stock for 1 week following this post. I have no position in ISRG and no plans to take any.

Keep diversified!

See also:

Q4 2011 Hansen Medical Analyst Call Summary

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