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

Hansen Medical: Run Up Spurs Valuation Thoughts

I wrote on February 9, 2011: "Hansen Medical (HNSN) may be about to reach an inflection point. In fact, given the recent announcement of Philips paying $30 million to license just one part of Hansen's technology, we may be past the inflection point."

Last week "Piper Jaffray upgraded its stock-investment rating on Hansen Medical Inc. to overweight from neutral, saying its endovascular robot–pending 510k clearance–provides needed clinical solutions and will find a receptive audience in vascular surgeons." [ Wall Street Journal blog, June 30, 2011]

It is difficult to put an exact value on Hansen stock. Today Hansen closed at $4.59 per share, giving the company a market capitalization of $250.4 million. On February 9 it closed at $2.07. You could by it for $1.26 per share in early December 2010. Has it run up too much since December? Have there been new developments that justify today's price? Do future developments mean it could keep booming?

I believe the current price does not yet take into account information that has been available for several months now. It only reflects that Piper Jaffray called the undiscovered value of the company to a broader array of investors.

Hansen Medical has a technology platform. Repeat: technology platform. Its Sensei systems allow surgeons to control robotic catheters. There are a lot of kinds of surgery these could be used for, but each type of surgery requires some specialization of the catheter or its control system, as well as clinical trials proving safety and effectiveness, and FDA approval (EMA approval in Europe, etc.).

Hansen has been selling it Sensei systems with Artisan catheters to perform electrophysiology, the measurement of the nerve activity of the heart. The systems have been selling at a rate of a few per quarter, and cost more to make at that level of production than they sell for. They have shipped at least 100 systems to date. In addition, money raised from investors is spent on R&D for new applications, and of course on overhead. So Hansen has been losing money.

Now Hansen has received a large payment from Philips for one of its technologies: $23 million so far, with more to come. This should mean that the new and upcoming applications can be paid from existing cash and cash flow. In addition to electrophysiology, Hansen has permission in Europe to sell it Lynx ablation catheter. That allows surgeons to destroy nerve tissue to cure atrial fibrillation. It is a fair guess that FDA approval for U.S. use will come some time this year.

The first really big application is coming up to: vascular surgery catheters. Ultimately there will be a range of these, but the first approvals in Europe and the U.S. should come this year.

After that, anything goes. Hansen should be able to apply it robotic catheters to a wide variety of surgeries. There could end up being several in every hospital in the world.

Of course the usual risks apply. Hansen could screw up. Or a competitor could emerge. Or the FDA could delay approvals for longer than expected. Or patients could die or be injured if the system fails in unseen ways. In other words, this is not a sure thing. Keep diversified.

I still think Hansen should be worth over $10 a share based on present information, and up approval of the vascular robotic system by either the FDA or EMA, should head up from there.

I have owned Hansen stock since July of 2009, after starting posting Hansen analyst call summaries in February of 2009. I may be excited today and may not be seeing all sources of risks. Despite a relatively small investment in Hansen Medical it has shot up so much it may violate my portfolio rules (caps on % of portfolio in a single stock) so I may sell portions of my current stake if the price keeps running up.

See also:

Hansen Medical main page
my other Hansen Medical articles and conference summaries

Hansen Medical Ships Just 2 Sensei Systems in Q1

Hansen Medical, maker of robotic controlled catheters for surgery, showed one-time GAAP net income for its first quarter of 2011, reporting results to the analyst conference call on May 4th.

A $23 million sale of intellectual property to Philips medical division was the cause of the profit. Hansen (HNSN) is still essentially in start up mode, losing money each quarter while further developing its Sensei systems for catheter based surgery.

In the quarter Hansen shipped only two new Sensei systems, but it recognized revenue on five systems. Hansen only recognizes revenues on a system when it has been installed, surgeons have been trained, and the system is in actual use. At the end of the quarter there wree 13 systems that had been shipped but not booked for revenue.

Two systems is a slow pace, but shipments have been slow lately. Since each procedure requires a new catheter, it is notable that 693 catheters were shipped in the quarter, up 4% from Q4 and 9% from year-earlier. Most catheters are used for electrophysiology (EP) measurements, until recently the only use approved by the FDA and EMA. However, sale of Lynx catheters for ablation (purposeful destruction of neurons to correct irregular heartbeats) have begun in Europe. I would expect more Sensei systems to sell this year than in 2010 now that ablation can be performed as well as EP.

Management mentioned that one system had already been shipped to a U.S. destination in Q2, and the U.S. sales force has been restructured.

The Philips payment left Hansen with $45 million in cash at the end of the quarter. With the new vascular surgery robots likely (but not certain) to be approved by the FDA and EMA this year, this is plenty of cash to keep the company running until unit sales ramp up, which should lower costs on a per robot basis and allow for sustained profitability.

See my Hansen Medical Q1 2011 analyst conference call summary for a greater level of detail.

I own Hansen Medical stock.

Keep diversified.

See also: Hansen Medical home page