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
Showing posts with label vascular surgery. Show all posts
Showing posts with label vascular surgery. Show all posts
Friday, February 24, 2012
Tuesday, November 22, 2011
Hansen Medical: Slow Magellan Ramp Planned
Hansen Medical Inc. (HNSN) manufactures catheter based medical robots. It is effectively still a startup company, since it typically loses money each quarter. When it has shown a profit is has been from licensing its technology, not from robot sales. However, this is a well-understood business model. Research and development has to be done upfront. The FDA and other national medical agencies must approve each application of the technology. At the moment one application, electrophysiological exploration, is approved both in the U.S. and Europe. Two other applications have been approved in Europe, but have not yet produced revenue.
The difficulty of guessing the future value of this technology is why (along with overall market volatility) the stock price of Hansen has been all over the map this year. The fifty-two week high was $5.28, the fifty-two week low was $1.24, and the stock was up $0.15 today to close at $2.37. If Hansen continues to burn through its cash, $1.24 might be generous. If it starts selling significantly more surgical robots at a good profit margin, $5.28 will seem like nothing two or three years out.
I expected Hansen to trade higher after the new peripheral vascular surgical system, Magellan, was approved in Europe back in Q3. I expected it would take time to ramp up sales since these robots are big ticket items. The November 2, 2011 analyst call about Q3 results, however, tempered my short term hopes. The first working Magellan had been installed in St. Mary's Hospital in London, but Hansen wanted to take things slowly. One might hope their salespeople would have ten or more sales lined up for Q4, but instead they wanted to do a number of actual surgeries at St. Mary's and study the results.
Based on earlier trials they expect good results, but more data would not only help to drive sales. Experience is something that can be shared. Getting the surgeon's experiences at St. Mary's should help future surgeons and the Hansen employees who train them. That means better outcomes for patients and a better argument for the value of robotic vascular surgery.
Investors, of course, want their results this quarter, not sometime in the vague future.
If Hansen continues to move cautiously it may be a couple of quarters into 2012 before we see significant sales of the new Magellan system. Also Hansen, after an earlier accounting practices muck-up, now only recognizes revenue when doctors are trained and successfully operating a system. So the ramp will probably be in deferred revenue before it hits the actual revenue line.
Nor are the current Sensei robots for electrophysiology likely to come to the rescue. Only two systems were shipped in Q3, although revenue was recognized on five systems. Hansen lost $10.1 million in the quarter on revenue of $5.4 million.
Management seems confident that the new Magellan system will turn the company around. Hansen ended the quarter with $26 million in cash and just $3.6 million in debt. Answering an analyst question about running out of cash, management said they would get another $3 million from their licensing agreement with Philips. That should get Hansen through Q2, the commercial launch in Europe, and FDA approval for Magellan in the U.S. They are considering strategic financing similar to the Philips financing as well as debt or equity financing. They said they were confident of their ability to raise capital. A few days later they raised $10 million selling stock to existing investors.
Market capitalization ended today at $130 million. While that sounds high for a company with a $22 million annual revenue run rate and a history of losses, I know I am not the only person who thinks the future value of this technology is much higher. Earlier this year Philips paid $29 million for non-exclusive rights to use one of Hansen's technologies.
Start up costs for surgical robotics are high, but we are reaching a point when Magellan sales should start pointing us in the right direction. Buying in now has its risks, but so does waiting until later in 2012 when buying in is likely to be much more costly. The price can be very volatile because this tends to be traded in large blocks by aggressive traders.
I have owned Hansen Medical stock since July of 2009, after starting posting Hansen analyst call summaries in February of 2009.
Disclaimer: I am long HNSN. I will not trade in the stock for 1 week following this post.
The difficulty of guessing the future value of this technology is why (along with overall market volatility) the stock price of Hansen has been all over the map this year. The fifty-two week high was $5.28, the fifty-two week low was $1.24, and the stock was up $0.15 today to close at $2.37. If Hansen continues to burn through its cash, $1.24 might be generous. If it starts selling significantly more surgical robots at a good profit margin, $5.28 will seem like nothing two or three years out.
I expected Hansen to trade higher after the new peripheral vascular surgical system, Magellan, was approved in Europe back in Q3. I expected it would take time to ramp up sales since these robots are big ticket items. The November 2, 2011 analyst call about Q3 results, however, tempered my short term hopes. The first working Magellan had been installed in St. Mary's Hospital in London, but Hansen wanted to take things slowly. One might hope their salespeople would have ten or more sales lined up for Q4, but instead they wanted to do a number of actual surgeries at St. Mary's and study the results.
Based on earlier trials they expect good results, but more data would not only help to drive sales. Experience is something that can be shared. Getting the surgeon's experiences at St. Mary's should help future surgeons and the Hansen employees who train them. That means better outcomes for patients and a better argument for the value of robotic vascular surgery.
Investors, of course, want their results this quarter, not sometime in the vague future.
If Hansen continues to move cautiously it may be a couple of quarters into 2012 before we see significant sales of the new Magellan system. Also Hansen, after an earlier accounting practices muck-up, now only recognizes revenue when doctors are trained and successfully operating a system. So the ramp will probably be in deferred revenue before it hits the actual revenue line.
Nor are the current Sensei robots for electrophysiology likely to come to the rescue. Only two systems were shipped in Q3, although revenue was recognized on five systems. Hansen lost $10.1 million in the quarter on revenue of $5.4 million.
Management seems confident that the new Magellan system will turn the company around. Hansen ended the quarter with $26 million in cash and just $3.6 million in debt. Answering an analyst question about running out of cash, management said they would get another $3 million from their licensing agreement with Philips. That should get Hansen through Q2, the commercial launch in Europe, and FDA approval for Magellan in the U.S. They are considering strategic financing similar to the Philips financing as well as debt or equity financing. They said they were confident of their ability to raise capital. A few days later they raised $10 million selling stock to existing investors.
Market capitalization ended today at $130 million. While that sounds high for a company with a $22 million annual revenue run rate and a history of losses, I know I am not the only person who thinks the future value of this technology is much higher. Earlier this year Philips paid $29 million for non-exclusive rights to use one of Hansen's technologies.
Start up costs for surgical robotics are high, but we are reaching a point when Magellan sales should start pointing us in the right direction. Buying in now has its risks, but so does waiting until later in 2012 when buying in is likely to be much more costly. The price can be very volatile because this tends to be traded in large blocks by aggressive traders.
I have owned Hansen Medical stock since July of 2009, after starting posting Hansen analyst call summaries in February of 2009.
Disclaimer: I am long HNSN. I will not trade in the stock for 1 week following this post.
Friday, July 8, 2011
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
Monday, May 9, 2011
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
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
Monday, April 11, 2011
Hansen Medical Readies Robotic Vascular Catheters
Recently I was asked for an update on Hansen Medical (HNSN), which I last wrote about on February 9, in Hansen Medical: Upgrade Due. Since then the stock rose from $2.07 to a high of $3.00, then retreated a bit to end at $2.76 today. During this period there was no substantial news, just investors digesting the $30 million royalty payment from Philips and the possible commercialization of Hansen's vascular catheter system.
Today some investors sold on the news that Hansen submitted a 510(k) application to the FDA for the vacular robotic system, which is a pre-market notification [See Hansen Medical Submits Vascular 501(k)]. The 501(k) is a good thing, it has to be done, but the real news will be when (or if) the new system gets FDA approval. In Europe it will need EMA approval. The submission of the application was expected; it does not change any equation.
In theory the flexible robotic catheter system (Sensei) developed by Hansen should have many medical applications, but since each one needs regulatory agency approval, and R&D for modifications to the system, it can seem like slow going. The only approved U.S. application for Sensei is with an electrophysiology mapping Artisan catheter. These systems have received some praise, but have not been on the front burner for hospitals with restricted capital equipment budgets. Sales actually slowed in 2009 and 2010.
The natural growth in this area should also be accelerated by the approval of the Lynx Robotic Ablation catheter in Europe last December. Ablation is the purposeful destruction of selected nerves in the heart, used to correct erratic heartbeats. This should make the system more attractive than when it only is capable of doing measurements.
With Sensei system sales at just 2 or 3 per quarter lately, the only thing I see that could cause a serious upward stock movement before the approval of the vascular surgery system is an uptick in system sales for the current electrophysiology/ablation robots.
Those with patience will see a good long term opportunity here. The electrophysiology system is getting increased usage where they are already installed. The vascular system has been demonstrated to work well, with 20 procedures performed under clinical test conditions. Once approved, surgeon will still need to be trained to use it. The hope would be that some time in 2012 a critical mass of doctors skilled in the use of robotic catheter systems will emerge. Then hospitals will find it easier to approve system purchases. Selling more robots per quarter should allow Hansen Medical to generate better margins and cash. Then other applications can be developed. If that happens (and things could go wrong, or be delayed) then Hansen could start rewarding investors the way Intuitive Surgical did during its ramping period.
I own Hansen Medical stock. Keep the risks as well as the opportunities in mind ... and keep diversified!
Wednesday, February 9, 2011
Hansen Medical: Upgrade Due
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. While I have owned Hansen stock since July of 2009, after starting posting Hansen analyst call summaries in February of 2009, my analysis in late 2010 failed to take into account all of Hansen's future potential.
It is easy, in retrospect, to see the downward slope in expectations for Hansen. Back in say 2007 Hansen was the Next Big Thing in robotic medicine, on the same path to providing early investors with riches as Intuitive Surgical. HNSN traded above $30 per share. Then it became apparent that it would take some time to ramp up sales of its Sensei robotic catheter systems, which were approved only to make electrophysiology measurements. With the recession causing investors to shun risks, and system sales actually declining, you could (and I did) pick up shares for under $1.50.
While research and development (R&D) continued on new applications, you could say that the real value was in the future, when Sensei would have multiple purposes in hospitals. Yet sales continued to slump. For Q3 2010 only 3 Sensei systems were shipped to customers. GAAP net loss was over $12 million on revenues of just $3.5 million. My comment on Sensei systems was "Apparently until they can used in more procedures, hospitals are not that interested in them." Some hope smoldered with the idea that a company like GE Healthcare or Philips might acquire the company, given its miniscule valuation.
But now higher powers have validated the future potential of Hansen technology. The deal with Philips in no way gives away any technology needed to continue developing Hansen's own Sensei systems.
Hansen Medical is scheduled to report Q4 2010 results on February 23rd. Without a doubt the analyst conference will emphasize the Philips deal and the potential to start selling Sensei systems equipped for vascular surgery some time in 2011. Whether they shipped zero or ten Sensei systems in Q4, the real value is mainly in technology waiting to be commercialized. Hansen is still, fundamentally, in startup mode.
However, before jumping in, even at today's astonishingly low stock price ($2.07 as I write), keep in mind that the FDA (and the equivalents in Europe and elsewhere) must not just approve the new vascular application for Sensei Artisan catheters. It must approve use procedure by procedure. Once it is approved for one vascular procedure it can be approved more easily for others, but it is still a long, hard road ahead.
But if the road is uphill, at least the view from the top should be really, really nice. The potential vascular catheter robotics market is big, bit enough that, yes, it isn't all that wild to think of Hansen as a potential to be the next ISRG.
See also:
Hansen Medical main page
my other Hansen Medical articles and conference summaries
It is easy, in retrospect, to see the downward slope in expectations for Hansen. Back in say 2007 Hansen was the Next Big Thing in robotic medicine, on the same path to providing early investors with riches as Intuitive Surgical. HNSN traded above $30 per share. Then it became apparent that it would take some time to ramp up sales of its Sensei robotic catheter systems, which were approved only to make electrophysiology measurements. With the recession causing investors to shun risks, and system sales actually declining, you could (and I did) pick up shares for under $1.50.
While research and development (R&D) continued on new applications, you could say that the real value was in the future, when Sensei would have multiple purposes in hospitals. Yet sales continued to slump. For Q3 2010 only 3 Sensei systems were shipped to customers. GAAP net loss was over $12 million on revenues of just $3.5 million. My comment on Sensei systems was "Apparently until they can used in more procedures, hospitals are not that interested in them." Some hope smoldered with the idea that a company like GE Healthcare or Philips might acquire the company, given its miniscule valuation.
But now higher powers have validated the future potential of Hansen technology. The deal with Philips in no way gives away any technology needed to continue developing Hansen's own Sensei systems.
Hansen Medical is scheduled to report Q4 2010 results on February 23rd. Without a doubt the analyst conference will emphasize the Philips deal and the potential to start selling Sensei systems equipped for vascular surgery some time in 2011. Whether they shipped zero or ten Sensei systems in Q4, the real value is mainly in technology waiting to be commercialized. Hansen is still, fundamentally, in startup mode.
However, before jumping in, even at today's astonishingly low stock price ($2.07 as I write), keep in mind that the FDA (and the equivalents in Europe and elsewhere) must not just approve the new vascular application for Sensei Artisan catheters. It must approve use procedure by procedure. Once it is approved for one vascular procedure it can be approved more easily for others, but it is still a long, hard road ahead.
But if the road is uphill, at least the view from the top should be really, really nice. The potential vascular catheter robotics market is big, bit enough that, yes, it isn't all that wild to think of Hansen as a potential to be the next ISRG.
See also:
Hansen Medical main page
my other Hansen Medical articles and conference summaries
Wednesday, September 29, 2010
Hansen Medical (HNSN) New Technology
Hansen Medical (HNSN) has had a rough couple of years. The maker of flexible catheter surgery robots was thought of as the next Intuitive Surgical (ISRG) back in 2007. Its stock price hit $39.32 back on October 22, 2007. That year it got its first FDA approval and shipped its first commercial system. Today the stock closed at $1.45.
Hansen has been selling its Sensei robots, but in low volume. The price does cover their direct production costs, but it has not covered administrative overhead or ongoing research and development costs. As a result, Hansen ran through its cash from its 2006 IPO and then had to sell more stock. Dilution is one factor that has hurt the stock price. But mainly in 2008 investors became risk-adverse. It seems unlikely in the current climate that anyone is going to bid as if HNSN is the next ISRG until it starts selling more robots and shows a profit. That would be in 2011 at the earliest.
The technology is great, but currently is mainly used for electrophysiology, which is measuring the nerve impulses in malfunctioning hearts. The next step would be using the catheter to "ablate" or kill some nervous tissue to fix atrial fibrillation. The treatment was approved in Europe this July, with commercial shipments due in Q4 2010. It is not yet approved by the FDA for use in the U.S. [see FDA Conditional IDE Approval for Evaluating Sensei X Robotic Catheter System for Treatment of Atrial Fibrillation, 5/12/10]
I believe there is a lot of value to be unlocked in Hansen, but to get there will require at least three steps. Hospitals need to be sold more Sensei systems for electrophysiology, and doctors need to use those that are installed more (the catheter part of the robot is used only once). Then treating atrial fibrillation has to become common (same robot, different catheter), which should mean more systems sold.
A much bigger market for the robots, and one requiring another specialized catheter, is vascular surgery. Experiments are being done for this application, but it may take years to get it to market.
Bigger medical technology companies are very interested in Hansen's technology. It has partnerships with St. Jude Medical, GE Healthcare, and Philips Healthcare, which are all coordinating their imaging technologies with Hansen Sensei robots.
Until sales pick up Hansen will continue to show quarterly losses and run through its cash. It conceivably could need to sell more stock to support its R&D efforts. So anyone buying the stock now should be prepared to be patient (unless there is a merger offer). The usual risks apply: another company could create a better catheter robot, the FDA or European agency might cause further delays or refuse to approve new applications for the robot, or hospitals could decide the advantages of the robots are not worth the capital investment needed.
I think it is a good bet, particularly at this price. While trading is liquid on a daily basis, Q3 results (not due until early November) could have a big impact. Hansen shipped only 3 robots in Q2, down from 7 in Q1. If it gets back up to 7 or higher, that would be a good sign. If it is under 4 again, that means profits are far, far away.
So keep diversified!
See also my Hansen Medical Analyst Conference Call summaries
Hansen has been selling its Sensei robots, but in low volume. The price does cover their direct production costs, but it has not covered administrative overhead or ongoing research and development costs. As a result, Hansen ran through its cash from its 2006 IPO and then had to sell more stock. Dilution is one factor that has hurt the stock price. But mainly in 2008 investors became risk-adverse. It seems unlikely in the current climate that anyone is going to bid as if HNSN is the next ISRG until it starts selling more robots and shows a profit. That would be in 2011 at the earliest.
The technology is great, but currently is mainly used for electrophysiology, which is measuring the nerve impulses in malfunctioning hearts. The next step would be using the catheter to "ablate" or kill some nervous tissue to fix atrial fibrillation. The treatment was approved in Europe this July, with commercial shipments due in Q4 2010. It is not yet approved by the FDA for use in the U.S. [see FDA Conditional IDE Approval for Evaluating Sensei X Robotic Catheter System for Treatment of Atrial Fibrillation, 5/12/10]
I believe there is a lot of value to be unlocked in Hansen, but to get there will require at least three steps. Hospitals need to be sold more Sensei systems for electrophysiology, and doctors need to use those that are installed more (the catheter part of the robot is used only once). Then treating atrial fibrillation has to become common (same robot, different catheter), which should mean more systems sold.
A much bigger market for the robots, and one requiring another specialized catheter, is vascular surgery. Experiments are being done for this application, but it may take years to get it to market.
Bigger medical technology companies are very interested in Hansen's technology. It has partnerships with St. Jude Medical, GE Healthcare, and Philips Healthcare, which are all coordinating their imaging technologies with Hansen Sensei robots.
Until sales pick up Hansen will continue to show quarterly losses and run through its cash. It conceivably could need to sell more stock to support its R&D efforts. So anyone buying the stock now should be prepared to be patient (unless there is a merger offer). The usual risks apply: another company could create a better catheter robot, the FDA or European agency might cause further delays or refuse to approve new applications for the robot, or hospitals could decide the advantages of the robots are not worth the capital investment needed.
I think it is a good bet, particularly at this price. While trading is liquid on a daily basis, Q3 results (not due until early November) could have a big impact. Hansen shipped only 3 robots in Q2, down from 7 in Q1. If it gets back up to 7 or higher, that would be a good sign. If it is under 4 again, that means profits are far, far away.
So keep diversified!
See also my Hansen Medical Analyst Conference Call summaries
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