Hansen Medical: Upgrade Due

February 9, 2011 by William P. Meyers

See also update on July 8, 2011, Hansen Medical Valuation

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 the potential to be the next ISRG.