Analyst Conference Call Summary

biotechnology

conference date: August 3, 2011 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2011 (Q2, second quarter 2011)

(at the time this is being written)
Forward-looking statements

Overview: Improvement in EP system sales, but now mainly waiting for vascular robotic catheter system commercialization.

Basic data (GAAP) :

Revenue was $5.3 million, flat sequentially from $5.3 million, down 24% from $7.0 million in the year-earlier quarter.

Net income was negative $8.8 million, down sequentially from $11.7 million, but improved from negative $10.9 million year-earlier.

EPS (earnings per share) were negative $0.16, down sequentially from positive $0.21, but improving from negative $0.22 year-earlier.

Guidance:

None given.

Conference Highlights:

Achieved a key milestone in July with CE Mark (European approval) for the new Magellan Robotic System for vascular robotic surgery. Also, application (510k) with FDA for approval is on file. Still hoping for U.S. commercial launch before end of year.

5 Sensei Robotic Systems had recognized revenue, but only 3 new systems shipped, 2 in the U.S. and one international. All the newly shipped systems were recognized for revenue. 11 systems are now shipped but not recognized for revenue. The majority of these are with international distributors. Pipeline is beginning to show momentum. Average selling price $693,000.

682 Artisan or Lynx Catheters were sold, up 23% from year-earlier. Lynx irrigated ablation catheter sales are starting to ramp in Europe. Average price $1,638.

Number of EP (electrophysiology) procedures performed was 596, up 2% y/y. Second quarters are typically weak for this statistic.

Gross margin was 25.8%. In R&D expense there was a $2.8 million offset from the recognition of funding from Philips. Non-cash stock compensation expense was $1.4 million.

New CFO (chief financial officer), Pete Mariani, hired.

Believes the EP and vascular markets will continue to gain traction. The excitement about the Magellan system has been encouraging.

Cash and equivalents balance ended at $37.2 million. Deferred revenues were $8.4 million. Debt $4.5 million. Cash used in operations was $9.1 million.

Cost of goods sold was $3.9 million, leaving gross profit of $1.4 million. Operating expenses were $9.8 million consisting of $2.6 million for R&D and $7.2 million for selling, general and administrative expense. Other expense was $0.4 million.

Working to chart a path to profitability. There is no expectation to achieve net income for Q3, Q4, or the year as a whole.

European vascular commercial launch will start at selected centers, notably the London education center. Has a list of desirable initial physicians. Creating a scientific advisory board.

Q&A:

Utilization in EP? We believe EP will continue to grow, not be abandoned for vascular. Pipeline is getting stronger, but it is difficult to anticipate timing. Softness on procedures needs watching, but we see positive EP momentum.

Lynx catheter details? We have good clinical uptake, where we have few installed systems to work with it so far.

Same sales force for both system types? In Europe we have hired people with vascular backgrounds and invested in training. We have capital sales people and clinical sales. Sensei experience will help with Magellan sales; same force for both.

Cash burn outlook? Dependant on launch of new products.

Discrepancy between procedures and catheters shipped in quarter? Believes catheter inventory has decreased as a percentage, but will fluctuate by quarter.

No specific number of centers for vascular in Europe. Focusing on quality.

Will Philips credits be ongoing? Some of the money from the deal had to be amortized into Q2 and Q3, then will end. A final new cash payment in low-single digit millions would come with a milestone expected this year.

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