Analyst Conference Call Summary

biotechnology

conference date: August 8, 2012 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2012 (Q2, second quarter 2012)

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

Overview: Despite approval of Magellan by FDA late in the quarter, revenues were minimal, with only one Sensei system shipped in the quarter. They believe there is strong interest in the new Magellan systems.

Basic data (GAAP) :

Revenue was $3.5 million, down 26% sequentially from $4.7 million and down 34% from $5.3 million in the year-earlier quarter.

Net income was negative $11.5 million, up sequentially from negative $11.8 million, but down from negative $8.8 million year-earlier.

EPS (earnings per share) were negative $0.19, up sequentially from negative $0.20, but down from negative $0.16 year-earlier.

Guidance:

None.

Conference Highlights:

Working on lowering expenses. Believes has sufficient cash to launch the Magellan Robotic System in the U.S. Believes cash burn will be reduced as the year progresses.

Only one Robotic Catheter System was shipped, but two had recognized revenue, including the one that was shipped. Deferred revenue was $4.8 million, mainly from 4 systems shipped but not yet recognized for revenue.

Artisan, Lynx or NorthStar Catheters sold was 704, well up sequentially from 574.

Number of EP (electrophysiology) procedures performed was 637, nearly flat sequentially from 636, but up 7% y/y.

Professor Cheshire of St. Mary's in London, the first hospital to treat patients with the Magellan Robotic System, spoke on his team's collective experience in peripheral vascular, aortic, and other vascular cases. They discovered a number of useful techniques as they progressed from simple to more complex cases. They can now treat difficult cases. The had prior experience with the De Vinci surgical robot. Believes robotics differentiates St. Mary's from competitors. Studies there showed the advantages of the Magellan system and other minimally invasive techniques. The robot is bringing patients in already.

The Magellan launch in the U.S. is opening up a large market. Partnering with early-adopting physician thought-leaders. Has several quotes out to potential customers. However, given the 6 to 18 month capital equipment sales cycle, the exact timing of sales in uncertain. In Europe in particular there is caution about making capital expenditures. Magellan recently approved in Canada, and seeking approval in other nations.

Cash and equivalents ended at $29.4 million, down sequentially from $38.5 million. Accounts receivable was $4.7 million, inventories $8.1 million. Accounts payable were $2.7 million. Debt was $29.3 million. $9.1 million cash used in operations.

Cost of goods sold was $2.8 million, leaving a gross profit of $0.75 million. Operating expenses of $11.3 million included $4.6 million for research and development and $6.8 million for selling, general and administrative. Loss from operations was $10.6 million. Other expense was $0.9 million.

Reduced some staff and contractors, but will make new hires to support sales.

There was $1 million in non-cash stock-based compensation in the quarter.

Q&A:

Catheter utilization trend? Believes Q1 was a one-quarter inventory adjustment. We expect catheter sales to be in advance of procedures, so expects to see what happened in Q2 continue.

U.S. launch feedback? Just got approval in June, and could not approach the administrative side of hospitals until then. We are encouraged by the feedback so far. Interest is in reduced procedure time and radiation exposure. Economic interest is from getting better use of existing assets by having a faster OR and catheter room turnover. The main difference with Europe is that the economy is better here, and the market is bigger here. We have multiple conversations and multiple quotes out already in the United States.

EP business commitment going forward? We are very committed to EP. We have been shipping systems every quarter. We have not been happy about the flatness of procedures. We have published data to show the value of the Sensei system. But it is a smaller market than vascular. Not considering dropping EP in favor of vascular, has resources for both.

Additional financing, if needed? Prefers non-dilutive financing through technology deals. But feels good about current cash and interest of hospitals in closing deals this year.

Believes has definite physicians who want the Magellan system and are now working on their hospital administrations to get the robots.

In EP procedures, Q1 was stronger in Europe, Q2 was stronger in the U.S., so flat overall. Believes Europe will bounce back in second half. In past Q2 was the weakest quarter of the year.

ASPs (prices) for Sensei? The one we sold in the quarter was to an international distributor, so it was at the low end of the range.

About 20 accounts have shown some degree of serious interest in the Magellan system. Makes an ROI model for each potential client. But need to be realistic about timing of hospital purchases.

Who does the training of doctors on the systems? We do the training of doctors and staff. We have built up a very skilled training team that supports new puchasers in the first few cases. We have a field clinical team for follow up. We do not bill for that separately.

Are systems individually built to hospital standards? No, they are pre-built and identical. Physicians often try a system in Mountain View or where one is already installed before they use their own, new system.

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