Stereotaxis Inc (STXS) 2007 Q3 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Stereotaxis third quarter 2007 conference call. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today, November 8, 2007. I would now like to turn the conference over to Doug Sherk. Please go ahead.

Thank you operator and good morning everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review financial results for the third quarter of 2007. Before we get started we'd like to remind you that during the course of this conference call the company may make projections and other forward-looking statements regarding future events or the future financial performance of the company including without limitations statements regarding operating results in calendar 2007 and 2008, growth opportunities and other statements that refer to Stereotaxis plans, prospects, expectations, strategies, intentions and beliefs. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.

For a detailed discussion of risks and uncertainties that affect the company's business and qualify the forward-looking statements made in this call, we refer you to the company's recent public filings filed with the SEC, specifically the form 10Q and the annual report on form 10K.

The company's projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements.

During the course of this morning's call we'd like to ask each questioner during the Q&A session to limit their first round of questions to three and then re-queue if they have additional questions.

With that I'd like to turn the call over to Bevil Hogg, president and chief executive officer of Stereotaxis.

Thank you, Doug. And good morning everyone. Joining me this morning is Jim Stolze, our CFO. Today I will start with the review of the significant progress we've made since we spoke to you in August then Jim will offer additional details on our third quarter financial performance and we'll take your questions.

As we reported earlier this week, the launch of the long awaited and transformational irrigated catheter in Europe has begun. I call this device transformational because there are clear indications that when combined with our currently available [Navaline] 3D automated modeling software Stereotaxis is now providing a definitive successful treatment solution for atrial fibrillation.

As you know atrial fibrillation is a condition that impacts more than six million people worldwide. Our confidence in our solution is based on our extensive scientific work in this area over many years and a significant number of complex cases already done, now translated into the highly successful cases that have been performed with our partnered irrigated catheter since its first use in Europe last week.

We continue to expect FDA approval for the irrigated catheter in the U.S. by year end. Importantly, no further questions have been received about the irrigated catheter from the FDA.

Our results for the third quarter reflected the delayed European launch of the irrigated catheter to the very last day of our earlier guidance and the lack of U.S. approval by the end of the period. These delays also make our ability to achieve our full year 2007 goals more challenging.

However, we continue to build momentum during there third quarter generating nearly 60% year-over-year revenue growth to $12 million. At the same time our disposable service and accessories revenue grew by more than 100%. Additionally, we set another backlog record at $58 million. In a few moments I'll review our sales pipeline which now stands at well over 600 institutions.

The successful treatment of atrial fibrillation is not a new concept to Stereotaxis. Using existing 4mm and 8mm magnetic ablation catheters, physicians around the world have completed more than 2,300 complex left-sided procedures with positive results and exemplary safety. However, both of these catheters have certain limitations with regard to the treatment of atrial fibrillation, and consequently many of our clinicians as well as the large number of our potential customers have been waiting patiently for our partnered magnetic irrigated catheter.

The first phase of the irrigated catheter launch began last week in Europe and the results thus far have been outstanding. The irrigated catheter is even softer at its tip than our other catheters and as a result is proving to be easier to navigate in hard to reach anatomy.

Additionally, Navaline offers the potential to raise the bar significantly in terms of procedure automation. Physicians can quickly plan their linear lesion safely on irrigated catheter image and then the computer navigates along the path and optimizes catheter contact. The path can then be stored and precisely repeated in order to retrace areas of interest.

The irrigated catheter was first used last week in San Raffaele Hospital in Milan by Professor Carlo Pappone who has a consulting and research arrangement with Stereotaxis. To quote Professor Pappone, "This magnetic irrigated catheter with the Stereotaxis system is fantastic. In each of the cases we've performed, electrograms were very clear and localized. We saw no significant far-field effects. Electrogram reduction during ablation was very fast, on average 10 to 15 seconds, and overall procedure time was significantly reduced from manual techniques. Its stability it exceptional even with the high motion of the left atrium, and it performs extremely well in the right inferior section of the left atrium, typically the most challenging anatomy to reach."

Professor Pappone guided the irrigated catheter with a Stereotaxis magnetic navigation system that featured Navaline. With Navaline, the system was able to guide the catheter along complex atrial anatomy defined in advance by Professor Pappone.

In one case Navaline guided the irrigated catheter to perform a left circumferential ablation navigating such complex areas as the appendage ridge, mitral isthmus, atrial roof and posterior wall entirely without manual intervention. The automated nature of the navigation also allowed Professor Pappone to verify the therapeutic result by accurately retracing the previously ablated pathways in the heart to verify isolation.

To further quote Professor Pappone, "This irrigated catheter is an extremely effective tool for performing AF ablations and combined with the Stereotaxis magnetic navigation system and Navaline, this is a singularly important advance in electrophysiology."

Professor Karl-Heinz Kuck of St. Georg Hospital in Hamburg who also has an advisory relationship with Stereotaxis is doing his first magnetic irrigated catheter cases this week and the irrigated catheter rollout will include our centers of excellence in Leipzig and Bordeaux next week and other centers in the weeks to come.

We believe that based on the very favorable initial irrigated catheter experience and also based on prior work done at a number of worldwide sites with non-irrigated catheters we will be able to find a new standard of care for the treatment of atrial fibrillation and to report on actual results at the 2008 Boston Atrial Fibrillation Conference.

As we understand it the current state-of-the-art both for competing technologies and for the manual treatment of paroxysmal atrial fibrillation without using a Stereotaxis system is a procedure time of over four hours for physicians with average experience, 50 minutes or more of X-ray fluoroscopy time, a complication rate of 1% or more for perforation and up to 7% for vascular complications, variable results depending on clinician experience and dexterity leading to a redo rate of over 30% and a long term success of about 65%; a very expensive array of devices and requirement for the clinician to wear lead throughout the long procedure.

This compares with the performance framework that Stereotaxis is pursuing in the near term with the irrigated catheter in Europe. Procedure time of less than 2.5 hours, enabling labs to schedule two to three AF cases a day, 10 minutes or less of X-ray fluoroscopy time, maintaining our exemplary safety record of 0.1% of major complications, greater than 95% acute success with proof of PV isolation, more predictable results leading to long term reduction of redo rates and therefore improved long term efficacy; significant reductions in device costs and other procedure costs, no requirements for physicians to wear lead.

Again, we expect to report on our progress in delivering on this promise by reporting the results from several sites at a special symposium at the Boston AF meeting and expect to be issuing invitations by the end of the month so that you can hear the results first-hand. We will then build on this initial data at HRS 2008 and beyond.

We currently to see a substantial increase in production output of irrigated catheters in 2008 so as to meet anticipated robust market demand. The increase in utilization of these catheters will be a very significant catalyst for order and revenue growth for Stereotaxis in 2008.

There are other important new building blocks to our platform, all contributing to make complex procedures easier and safer to perform and all expected to contribute to revenues in 2008. First I will update you on Odyssey.

Odyssey at its simplest is a powerful user interface that consolidates the multiple information sources and systems within a traditional electrophysiology lab into a single large screen with single mouse control. It has the potential to contribute significantly to procedure room simplification and work flow productivity and as such has elicited tremendous interest from our clinician customers and we have already issued over 100 bids to hospitals.

At over $200,000 each, this represents a healthy potential incremental component to revenue beginning with its commercial launch this month but principally impacting 2008 and beyond.

However, Odyssey is also a fully networked product which uses a private fiber optic connection provided through our partnership with Global Crossing, a worldwide telecommunications company, and it can connect multiple EP labs to one another and to our networked core service center in St. Louis for real-time education, clinical support and counsel during procedures.

We expect to provide and charge for network content over time. Our basic objective is to Odyssey to improve the physician-patient interface while uncluttering the cath lab and allowing for greater levels of clinical workflow and information management efficiency.

Another revenue building block that is additive to our platform is its potential to address additional markers for coronary and peripheral vascular applications. The expanded benefits and capabilities that the Stereotaxis system can bring to vascular navigation were readily apparent during demonstrations at the recent TCT Symposium. During the symposium the NIOBE system was used to perform three live percutaneous coronary and peripheral procedures including a coronary CTO.

Our system produced excellent patient results and demonstrated that Stereotaxis' 3D vessel roadmaps and distal tip control of magnetic guidewires can be employed very successfully in a variety of complex vascular interventions where crossing of an occlusion or stenosis is required for the delivery of therapy.

We have recently finished the development work on our cerebral RF guidewire as well as our Pegasus family of advanced coronary delivery guidewires and we expect to submit five 10Ks for these products to the FDA in the very near future. These will fuel additional revenue growth in 2008 and beyond.

We're confident that no one in our industry comes close to offering the clinician, the administrator and the patient the benefits that Stereotaxis does and we are enthusiastic about our prospects for substantial growth for 2008. The delays we have experienced in commercializing our partnered irrigated catheter have made achievement of our fourth quarter goals more challenging.

However it is important to note that we believe this is the only relevant factor behind this issue. Competitive systems remain a very minor factor in our current EP lab market, which has been waiting for Stereotaxis irrigated catheter AF solution. And they offer no capabilities in our emerging peripheral vascular and interventional cardiology markets.

We recently completed a review of our pipeline. At the end of October our mid to late stage accounts stood at 275 and we now have roughly 350 accounts in the early stages of development. These are healthy increases from when we talked to last in August. And the competitive impact on our mid to late stage pipeline remains as it did in August at about 1%.

In short, the distraction of the delayed irrigated catheter should be behind us fully by the second quarter of 2008 and we currently see no competitor threat to achieving substantial 2008 and beyond growth.

Now I will ask Jim Stolze to provide a more detailed discussion of the third quarter results. Jim?

Thank you, Bevil. Stereotaxis reported total revenue of $12 million in the third quarter compared with $7.6 million in the third quarter last year. Included in the total was systems revenue of $9.5 million in the recent third quarter compared with $6.4 million in the 2006 third quarter.

We sold nine systems during the quarter. Of these eight were placed in the U.S. and one was international. Our disposables service and accessories revenue was a record $2.5 million this quarter compared with $1.3 million last year, reflecting growth in the installed base and continued improvement in utilization.

The gross profit margin was $8 million in the third quarter or 67% of revenue. This compares with a gross profit margin last year of 52%. The year-over-year improvement reflects growth in the number of systems installed compared to a year ago, and increase in our average selling price of approximately 16%. An improvement in our average system costs of approximately 9% and an increase in contribution of disposables and royalty drive our recurring revenue totals.

Operating expenses in the third quarter were $18.7 million, 19% above the third quarter a year ago. The operating expenditure increases were principally due to increased sales and marketing expense as we expand to support the growth in our business as well as higher research and development expense. The higher R&D was the result of incremental spending for Odyssey platform improvement and device development.

We generated a net loss of $10.4 million or $0.29 per share. This compares with a net loss of $11.4 million or $0.34 per share in the 2006 third quarter.

In the recent third quarter average shares outstanding were 36.3 million compared with 33.5 million in the same period last year. The increase primarily reflects the issuance of 1.9 million shares of stock in a registered direct offering completed in March.

We used approximately $3 million in cash from operations during the quarter. The cash used in the third quarter is down significantly from the $16 million reported in the second quarter, reflecting approximately $5 million of international receivables which were uncollected at June 30 but collected during this third quarter.

Cash and investments at September 30, 2007 totaled $28.6 million. Total equipment debt at the end of the quarter was $2.2 million with no funds drawn against the company's $25 million working capital facility.

As Bevil has indicated, our backlog net of systems taken to revenue grew to $58 million currently from $55 million at the beginning of the quarter. As a reminder we do not include orders for disposable service or accessories in this data.

Now Bevil and I will happy to answer any of your questions. Operator? Hello?

Yes, thank you, sir. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS) One moment please for our first question.

And our first question comes from Tao Levy with Deutcshe Bank. Please go ahead.

Good morning.

Hi, Tao.

How are you doing? A couple questions. Congratulations on the first use of the irrigated catheter outside of the U.S. and I was wondering if maybe, you did touch on sort of the efficacy side of that. I was wondering if you'd also touch on the safety side, any issues there and how many times has Dr. Pappone now used the irrigated catheter?

I don't know because in terms of how many times he's used the catheter because he's done a substantial number of cases and is doing them daily so--

Okay, it's more than just one, then.

Oh, absolutely, a significant number of cases, material number of cases. I could get back to you on the exact number. But he's doing more than one case a day over a period of several days. Certainly more than ten.

Okay. And then on the safety side, again, we're not necessarily concerned but there's some questions surrounding the high power use or the use of a high powered irrigated catheter and what that could do when you have better contact and whether you'd have to dial down the energy being delivered?

Obviously that's why we're going through a phased release of our catheter because we want to make sure that we set the training and appropriate approaches to its use, but we've experienced so far 100% success rate and the performance of this catheter has been exemplary in every regard. And you'll note that I said there's a near term objective for Stereotaxis to maintain its existing safety record of 0.1% major complications, which is a 50-fold improvement over manual experience.

Great. And my last question on the U.S. approval, are you still maintaining a potentially by year end 07 and I was just wondering, in the past had you gotten additional questions from the FDA with regard to the 8mm and the 4mm and that's why without any questions from the FDA you're feeling that you might be able to hit this year end milestone?

I think in every instance we've had questions regarding our catheter submissions or rather our partnered catheter submissions. And we did have questions regarding the irrigated catheter, again, our partners had questions regarding our partnered irrigated catheter a few months ago, which were responded to. And normally with these types of questions they either fall into a category of being sort of easy or difficult to respond to. These were easy questions and also typically with these submissions, silence from the FDA is golden.

Okay, great. Thanks a lot.

Thank you.

Thank you. Our next question comes from Rick Wise from Bear, Stearns. Please go ahead.

Hi, good morning, guys. This is James Ballen who's filling in for Rick. The first question is more of a big picture. I'm trying to get an idea if we should be concerned with the overall economy's impact on hospital spending and kind of what's your expectation kind of here is and the impact likely going into 08?

In our view hospitals will continue to need to treat the patients and there are a very large number of untreated AF patients. Some say that the penetration of treatment of catheter-based interventional treatment for atrial fibrillation is only approaching about 1%. It is very expensive to treat these patients with alternative approaches and unsatisfactory.

So hospitals find that this is a pivotal area for growth. It's an area where in terms of overall ablations, they can be quite profitable and we expect that the ability of our system to reduce procedure times so that they can do more procedures a day will be very compelling in a march towards AF profitability.

Okay. And just one other question kind of more into the details on ASPs. I guess looking at year-over-year it looks like increase, but sequentially it looks like, if I'm calculating correctly, it might be down around $100,000 and just kind of what's owing to the decline quarter-over-quarter?

I didn't hear the first part of your question.

Sequential ASP.

Oh.

It's actually just about flat. I'll have to go in and dig up, James, and come back to you on that.

Okay, that would be great. I appreciate it.

Thank you. Your next question comes from Mimi Pham with HSBC. Please go ahead.

Hi, good morning.

Hi, Mimi.

Of your mid to late stage pipeline, are any of these hospitals waiting for the U.S. area to get approval before taking the final step such that we'd expect a bump up in the orders sometime in the first quarter of next year?

I think that, Mimi, it's fair to say that there is a certain amount of stickiness in mid- to late-stage pipeline and if we consider the irrigated catheter to be a lubricant, it could certainly overcome that stickiness. It's not that anyone is saying absolutely I won't take delivery or I won't place an order, but let's just say that we expect the impact of the irrigated catheter on our pipeline and on our backlog to be very substantial.

Okay, and then for the training involved, you're talking about that kind of rolling out the irrigated catheter. Does someone have to be there for the first handful of cases?

Typically yes and we have prepared for this irrigated catheter launch like no other launch in the history of our company. We have very substantial resources committed to seeing that every clinician is properly trained and has a very satisfactory experience with this device.

But in the U.S. would we expect the U.S. launch to be sort of gradual similar to what you're doing in Europe or--?

Less gradual than in Europe because we're not looking at performance criteria for the catheter but rather looking at training criteria for clinicians but indeed it will require some training time. But we would not expect this to be as gradual as in Europe.

Okay, thank you very much.

Thank you. Your next question comes from Charles Chon with Goldman Sachs. Please go ahead.

Good morning.

Hi.

Thank you for taking my questions. First of all, I guess focusing on system installations during the quarter, can you tell us a little bit more about the trends there considering there have been challenges in the second quarter where three system installations had slipped into third quarter, the number came in a little lighter than what we had been expecting. So seeing how there had been some challenges during the past two quarters in terms of system placements, can you share with us what is the basis of your confidence in achieving the implied fourth quarter guidance of $23 million to $25 million?

I didn't expect to--I didn't think that I implied confidence in fourth quarter guidance. I said the fourth quarter guidance is challenging. So please don't read any confidence into my earnings commentary.

We look at our pipeline backlog and revenue generation as a continuum. And we track progress through the pipeline; we track evolution into backlog and we track our backlog into revenues. There is a component that can accelerate all of this and these are orders for immediate shipment, to distributors or to customers who are anxious to get the product right away.

And it is this component of our business that has become stickier. In other words, there's no rush to get a system if the principle use of that system is to be a treatment of atrial fibrillation with the irrigated catheter. This is the stickiness that I referred to.

However, given what we believe to be truly outstanding performance for this catheter and what we expect to be very, very favorable reviews of its performance by most of the top thought leaders in Europe at Boston AF, we expect that this stickiness will rapidly be overcome.

Okay. If I may ask a followup to the fourth quarter revenue outlook, what needs to happen to achieve the original goals for 2007 revenue guidance? And maybe you could speak to, is there going to be a significant contribution from the Odyssey system and how many system sales are you banking on for the fourth quarter there?

Well, I don't want to make specific predictions for the fourth quarter because I simply don't know yet what the outcome will be as each of our quarters tens to be backend loaded. However, I can talk to the overall behavior of our sales processes last year at a similar time.

Our achievement of fourth quarter results last year was a mix of conversion of backlog to revenues and a fairly substantial number of new orders for immediate shipment. It is the latter category, the new orders for immediate shipment, which are not driving our revenues as fast this year, proportionately as they did last year.

With regard to the contribution from Odyssey, Odyssey we believe will make a significant contribution to revenues in 2008 and we have already put out more than 100 quotes to hospitals that are interested in acquiring Odyssey. However, Odyssey is only being commercially launched in the U.S. this month so it's unlikely to make a significant impression on our 2007 results. I would be optimistic about Odyssey in 2008 but regard the contribution in 2007 as relatively minor, but it will be a contribution.

Great. And just one final question on selling and marketing expenses during the quarter. It came in a fair amount higher than what we had been expecting. Jim, should this be the new level of quarterly spend going forward?

Sales and marketing probably have a small (inaudible) in the current quarter but you're near the baseline spend in sales and marketing, yes.

Okay, great. Thank you very much.

Thank you. Your next question comes from Keay Nakae with Collins Stewart. Please go ahead.

Yes, good morning.

Hi.

Bevil, can you give us an idea of how many centers or doctors or J&J and yourself are going to be targeting in the initial launch of the irrigated catheter in Europe?

We believe the number to be approximately nine or ten so that when we report at the Boston AFIB Conference, hopefully we will have a significant proportion of those sites reporting.

And can you give us a little more color on what exactly we're going to see at this presentation? I mean, obviously you'll talk about early experience but any color there would be helpful.

Well, the critical issue in the treatment of atrial fibrillation in Europe using a system like ours is not so much the navigability of the catheter because our catheters navigate extraordinarily well and safely. But the ability of the catheters to achieve complete block, in other words for completely transmural lesions to be achieved in short order, meaning in a timely fashion, throughout the left atria and it is this component of our irrigated catheter in addition to its maneuverability that we think will define its success.

I mean after all, if you can provide a system that can map automatically, that can drive a linear pathway automatically, that can knock down the potentials or achieve transmural lesions reliably, let's say at better than 95%, close to 100% acute success rate, this is a solution that is going to be very successful.

And it doesn't take a long time to be able to gauge these acute results. Obviously followup and long term outcomes are important but so are acute results. And the reality is that manually, with traditional approaches, these acute results are not that great in terms of time and complexity. If we can resolve these issues it will become readily apparent at the Boston AFIB Conference. In fact, it is already readily apparent to us. We believe we have a winner on our hands.

And Bevil, based on your description from Pappone, it sounds like he's doing more than just isolating the pulmonary veins, like perhaps approaching a Cox maze 3. Can you confirm that or what's your understanding?

He's doing his typical approach, which is not just pulmonary vein isolation, although he is doing that and he's using a lasso catheter which he doesn't usually use to verify the results. But we have noted an ability to perform our standard--his standard procedure, excuse me, which involves fairly lesion set extremely successfully.

Okay, and finally, in Europe is your expectation that these nine to ten docs are going to be using Navaline consistently with these procedures as well?

Most of them yes but each center has its own approach to doing atrial fibrillation and for example Professor Haissaguerre in Bordeaux typically doesn't use three-dimensional approaches but addresses atrial fibrillation in a way that is unique to his center. The beauty of the Stereotaxis system is that it doesn't impose a particular protocol on clinicians. It can be adapted to individual preferences.

And I just want to go back to something I said earlier about Professor Pappone and the lasso. I may have misstated there. His tendency is to use a virtual lasso, meaning the ability to retrace his steps using our system to verify a block, n necessarily a real lasso.

Okay. Well, very good. We'll look forward to that meeting and obviously an important milestone for you.

Absolutely.

Thank you and our next question comes from Ed Shenkan with Needham and Company. Please go ahead.

Thanks, Bevil. Wondering if you could--

Hi Ed.

Hi. Wonder if you could walk us through some pricing expectations for this CTO catheter when that comes and what could we expect?

We haven't set pricing for the RF guidewire, which is our peripheral CTO solution but when that device is commercialized let's say at the midpoint or slightly beyond next year, we would expect the retail price of this device to be linked to the value it brings to the procedure, in other words, the ability to avoid surgical treatment and this might be on the order of $2,000.

You said mid 08 is when you would like to commercialize it. Is that in the U.S. or is that Europe and just give us both sides of the globe.

We would expect it to be both. This is not an overly complex regulatory pathway given that it's a 510K approach for peripheral use.

Okay and we've recently surveyed 39 physicians and we found the number one reason that the docs are so interested in this robotic technology is they want to be outside the radiation field and they want to avoid the workplace injuries, which are very common in the lab. You talked about fluoroscopy reductions, which is certainly very advantageous for the patient as well as reduced procedure times. Is that data going to be published and is it important to be published to increase adoption?

I think that's a very relevant question. First of all Stereotaxis, as a reminder, removes the clinician entirely from the X-ray field and the clinician does the procedure from the control room. This contrasts with our competition. As we've noted, our competition is doing procedures in the lab itself because their control unit is typically too large to place in the control room. Consequently clinicians are exposed to radiation and have to wear lead throughout the procedure. We see this as a significant problem for the competition.

But more importantly is exposure to patients. Stereotaxis already has done several hundred cases where we have demonstrated the ability to treat atrial fibrillation successfully and I mean by successfully I mean acute success rates on the order of 93% or better, and this is published data, with X-ray fluoro-times around ten minutes or less.

Manual approaches and our competition have demonstrated around 50 to 60 minutes of radiation time or more. We believe that this is a very, very compelling advantage to our system.

So do you expect also to do some studies to show that complication rates are diminished when you're using the robotics? That would be extremely compelling I would think.

The answer is yes. However, the complications are reportable, at least they should be. And we are very careful to report all our complications. And anyone who wants to verify our complications can simply refer to the FDA website set up for that purpose. We assume that other companies are also reporting complications and likewise for manual cases, so this data is readily available.

But we are also creating a safety registry which we hope we will be able to publicize at an appropriate time in the future.

And the reduction procedure time, could you give that again and then give parameters, is that afib only or give any more details around the reduction procedure time.

I'm talking here about paroxysmal atrial fibrillation, not chronic or persistent. Chronic or persistent is harder to treat and we believe that Stereotaxis has some very, very strong solutions in that area but just confining ourselves to paroxysmal atrial fibrillation, the problem is that most clinicians do not have a tremendous amount of experience in treating afib because they don't do many cases.

Consequently, depending on their manual skill set, their experience level, they get variable results. This is a problem for the treatment of paroxysmal atrial fibrillation and it results in cases that are very long, typically more than four hours.

If you have a case that lasts longer than four hours, you're only going to do one a day. Again, we have published data to say that we're doing cases without the irrigated catheter in nearly half that time. But with the irrigated catheter things will go much faster because the irrigated catheter can ablate much faster than the non-irrigated devices.

So we expect to be able to deliver very substantial reductions in case times and again this is comparable to competition and manual, which are hovering at four hours or above. We expect to be able to do cases in roughly half that time. We have published data that points to this already.

Thanks, Bevil.

Thank you.

Thank you. Your next question comes from Charley Jones with Barrington Research. Please go ahead.

Good morning. Thank you for taking my questions.

Hi Charley.

I was wondering if you could talk a little bit more about lead times. Are they improving, Bevil, and do you expect them to improve much in 2008? Do you have any visibility there?

The lead times--

The order times that you guys have?

No, we are not seeing an improvement in order lead times from our historic experience and we don't expect this to change substantially. The way we generate more orders is by having a larger backlog and a larger pipeline and obviously a willingness or desire on the part of clinicians who are the principle drivers for adoption to take delivery sooner rather than later.

Over time we expect that the impact of irrigated catheter will as I said earlier act as a lubricant to our pipeline and backlog but we're not looking for substantial reductions in lead times.

Thank you and could you give us a little bit more detail about the timing of your CTO launch? Do you have any more visibility there?

Well, we expect to file 510K very shortly and we expect our CTO solution therefore in the periphery, peripheral vascular to be commercialized by mid 2008, probably in the third quarter.

I wanted to make sure I understood from your comments about Navaline. Does the physician follow Navaline to automated ablation line with a manual catheter basically right behind it improving time or do they wait until the ablation is done and then they use your catheter to do that?

There is no manual catheter involved in our atrial fibrillation cases in Europe. The Navaline is a designated linear lesion which the clinician draws on a Cartomap. Our ablation catheter then follows that line automatically and the clinician just has to apply energy to ablate. Obviously the system doesn't treat. The clinician treats but the system defines the pathway with instruction from the clinician and then drives the pathway, allowing the clinician with our ablation catheter to deliver therapy.

And I was actually talking about the verification of that you have a transmural lesion.

Oh, there are two ways to achieve this. One would be to use the lasso catheter, which some clinicians like Professor Haissaguerre do, and the other approach is to then tell our catheter to retrace its steps, reading the potentials along the way. Because our system is automated, it can redial so it is relatively simple and this has been done on a number of occasions very successfully by Professor Pappone. Our system retraces its steps reading the potentials and identifying any gaps. We call this virtual lasso.

All right, thank you. Will the U.S. launch of [Thermaquil] be as measured as Europe has been or will it likely be much faster and how many physicians do you think you'll initially train--need to be trained in Q1 or Q2?

First of all, all of our clinicians who are using the power system today in the U.S., and we've done many thousands of cases, have been trained so they know how to use the system. They don't necessarily have the various elements of irrigated catheter usage in mind so this would require a relatively short amount of retraining. Consequently, we expect the launch of the irrigated catheter in the U.S. to proceed much faster than in Europe.

In Europe we're looking at catheter performance and other attributes of the cases, not just training clinicians to treat patients. In the U.S. we expect it to be much more straightforward, much faster. But of course there are more clinicians in the United States involved and more sites involved than in Europe but I would remind everyone that we have well over 30 clinical support staff for this purpose.

So is it fair to say you could train the current installed base in approximately a quarter once it's launched, not train but just help them with the new attributes of the Thermaquil system?

I think we can get most of our installed base up and running in a quarter but I would prefer to say two quarters as being reasonable.

All right. I think that's it. Thank you very much. Congratulations.

Thank you.

Thank you. Our next question comes from Ray Tang with eTech Advisers. Please go ahead.

Good morning, Bevil.

Hi, Ray.

My first question is--first two questions have to do with Navaline. Is it, by your comments, you implied that it's going to be only used with the irrigated catheter? Can it be used with other catheters?

It can be used with any localized catheter, meaning any catheter that has positional feedback using a Carto system, so any catheter will work with Navaline.

Okay and are there any manufacturing issues right now with the irrigated catheter?

We don't think that manufacturing will be an issue in the rollout of our irrigated catheter in the United States or in Europe.

Okay and at the TCT there is some pretty impressive results on the alcohol septal ablation using your system. And I was wondering if that--if you're going to pursue that further with some centers and how big the market is going to be if that proves successful?

We're pursuing a number of what we consider to be very elegant solutions outside of the electrophysiology in interventional cardiology and peripheral radiology. These would include what you've just referred to, also addressing CTOs. We're beginning some interesting work in structural heart repair, valve repair, although I doubt it will involve or need to involve acquisition in that area.

And through partnerships and collaborative effort in all of these very, very interesting and promising areas, we expect to reach a critical mass of interest by interventional cardiologists so as to trigger acquisition of our systems. There has to be enough there to make them want to spend on acquiring a system and we think that we will approach that critical mass by the second half of next year.

Okay and on RF guidewire, when will you release, I assume it's under testing already by clinicians, when will the data be released on that?

Because we are doing a (inaudible) we don't expect this to involve human clinical studies and consequently the first use of this system will be when it is approved and that should be by the midpoint of the year. But we expect to generate a result very shortly thereafter, but this would be post-market studies.

Okay. That's all I have. Thanks a lot.

Thank you.

Thank you. Our next question comes from Larry Haimovitch with HMTC. Please go ahead.

Good morning, Bevil.

Hi.

I wanted to ask a couple of questions. One is when you look at the cases Dr. Pappone's doing so far, do you--it would seem like most of these would be of the paroxysmal variety, evasive. I would assume he's not doing any chronic or persistent?

He is. He's doing persistent cases as well.

When his data is reported, do you think we'll see a breakdown of the results by different types of afib category or will it be all lumped together as one group?

No, they'll be broken down. He's done chronic, persistent, paroxysmal. He doesn't shy away from difficult cases and we think that the more complicated cases will really illustrate the advantages of our system.

Do you think in the U.S. we'll see that too, we'll see physicians doing all types of cases, not only paroxysmal which obviously are the easiest for catheter ablation?

Yes. I think this is particularly so because for example we've seen a tremendous amount of work done in VT using the Stereotaxis system in the U.S. and in some sites Stereotaxis is already standard of care for VT ablations. This is not a huge, huge application but it points to the desire for clinicians to expand the range of their practice by undertaking more complex cases using our system and we don't doubt that our system will become a standard of care for the treatment of persistent and chronic afib.

Great, and the second question is in the competitive environment, where you're winning in hospitals versus Hansen, what are the features that you think are most attractive to the hospitals? And in cases where you think you may have lost a sale, what would you think would be their competitive advantage over you?

Well, of course it depends on who we're talking to at the hospitals. From the clinicians' standpoint they Hansen publicized live cases and they see four hour procedures with massive amounts of radiation and it's a, we'll call this initial clinical data that is not very compelling. They also obviously are concerned about safety first and foremost.

From the hospitals' perspective they're interest tends to center on economics and most hospitals look at the lifetime ownership and operating costs of a system and when you (inaudible) in the use of a Hansen sheath, which adds $1,600 or so to the case plus the requirement to use ultrasound, which then adds maybe another $1,000 to the case, plus the requirement to use lasso catheters, which can then add another $1,000 to the case, it doesn't take a lot of arithmetic to figure out that it's a losing proposition.

Of course we're not experts on our competition and all of this information is to the best of our belief. But we think that this is why we have seen an impact by the competition on our mid to late stage pipeline of no more than 1% in spite of the fact that they have had access to the irrigated catheter for several months.

Great. Thank you very much.

Thank you. (OPERATOR INSTRUCTIONS) Okay our next question comes from the line of Vivian Wohl with Federated Kaufman Funds. Please go ahead.

Hi Bevil. I'm wondering if at this point in the United States most of the hospitals are doing atrial fibrillation cases with one of the catheters that are available today on your system or are some still waiting for the irrigated catheter to be launched?

Vivian, I think there's a very definite dichotomy between certain clinicians who are very comfortable with doing atrial fibrillation cases on a worldwide basis. I don't want to talk to the United States because in the United States atrial fibrillation is not a labeled procedure and we do not have regulatory approval to treat atrial fibrillation in the United States.

But talking on a worldwide basis, there are a number of clinicians who are very comfortable in using our 4mm and 8mm catheters and are getting excellent results. For example, we recently published a report by--I mean we recently reported on a publication, excuse me, by Dr. Chen in Copenhagen which pointed to some very favorable results using these non-irrigated catheters.

However, there is a different group of clinicians who are very definitely waiting for the irrigated catheter and will not do complex cases without it.

So is the majority do you think waiting or not waiting?

I think the majority is waiting. I think there's no question that if you look at our 11,000 or so cases that we've done so far with our system, you just look at the distribution of those cases, there are only 2,300 cases or so that could be defined as complex left-sided cases and this I think illustrates the fact that the vast majority of our clinicians who have acquired systems have done so in anticipation of treating atrial fibrillation and that's why we are confident that with the release of the irrigated catheter we will see a dramatic upswing in usage rates worldwide and also in the lubricity of our pipeline.

So do you want to give us any thoughts on next year, what that might do for total procedures done?

Vivian--

--give us a wild range?

Well, if we look at our current procedure rates, which are not bad when compared with comparable equipment; I won't go into specifics but our current procedures rates on a weekly basis per site or per trained site are not bad. We expect those procedure rates to increase substantially, perhaps double, perhaps triple, and this will occur over the next year or two.

So we see the irrigated catheter as a transformative device for Stereotaxis. It's what the world has been waiting for. If you put the catheter in the context of the system that can safely deliver it and provide tremendously stable and safe contact, you have a winning proposition and we believe we're going to deliver that. So we feel very good about 2008 in terms of utilization rates and impact on clinicians who have been waiting patiently for this device.

Well then the AFIB meeting next year should be an exciting place to be.

I think that you won't want to miss either the HRS or Boston AFIB. Obviously it will take time to generate outcomes data but we intend to do so. But the initial reports we trust will be very favorable.

Thanks.

Thank you.

Thank you. Our next question comes from Dr. Paul Goldberg with Abacus Asset Management. Please go ahead.

Good morning. Thank you for taking my call.

Hi.

Just a couple of questions. In reference to your current machine with the structural room that might be required, etcetera, is there any consideration because of the size and what has to be designed for an existing hospital to have this machine? Is there anything in the works where there might be a reduction in the size of the magnetic components or in the installation or in the structural rechanging of the rooms or will this machine--is this a machine that's going to go forward that you currently have?

I think that there are two ways to look at an answer to that and I have to be careful here because I need to talk about the here and now and the real, because that's what our customers want from us, not promises or conjectures but reality.

And the reality is that our current system can be installed in most hospitals in most installations and it is going to be available for some time to come. And anyone who is planning on approaching computer-aided treatment of complex arrhythmias should think in terms of our NIOBE system.

That being said, we are obviously doing research and there are some very, very compelling and promising approaches that we will be pursuing over time.

Okay. My next question is you're stating or Dr. Chen a number of studies in Europe, you're stating a complication rate of zero. I'm not sure which study it came from, but generally in the United States, again most of them have been either manually, manual procedures, etcetera. It's more in the range of say a 3% complication rate of major complications. This seems like a tremendous difference in the complication rate that we're seeing from your studies in Europe.

Is there any explanations that you have in reference to that or any particular reasons or is that just--is that number correct that the complication rate, unless I read it wrong, that it is--is it truly zero?

Well first of all the complication rate that we have reported is 0.1% on 2,000 complex cases.

Right.

That complication rate really looks at perforations and major vascular injury. If we look at the totality of 10,000 cases done, our complication rate, our reportable complication rate is much lower. However, in part, this is because we have not been using high energy catheters like the irrigated catheter in 8mm. Nonetheless, we do have several hundred 8mm cases that have been done and the complication rate is still, even for these devices, extraordinarily low.

So in part it's because of the types of catheters that we've been using but I think the principle reason is that our catheters are very soft, very flexible and not very prone to perforation. The way any catheter can perforate is by burning its way through but setting that aside and assuming that settings and calibration of the system is done with an appropriate norms, our system ought to be extremely safe.

Okay, thank you. Could I ask one or two further questions? Is there a time when we could expect more of head-to-head study or is there one going on versus manual procedures versus a robotic with perhaps a real end time, not an acute success rate, which is in this condition. I mean it's relevant but not totally relevant for the patient in the long run, maybe an endpoint of a year or year and a half where we can have a direct head-to-head study or will this never happen or are you carrying these types of studies out--are these being done at this point in time, whether in the United States or Europe?

These studies are being done at individual sites but we will launch a significant study in this arena in 2008. This is an outcomes study and we are very confident that the attributes of our system will prevail in a long-term outcomes study.

However, in terms of acute results, what is significant for hospitals and clinicians is reducing case times in half, reducing radiation by a factor of five and these are near-term results that we're looking at.

Right. Now, as far as the acute type success rate, which has been phenomenal, that--is there any information in reference to the number of procedures in PAF that are let's say at this point being required for complete control or what degree of control, what percent of control as compared to also the use of additional drugs as--many studies have shown that you need at least two procedures in order to accomplish even an 80% success rate.

What I said earlier was that the typical redo rate for manual procedures is about 30% and a typical long-term success rate for manual procedures in the hands of average operators is about 65%. And I'm not qualified to talk about these medical endpoints particularly where drugs are involved.

Okay. I appreciate it and thank you very much and congratulations.

Thank you.

Thank you and presenters, there are no further questions at this time.

Is that an invitation for my closing comments?

Yes, please.

Okay, well I'd like to thank everyone and I'd also like to note that this evening the Public Broadcasting System's show, The Nightly Business Report, is expected to devote its Bill of Health segment to the Stereotaxis system. I'm advised the show airs at different times throughout the country and these things are always unpredictable because we don't control them, but I thought I would mention that to you.

Thank you all for your time and attention.

Thank you. Ladies and gentlemen, this concludes the Stereotaxis third quarter 2007 results conference call. If you would like to listen to the replay of today's conference, please dial 1-800-405-2236 and enter the access code 11098126. International participants may dial +1-303-590-3030.

Those numbers again are 1-800-405-2236 or 303-590-3000, access code 11098126.

Thank you for your participation and have a great day.