Stereotaxis Inc (STXS) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Stereotaxis third-quarter 2008 earnings conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Thursday, November 6, 2008.

I'd now like to turn the conference over to Doug Sherk. Please go ahead, sir.

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 2008.

Before we get started, we would 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 limitation statements regarding operating results for calendar 2008 and 2009, 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 the 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 with the SEC, specifically the Form 10-K for the fiscal year ended December 31, 2007.

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.

Finally, during today's question-and-answer session, we would like to ask each participant to limit themselves to two questions and then requeue you if you have additional questions. In advance, we thank you for your cooperation with this process.

Now, I'd like to turn the call over to Bevil Hogg, Chief Executive Officer of Stereotaxis.

Thank you, Doug, and good morning, everyone.

On the call with me this morning is Jim Stolze, our CFO, and Mike Kaminski. Mike is currently our President and Chief Operating Officer, and I'm pleased to report he will be replacing me as Chief Executive Officer effective January 1 as part of a carefully planned leadership transition at Stereotaxis which I will speak more about during my closing comments at the end of this call.

There has been considerable discussion in the media of late about the impact of external events on hospital capital expenditures. I'd like to open this morning by addressing this concern.

Clearly, many segments of hospital capital expenditure budgets have been impacted by what's happening to the credit markets. However, several indicators illustrate the relative robustness of the electrophysiology labs capital equipment budget. Specifically, the major device companies in this domain have reported very strong growth in the AF components of their businesses, and our imaging partners continue to see the electrophysiology segment as a focus for hospital capital expenditures.

Our own experience year-to-date, despite the withdrawal of the all-important magnetic irrigated catheter, has showed continued interest in NIOBE systems and growth in our backlog. All of the above continues to indicate that the EP lab's capital equipment budget remains a key focus of hospital investment programs. Within this market environment, Stereotaxis is building on the value we bring to our hospital customer base, and we expect our momentum to accelerate with the return of the irrigated catheter.

The ability to treat a good portion of the world's 6 million cases of atrial fibrillation with EP Lab-based technologies is in its nascent stages. There is broad agreement that this market segment is likely to double over the next five to seven years, especially as technologies are cleared for specific AF treatment labeling by the FDA. Therefore, hospitals are likely to continue to spend on capital equipment to address this market opportunity, particularly on those technologies that can provide higher patient safety, better outcomes, and greater efficiency.

Within this positive environment for EP capital equipment spending, we haven't placed nearly all of the building blocks for accelerated growth and profitability. Clinician interest in our solutions remains very high. Our margins are good, our backlog is growing, our operating expenses are down, and our recurring revenue continues to expand strongly.

The capstone remaining to be set in place is the magnetic irrigated catheter. As we speak to you today, we expect the irrigated catheter to be launched very shortly in Europe, where its evaluation has, we believe, been a resounding success. I should note that utilization rates at the nine participating evaluation centers have increased significantly.

We continue to believe that the irrigated catheter will be launched in the US shortly after the European launch. When that development occurs, all of the necessary building blocks will be in place to achieve a point of inflection for Stereotaxis in terms of systems placements and recurring revenues, and ultimately profitability.

Finally, before I turn the call over to Mike, I am pleased to note that we have reached agreement with our principal bench capital investors to extend their $20 million commitment made earlier this year by at least another year into 2010. This commitment further underlines the confidence of our largest -- of our longest-standing investors in the ultimate success of Stereotaxis and provides us with the financial flexibility to execute our plan through 2009.

Now, for a review of our third-quarter progress, I'd like to turn the call over to Mike.

Thank you, Bevil, and good morning, everybody. Bevil, I appreciate your leadership and support over the past several years, and I look forward to continuing to work with you as we move Stereotaxis towards realizing its full potential.

Revenue in the third quarter was $10.6 million and was highlighted by a record $3.2 million in recurring revenue. We recognized revenue from six NIOBE systems during the quarter and shipped, transferred title and invoiced customers for an additional three systems that are reflective in the deferred revenue line of our balance sheet. We anticipate that the approximate $3 million in deferred revenue from these three NIOBE systems will be recognized in the upcoming months.

New capital orders and commitments for the quarter were approximately $13 million, reflecting solid market interest and demand. US NIOBE orders were below our expectations and continue to be challenged by the lack of magnetic irrigated availability and reference site development. However, European order growth has been especially strong during 2008 as NIOBE orders have doubled, up 100% from the same period in 2007.

An example of our increasing momentum in Europe recently occurred in Germany, where we received an order by a hospital system in that country for their fourth NIOBE system. We believe our order growth in Europe is being fueled by the very favorable first clinician use of the magnetic irrigated catheter in late 2007 and reflects the strength of our value proposition to the EP Lab with availability of the magnetic catheter and access to reference sites. As soon as these components are available in the US, we would expect a similar upturn in momentum.

Our backlog ending September 30 is $75 million, which includes both NIOBE and ODYSSEY systems. Our backlog grew 4% from June 30 and is up 29% as compared to September 30, 2007.

We canceled one NIOBE system order during the quarter, due to the customer not receiving Certificate of Need approval for the EP Lab renovation project. However, that same customer is now in the initial phases of the new building project and still plans to install our system in approximately two years.

We booked our first ODYSSEY Cinema order and continue to grow the number of ODYSSEYs sold outside of NIOBE labs. This exciting new platform, built around data integration, storage and distribution, has seen strong market interest and we anticipate will lead to significant growth in 2009 and beyond.

Year-to-date, we've received 34 orders for ODYSSEY systems at an average price of approximately $200,000 each, exceeding our expectations. The strong demand for Odyssey in the US, the continued mid-stage strength of our US sales pipeline, and the strength of NIOBE orders in Europe all combine to lead us to conclude that accelerating NIOBE US sales is going to be largely dependent on demonstrating the value of the ThermaCool to our customers and prospects.

While orders for the NIOBE and ODYSSEY systems are continuing to demonstrate strong market demand, it is the clinical utilization that is the key to sustainable long-term growth. Our third-quarter recurring revenues set a new company record at $3.2 million and resulted from a combination of disposable sales and increases in service and software fees associated with the growth of the installed base.

The magnetic irrigated European evaluation had minimal impact on Q3 financials, due to the controlled volume in the mid-September limited release. However, at the nine centers that participated in the evaluation, utilization significantly increased.

Our partner has completed patient enrollment for the evaluation, which took place at these nine sites, eight in Europe and one in Canada. Combined, 92 cases were performed at these sites with extremely positive results. Some of the highlights include the catheter met or exceeded all of the clinical endpoints established by our partner; the safety profile of the magnetic platform continues to be exemplary; mapping and ablation time for AF patients improved approximately 20% versus documented manual times; the x-ray time for physicians was minimal, and for the patient, 30% below manual times. One site averaged three minutes of total (inaudible) time for AF patients in the study.

Importantly, we have now completed 358 magnetic irrigated cases from the two European evaluations. Approximately 75% of the 358 cases treated patients with a-fib. These patients were evenly split between those having paroxysmal and those having persistent a-fib, which have historically been much more difficult to treat.

What is particularly exciting is that, in the 12 month follow-up data for patients treated with the magnetic irrigated catheter during late 2007, evaluations are showing very promising chronic results. These results may be published in time for the Boston AF or at the latest [HRS] 2009.

With these extremely positive results from the external evaluation in hand, our partner is in process of releasing the magnetic irrigated catheter in the US -- or in the EU, I'm sorry. In the US, the magnetic irrigated catheter is on track for what appears to be a normal review process, and we are hopeful for clearance within a short period of time after the European launch. The product rollout in the US will occur shortly after the clearance, since our partner has informed us that US evaluation is not required due to the extensive testing they have completed in Europe. We are confident that the launch of the magnetic irrigated in Europe, and shortly thereafter in the US, coupled with the continued use of the NIOBE system for right-sided and left-sided cases, should position us well to reach our goal of becoming a standard of care for EP oblations.

I'd like to now turn and spend a moment updating you on NIOBE clinical results generated from vascular applications. The vascular market opportunity for NIOBE is the delivery of therapy in torturous vessels.

In cardiology, we've had several cases where a system enabled patients to have an interventional procedure after they failed a manual approach. Most recently, this capability was highlighted in a press release featuring a pulmonary atresia patient in Germany who failed several manual interventions and was successfully treated with the NIOBE system. With the recent regulatory clearance and first commercial use of the RF wire, we are expanding our capabilities to address the challenges of crossing chronic lesions in peripheral applications.

In our first case using the RF wire, the NIOBE system demonstrated early success in crossing fibrous [cats] and providing inter-lesion steering, both of which are fundamental to safe and effective crossing of peripheral CTOs. While we are very optimistic about the market opportunity, we are taking a very measured approach to investments in vascular and other interventional cardiology markets until we are more broadly penetrated in the EP Lab opportunity.

I'd like to now focus on a few of the financial highlights for the quarter, which Jim will review in much more detail in a few moments. Overall verse margin for the quarter was 66%. We generated 58% gross margins from the sale of capital products and 83% gross margins from recurring revenue.

Increased utilization with the availability of the magnetic irrigated and the substantial royalties we will see from this catheter should continue to strengthen our gross margins in the future. Once the magnetic irrigated is introduced and in combination with the CARDIODRIVE product, we believe our overall revenue per procedure will approach our goal of $1000. This goal includes revenue generated for EP procedures performed on the left side of the heart as well as the right.

Operating expenses for the quarter were $16.1 million or $2.6 million below the same period last year. Sales and marketing personnel expenses for the quarter were up year-over-year, but total expenditures were down. We are mindful of the need to be prudent with our expenditures and have generated savings from several areas.

First is the more efficient delivery of clinical case support. We are focusing our field support on driving adoption through more focused support at each account, leading to more efficient travel and lower support costs per case. Secondly, we are leveraging our ODYSSEY network to provide a virtual presence for customers where real-time support when the clinical specialist is not present. Third, we have focused our marketing investments in programs that have proven to have the most impact on driving market awareness and topline revenues.

R&D is down year-over-year. The decline has primarily been driven by focusing our new product developments on those innovations with the highest value. We are on schedule to release eight new products between the third quarter of 2008 and the end of the first half of 2009. Among those products being introduced are a new user interface that simplifies use of the NIOBE for both right-side and left-sided cases, four new disposable devices, including a new catheter advancer, and three ODYSSEY product line extensions. These new products will enable us to expand our applications for the platform, increase revenue per case, and expand our ODYSSEY platform outside of NIOBE labs.

Finally, we have conducted a detailed review of our revenue and cost projections and have developed a plan to achieve breakeven. We are planning on providing our thoughts on revenue and cost guidance following the achievement of the US launch of the magnetic irrigated catheter.

In closing, I am honored to be leading this highly skilled and motivated team. We've collectively put in place the building blocks for the Company to accelerate growth. These building blocks include many of the new product releases, such as the magnetic irrigated catheter and the ODYSSEY system, the growing level of revenue per procedure, the increased market, and the prudent control of our fixed cost structure.

At this time, I'd like to turn the call over to Jim Stolze to review our financial performance in more detail.

Thank you, Mike.

Stereotaxis reported total revenue of $10.6 million in the third quarter, a decrease of 12% compared with $12 million in the third quarter last year, about roughly flat with the $10.7 million in revenue in the second quarter. Total revenue included the $7.4 million generated from sales of our systems with five NIOBE systems recognized in the US and one in Europe, as well as four ODYSSEY systems recognized this quarter.

During the third quarter, we also shipped and invoiced three additional NIOBE systems which were not recognized in revenue under our current accounting policy, thereby adding approximately $3 million to run a deferred revenue count. We expect to recognize the deferred revenue from these systems in the coming months.

We generated $3.2 million in revenue from disposable services and accessories. This compares with $2.5 million recognized in the third quarter of 2007 and $2.8 million in the recent second quarter. The increase continues to reflect the growing installed base of our systems and consistent utilization across a broad range of applications.

Year-to-date 2008 revenue was $28.2 million compared with $29 million in 2007. Year-to-date revenue includes 18 NIOBE and 10 ODYSSEY system sales, not including the 3 systems reflected in deferred revenue, compared to 20 systems sold in the comparable period of 2007.

Backlog during the third quarter reached a record $75 million. As a reminder, there can be no assurance that the Company will recognize revenue related to its purchase orders and other commitments in any particular period, or at all, because some of these purchase orders and other commitments are subject to contingencies that are outside of the Company's control. In addition, these orders and commitments may be revised, modified or canceled, either by their expressed terms, as a result of negotiations, or by project changes or delays.

Gross margin for the quarter was $6.9 million or 66% of revenue, compared to $8 million or 67% of revenue in the same 2007 quarter. Our average selling price for the NIOBE system and ODYSSEY product remain at historic levels, with the margins for each of these two product lines at approximately 58% for the quarter, while recurring revenue margins remain in excess of 80%.

Operating expenses in the third quarter totaled $16.1 million, a 14% decline from the $18.7 million reported both for the third quarter of 2007 as well as the second quarter of 2008.

The second-quarter 2008 expense included $1.1 million related to the remediation issue with the irrigated catheter. Excluding this spending, this year's second-quarter expenses were $17.6 million. On this basis, third-quarter operating expenses declined to $1.5 million or 8% sequentially. This is the lowest level of operating expenses since the fourth quarter of 2006, and we are very much on track to achieve our target of reducing 2008 operating expenses to levels significantly below 2007.

We expect to see continued year-over-year reduction in operating expenses in the fourth quarter and are targeting total expenses to approximate those of this third quarter. This has been an important initiative of the Company and has resulted in improved leverage as we prepare our plan for 2009 and beyond and move the Company to realize the potential for profitability.

We reported a net loss of $10.1 million in the quarter or $0.28 per share. This compares with a net loss of $10.4 million or $0.29 per share in the prior year's third quarter. Average shares outstanding were 36.6 million compared with 36.3 million in the same period last year.

Net loss year-to-date 2008 was $36.4 million, or $1.00 per share, compared to $35.9 million or $1.01 per share in the 2007 period.

We ended the quarter with cash and investments of $19.8 million. Total bank and investor debt at the end of September was $18.5 million, with $14 million drawn against a $20 million commitment received from two insiders in February this year and approximately $15 million of amounts owed to Biosense Webster reflected as debt.

We used approximately $5.5 million of cash in operations in the third quarter, an improvement from the $7 million used in the second quarter and a significant step in the right direction compared to the $12 million used in the first quarter. We are pleased to report we've reached an agreement with the inside investors to extend their $20 million loan commitment into 2010, and that we are in negotiations with our bank to likewise extend our current working capital facility into 2010.

As a reminder, our balance sheet reflects, as debt, approximately $15 million owed to Biosense Webster related to the $18 million facility that was finalized in July of this year. Repayment of this liability will come from royalties otherwise payable from Biosense to Stereotaxis with no minimum cash outlay requirements by Stereotaxis until May 2010. It is interesting to note that our weighted average cost of our total debt is currently approximately 6% per annum.

With the cash on hand, the extension of the $20 million commitment, the line of credit from our bank, as well as the Biosense Webster facility, the Company has significant liquidity base to pursue its plans into 2009 and beyond. We also anticipate being able to improve on the current-year cash consumption as we move into 2009 and the irrigated catheter release becomes reality.

Now, I would like to turn the call back to Bevil for a few closing remarks.

Thank you, Mike and Jim. Before we open the call up to questions, I'd like to briefly discuss the leadership transition that is underway at Stereotaxis. As I trust you've gathered from my remarks this morning, the return of the magnetic irrigated catheter to the market is expected to occur in the very short term, following what we believe to be a very successful initial evaluation in Europe. With the catheter's return, Stereotaxis is poised to drive towards fully implementing its business model with a strong focus on commercial prosperity. While external economic circumstances are not favorable, Stereotaxis is nonetheless well-positioned to revolutionize the interventional lab for automation, information management and networking, and our technology is bringing real value to what we believe is one of the fastest growing segments of interventional procedures.

We've reached a point where my expertise and inclination towards creating technologies and companies around those technologies should ideally be succeeded by a leader who can bring experience, expertise and focus to all levels of operational execution, and who can lead Stereotaxis to broad commercial success. Therefore, I've been working with the Board on a transition plan that involves my passing the CEO baton to Mike as of January 1, 2009. By then, I believe the building blocks for Stereotaxis value proposition, business models, and future growth will be solidly in place.

The NIOBE magnetic navigation platform, the ODYSSEY information management system, CARDIODRIVE, and the irrigated catheter will now provide our company with a broad platform to accelerate system sales, recurring revenue growth and ultimately to achieve profitability. The Board and I believe that Mike has demonstrated the operational capability, as well as the strategic vision, to drive this company forward and achieve increasing levels of shareholder returns. I expect to play an active role in the Company at the Board level, and look forward to working closely with Mike as we move into 2009, a year that I strongly believe will be characterized by increasing shareholder returns.

Now, we would like to open the call up for questions.

Thank you, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Mimi Pham, JMP Securities.

Good morning. My congratulations, and Bevil, I wish you well on your new endeavors next year.

Can you just clarify your comments about the European launch of magnetic irrigated? Is J&J waiting for any feedback or data from any of their nine sites, or is it just a matter of they're getting the paperwork ready to go and it's really going to be in the next weeks?

Mimi, I will defer that question to Mike.

Mimi, they have collected, the nine sites have completed enrollment. They've collected all of the data forms and they're in the process of approving the final paperwork.

So it's just a matter of -- I'm just wondering if there's going to be any new feedback that could potentially affect their decision to relaunch that catheter in Europe.

There's no new data expected to come in. It's closed down.

Okay. Then in terms of their manufacturing capacity for the magnetic irrigated, if the US approval comes sometime by December or January, are they ready to go there, or would that be any kind of limiting factor in terms of getting it out in beta sites in the US?

As far as we know -- and we've talked closely with them every other week -- they are ramping to have full capability to supply both Europe and the US in a reasonably short period of time.

Okay,. Then I guess the last question -- the FDA panel that is coming up on November 20 for the manual irrigated catheter, can you just comment on what you think, if it does get approval for an AF label, what you think that would do for the industry and also ultimately for your business?

Oh, I think it would be extremely positive. I think obviously to have a product that's on-label is the way that an industry gets legitimized.

For us, we would expect hopefully to follow behind the manual ThermaCool and seek approval as well. But I believe it's a key cornerstone for legitimizing AF in the US. (multiple speakers)

(multiple speakers) (technical difficulty)

Mimi?

Yes.

This is Bevil. I concur absolutely. We see this as a tremendous conferring of legitimacy on a market segment that has explosive growth opportunity but is currently constrained in the US by a lack of labeling. We are optimistic that Stereotaxis will benefit directly from any labeling, any favorable labeling decisions by the FDA.

Tao Levy, Deutsche Bank. Mr. Levy has dropped from the queue.

Ed Shenkan, Needham & Co.

Congratulations, Mike, on assuming the CEO role very soon and Bevil, congratulations as well on moving towards the next phase of your career.

As far as the European current users of your irrigated catheter, could you just talk about how many cases per week they are doing? Are they slowly ramping up or have these guys just loved it and how many weeks have they been using it?

Ed, I'm going to defer those details to Mike, but I would like to say that we have seen a significant turnaround in our overall European situation this year, both in terms of systems placements, orders, momentum. This is most clearly centered on improvements in utilization of around the use of the irrigated catheter. It's what we saw earlier in the year, prior to the withdrawal of the irrigated catheter, and it now seems to be back on full steam.

But Mike, perhaps you could put some numbers behind those comments.

So, Ed, the evaluation started mid-September. It concluded mid-October, and then that valuation obviously was constrained to get the cases done needed to close out the external evaluation. So we are just beginning to roll out those sites with kind of unlimited inventory. So, those nine sites can continue to use it. It's not going to go to the tenth site until our partner releases it for commercial release. They continue to use it as we expected. We continue to see strong demand.

Mike, in coming forward as CEO, any changes that you're going to be excited to implement in strategy or operationally? Any changes that we should expect?

You know, Ed, I think, if you look at the challenges that we face, obviously I think the number one challenge is to get the ThermaCool out and our installed base reenergized around the use of our product for both right side and left side. I think we have several products that will help with that.

We have the ThermaCool. We have this user interface software that makes it simpler to use. We have a catheter advancer, the CAS [II] that's actually more responsive. Some of the improvements in ODYSSEY will help just bring a workstation together in a more meaningful way.

You know, our focus is going to be on the near-term, driving value into the installed base. Obviously, we're going to use that as a focal point to leverage kind of the prospective orders through so that we can build a reference site and then build the ODYSSEY infrastructure to help bring efficiency to both of those processes, how we deliver clinical services and how we provide reference sites. But I think those three things in the near term are the key challenges for Stereotaxis to get through.

Tao Levy, Deutsche Bank.

Good morning. I think there were some telecommunication issues a minute ago. I apologize.

First of all, congratulations, Mike, on your promotion. I wanted to ask about the FDA regulatory process with ThermaCool. Has there been any recent correspondence with Biosense Webster in terms of any follow-up questions or requests for additional data?

Hi, Tao. This is Bevil. I will defer that question to you, Mike. I think that this is an area where we see sort of normal-course progress through the re-approval of the magnetic irrigated catheter. I believe we have learned from our partner that they did receive a question from the FDA that, again, we would consider to be a normal course kind of question. Perhaps, Mike, you can add some color to that.

Yes, so Tao, I think the specifics -- I'm not sure about on the question; I think it's in the normal routine of clarifying our submission, and it has been a few weeks ago. It's not recent.

Okay. Then assuming your expectations for European launch and FDA approval go as expected, how should we think about sequential trends over the next couple of quarters in terms of NIOBE placements?

Yes, obviously, assuming a ThermaCool launch in the US, we would think the US would rebound quickly in 2009. Europe continues to show strong momentum, so I believe that, in combination, we should continue to see a strengthening Stereotaxis quarter over quarter.

Okay, but in terms of the fourth quarter specifically, should we expect a sequentially up or down quarter, relative to Q3?

Bevil, do you want to answer that? Tao, I believe it should be sequentially up related to Q3. Do you want to add any color, Bevil?

No. I think that the fourth quarter is historically a strong quarter for Stereotaxis. We are buoyed by the results in Europe. We don't think that the US approval, if it comes in the fourth quarter, would be likely to have any impact. But given the momentum that we have with ODYSSEY, not to mention the European projectory following what we expect to be a very early relaunch of the irrigated catheter there, the fourth quarter should be a good quarter.

Okay, and then a couple of quick questions for you, Jim. Of the $13 million of new orders in the quarter, what was the geographic breakdown there?

The geographic breakdown of those orders was (multiple speakers).

I'll let Mike take that.

Yes, it's $5 million in Europe, $2 in the rest of the world and the balance in the US.

Okay. Then the last question -- of the four ODYSSEY systems that were sold in the quarter, were any of those a result of the copromotion agreement with Biosense Webster, or were those all from your sales?

They were all a result of our own sales efforts.

Great, thank you very much.

Keay Nakae, Collins Stewart.

Yes, I wanted to talk about the ASPs for service and software. I think, Mike, you mentioned that pricing on that might have gone up, so where are those tracking right now?

They are set on contracts, okay, so we are still bringing in revenue at probably the historical levels of our software license fees, still running around $40,000 a system. Our service contracts are headed north and they are at a $70,000-plus level.

Yes, Keay, let me clarify. I think my comment was in relation to the installed base increases we see that come through our income statement in a bigger portion, right, so that impacts recurring revenue. I believe the per-contract price remains relatively stable.

Right.

Okay, great. Then we did see that nice improvement in operating expense. Jim, I think you said we will see something similar in Q4.

As we move into '09, especially both the G&A and obviously maybe they fixed portion of the sales and marketing, is that something you can hold a line on or how should we be thinking about that as we move into '09?

Our plan is to continue to hold operating expenses beneath 2007 levels as we go into 2009.

Yes, so I think the answer is yes, we anticipate being very prudent in how we manage expenses.

Marketing we're going to trade off -- or in sales and marketing obviously. As ODYSSEY comes in, we believe we have a real opportunity to do remote clinical case support that can offset some cost-per-case expenses that we see. In combination with that, increasing installed base and kind of holding G&A down, we think we will be in good shape for 2009, trends not being better than 2007.

Okay. R&D, you talked about the products in the pipeline but we shouldn't expect to see much of a delta from the current R&D spending levels as well?

Yes, R&D I think, as we move forward, will -- the nice part of where we are as a company is the system cost development we've moved beyond. We are leveraging that now, and if you look at our investments, they are largely software and devices. So we are leveraging the work we've done in the past. We think we can continue to get efficiencies out of that at the same level of spend and continue to see more products coming into the market, which add value.

Okay. One final question -- when J&J goes to a full launch of the irrigated catheter in Europe and perhaps beyond outside of the US, how many of your installed-based customers -- what's the delta from the current nine to what number is going to be ready to use it?

Keay is the question "How many are in Europe?" (multiple speakers)

Yes. How many of your installed sites are ready to use it, an irrigated catheter, upon an expanded launch?

Well, in Europe -- let me see if this answers your question -- in Europe we roughly have 35 sites. Of those 35, we would begin rolling out in phases. So we would go to, I think the current plan is between six and eight sites every other week. So we would roll them out pretty quickly so that we concentrate on making the next wave of sites successful, then move the resources to the next wave. So we would go through a fairly stepped approach in doing that.

Okay, so a couple of months to get everybody up on board?

Yes.

Okay, very good. Thanks.

Spencer Nam, Summer Street Research Partners.

Just a couple of questions here, the first is this panel coming up on November 20. What would happen -- is there any potential impact if the panel were not as positive on the catheters, the J&J catheters?

Clearly, the AF market as a whole in the United States would not benefit from an unfavorable panel decision. We are optimistic. We believe that J&J has done an excellent job in preparing for their submission, and we are hopeful that the outcome will be positive.

The negative implications for Stereotaxis would be relatively minor. In other words, it would be a case of our situation not benefiting from a market-enhancing decision, but there would be no downside for Stereotaxis; it doesn't affect us directly. It's just that the opportunity in this country, we believe, would be greatly expanded over time with a favorable panel decision.

I see. So any sort of questions or any sort of issues that may be raised from the panel should not have an impact on the irrigated catheter approval process or the aspects?

To our knowledge, there would be no connection whatsoever.

Great, thanks. Then just follow-up to that, in your prepared statement, Bevil, you essentially, at least the way I understood was that the irrigated catheter will "solve this ramp-up issue." I was just curious whether -- you know, this sounds like a very confident statement to me. I was wondering if that is based on your conversations with your customers in that the lack of irrigated catheter is specifically the reason for many of your potential customers waiting on the sidelines. Is that what you see that level of confidence here?

Well, the level of confidence we have is built up around our experience in Europe. In Europe we've seen the irrigated catheter be used. We've seen the impact of referenced sites in Europe who are using the irrigated catheter and speaking about it favorably. All of this has been reflected in two areas which are very quantifiable. One is systems sales, which are up 100% year-over-year. The other is utilization, which is also up by a very large factor.

So when we consider the impact of the irrigated catheter in any market, we have to recognize that it is used in at least 90% of less cited cases. What is remarkable is that Stereotaxis has been maintaining a utilization rate, even in the United States, that we believe is comparable or superior to that of our competition, who have access to the irrigated catheter. We've been doing that without access to the irrigated catheter. So once this all-important device is put in the hands of clinicians who have Stereotaxis systems or who are thinking about acquiring Stereotaxis systems, we believe it will have a catalytic or accelerating impact on the market opportunity for us.

Great, thanks very much.

(Operator Instructions). [Ray Tang], [ETEC] Advisors.

Bevil, thanks for all the work that you've done in the past in setting up the foundation for Stereotaxis, setting up the partnerships who -- recent products such as ODYSSEY. Mike, congratulations.

My question on the your endpoints that Biosense set up -- can you be -- give me a specific list of what you think are the most important endpoints that they're looking at?

I think we should not be too specific about what we think our partners are looking at because obviously they can have their own criteria. However, Mike, you have calibrated some clinical results that we've been able to observe ourselves. Perhaps you could talk to them?

Yes. As I mentioned, Ray, they did meet their clinical endpoints. Obviously, you would expect one of those to be looking at the catheter's performance on the CAR right, because that's the reason they looked at that.

Other than that, we'd like to keep the comments to what we saw and we looked at -- did the product -- was it more efficient? Did we reduce radiation exposure? Did we continue to show a safety profile that's consistent with our past? All of those things I mentioned in my commentary are very positive. We have heard very positive statements from our clinicians using the product, and we continue to think it's the key product.

You know, if you look at what physicians want to do, they want to use our system on the left side of the heart, both for VT and atrial procedures. To do that, obviously they want a safe catheter, and they view that the ThermaCool provides that safety profile they're looking for.

Regarding the chart, was there any [CAR] seen at all?

Ray, we can't address very, very specific questions like that because we are not privy to J&J's information, to our partner's information, and wouldn't be appropriate for us to comment. However, our view is formed from observations, comments that we've received from the clinicians and from our partners. So without being specific, we believe that issue is behind us.

Excellent. The one production line that you have for making the irrigated catheter, assuming that everything goes well and you can launch and go Europe and the US by early next year, the capacity of that line -- how long do you think that will be sufficient for in terms of were you have to go another line, production line?

Mike, can I do defer that question to you? This is a capacity issue and I believe you could give us some insight there.

Yes, Ray, we believe today that Biosense has the capacity to supply Europe today. I think they are well prepared to improve the capacity or expand the capacity in a very short permit of time to support the US launch. I don't believe that there is a capacity constraint that we face in the near-term.

On the ODYSSEY orders, let me get the first question out of the way, which is how many of those orders are for installations that already have the NIOBEs and how many orders are going to come of new NIOBE installations?

Mike?

Yes, Ray, I would have to go back and look at the actual list for -- you're asking how many went into the installed base versus how many are associated with a new NIOBE order?

Right, right.

I think, historically, I think it's probably close to 50-50 right now. 50% were sold to those people who already had a NIOBE, and then, since inception, the 50% are associated with those buying NIOBEs. Now, obviously, there are some that are now buying for labs that don't have a NIOBE, right? So there is a small percentage that continues to grow outside of the NIOBE lab.

How many of those orders include Cinema?

We just sold our first Cinema, so Cinema is just rolling out as we speak -- only one.

Only one, okay. In terms of timing, so you would think let's say 17 out of those orders going into existing facilities already with the NIOBE -- are those going to be turned around fairly soon?

Yes, if the order is -- if the question is order to cash kind of, how long does it take? There are three paths, right? If there is already an installed NIOBE and they give us an order, it's a relatively short period of time. If it's with a NIOBE, obviously it's on the NIOBE timeline. If it's in a non-NIOBE lab, we are not going to begin to install those until the back half of '09. But depending on where that order came in, that would be the answer.

You would expect that to be less than 12 months for those (multiple speakers)?

For the non -- if the NIOBE is already installed, I would expect it to be less than 12 months.

Okay, thank you. Is there any difference between the preferences for ODYSSEY orders inside or outside the USA?

Yes. To date, largely it's inside the US. Most of the orders are inside the US, although Europe is picking up.

Is there a reason for that, or why is that slow (multiple speakers)?

I think we were late in getting Europe launched, I think is the primary reason. But the US obviously has been a very strong market for us.

Can you name -- I think Dr. [Proponni] probably likes the ODYSSEY, I think he said so. When are the thought leaders in Europe going to adopt it, you think?

Yes, some of the EU sites have adopted ODYSSEY, so we've seen the ThermaCool sites, or the magnetic irrigated site have also bought. So, we have a system in Copenhagen and some other sites that are coming up very quickly here.

Tao Levy.

This is [Imran] again. Just getting back to the AF panel coming up, provided there's a positive recommendation from that panel, how then would J&J go about getting that same label for the magnetic irrigated catheter? I would assume that would be a relatively straight forward and easy process.

Imran, this is Bevil. Obviously, J&J operates by its own rulebook, and we can't speak for them. However, it is likely that Stereotaxis would benefit, either directly or indirectly, from that label approval, either because it applies to us or it gives us a pathway to apply for the same label in a relatively short amount of time.

So to have the basic J&J irrigated catheter carry an AF label will have a very favorable impact on the industry as a whole in terms of legitimizing the treatment of AF in this country. The benefits that would accrue to Stereotaxis would be a substantial shortening of the time that it would take us to pursue that same label. When I say "us", obviously I mean our partners, because Stereotaxis is not the prime mover in this arena. This is a product that is -- and an initiative that is driven by our partner.

Okay. What's your latest intelligence on the development of magnetic irrigated catheter from other AF players?

We have indirect information that at least one competing irrigated magnetic catheter is being evaluated in Europe, but we would prefer not to say more about that because it's hearsay. In other words, we are hearing feedback from clinicians; we are certainly not involved ourselves in the evaluation or dissemination of what you might call a competing magnetic irrigated product.

Okay, and then last question -- Jim, how should we think about ODYSSEY Cinema in terms of driving revenues? In other words, what's the approximate ASP on that?

Cinema ASP is probably going to add another 125-plus to the ODYSSEY -- that would be added to the ODYSSEY.

So, $200,000 plus 125?

Yes.

Ladies and gentlemen, that concludes your question-and-answer session. I would now like to turn the conference back over to management for any closing statements.

Thank you for joining us this morning. We are available, if you have any further questions, and look forward to updating you on our progress in the future. Thank you very much.

Ladies and gentlemen, this concludes the Stereotaxis third-quarter 2008 earnings conference call. If you would like to listen to a replay of today's conference, please dial 800-405-2236 or 303-590-3000. The pass code -- 11120546.

ACT would like to thank you for your participation. You may now disconnect.