##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 Commission File Number: 001-33151
 HANSEN MEDICAL, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State of Incorporation)
    
    14-1850535(I.R.S. Employer Identification No.)
 380 North Bernardo Avenue, Mountain View, CA 94043  (Address of Principal Executive Offices)
 (650) 404-5800  (Registrants telephone number, including area code)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of June
30, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2008 and 2007
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21Item 4T.
    
    Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3.
    
    Defaults Upon Senior Securities
    
    
    46Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    46Item 5.
    
    Other Information
    
    
    47Item 6.
    
    Exhibits
    
    
    48Signatures
    
    
    49EXHIBIT 10.28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 HANSEN MEDICAL, INC.
 
 Condensed Consolidated Balance Sheets
 (Unaudited)
 (In thousands, except share and per share data)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    30,837
    
    
    $
    30,404Short-term investments
    
    
    23,792
    
    
    
    18,148Accounts receivable, net
    
    
    5,913
    
    
    
    4,003Inventories
    
    
    4,631
    
    
    
    2,982Prepaids and other current assets
    
    
    2,858
    
    
    
    1,397Total current assets
    
    
    68,031
    
    
    
    56,934Property and equipment, net
    
    
    13,626
    
    
    
    2,672Restricted cash
    
    
    105
    
    
    
    105Other assets
    
    
    174
    
    
    
    190Total assets
    
    $
    81,936
    
    
    $
    59,901LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,732
    
    
    $
    2,956Accrued liabilities
    
    
    7,723
    
    
    
    4,083Current portion of deferred revenue
    
    
    982
    
    
    
    225Current portion of long-term debt
    
    
    2,202
    
    
    
    2,101Total current liabilities
    
    
    13,639
    
    
    
    9,365Deferred revenue, net of current portion
    
    
    143
    
    
    
    143Long-term debt, net of current portion
    
    
    82
    
    
    
    1,208Other long-term liabilities
    
    
    473
    
    
    
    121Total liabilities
    
    
    14,337
    
    
    
    10,837Commitments and contingencies (Note 5)Stockholders equity:Preferred stock, par value $0.0001:Authorized: 10,000,000 sharesIssued and outstanding: none
    
    
    
    
    
    
    Common stock, par value $0.0001:Authorized: 100,000,000 sharesIssued and outstanding: 25,064,310 shares at June 30, 2008 and
21,961,811 shares at December 31, 2007
    
    
    3
    
    
    
    2Additional paid-in capital
    
    
    203,639
    
    
    
    158,607Deferred stock-based compensation
    
    
    (110
    )
    
    
    (167
    )Accumulated other comprehensive income
    
    
    40
    
    
    
    57Accumulated deficit
    
    
    (135,973
    )
    
    
    (109,435
    )Total stockholders equity
    
    
    67,599
    
    
    
    49,064Total liabilities and stockholders equity
    
    $
    81,936
    
    
    $
    59,901
  1




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HANSEN MEDICAL, INC.
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 (In thousands, except per share data)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    5,813
    
    
    $
    2,434
    
    
    $
    12,057
    
    
    $
    2,434Cost of goods sold
    
    
    4,735
    
    
    
    1,653
    
    
    
    9,672
    
    
    
    1,653Gross profit
    
    
    1,078
    
    
    
    781
    
    
    
    2,385
    
    
    
    781Operating expenses:Research and development
    
    
    6,300
    
    
    
    4,351
    
    
    
    11,514
    
    
    
    9,423Selling, general and administrative
    
    
    10,007
    
    
    
    5,177
    
    
    
    18,084
    
    
    
    9,703Total operating expenses
    
    
    16,307
    
    
    
    9,528
    
    
    
    29,598
    
    
    
    19,126Loss from operations
    
    
    (15,229
    )
    
    
    (8,747
    )
    
    
    (27,213
    )
    
    
    (18,345
    )Interest income
    
    
    430
    
    
    
    979
    
    
    
    838
    
    
    
    2,097Interest and other expense, net
    
    
    (107
    )
    
    
    (126
    )
    
    
    (163
    )
    
    
    (262
    )Net loss
    
    $
    (14,906
    )
    
    $
    (7,894
    )
    
    $
    (26,538
    )
    
    $
    (16,510
    )Basic and diluted net loss per share
    
    $
    (0.60
    )
    
    $
    (0.37
    )
    
    $
    (1.14
    )
    
    $
    (0.77
    )Shares used to compute basic and diluted net loss per share
    
    
    24,733
    
    
    
    21,542
    
    
    
    23,346
    
    
    
    21,489
  2




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##### Table of Contents



HANSEN MEDICAL, INC.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 (in thousands)
 Six months endedJune 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (26,538
    )
    
    $
    (16,510
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    710
    
    
    
    621Provision for inventory valuation
    
    
    34
    
    
    
    Stock-based compensation
    
    
    4,935
    
    
    
    3,470Amortization of preferred stock warrants
    
    
    27
    
    
    
    31Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,923
    )
    
    
    (1,780
    )Inventories
    
    
    (1,683
    )
    
    
    (1,796
    )Prepaids and other current assets
    
    
    (1,496
    )
    
    
    (293
    )Other long-term assets
    
    
    
    
    
    
    (3
    )Accounts payable
    
    
    (224
    )
    
    
    565Accrued liabilities
    
    
    1,533
    
    
    
    1,259Deferred revenue
    
    
    757
    
    
    
    59Deferred rent
    
    
    22
    
    
    
    (40
    )Other long-term liabilities
    
    
    281
    
    
    
    23Net cash used in operating activities
    
    
    (23,565
    )
    
    
    (14,394
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (9,491
    )
    
    
    (975
    )Proceeds from sales and maturities of short-term investments
    
    
    9,467
    
    
    
    Purchase of short-term investments
    
    
    (15,080
    )
    
    
    (15,489
    )Net cash used in investing activities
    
    
    (15,104
    )
    
    
    (16,464
    )Cash flows from financing activities:Repayments of loans payable
    
    
    (1,036
    )
    
    
    (948
    )Proceeds from issuance of common stock, net of issuance costs
    
    
    39,492
    
    
    
    (317
    )Proceeds from exercise of common stock options, net
    
    
    42
    
    
    
    78Proceeds from employee stock purchase plan
    
    
    604
    
    
    
    432Net cash provided by (used in)
financing activities
    
    
    39,102
    
    
    
    (755
    )Net increase (decrease) in cash and
cash equivalents
    
    
    433
    
    
    
    (31,613
    )Cash and cash equivalents at beginning of period
    
    
    30,404
    
    
    
    88,911Cash and cash equivalents at end of period
    
    $
    30,837
    
    
    $
    57,298Supplemental schedule of non-cash investing activities:Unbilled construction costs incurred
    
    $
    2,173
    
    
    $
    
  3




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##### Table of Contents



HANSEN MEDICAL, INC.
 
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. Description of Business
   2. Summary of Significant Accounting Policies
 Basis of Presentation
   Use of Estimates
  Recent Accounting Pronouncements
 Fair Value Measurements
 4




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Effective Date of FASB Statement No. 157 Note 3.
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 5




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3. Investments and Fair Value Measurements
  Gross
    
    
    Gross
    
    
    
    
    
    
    Balance Sheet ClassificationAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash
    
    
    Short-termCost
    
    
    Gains
    
    
    Loss
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsAs of June 30, 2008:Money market funds
    
    $
    135
    
    
    $
    
    
    
    $
    
    
    
    $
    135
    
    
    $
    135
    
    
    $
    U.S. government
agency securities
    
    
    35,667
    
    
    
    4
    
    
    
    (20
    )
    
    
    35,651
    
    
    
    22,680
    
    
    
    12,971Corporate debt
securities
    
    
    15,771
    
    
    
    59
    
    
    
    (10
    )
    
    
    15,820
    
    
    
    4,999
    
    
    
    10,821$
    51,573
    
    
    $
    63
    
    
    $
    (30
    )
    
    $
    51,606
    
    
    $
    27,814
    
    
    $
    23,792As of December 31, 2007:Money market funds
    
    $
    156
    
    
    $
    
    
    
    $
    
    
    
    $
    156
    
    
    $
    156
    
    
    $
    U.S. government
agency securities
    
    
    25,624
    
    
    
    11
    
    
    
    
    
    
    
    25,635
    
    
    
    24,514
    
    
    
    1,121Corporate debt
securities
    
    
    18,489
    
    
    
    44
    
    
    
    (14
    )
    
    
    18,519
    
    
    
    1,492
    
    
    
    17,027$
    44,269
    
    
    $
    55
    
    
    $
    (14
    )
    
    $
    44,310
    
    
    $
    26,162
    
    
    $
    18,148
  June 30,
    
    
    December 31,2008
    
    
    2007Contractual maturities:Less than one year
    
    $
    20,229
    
    
    $
    11,979One to two years
    
    
    3,563
    
    
    
    6,169$
    23,792
    
    
    $
    18,148
  GrossUnrealizedFair Value
    
    LossU.S.
government agency securities
    
    $
    9,468
    
    
    $
    (20
    )Corporate debt securities
    
    
    2,074
    
    
    
    (10
    )$
    11,542
    
    
    $
    (30
    )
  6




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Fair Value Measurements
  
    
    Level 1 Inputs
    
    Quoted prices (unadjusted) in active markets for identical assets
or liabilities.
    
    Level 2 Inputs
    
    Inputs other than quoted prices in active markets that are
observable either directly or indirectly; and
    
    Level 3 Inputs
    
    Unobservable inputs in which there is little or no market data,
which require us to develop our own assumptions.
   Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    Significant otherIdentical Assets
    
    Observable Inputs(Level 1 Inputs)
    
    (Level 2 Inputs)Money market funds
    
    $
    135
    
    
    $
    U.S. government agency securities
    
    
    35,651
    
    
    
    Corporate debt securities
    
    
    
    
    
    
    15,820$
    35,786
    
    
    $
    15,820
 7




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4. Inventories (in thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    1,730
    
    
    $
    1,704Work in process
    
    
    1,986
    
    
    
    1,278Finished goods
    
    
    915
    
    
    
    Inventories, net
    
    $
    4,631
    
    
    $
    2,982
 5. Commitments and Contingencies
 Operating Commitments
  Remainder of 2008
    
    $
    8602009
    
    
    1,7652010
    
    
    1,7392011
    
    
    1,7842012
    
    
    1,838Thereafter
    
    
    3,676Total
    
    $
    11,662
 Warranties
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    722
    
    
    $
    
    
    
    $
    537
    
    
    $
    Accruals for warranties issued during
the period
    
    
    566
    
    
    
    194
    
    
    
    989
    
    
    
    194Warranty costs incurred during the period
    
    
    (462
    )
    
    
    
    
    
    
    (700
    )
    
    
    Balance at end of period
    
    $
    826
    
    
    $
    194
    
    
    $
    826
    
    
    $
    194
 Legal Proceedings
  8




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6. Long-term Debt
  Remainder of 2008
    
    $
    1,1662009
    
    
    1,2492,415Less: Amount representing interest
    
    
    (117
    )2,298Less: Unamortized discount
    
    
    (14
    )2,284Less: Current portion
    
    
    (2,202
    )Long Term Portion
    
    $
    82
 7. Stockholders Equity
 Stock-based Compensation
 Share-Based Payment
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of goods sold
    
    $
    171
    
    
    $
    87
    
    
    $
    332
    
    
    $
    87Research and development
    
    
    763
    
    
    
    566
    
    
    
    1,333
    
    
    
    1,286Selling, general and administrative
    
    
    1,978
    
    
    
    1,044
    
    
    
    3,270
    
    
    
    2,097Total
    
    $
    2,912
    
    
    $
    1,697
    
    
    $
    4,935
    
    
    $
    3,470
 9




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Stock Option and Equity Incentive Plans
  Weighted-AverageWeighted-
    
    RemainingOptions
    
    Average
    
    Contractual
    
    AggregateOutstanding
    
    Exercise Price
    
    Term
    
    Intrinsic Value(In thousands)
    
    
    
    
    
    (In years)
    
    (In thousands)Balances, December 31, 2007
    
    
    2,960
    
    
    $
    12.41Options granted
    
    
    1,167
    
    
    $
    18.78Options exercised
    
    
    (45
    )
    
    $
    2.39Options cancelled
    
    
    (65
    )
    
    $
    19.10Balances, June 30, 2008
    
    
    4,017
    
    
    $
    14.26
    
    
    
    6.78
    
    
    $
    19,428Options vested at June 30, 2008
    
    
    1,270
    
    
    $
    8.83
    
    
    
    6.82
    
    
    $
    10,852
   Weighted-Restricted Stock
    
    Average FairUnits
    
    Value WhenOutstanding
    
    AwardedRestricted stock units at December 31, 2007
    
    
    23
    
    
    $
    30.52Awarded
    
    
    55
    
    
    $
    18.94Vested
    
    
    (13
    )
    
    $
    31.20Restricted stock units at June 30, 2008
    
    
    65
    
    
    $
    20.59
   8. Net Loss Per Share
  10




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Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (14,906
    )
    
    $
    (7,894
    )
    
    $
    (26,538
    )
    
    $
    (16,510
    )Weighted-average common shares outstanding
    
    
    24,776
    
    
    
    21,672
    
    
    
    23,399
    
    
    
    21,637Weighted-average unvested common shares subject to repurchase
and unvested restricted common stock
    
    
    (43
    )
    
    
    (130
    )
    
    
    (53
    )
    
    
    (148
    )Shares used to calculated basic and diluted net loss per share
    
    
    24,733
    
    
    
    21,542
    
    
    
    23,346
    
    
    
    21,489Basic and diluted net loss per share
    
    $
    (0.60
    )
    
    $
    (0.37
    )
    
    $
    (1.14
    )
    
    $
    (0.77
    )
  June 30,2008
    
    2007Stock options outstanding
    
    
    4,017
    
    
    
    2,430Unvested restricted stock units
    
    
    65
    
    
    
    Unvested common shares subject to repurchase
    
    
    35
    
    
    
    114Proceeds from employee stock purchase plan
    
    
    32
    
    
    
    17Warrants to purchase common stock
    
    
    
    
    
    
    59
 9. Comprehensive Loss
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (14,906
    )
    
    $
    (7,894
    )
    
    $
    (26,538
    )
    
    $
    (16,510
    )Other comprehensive income:Change in unrealized gain/loss on
investments
    
    
    (68
    )
    
    
    (21
    )
    
    
    (17
    )
    
    
    (5
    )Foreign currency translation adjustment
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (14,978
    )
    
    $
    (7,915
    )
    
    $
    (26,555
    )
    
    $
    (16,515
    )
 11




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q .
 Except for the historical information contained herein, the matters discussed in this
Managements Discussion and Analysis of Financial Condition and Results of Operations, are
forward-looking statements that involve risks and uncertainties. In some cases, these statements
may be identified by terminology such as may, will, should, expects, could, intends,
might, plans, anticipates, believes, estimates, predicts, potential, or continue,
or the negative of such terms and other comparable terminology. These statements involve known and
unknown risks and uncertainties that may cause our results, levels of activity, performance or
achievements to be materially different from those expressed or implied by the forward-looking
statements. Factors that may cause or contribute to such differences include, among others, those
discussed in this report in Part II, Item 1A Risk Factors. Except as may be required by law, we
undertake no obligation to update any forward-looking statement to reflect events after the date of
this report.
 Overview
 TM TM
     12




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##### Table of Contents



Critical Accounting Policies, Estimates and Judgments
  Financial Overview
 Revenues
  Cost of Goods Sold
  Research and Development Expenses
  Selling, General and Administrative Expenses
  13




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Results of Operations
 Comparison of the three months ended June 30, 2008 to the three months ended June 30, 2007
 Revenues
 Three months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Revenues
    
    $
    5,813
    
    
    $
    2,434
    
    
    $
    3,379
    
    
    
    139
    %
  Cost of Goods Sold
 Three months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Cost of goods sold
    
    $
    4,735
    
    
    $
    1,653
    
    
    $
    3,082
    
    
    
    186
    %As a percentage of revenues
    
    
    81.5
    %
    
    
    67.9
    %
  Operating Expenses
 Research and Development
 Three months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Research and development
    
    $
    6,300
    
    
    $
    4,351
    
    
    $
    1,949
    
    
    
    45
    %
 14




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##### Table of Contents




    
    An increase of $0.9 million in employee-related expenses, including travel expenses,
related to an increase of 16 in research and development headcount;
    
    An increase of $0.8 million in outside services, materials and overhead expenses; and
    
    An increase of $0.2 million in stock-based compensation expense due to our larger
employee base.
  Selling, General and Administrative
 Three months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Selling, general and administrative
    
    $
    10,007
    
    
    $
    5,177
    
    
    $
    4,830
    
    
    
    93
    %
  
    
    An increase of $2.2 million in employee-related expenses, including sales commissions
and travel expenses, associated with an increase in sales and marketing headcount of 22
and an increase in general and administrative headcount of 6;
    
    An increase of $0.9 million in stock-based compensation expense due to our larger
employee base;
    
    An increase of $0.8 million in professional service fees, primarily consisting of legal
fees necessary for the development of our intellectual property portfolio, Luna litigation
costs and other intellectual property related legal expenses;
    
    An increase of $0.7 million in lease costs for our new facility, all of which is being
charged to selling, general and administrative expenses prior to its occupancy in July
2008; and
    
    An increase of $0.2 million in supplies, equipment and overhead expenses.
  Interest Income
 Three months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Interest income
    
    $
    430
    
    
    $
    979
    
    
    $
    (549
    )
    
    
    (56
    )%
  15




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Interest and Other Expense, net
 Three months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Interest and other expense, net
    
    $
    (107
    )
    
    $
    (126
    )
    
    $
    19
    
    
    
    (15
    )%
  Comparison of the six months ended June 30, 2008 to the six months ended June 30, 2007
 Revenues
 Six months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Revenues
    
    $
    12,057
    
    
    $
    2,434
    
    
    $
    9,623
    
    
    
    395
    %
  Cost of Goods Sold
 Six months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Cost of goods sold
    
    $
    9,672
    
    
    $
    1,653
    
    
    $
    8,019
    
    
    
    485
    %As a percentage of revenues
    
    
    80.2
    %
    
    
    67.9
    %
  16




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Operating Expenses
 Research and Development
 Six months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Research and development
    
    $
    11,514
    
    
    $
    9,423
    
    
    $
    2,091
    
    
    
    22
    %
  
    
    An increase of $2.1 million in employee-related expenses, including travel expenses,
related to an increase of 16 in research and development headcount; and
    
    An increase of $1.0 million in outside services, materials and overhead expenses.
  Selling, General and Administrative
 Six months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Selling, general and administrative
    
    $
    18,084
    
    
    $
    9,703
    
    
    $
    8,381
    
    
    
    86
    %
  
    
    An increase of $3.8 million in employee-related expenses, including sales commissions
and travel expenses, associated with an increase in sales and marketing headcount of 22
and an increase in general and administrative headcount of 6;
    
    An increase of $1.5 million in professional service fees, primarily consisting of legal
fees necessary for the development of our intellectual property portfolio, Luna litigation
costs and other intellectual property related legal expenses;
    
    An increase of $1.2 million in stock-based compensation expense due to our larger
employee base;
    
    An increase of $1.2 million in lease costs for our new facility, all of which is being
charged to selling, general and administrative expenses prior to its
occupancy in July 2008;
    
    An increase of $0.5 million in supplies, equipment and overhead expenses; and
    
    An increase of $0.2 million in non-compensation marketing expenses.
  17




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Interest Income
 Six months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Interest income
    
    $
    838
    
    
    $
    2,097
    
    
    $
    (1,259
    )
    
    
    (60
    )%
  Interest and Other Expense, net
 Six months endedJune 30,
    
    Change(Dollars in thousands)
    
    2008
    
    2007
    
    $
    
    %Interest and other expense, net
    
    $
    (163
    )
    
    $
    (262
    )
    
    $
    99
    
    
    
    (38
    )%
  Liquidity and Capital Resources
   Six months ended
    
    
    Six months endedJune 30, 2008
    
    
    June 30, 2007Cash used in operating activities
    
    $
    (23,565
    )
    
    $
    (14,394
    )Cash used in investing activities
    
    
    (15,104
    )
    
    
    (16,464
    )Cash provided by (used in) financing
activities
    
    
    39,102
    
    
    
    (755
    )Net decrease in cash and cash equivalents
    
    $
    433
    
    
    $
    (31,613
    )
 Net Cash Used in Operating Activities
  Net Cash Used in Investing Activities
  18




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Net Cash Provided by (Used in) Financing Activities
  Operating Capital and Capital Expenditure Requirements
    
    
    The success of our research and development efforts;
    
    The expenses we incur in selling and marketing our products;
    
    Our ability to produce products to meet customer demand;
    
    The costs and timing of future regulatory actions;
    
    The revenue generated by sales of our current and future products;
    
    The rate of progress and cost of our clinical trials and other development activities;
    
    The emergence of competing or complementary technological developments;
    
    The costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property or other legal rights, or participating in litigation-related
activities;
    
    The terms and timing of any collaborative, licensing or other arrangements that we may
establish; and
    
    The acquisition of businesses, products and technologies.
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Contractual Obligations
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Recent Accounting Pronouncements
 Fair Value Measurements Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations 141(R)
 Noncontrolling Interests in Consolidated
Financial Statements
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Limitations on the Effectiveness of Controls
  
 ITEM 4T. CONTROLS AND PROCEDURES
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
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ITEM 1A. RISK FACTORS
 Risks Related to Our Business
 We are a company with a limited history of operations, which makes our future operating
results difficult to predict.
  We have limited sales, marketing and distribution experience and capabilities, which could
impair our ability to achieve profitability.
  
    
    our ability to recruit, train and retain adequate numbers of qualified sales and
marketing personnel;
    
    the ability of sales personnel to obtain access to or persuade adequate numbers of
hospitals to purchase our products or physicians to use our products;
    
    costs associated with hiring, maintaining and expanding an independent sales and
marketing organization; and
    
    government scrutiny and labeling restrictions with respect to promotional
activities in the healthcare industry.
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We have limited experience in manufacturing and assembling our products and may encounter
problems at our manufacturing facilities or otherwise experience manufacturing delays that
could result in lost revenue.
   Our reliance on third-party manufacturers and on suppliers, and in one case, a single-source
supplier, could harm our ability to meet demand for our products in a timely manner or within
budget, and could cause harm to our business and financial condition.
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
    
    suppliers may fail to comply with regulatory requirements or make errors in
manufacturing components that could negatively affect the efficacy or safety of our
products or cause delays in or prevent shipments of our products;
    
    we may not be able to respond to unanticipated changes and increases in customer
orders;
    
    we may be subject to price fluctuations due to a lack of long-term supply
arrangements for key components with our suppliers;
    
    we may lose access to critical services and components, resulting in an
interruption in the manufacture, assembly and shipment of our systems and other products;
    
    our suppliers manufacture products for a range of customers, and fluctuations in
demand for products these suppliers manufacture for others may affect their ability to
deliver components to us in a timely manner;
    
    our suppliers may wish to discontinue supplying goods or services to us;
    
    we may not be able to find new or alternative components for our use or reconfigure
our system and manufacturing processes in a timely manner if the components necessary for
our system become unavailable; and
    
    our suppliers may encounter financial hardships unrelated to our demand for
components, which could inhibit their ability to fulfill our orders and meet our
requirements.
   If we fail to maintain necessary FDA clearances and CE marks for our medical device products,
or if future clearances are delayed, we will be unable to commercially distribute and market
our products.
  24




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If physicians and hospitals are not convinced that our products are a safe and effective
alternative to existing technologies used in atrial fibrillation and other cardiac ablation
procedures, we may not be commercially successful.
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We expect to derive substantially all of our revenues from sales of our Sensei system and
Artisan catheters. If hospitals do not purchase our system, we may not generate sufficient
revenues to continue our operations.
   We have incurred substantial losses since inception and anticipate that we will incur
continued losses for the foreseeable future.
  We may incur significant liability if it is determined that we are promoting off-label use of
our products in violation of federal and state regulations in the United States or elsewhere.
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The training required for physicians to use our Sensei system could reduce the market
acceptance of our system and reduce our revenue.
   Because our markets are highly competitive, customers may choose to purchase our competitors
products, which would result in reduced revenue and harm our financial results.
 ®
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
    
    significantly greater name recognition;
    
    longer operating histories;
    
    established relations with healthcare professionals, customers and third-party
payors;
    
    established distribution networks;
    
    additional lines of products, and the ability to offer rebates or bundle products
to offer higher discounts or incentives to gain a competitive advantage;
    
    greater experience in conducting research and development, manufacturing, clinical
trials, obtaining regulatory clearance for products and marketing approved products; and
    
    greater financial and human resources for product development, sales and marketing,
and patent litigation.
  We expect to continue to experience extended and variable sales cycles, which could cause
significant variability in our results of operations for any given quarter.
  The use of our products could result in product liability claims that could be expensive,
divert managements attention and harm our reputation and business.
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
    
    decreased demand for our products;
    
    injury to our reputation;
    
    diversion of managements attention;
    
    withdrawal of clinical trial participants;
    
    significant costs of related litigation;
    
    payment of substantial monetary awards to patients;
    
    product recalls or market withdrawals;
    
    loss of revenue; and
    
    the inability to commercialize our products under development.
 We may be unable to complete the development and commercialization of our existing and
anticipated products without additional funding.
  
    
    the success of our research and product development efforts;
    
    the expenses we incur in selling and marketing our products;
    
    the costs and timing of future regulatory clearances;
    
    the revenue generated by sales of our current and future products;
    
    the costs to scale-up manufacturing capacity;
    
    the costs to build out our new facility;
    
    the rate of progress and cost of our clinical trials and other development
activities;
    
    the emergence of competing or complementary technological developments;
    
    the costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights, or participating in litigation-related activities;
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
    
    the terms and timing of any collaborative, licensing or other arrangements that we
may establish; and
    
    the acquisition of businesses, products and technologies.
  Our products and related technologies can be applied in different applications, and we may
fail to focus on the most profitable areas.
  If we fail to obtain or acquire imaging and visualization technology, or successfully
collaborate with a strategic partner to provide such technology on terms favorable to us, or
at all, our Sensei system may not be able to gain market acceptance and our business may be
harmed.
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Our acquisition of AorTx, Inc. and future acquisitions are subject to a number of risks.
  
    
    with respect to future acquisitions, the possibility that an announced acquisition
does not close;
    
    the diversion of managements time and resources;
    
    the difficulty of assimilating the operations and personnel of the acquired
companies;
    
    the potential disruption of our ongoing business;
    
    the difficulty of incorporating acquired technology and rights into our products
and services;
    
    unanticipated expenses related to integration of the acquired companies;
    
    difficulties in implementing and maintaining uniform standards, controls,
procedures and policies; and
    
    potential unknown liabilities associated with acquired businesses, including
additional risks of third parties asserting claims that acquired intellectual property
infringes on the rights of such third parties.
  Software defects may be discovered in our products.
  
    
    loss of revenue;
    
    delay in market acceptance of our products;
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
    
    damage to our reputation;
    
    additional regulatory filings;
    
    product recalls;
    
    increased service or warranty costs; and/or
    
    product liability claims relating to the software defects.
 Our costs could substantially increase if we receive a significant number of warranty claims.
  Hospitals or physicians may be unable to obtain coverage or reimbursement from third-party
payors for procedures using our Sensei system, which could affect the adoption or use of our
Sensei system and may cause our revenues to decline.
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We may lose our key personnel or fail to attract and retain additional personnel.
   If we do not effectively manage our growth, we may be unable to successfully develop, market
and sell our products.
  
    
    implementing appropriate operational and financial systems and controls;
    
    expanding manufacturing capacity and increasing production;
    
    developing our sales and marketing infrastructure and capabilities;
    
    identifying, attracting and retaining qualified personnel in our areas of activity;
and
    
    training, managing and supervising our personnel worldwide.
  We commenced sales of our Sensei system internationally and are subject to various risks
relating to such international activities which could adversely affect our international sales
and operating performance.
  
    
    required compliance with existing and changing foreign regulatory requirements and
laws;
    
    export or import restrictions and controls relating to technology;
    
    pricing pressure;
    
    laws and business practices favoring local companies;
    
    longer payment cycles;
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##### Table of Contents




    
    the effects of fluctuations in foreign currency exchange rates;
    
    shipping delays;
    
    difficulties in enforcing agreements and collecting receivables through certain
foreign legal systems;
    
    political and economic instability;
    
    potentially adverse tax consequences, tariffs and other trade barriers;
    
    international terrorism and anti-American sentiment;
    
    difficulties in penetrating markets in which our competitors products are more
established;
    
    difficulties and costs of staffing and managing foreign operations; and
    
    difficulties in enforcing intellectual property rights.
  Our business may be harmed by a natural disaster, terrorist attacks or other unanticipated
problems.
  We may be liable for contamination or other harm caused by materials that we handle, and
changes in environmental regulations could cause us to incur additional expense.
  Changes to existing accounting pronouncements or taxation rules or practices may affect how we
conduct our business and affect our reported results of operations.
 Share-Based Payment Accounting for Stock-Based Compensation Accounting
 34




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for Stock Issued to Employees
 Risks Related to Our Intellectual Property
 If we are unable to protect the intellectual property contained in our products from use by
third parties, our ability to compete in the market will be harmed.
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##### Table of Contents



Third parties may assert that we are infringing their intellectual property rights which may
result in litigation.
   We may not be able to maintain or obtain all the licenses from third parties necessary or
advisable for promoting, manufacturing and selling our Sensei system, which may cause harm to
our business, operations and financial condition.
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The medical device industry is characterized by patent litigation and we could become subject
to litigation that could be costly, result in the diversion of managements attention, require
us to pay damages and discontinue selling our products.
     If we are unsuccessful in our litigation with Luna Innovations, Inc., our business may be
materially harmed.
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We may be subject to damages resulting from claims that our employees or we have wrongfully
used or disclosed alleged trade secrets of their former employers.
  Additional Risks Related to Regulatory Matters
 If we fail to comply with the extensive government regulations relating to our business, we
may be subject to fines, injunctions and other penalties that could harm our business.
  
    
    design, development and manufacturing;
    
    testing, labeling and storage;
    
    clinical trials;
    
    product safety;
    
    marketing, sales and distribution;
    
    premarket clearance or approval;
    
    record keeping procedures;
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
    
    advertising and promotions;
    
    post-market surveillance, including reporting of deaths or serious injuries and
malfunctions that, if they were to recur, could lead to death or serious injury; and
    
    product export.
  
    
    issuing public warning letters to us;
    
    imposing fines and penalties on us;
    
    issuing an injunction preventing us from manufacturing or selling our products;
    
    bringing civil or criminal charges against us;
    
    delaying the introduction of our products into the market;
    
    delaying pending requests for clearance or approval of new uses or modifications to
existing products;
    
    recalling, detaining or seizing our products; or
    
    withdrawing or denying approvals or clearances for our products.
 If we fail to obtain regulatory clearances in other countries for products under development,
we will not be able to commercialize these products in those countries.
   We may fail to comply with continuing postmarket regulatory requirements of the FDA and other
authorities and become subject to substantial penalties, or marketing experience may show that
our device is unsafe, forcing us to recall or withdraw it permanently from the market.
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An increased frequency of filing Medical Device Reports concerning adverse events occurring
during procedures performed with our technology could result in increased regulatory scrutiny
of our products and could delay or prevent the adoption of our products.
  Our suppliers or we may fail to comply with the QSR and California Department of Health
Services requirements, which could hurt our ability to commercially distribute and sell our
products and may subject us to fines, injunctions, and penalties.
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##### Table of Contents



Modifications to our products may, and in some instances, will, require new regulatory
clearances or approvals and may require us to recall or cease marketing our products until
clearances or approvals are obtained.
   If we fail to comply with healthcare laws and regulations, we could face substantial penalties
and our business, operations and financial condition could be adversely affected.
  
    
    the federal healthcare program Anti-Kickback Law, which prohibits, among other
things, persons from soliciting, receiving or providing remuneration, directly or
indirectly, to induce either the referral of an individual, for an item or service or the
purchasing or ordering of a good or service, for which payment may be made under federal
healthcare programs such as the Medicare and Medicaid programs;
    
    federal false claims laws which prohibit, among other things, individuals or
entities from knowingly presenting, or causing to be presented, claims for payment from
Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which
may apply to entities like us which provide coding and billing advice to customers or
whose products are frequently used off-label;
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
    
    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA,
which prohibits executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters and which also imposes certain
requirements relating to the privacy, security and transmission of individually
identifiable health information;
    
    federal self-referral laws, such as STARK, which prohibit a physician from making a
referral to a provider of certain health services with which the physician or the
physicians family member has a financial interest, and prohibits submission of a claim
for reimbursement pursuant to a prohibited referral; and
    
    state law equivalents of each of the above federal laws, such as anti-kickback and
false claims laws which may apply to items or services reimbursed by any third-party
payor, including commercial insurers, and state laws governing the privacy of health
information in certain circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts.
  The application of state certificate of need regulations and compliance with federal and state
licensing requirements could substantially limit our ability to sell our products and grow our
business.
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Risks Related to Ownership of Our Common Stock
 The trading price of our common stock has been volatile and is likely to be volatile in the
future.
  
    
    the announcement of our operating results, including the number of our Sensei
systems installed during a period and our resulting revenue for the period, and the
comparison of these results to the expectations of analysts and investors;
    
    the receipt, denial or timing of regulatory clearances, approvals or actions of our
products or competing products;
    
    changes in policies affecting third-party coverage and reimbursement in the United
States and other countries;
    
    ability of our products to achieve market success;
    
    the performance of third-party contract manufacturers and component suppliers;
    
    our ability to develop sales and marketing capabilities;
    
    our ability to manufacturer our products to commercial standards;
    
    the success of any collaborations we may undertake with other companies;
    
    our ability to develop, introduce and market new or enhanced versions of our
products on a timely basis;
    
    actual or anticipated variations in our results of operations or those of our
competitors;
    
    announcements of new products, technological innovations or product advancements by
us or our competitors;
    
    announcements of acquisitions by us or our competitors;
    
    developments with respect to patents and other intellectual property rights;
    
    sales of common stock or other securities by us or our stockholders in the future;
    
    additions or departures of key scientific or management personnel;
    
    disputes or other developments relating to proprietary rights, including patents,
litigation matters and our ability to obtain patent protection for our technologies;
    
    trading volume of our common stock;
    
    our announcements of guidance regarding future operating or financial results which
fails to meet investor or analyst expectations or which differs from our
previously-announced guidance;
    
    changes in earnings estimates or recommendations by securities analysts, failure to
obtain analyst coverage of our common stock or our failure to achieve analyst earnings
estimates;
    
    public statements by analysts or clinicians regarding their perceptions of the
effectiveness of our products;
    
    developments in our industry; and
    
    general market conditions and other factors unrelated to our operating performance
or the operating performance of our competitors.
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##### Table of Contents



Securities analysts may not continue, or additional securities analysts may not initiate,
coverage for our common stock or may issue negative reports, and this may have a negative
impact on the market price of our common stock.
  Our principal stockholders, directors and management own a large percentage of our voting
stock, which allows them to exercise significant influence over matters subject to stockholder
approval.
  We have not paid dividends in the past and do not expect to pay dividends in the future, and
any return on investment may be limited to the value of our common stock.
  Some provisions of our charter documents and Delaware law may have anti-takeover effects that
could discourage an acquisition of us by others, even if an acquisition would be beneficial to
our stockholders.
  
    
    permit our board of directors to issue up to 10,000,000 shares of preferred stock,
with any rights, preferences and privileges as they may designate, including the right to
approve an acquisition or other change in our control;
    
    provide that the authorized number of directors may be changed only by resolution
of the board of directors;
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
    
    provide that all vacancies, including newly created directorships, may, except as
otherwise required by law, be filled by the affirmative vote of a majority of directors
then in office, even if less than a quorum;
    
    divide our board of directors into three classes;
    
    require that any action to be taken by our stockholders must be effected at a duly
called annual or special meeting of stockholders and not be taken by written consent;
    
    provide that stockholders seeking to present proposals before a meeting of
stockholders or to nominate candidates for election as directors at a meeting of
stockholders must provide notice in writing in a timely manner, and also specify
requirements as to the form and content of a stockholders notice;
    
    do not provide for cumulative voting rights, therefore allowing the holders of a
majority of the shares of common stock entitled to vote in any election of directors to
elect all of the directors standing for election, if they should so choose;
    
    provide that special meetings of our stockholders may be called only by the
chairman of the board, our chief executive officer or by the board of directors pursuant
to a resolution adopted by a majority of the total number of authorized directors; and
    
    provide that stockholders will be permitted to amend our amended and restated
bylaws only upon receiving at least 66 2/3% of the votes entitled to be cast by holders of
all outstanding shares then entitled to vote generally in the election of directors,
voting together as a single class.
  Future sales of a substantial number of shares of our common stock in the public market, the
announcement to undertake such sales, or the perception that they may occur, may depress the
market price of our common stock.
  We incur significant costs as a result of operating as a public company, and our management is
required to devote substantial time to new compliance initiatives.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
         
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -
    
    the election of three directors to hold office until the 2011 Annual Meeting of
Stockholders and until the directors successor is elected and has qualified, or, if
sooner, until the directors death, resignation or removal; and-
    
    the ratification of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2008.
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Board of Director Election Results
 Nominee
    
    Votes For
    Votes WithheldJohn G. Freund, M.D.
    
    
    20,501,353
    
    
    
    54,385Christopher P. Lowe
    
    
    20,468,733
    
    
    
    87,005Joseph M. Mandato
    
    
    20,472,382
    
    
    
    82,906
  Ratification of the Appointment of PricewaterhouseCoopers LLP as independent registered public
accountants of the Company
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(2)
    
    Amended and Restated Bylaws of the Registrant.4.1(3)
    
    Specimen Common Stock Certificate.4.2(3)
    
    Amended and Restated Investor Rights Agreement, dated November 10,
2005, between the Registrant and certain of its stockholders.10.28
    
    Agreement with W.L. Butler Construction, Inc. dated April 28, 2008.31.1
    
    Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Previously filed as an exhibit to Registrants Annual Report on Form 10-K, filed on March 28,
2007 and incorporated herein by reference.(2)
    
    Previously filed as an exhibit to Registrants Current Report on Form 8-K, filed on
February 16, 2007 and incorporated herein by reference.(3)
    
    Previously filed as an exhibit to Registrants Registration Statement on Form S-1, as
amended, originally filed on August 16, 2006 and incorporated herein by reference.*
    
    The certifications attached here to as Exhibits 32.1 and 32.2 accompany this Quarterly Report
on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to
be incorporated by reference into any filing of Hansen Medical, Inc. under the Securities Act
of 1933, as amended, or the Exchange Act (whether made before or after the date of the
Form 10-Q), irrespective of any general incorporation language contained in such filing. 48




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##### Table of Contents



SIGNATURES
  Dated:  August 5, 2008
    By:
    /s/ Frederic H. Moll, M.D.Frederic H. Moll, M.D.Chief Executive Officer
(Principal Executive Officer)Dated:  August 5, 2008
    By:
    /s/ Steven M. Van DickSteven M. Van DickChief Financial Officer
(Principal Financial and Accounting
Officer) 49




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(2)
    
    Amended and Restated Bylaws of the Registrant.4.1(3)
    
    Specimen Common Stock Certificate.4.2(3)
    
    Amended and Restated Investor Rights Agreement, dated November 10,
2005, between the Registrant and certain of its stockholders.10.28
    
    Agreement with W.L. Butler Construction, Inc. dated April 28, 2008.31.1
    
    Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Previously filed as an exhibit to Registrants Annual Report on Form 10-K, filed on March 28,
2007 and incorporated herein by reference.(2)
    
    Previously filed as an exhibit to Registrants Current Report on Form 8-K, filed on
February 16, 2007 and incorporated herein by reference.(3)
    
    Previously filed as an exhibit to Registrants Registration Statement on Form S-1, as
amended, originally filed on August 16, 2006 and incorporated herein by reference.*
    
    The certifications attached here to as Exhibits 32.1 and 32.2 accompany this Quarterly Report
on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to
be incorporated by reference into any filing of Hansen Medical, Inc. under the Securities Act
of 1933, as amended, or the Exchange Act (whether made before or after the date of the
Form 10-Q), irrespective of any general incorporation language contained in such filing.