NanoString Technologies, Inc.
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the NanoString 2017 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Doug Farrell, Vice President of Investor Relations. Mr. Farrell, you may begin your conference.

[Doug Farrell:]

Thank you, operator and good afternoon, everyone. On the call with me today is Brad Gray, our President and CEO; and Jim Johnson, our CFO. Earlier today, NanoString released our operating results for the fourth quarter of 2017. A copy of the press release can be found on our website. During this call, we may make a number of statements that are forward-looking, including statements about financial projections, existing and future collaborations, future business growth, trends and related factors, prospects for expanding and penetrating addressable markets, interactions with third-party payers, the timing and outcome of any related reimbursement decisions, our strategic focus and objectives, and the development status and anticipated success of recent and planned product offerings. Forward-looking statements are subject to risks and uncertainties, many of those or which are beyond our control, including risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call and we undertake no obligation to update these forward-looking statements. I would also like to let you know that later this month we will be participating in the Bank of America Healthcare Conference, and early in June we'll be participating in the Jefferies Healthcare Conference. So, with that, let me turn the call over to Brad.

[Brad Gray:]

Thanks Doug, good afternoon and thank you for joining us today. My prepared remarks will include an overview of our performance in the first quarter, and an update on our strategic objectives for the year. Then I'll turn the call over to Jim to review our Q1 operating results and our guidance for Q2 in 2017. Our year was off to a good start as we made solid progress against both our commercial and strategic objectives. We rapidly expanded our installed base breaking through the milestone of 500 systems, while at the same time completing two-thirds of our plan salesforce expansion. We launched a number of exciting new consumable products and demonstrated progress in the development of our pipeline of future instrument platforms. We continue to strengthen our leadership in precision oncology selling 80% of new systems for this application and raising our profile at the AACR Annual Meeting with record numbers of scientific presentations and customer interactions. I’m pleased with our performance and our momentum. During the first quarter, our products and service revenue grew by 30% and our total revenue increased by 23% over the prior year. Our products and service revenue grew robustly across all customer segments. With particular strength in biopharma and diagnostics which grew 40% and 90% respectively. Instrument revenue in the first quarter increased by 31% over the prior year. Demand was particularly strong in our biopharma business which accounted for about 40% of instrument revenue and continue to diversify our installed base. Academic instrument demand was also strong driven by sales of nCounter SPRINT which accounted for approximately half of the units sold. SPRINT's combination of performance and affordability is expanding our reach to new customers at SPRINT sold in Q1 went to our customers with no previous nCounter platform. Our overall consumable revenue which includes both life science consumables and Prosigna increased by 26% over the prior year. Our panel products continued to drive consumable growth accounted for more than half of our life science consumable sales. The increasing importance of biomarkers and drug discovery and development remains an important growth driver for us and biopharma companies and CRO's once again drove over 40% of life science consumable revenues. Additionally, consumable growth benefited from record for Prosigna revenue that was driven in part by a number of new reimbursement wins over the last year. Overall, we're pleased with our commercial performance during Q1 which reflected the benefits of our expanded product lines and diversified customer base. Now I’d like to provide an update on our strategic objectives for 2017. As we outlined in our year-end call, our number one strategic objective for 2017 is to optimize our commercial channel. We're making significant investments in our commercial capabilities including new sales personnel and state-of-the-art marketing tools. On the sales front, we are rapidly recruiting talented new members to our commercial team. On our last call, we outlined our plans to add 20 new sales positions and expand our commercial channel. Our commercial expansion is on track and to date we have filled about two thirds of those new positions including the vast majority of our new consumable sales specialist. We expect to be fully staffed by midyear and to begin experiencing the benefit of these investments in the second half. In parallel, we are making a steady progress in our search for a new senior commercial leader. We are actively interviewing candidates and hope to have our new commercial leader on board in the months ahead. I’m impressed by the strong field of candidates that we have attracted which I believe reflects our unique positioning and growth profile. On the marketing front, we've just completed a major new branding initiative that emphasizes our unique commitment to translating insights from research conducted on our platform to impact on patient lives. This new branding will be showcased on our refreshed corporate website that will go live in the next week. The new website allows us to use dynamic content to engage users such as by highlighting in real time, the momentum of nCounter based publications that are being generated across a wide range of applications and diseases. We believe that this enhanced digital marketing will help us capitalize on potential customer interest, generate new leads, and efficiently incorporate them into our funnel of commercial opportunities. Meanwhile we continue to enhance our presence at major medical conference where our marketing efforts are complemented by the rapidly increasing volume of high-quality research being presented by our customers and collaborators. A great example of this is the Annual Meeting of the American Association of Cancer Research in Washington D.C. which was held in April. The conference is concerned on most important event of the year and the 2017 meeting exceeded our expectations. There were more than 45 scientific abstracts using our nCounter technology, a substantial increase over last year which helps to generate record boot traffic and sales leads. Also at AACR, we hosted approximately 100 private meetings where many of the Pharma companies interested in accessing our technology for biomarker research or companion diagnostic development. Overall, we expect these sales and marketing initiatives to optimize our commercial operations and to increase the volume and quality of customer interactions supported continued growth in 2017 and beyond. Our second strategic objective is to launch new products to drive near-term growth and increase our competitive advantage. So far, this year, we want several consumable products that we expect to become important contributors to our growth over time. In March, we launched our PlexSet chemistry opening up a market currently served by QPCR that involves projects that profile small numbers of genes over large sample sets. PlexSet simple workflow enabled high throughput expression analysis without the need for our nature vacation, cDNA conversions, or upfront per validation which means that customers have four left hands-on time and shoulder turn around as compared to QPCR. One PlexSet application that we highlighted during the launch is quality assurance for crystal based Genome Research. PlexSet reagents allow researchers to simultaneously confirm prescriptive validations and perform functional testing for up to 24 custom gene targets. This is generated substantial interest from customers in this fast-growing area of research. I would also like to highlight four new products launched during the AACR meeting. The first of the low RNA input kit, a dramatically reduces the sampling required for gene expression applications. This kits strengthens our value proposition by enabling encountered profile even smaller samples than in the past making new studies possible and extending the competitiveness of our platform. We also announced the commercial launch of our myeloid innate immunity panels which were codeveloped with OHSU and Stand Up To Cancer -Lustgarten Foundation Pancreatic Dream Team. These new panels provide researchers studying the role of the innate immune system in cancer or other diseases with a tool for rapid comprehensive profiling of human or mouse RNA. These panels should appeal to our current install base of immune-oncology researchers and also enable growth in more traditional immunology labs. Additionally, two recent product launches expanded our 3D biology portfolio. One is the Vantage 3D RNA panel with a map kinase and PI three kinase pathways which complements our solid tumor S&P and protein offerings. The other is a new universal cell capture kit that allows our immune cell signaling assay to provide in-depth immune certification minimal starting sample. Overall the year has been the most - one of the most productive periods of new product introduction in our history. We've already begun to see the impact of these new product launches at several Q1 and Q2 instrument sales that have motivated in part by 3D biology or PlexSet and we believe that these products will help drive consumable and instrument sales to the balance of the year. Our third strategic objective is to continue to lay the groundwork from expanding menu of diagnostic assays. This starts with strong commercial execution on our Prosigna Breast Cancer Assay. During the first quarter, we achieved record Prosigna revenue nearly doubling sales over Q1 of 2016. Much of this growth came from Europe where Prosigna's ability to enable localized testing is resonating strongly. We also saw solid growth in the U.S. where improved reimbursement is catalyzing the centralized testing within integrated delivery networks and large community oncology practices. In March, the St. Gallen International Breast Cancer consensus panel made up of 43 renowned experts from across the globe will run positive recommendations for the Prosigna assay. The panel supported the use of Prosigna has a tool to guide early-stage breast cancer patients who do not require adjuvant chemotherapy due to their low risk of occurrence. Full details of the panel recommendations are expected to be published within the next few months. Meanwhile our pipeline of active companion diagnostic partnerships discussions is larger and more dynamic than ever. Interest in biomarkers that predict response to immunotherapy’s is particularly high and we are in dialogues with multiple biopharma companies about the research and diagnostic applications of our tumor inflammation signature or TIS. At the AACR conference last month, researchers from the Frank was in the results from a study applying our gene expression based TIS algorithm to the Cancer Genome Atlas database. This study showed tumor inflammation levels very substantially across and within tumor types and it does with the greater sensitivity to anti-PD1 blockade tend have higher average inflammation as measured by TIS. This suggest that TIS may have utility across a broad range of tumor types. In addition, TIS provides immune status information not provided by mutational load assays and they complement to mutation burden as a predictive assay for immunotherapy. This study is consistent with our observation of biopharma companies are likely to hedge their best across multiple testing modalities including PDL1 IC, tumor mutation burden, and gene expression signatures focused on [indiscernible] pathway and tumor inflammation. Meanwhile we continue to feel biopharma interest in our lymphoma subtyping test and PAM50 breast cancer assays resulting in a growing number of exploratory pilot studies. We exited Q1 with 47 pilot studies with 19 different companies more than doubling the number of diagnostic pilot studies from the prior year. Our recently expanded business development team is extremely active and we remain confident that we are well-positioned to add new CDS collaborations in 2017. Our four-strategic objective is to advance our portfolio of breakthrough technologies including digital spatial profiling and Hyb & Seq. We're highly engaged with the scientific community regarding both of these programs and based on their feedback we believe that both have enormous potential. Since we initiated our technology access program for digital spatial profiling last fall, we continue to add new partners mostly of them are translational researchers at biopharma companies. Over the past few months we've begun to share output data both privately with program participants and scientific meetings such as efficacy safety and AACR. In response to early data that we have provided and that has been overwhelmingly positive, we have begun to see program participants return for additional expanded studies. At AACR, we file in your presentation on digital spatial profiling with our senior Vice President of R&D Joe Beauchamp, and collaborator Dr. Gordon Mills from MD Anderson. In front of a standing room only crowd, Joe and Gordon reviewed the performance attributes that makes DSP such a unique platform including best-in-class multiplexing capabilities and throughput, robust performance in FFPE samples, simple workflow, and no disruption of the original tissue sample. Our new DFP study was also presented at AACR by the Yale Researcher David Rimm, who was well known in the pathology community as the inventor of the Aqua platform which performs tissue-based protein analysis or four to five flex using quantitative immunofluorescence. This study demonstrated the DFP data was well correlated with the benchmark off the technology and had the advantage of multiplexing up to 10 times as many proteins on the same sample. The teams from the Yale particularly impressed with the dynamic range of DSP which is at least 100 times greater than Aqua. The positive feedback from experts and users made more excited than ever about the commercial potential of DSP and we are on track for a commercial launch in late 2018. Lastly, I would like to provide an update on our Hyb & Seq platform. In February, we demonstrated the ease of use and rapid sample to answer capabilities of Hyb & Seq at the AGBT conference. This generated a lot of excitement with fault leaders of the sequencing community, who impressed with the unique attributes of the platform such as long lead place and the ability to sequence DNA and RNA simultaneously. According to a survey of AGBT attendees conducted by an independent market research firm, Hyb & Seq was the most noteworthy technical development presented at the meeting. The capabilities demonstrated AGBT as stimulated significant interest from academic collaborators and we're planning additional proof-of-concept studies to showcase the unique capabilities of Hyb & Seq. In addition, we are feeling interest from potential partners who may wish to fund the development of Hyb & Seq in exchange for our financial or commercial interest in the product and we're optimistic that these interactions will bear fruit. Overall, we're pleased with the pace of progress in these programs and believe that our pipeline of breakthrough instruments that point to drive substantial growth and strategic value over time. Now I’d like to turn the call over to Jim to review the details of our operating results.

[Jim Johnson:]

Thanks Brad. Total revenue for the quarter was $18.1 million up 23% versus the first quarter of the prior year. Total product and service revenue was $15.8 million up 30% compared to the first quarter of 2016. Foreign exchange rate fluctuations reduced the growth and total product and service revenue were about 160 basis points. Instrument revenue for the quarter was $4.5 million, 31% higher in Q1 2016. Approximately half of systems sold in the quarter restraints consistent with our expectations. Life sciences consumable revenue was $8.6 million up 19% year-over-year. Prosigna IVD kit revenue was a record $1.4 million for the quarter growing 91% year-over-year and in total our consumable revenue for the quarter was $10 million, an increase of 26% in the first quarter of 2016. While the pull-through was below $100,000 per system on an annualized basis, it reflects the seasonal trends similar to what we've experienced in the first quarter of prior years and it was incorporated in our guidance for 2017. Service revenue increased by 64% to $1.3 million for the quarter and significant portion of the increase was generated from our technology access program for digital spatial profiling. We recorded $2.3 million of collaboration revenue for the quarter compared to $2.6 million in the first quarter of 2016. The amount of revenue recognized in the first quarter was impacted - incremental assay validation work added to the development plan effectively reduces the percentage of completion as of the end of the first quarter. Most of this incremental work will be completed in 2017 and that’s the impact is to shift revenue from Q1 into later quarters. Gross margin on product and service revenue for the quarter was 55%, an improvement of approximately 300 basis points from the 52% reported for the first quarter of 2016. The increase resulted largely from three things, the addition of high margin DSP service revenues, reductions in inventory related cost and a lower royalty rate on the license of the foundational nCounter patents, due to the achievement of accumulative revenue milestone that took effect in Q3 of last year. R&D expense was $10.8 million for the quarter up 50% compared to Q1 2016 but up only marginally versus the fourth quarter. Year-over-year increase was driven by growth in our R&D investment over the course of 2016 and it was divided approximately evenly between diagnostic development costs related to our biopharama collaborations and investment in our new platform technologies 3D biology, digital spatial profiling and Hyb & Seq. SG&A expense increased by 18% year-over-year to $17.6 million for the quarter. The increase predominately reflects investment in the expansion of our sales channel and increased product marketing activities. Stock-based compensation expense was $2.3 million compared to $1.9 million for the first quarter of 2016. Our GAAP net loss for the quarter was $18.9 million or $0.87 per share compared to $14.6 million or $0.74 per share for the first quarter of last year. We ended the quarter with approximately $57 million of cash investments. Now I’ll turn to our 2017 financial guidance. We reiterate our guidance for total revenue of $100 million to $105 million for the year assuming constant currency which is an increase of 16% to 21% over 2016. This includes revenue from our existing biopharama collaborations of approximately $19 million to $20 million and it does not include revenue from any new collaborations which represent upside to our guidance. We continue to expect total product and service revenue of $81 million to $85 million including Prosigna revenues of approximately $6 million. For the second quarter of 2017, we expect total revenue of $23.5 million to $24.5 million including product and service revenue of $18.5 million to $19.5 million and collaboration revenue of approximately $5 million. The product and service revenue this represents 21% sequential growth at the midpoint and is consistent with our typical seasonality. For gross margin on product and service revenue for the full-year expect to be in the range of 57% to 58% with collaboration revenue excluded from the calculation. For operating expenses, we continue to expect a total of $117 million to $120 million for the year including approximately $10 million to $11 million of stock-based compensation expense. Our GAAP operating loss for the year is expected to be in the range of $49 million to $53 million and we continue to expect interest and other expense to be approximately $6 million for the year. Our expected GAAP net loss for the year is unchanged at $55 million to $59 million or $2.51 to $2.69 per share. We expect total capital expenditures between $4 and $5 million for the year, net of leasehold improvement funding from our landlord. So, with that, I'll turn it back over to Brad to wrap up.

[Brad Gray:]

Thanks Jim. In closing I’m pleased with our performance in our first quarter. We continue to benefit from the commercial opportunities and rapidly expanding markets in precision medicine and immune-oncology and continued strength in our biopharama business is further diversified our end markets. We have a robust pipeline of potential diagnostic partnerships and believe that the CVS collaborations can open new revenue streams and provide an important source of non-dilutive capital to help fund our growth initiatives. Lastly, we continue to be successful in engaging customers and partners in our pipeline of breakthrough technologies ahead of our commercial launches over the next two years. At this point, I’d like to open up the call for your questions.

[Operator:]

[Operator Instructions] Our first question comes from Tycho Peterson of JPMorgan.

[Tycho Peterson:]

Thanks. Brad, maybe to set out on the academic side of things, was there a catch-up effect from - on the instrument side from the shortfall last quarter and then any thoughts, comments on just on the funding dynamics with the NIH bump, could you see a little bit of spending here in the near term.

[Brad Gray:]

Thanks, Tycho. In Q1 we did recapture a few of the instruments that we had characterized as having fallen out of the Q4 funnel but I don't think that was a major contributor to Q1 growth that we saw. As a reminder, the dynamic that we experienced in Q4 was different than we had experienced in Q1 of 2016 in the sense that it was not a series of purchasing processes that were simply delayed by a few days or weeks from the fourth quarter into the first. Instead it was more of a set of funding uncertainties that we're faced by in particular or academic customers. So, we recaptured several of those instrument that had slipped but I don't think it artificially inflated in any way our fundamental growth during the first quarter. With respect to NIH funding obviously we’re cautiously optimistic that the President will sign into all the budget that was agreed over the last several days and that that will continue to fund important academic research including helping to grow our business. I don't necessarily think that it will translate into a bump in the very near term as yeah purchasing processes are slow and we often see a timing disconnect between when NIH funding budgets change and when it actually shows up in capital purchases. I point out that over the last year or so as our business has diversified NanoString overall reliance on U.S. academic funding has been reduced. Over the last two years U.S. academic exposures has come down from about 34% a couple years ago to about 26% of our product and service revenue today. And when you hear us talk about the strength and the diversification of our revenue base it’s partly about making up the balance there with biopharma companies who are increasingly important or diagnostic labs as Prosigna comes on line.

[Tycho Peterson:]

And then on companion front I know you highlighted some momentum you had and the pilot studies if we think about interest there can you may be just on how much of that is single indication similarly we have a Medivation versus multi-indication like you have with Merck and should be anticipating a larger deal at some point later this year?

[Brad Gray:]

Yeah so, the nature of the interest I’d say right now is spread about equally across immuno-oncology with our tumor inflammation signature and the lymphoma subtyping tests for diffuse large B cell lymphoma. Obviously, all of the DLBCL interest seems to be single indication in nature and we would expect collaborations in that field to look a lot like the Medivation economics from 2016. The tumor inflammation signature interest sometimes is single indication and sometimes its multi-indication it’s a little early for us to describe what we think those deals look like but the interest is robust.

[Tycho Peterson:]

Okay and just last one and Hyb & Seq you mentioned strategic interest should we think about you guys doing a development deal at some point in the next couple of quarter to get the box counted?

[Brad Gray:]

Yes, I do I think we have been explicit that Hyb & Seq program is a extremely high potential program but unlike visual spatial profiling it will be your material R&D investment. As we described it at AGBT we think it could require up to $50 million in incremental R&D funding and we think it would benefit from the expertise and the capital and muscle of our the partner. So, we are fielding interest coming out of the interest that we generated at AGBT we’re not in an incremental hurry to do a deal because our focus remains on completing the scale about the chemistry but we would like to find a partner over the balance of the quarters ahead. We’re going to do the right partnership it can come in a variety of forms that range from technology company taking an economic interest in the development of the instruments while but not using necessarily their commercial channels or it could be at the other end of the spectrum a more traditional commercial partnerships where our partner would take a commercial license some application or territory et cetera. So, we’re thinking relatively flexibly about it right now, but stay tuned over the quarters ahead.

[Tycho Peterson:]

Okay. Thanks.

[Operator:]

Our next questions comes from Doug Schenkel of Cowen.

[Doug Schenkel:]

Good afternoon guys and thank you taking my questions. I guess a question on guidance your guidance implies that I think it's 58% 59% of sales recorded in the second half of this year. This is pretty normal for you guys going back to at least 2013 is it fair to assert that your guidance does not reflect meaningful benefits associated with any of the changes you're making in commercial strategy. And that if the hires or the change in strategy yield benefits quarter than anticipated that that could lead to some upside what you contemplated in guidance?

[Brad Gray:]

Yeah thanks for the question Doug let me go back to the year-end call and described again our guidance philosophy for 2017 and I’ll put that in the context of the first and second quarters. This year we took a deliberately different approach to our revenue guidance really coming off the back of 2016 where we failed to meet our expected range. We really did two things in guidance one was we were deliberately cautious in the way we thought about the first half of the year noting that we were going to be making a change in commercial leadership and scaling up our sales force in a way that would both distract from the business of growing the business in the first half and which would yields the benefit more in the second half than first. Then at the same time and I guess offsetting from a seasonality standpoint we did not assume a major Q4 budget flush because as we learned 2016 that can introduce substantial risk into the way that your guidance is laid out across the year and if that budget flush fails to materialize it can be highly problematic. So really that’s the commentary we said on the last call I think with Q1 we had a strong Q1 we’re pleased with the degree to which the commercial team was able to both scale up its hiring and deliver strong quarter in the first quarter. In the second quarter I think our guidance at the midpoint is about 21%, 22% sequential growth which we think represents continued progress but we're not guiding for a heroic second back half of the year I think if you look at the way that the revenue is distributed between the first and second half as you pointed out it's pretty typical of what we had in the past and I don't think it does assume obviously some effectiveness to the hiring activities of the first half but I don't think we’re guiding for protection in the second half.

[Doug Schenkel:]

Okay. That's helpful color and some useful reminders on what you’ve stated earlier. Pivoting to biopharma product and services sales grew I believe you said 40% in the quarter and also accounted for 40% of sales embedded into guidance another guidance question embedded into guidance, are you assuming that biopharma momentum continues at the same level excluding companion diagnostics just looking at products and services?

[Brad Gray:]

We have had a lot of momentum in biopharma and I would call the growth in the first quarter being extremely strong in biopharma that being said it can be lumpy from quarter-to-quarter because biopharma even more than academics since they have very large order sizes and sometimes that's a great thing specially in the consumer front sometimes when you have a tough comp those large orders don’t show up it can be negative thing. So I don’t know that will show the same growth numbers every single quarter 2017 that we’ve shown from biopharma. But generally speaking over the balance of the year as we look at our sales funnel we do see good strength particularly in the instrument funnel from biopharma. And when we think about where the company products are positioned right at the heart of immuno-oncology and precision medicine we think biopharma is going to continue to be a very important segment for us going forward. But I would not say I wouldn’t want people to believe that our guidance hinges on 40% revenue growth in biopharma every single quarter of 2017 it certainly doesn't.

[Doug Schenkel:]

Okay. Thanks for that Brad and one last one I'm not sure this is better for Brad or better for Jim you burned through about I think its $17 million in cash in the quarter which I think was largely in line with expectations certainly in line with what we had in our model. You reiterated your operating burn guidance for the year I believe how confident are you in your ability to close additional companion diagnostic deals as you have in the past that will have enough of an upfront or near-term economic component this year as of means of extending your cash balance runway well into 2018 if not beyond? Thank you.

[Brad Gray:]

Yeah so Doug as we think about opportunistic and creative ways to fund our investment in the business all the time and I think we have a good track record of accessing three different sources of capital our favorite of course is non-dilutive capital from biopharma partnerships and we've been highly successful in the past at funding the business from that source. But we’ve also been from time-to-time optimistic about tapping equity through ATMs and debt through advantaged term loan agreements. Our business development pipeline is extremely active and dynamic I'm on in meetings effectively at daily basis thinking about how we can execute our strategy. And those partnerships I feel confident will come over the course of this year and we’ll be able to continue to tap that as a source both for our pipeline as well cash. From time-to-time and really depending on the timings of those biopharma deals we may opportunistically choose to act as other sources of capital. So, I wouldn’t want you to believe that we’ll never do that, but I do want everyone to understand that we continue to be just as confident and biopharma as a means of growth to our business as we have been in the past. Jim?

[Jim Johnson:]

Yeah maybe just add we I think been very successful over last few years pursuing the strategy we bought in I think somewhere over $60 million from collaborations. We’ve increased our borrowings by $20 million to $25 million and raised $40 million under an ATM. So, and doing that really at the same time it’s adding some really quality shareholders to our shareholder base. So, we think it’s been a good approach and discipline, but it's worked out well for the company and also for the shareholders.

[Doug Schenkel:]

Okay. Thanks again guys I appreciate your time.

[Operator:]

Our next question comes from Catherine Schulte of Robert W. Baird.

[Catherine Schulte:]

Hey thanks for the questions with the success you’ve had from the technology access program for DSP would you consider continuing of offer that as a service once you have a commercial instrument of pharma companies didn’t want to have to do themselves or add another instrument?

[Brad Gray:]

Catherine that’s a great question I think it's still pretty early days on digital spatial profiling. Certainly, the success of the technology access program is encouraging us to continue to offer that as a service until the time of a product launch and instrument launch which would be late 2018. So, I would expect that we will use a DSP based service to remain engaged with our customers until that time. It still a little early for us to decide whether we want to scale up that business in the wake of an instrument launch or whether we’d like to just simply rely on the CRO's many of whom use our technology today and do a great job with it as we have in the past. To-date we've chosen rather than to build our own service model on our encounter technology to empower the CRO's and they do an increasing share of our biopharma business as biopharma companies moved outsourcing. So, we think that's a perfectly valid avenues for us once we have instrument it's over.

[Catherine Schulte:]

Okay that make sense and then can you elaborate on your assumptions for instruments versus consumable in your second quarter guidance and for the consumables pull through will that bounce back up to 100,000 annualized rate next quarter?

[Brad Gray:]

So approximately $100,000 in total pull through remains our guidance for the full year as we seen in the past though it can fluctuate quarter-to-quarter the first quarter consumable pull through was typical of the seasonality that we see and the first quarter is very often less than that $900,000 pull through it’s probable but it will recover in the second quarter, but it may or may not exceed the benchmark the attrition benchmark of a 100K.

[Jim Johnson:]

I think if you look back historically it’s pretty much gone up each quarter throughout the year. So, I think our expectation would be Q2 pull through will be higher than Q1, Q3 higher than Q2 and so forth to the end of the year. So, it should be higher than Q1 probably around $100,000 level.

[Catherine Schulte:]

Okay. And then last one from me can you just talk about what you saw from the different geographies this quarter U.S. versus Europe versus Asia Pacific specifically on instruments?

[Brad Gray:]

So, overall U.S. and Europe were had good strong quarters, they were above our overall global product and service growth rate. Asia had a weaker quarter in terms of growth against actually a pretty strong comp from the first quarter of 2016. So that was true on both a total revenue basis as well as an instrument line item basis. So, strength in Americas and the EMEA, relatively soft in Asia.

[Catherine Schulte:]

Okay. Thank you.

[Operator:]

[Operator instructions] Our next question comes from Paul Knight of Janney.

[Paul Knight:]

Hey guys. I thought I was in the queue. When you're looking at these published papers, we were often seeing the ease of sample prep, what are user saying right now or what are these published papers saying anything incrementally new obviously 3-D biology is big but sample prep always stands out. What's incremental in these publications that you cited in the prepared comment.

[Brad Gray:]

So, Paul specifically the news flow from AACR are just more general. So, there was I am not sure which of our 42 or so abstracts from AACR you're referring to Paul but easy of workflow has been a very fundamental part of our value proposition from the very beginning. In fact, nCounter really built its original following on being the simplest and most robust platform with the hardest of work with tissue type which is formal disc embedded tissue and one of the key competitive advantages that nCounter has over either quantitative PCR on one hand or RNA sequencing on the other, is the ability to process samples with an RNA extraction or only a lysis before learning on the instrument. We've extended that simplicity to all the new products in pipeline and recently launched one. With Plex Set which is your new chemistry that we are competing in the low plex high-volume sample volume market with all of those advantages that are traditional to nCounter exist. So that's just -- there's no volumes or amplification in the chemistry and what we do influx that effectively is multiple samples in each lane of a cartridge so that a cartridge that would normally have processed 12 samples looking at a lot of targets can process up to 96, looking at a few. And so, the throughput of the system with that simple workflow is just enormously expanded. Similarly, with visual spatial profiling, one of the big value proposition is simplicity of workflow because instead of having to staying many, many slides individually each with a one of four markers per slide, you can just stay in one slide once with 30 or even up to 50 different protein markers at once. So that's again the extension of that simplicity. And then finally on Hyb & Seq, Hyb & Seq is a distinctive feature, it's really the ability to go directly from a sample like a cancer biopsy to the initiation of a sequencing run in less than one hour with 15 minutes of hands-on time. So that is the kind of work flow we think is required to put sequencing to work in basic hospitals. So, in all cases I'd say the simplicity of the workflow is distinctive in a big part of the value propositional of technology.

[Paul Knight:]

I've heard a couple of diagnostics labs site increased sensitivity, specificity versus microarrays, is that a refrain you're hearing from the customer base?

[Brad Gray:]

It is Paul that's in addition to the simple workflow. I would say the incredible ability to get sensitive and specific gene expression information has always been a part of our nCounter value proposition. Compared to microarrays nCounter has about a 100 times more dynamic range. So, your ability to look at low expressing transcript and high special transcripts at the same time in the same assays is much better on nCounter than it would be on the way and that can be really important for diagnostic developers too.

[Paul Knight:]

Thank you.

[Operator:]

Ladies and gentlemen, I am not showing any further questions at this time. I would like to now turn the call back to Brad Gray.

[Brad Gray:]

Thank you all for taking your interest in NanoString and as a reminder we'll look forward to seeing many of you at the Banc of America Conference in a couple week's time or the Jefferies Conference in early June. Look forward to seeing you soon.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect and everyone have a great day.