NanoString Technologies, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Aug 2017

[Operator:]

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

[Doug Farrell:]

Thank you, operator and good afternoon, everyone. On the call with me today are Brad Gray, our President and CEO; and Jim Johnson, our CFO. Earlier today, NanoString released financial results for the second quarter of 2017 and a copy of the press release can be found on our website at nanostring.com. 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 our 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 which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on the call today and we undertake no obligation to update these forward-looking statements. We will be participating in both the Baird and Morgan Stanley Healthcare conferences next month and we look forward to seeing many of you there. And I'm going to turn the call over to Brad.

[Brad Gray:]

Good afternoon and thank you for joining us today. Over the past several months we have made substantial progress toward our strategic objectives. We have expanded our sales team and recruited a new commercial leader within our process of revitalizing our sales approach. We have strengthened our balance sheet securing equity capital to invest in our growth and pipeline and today we have announced a groundbreaking strategic development collaboration with nanoscale technology leader Lam Research to bring together world-class innovators in molecular profiling and semiconductor technology to advance our Hyb & Seq platform with the goal of building one of the worlds simplest clinical sequencers. This collaboration with Lam Research represents an exciting moment for NanoString and for the broader genomic industry. Lam Research is neither life sciences, but is well known in technology circles as a top performing company and leading innovator in semiconductor manufacturing. We expect that Lam's expertise in nanoscale engineering and manufacturing will significantly boost our Hyb & Seq product development. In addition, the collaboration announced today fully funds Hyb & Seq development with minimal dilution and importantly without any strategic encumbrances on our product or company. I will provide more color on this partnership later in my prepared remarks. In the meantime I direct you to the investor relations section of our website where you can find a set of slides under the Events tab and second quarter financial results that I'll use to outline the details of the collaboration. Now I'd like to provide an overview of our performance in the second quarter and an update on our strategic objectives for the year before turning the call over to Jim to review our operating results and guidance. During the second quarter our total revenue grew by 53% over the prior year with collaboration revenue growth of over 200% and products and service revenue growth of 5%, collaboration growth was driven by continued progress in our ongoing collaborations with Celgene and Merck as well as the wind down of our continued diagnostic collaboration with Medivation and Astellas following the previously disclosed termination of enzalutamide development in triple negative breast cancer. Our products and service revenue of $18.3 million came in near the lower end of our expected range as in line instrument sales were offset by lower consumable growth. Instrument revenue was up 35% sequentially from Q1. Demand was particularly strong among biopharma companies which accounted for 40% of instrument revenue and continue to diversify our installed base. Our higher throughput MAX and FLEX systems remained especially popular among our biopharma customers helping grow our Q2 instrument mix to approximately 60% high throughput systems and 40% SPRINT systems. Our overall consumable revenue, which includes both life science consumables and Prosigna, increased by 7% over the prior year. Consumable growth benefited from record Prosigna revenue which was up almost 50% during year-on-year while life science consumables were relatively flat. Panel products continued to grow in popularity accounting for over 50% of life science consumables revenue. While our biopharma pull through continues to be strong, we experienced some lumpiness as several large biopharma customers ordered less than in the prior year period. Among academic customers pull through was below our historical average which we attributed to our sales team becoming thinly stretched across the following years of installed base growth that outpaced the expansion of our sales channel. Despite the soft product and service revenue growth in Q2 we remain confident that the initiatives we have underway will accelerate growth in the second half. Our number one strategic objective for 2017 is to optimize our commercial channel and we've made substantial progress against this goal over the past quarter. Last month we appointed Chad Brown as our new Senior Vice President of sales and marketing. Chad is an industry veteran with deep experience in both tools and diagnostics. He has led commercial organizations through periods of tremendous growth and scaled the infrastructure of these organizations to meet their expanding opportunities. I am excited to have Chad on board and the commercial team is clearly energized by his arrival. Chad has hit the ground running and he has already introduced several new initiatives to enhance our commercial effectiveness. These include programs to stimulate SPRINT system sales to academic researchers and small biopharmas and initiatives that leverage our distinct immune-oncology assets to extend our leadership in that dynamic market. The impact of Chad's leadership will be amplified by the substantial commercial expansion we've executed in the past several months. Since the beginning of the year we have added 20 new sales positions expanding our life science sales force by over 25%. Most of these hires are focused on driving consumable sales into our installed base of approximately 540 nCounter systems. While nearly all of this hiring took place during the second quarter and therefore did not materially impact our reported results we are beginning to see encouraging signs of what we can expect as these new reps come up to speed in the second half. For instance in several territories where consumable reps were hired earlier order volume has grown substantially faster than the territories where the new positions took longer to fill. Our regional account managers in these same territories tell us that the addition of consumable reps has allowed them to use their time to identify and develop more instrument opportunities. We have augmented our sales force expansion with more vigorous lead generation activities which should further grow our instrument sales funnel. Our website was relaunched in May helping drive web traffic up 25% year-on-year and we expanded our presence at leading scientific meetings. At the annual meeting of the American Society of Clinical Oncology or ASCO interest in our products was strong driven in part by the record number of abstracts presented by our customers. We generated record booth track that more than doubled our lead generation over the prior year and hosted more than 200 meetings with potential customers and biopharma partners, triple the number of meetings compared to the prior year. We believe that this increased sales and marketing activity will begin to accelerate growth in the second half of the year and reach full impact in 2018. In parallel, we are making exciting progress in our second strategic objective by launching new products that driver near term revenue and increase our competitive advantage. We launched a record number of new products in the second quarter and we're starting to see the benefit. New applications are broadening the feel of our technology and helping drive instrument sales. 3D Biology influenced more than 40% of instrument sales in Q2 while another 15% of systems sold went to customers who are interested in running our new PlexSet product line for high throughput gene expression analysis for small gene numbers. Expanding the range of applications for nCounter remains a key priority and we have several consumable product launches slated for the second half of the year. One upcoming launch that is expected to appeal to existing customers is the revolutionary new immune-oncology product called the PanCancer IO360 panel, which is a 770 gene expression panel specifically designed to support drug development by profiling multiple potential mechanisms of immune resistance. In addition, we will launch a panel for liver degeneration research which is expected to attract new customers. We believe adoption of this wave of new product will bolster growth in the second half. Our third strategic objective is to continue to lay the ground work from expanding menu of diagnostic assays. During the second quarter we posted record Prosigna revenue of $1.8 million driven by reimbursement decisions in 2016 as well as continued momentum in the adoption of both the U.S. and abroad. In the last quarter 11 new labs launched Prosigna increasing the number of active Prosigna sites to 65 labs worldwide. In parallel we made progress in our existing biopharma collaborations with Celgene and Merck. Our partnership with Celgene reached an important milestone as the ROBUST trial in diffuse large B-cell lymphoma completed enrollment setting the stage for potential study readout sometime in 2018 and potential regulatory approval in 2019. Our Merck collaboration has entered a dynamic period with a steady flow of exciting new data and the evolution of ongoing studies. In June, Merck published a similar paper in the Journal of Clinical Investigations describing how the tumor inflammation signature or TIS was developed to predict true response across multiple tumor types. I would encourage anyone interested in understanding how biopharma companies are using our technology to spend 10 minutes watching the video that accompanied the publication of the paper. There is a link to the video on our homepage. At ASCO Merck presented important data demonstrating the ability of TIS to predict response to therapy more effectively than competing biomarkers with data in head and neck, gastric and bladder cancer. However, in some cases conventional testing such as PD-L1 IC is expected to be an adequate predictor of therapeutic response. Consistent with this larger, Merck recently modified the protocol for studies keynote 180 and 181 in esophageal cancer to move the assessment of clinical outcome in patient populations defined by this assay from a primary to an exploratory endpoint. While these studies will yield potentially valuable information regarding the performance of TIS we do not expect keynote 180 or 181 to result in a PMA filing toward TIS as a familiar diagnostics. In the meanwhile, the keynote 158 basket trial covering 10 tumor types continues to move forward as planned and could yield a PMA filing for TIS as early as 2018. Many biopharma companies beyond Merck also expressed interest in TIS. As we have interacted extensively with these partners, it has become clear that they are considering a wide variety of biomarkers. They are not prepared to move directly to Companion Diagnostic Development Program without evidence that TIS predicts response to their specific therapy. Exploratory studies in which the predicted power of TIS as demonstrated through retrospective analysis of Phase 2 trials have become a critical step along the path of signing companion diagnostic collaborations. As a result full scale companion diagnostic collaboration are being delayed as potential partners conduct exploratory biomarker work. While our pipeline of biopharma discussions remains strong with numerous active dialogues we acknowledge that the deal pipeline is maturing more slowly than expected. We are moving to respond to this need for exploratory studies in two ways. First, we have recently made TIS available for pilot studies following approach that we have used to successfully engage biopharma developing drugs for breast cancer and lymphoma. Since soft launching of this program at ASCO we have entered five pilot studies with four different companies and have many more discussions underway. Across our pipeline of three companion diagnostic products we have entered a total of 50 pilot studies with 20 different biopharmas. Second, the gene separates is included in the new PanCancer IO 360 panel that I mentioned earlier beginning in September it will be made widely available to our customers just like our other research is only panel products. For additional fee we will provide research customers a service to the total results of the TIS algorithm as well as multiple additional gene expression algorithms embedded in the IO 360 panel. Only biopharma responds to these offerings has been extremely positive and we are confident that these steps will continue to expand the number of researchers using our technology and immune-oncology and will therefore identify clinical utility food test and our IO 360 panel. Our fourth strategic objective is to further advance our portfolio of breakthrough technologies including digital spatial profiling and Hyb & Seq. I'll begin with digital spatial profiling or DSP which is a powerful new research tool for analyzing tissue biopsies that enables the precise spatial quantification of proteins and gene expression. Our DSP program is a benefit significantly. It remains on pace to launch a new instrument in late 2018. Demand remains high for the technology access program that allows our customers to access DSP capability as a service with 16 customers signing up to date. The technology access program and our internal developmental studies resulted in seven presentations at scientific meetings during Q2 including three studies covering immune-oncology in response to therapy presented at the ASCO meeting. The next major public update on DSP is expected at the Association of Molecular Pathology or AMP meeting in November. Finally, let me provide more details Hyb & Seq and our Lam Research collaboration, which you can follow using the slide found on the investor relations section of our website. Our Hyb & Seq program aims to catch enormous commercial potential of a simple clinical sequencer. As shown on Slide 3, the total addressable market for clinical sequencing is projected to reach $44 billion by 2022 with the largest opportunity being in oncology. Despite the potential, clinical sequencing adoption is currently constrained by the high complexity of traditional next-generation sequencing platforms which can require 25 different steps and complex bioinformatics. We believe that unlocking this massive market potential requires a simple fast sample to answer sequencer that can be easily run at hospital laboratories or community oncology practices. Slide 4 illustrates why we believe Hyb & Seq is the right solution for the clinical sequencing market. Hyb & Seq's workflow has just four simple steps and does not require complex and time consuming laboratory preparation. Laboratory preparation amplification of enzymes that require existing NGS [ph] platforms. As we demonstrated in the AGBT meeting in February the workflow was still streamlined at the turnaround time from FFPE to initiation of sequencing is less than 60 minutes with only 15 minutes of hands-on time. In addition, Hyb & Seq offers unique attributes which are attractive to genome researchers such as high consensus accuracy at low coverage, simultaneous sequencing of both DNA RNA and the ability to provide both long and short reads. While we have independently advanced the Hyb & Seq chemistry over the past several years, the collaboration with Lam Research that we announced today is a major inflection point for this program. As Slide 5 illustrates, by combining NanoString's molecular profiling expertise and novel barcoding chemistries with Lam's capabilities and nanoscale manufacturing we believe we can deliver powerful and highly scalable solutions. We have found that when we put the lead scientists from both companies together in a room the chemistry between the teams and the ideas that emerge are compelling. We envision our collaboration with Lam will enable open ended innovation at the intersection of semiconductors and genomics, the potential of which we are only beginning to appreciate. On Slide 6 under the terms of the collaboration NanoString will contribute the Hyb & Seq chemistry and lead the product development program. Importantly, NanoString retains full global commercial rights to the instruments and assays that result from the collaboration. Lam will provide advanced engineering and technical support as well as up to $50 million of funding intended to cover the remaining cost of development and regulatory approvals over a period that is expected to last approximately three years. In return Lam will receive a warrant to purchase up to 1 million shares of NanoString common stock at $16.75 per share as well as a modest royalty on all products that results from the collaboration that is not expected to materially impact margins. Slide number 7 describes the timeline of key events expected between now and the full commercial launch. At the AGBT Precision Health Conference next month we plan to present proof of concept for targeting sequencing and liquid biopsy samples. At the fall AGBT meeting in February 2018 we expect to present data generated using the complete complement of sequencing optical barcodes as well as data generated with external collaborator samples. We plan to launch beta instruments sometime in 2019 with a full commercial launch following in the next year. The expected accounting treatment and financial impact of the collaboration is summarized on Slide 8 and Jim will cover these in his prepared remarks. In summary, with the announcement of this partnership, Hyb & Seq development is now fully funded beginning an exciting new chapter for us. By retaining exclusive worldwide rights to the resultant product we believe we are creating substantial strategic value for our shareholders with a soon to collaborating of Lam to deliver a platform that we believe will be transformative. I'd now like to hand over the call to Jim to review our financial results and outlook.

[Jim Johnson:]

Thanks Brad. Total revenue for the quarter was $34.6 million up 53% versus the second quarter of 2016. Total product and service revenue was $18.3 million 5% higher year-over-year. Foreign exchange rate fluctuations reduced the growth in product and service revenue by approximately 1 percentage point. Instrument revenue were $6 million 6% lower than in the second quarter 2016 which was a particularly strong quarter due to instruments that shifted from the first quarter of 2016. Total consumable pull through for the quarter was $11 million up 7% year-over-year which was below our historical run rate of over $100,000 per system on an annualized basis. Life sciences consumable revenue which is the largest component of system pull-through was $9.2 million up 1% compared to the second quarter of 2016. Prosigna IVD kit revenue, the other component of pull through was $1.8 million for the quarter up 48% year-over-year with ex-U.S. markets continuing to generate the majority of sales. We recorded $16.3 million of collaboration revenue for the quarter compared to $5.1 million in the second quarter of 2016. The increase resulted from the termination of our collaboration with Medivation and Astellas which triggered a $1 million termination fee in the immediate recognition previously deferred revenue together representing $11.3 million of the second quarter revenue. Gross margin on product and service revenue for the quarter was 55% roughly constant compared to the second quarter of 2016. Gross margin benefited from a shift in revenue mix from instruments to consumables and from a lower royalty rate on our license of the foundational nCounter patents that we've mentioned in past quarters. These favorable trends were tempered by the sale of a higher proportion of instruments to distributors which generate lower gross margins compared to direct sales and a write-off of raw materials that did not meet our quality specifications. R&D expense was $11 million for the quarter up 25% over the second quarter of the prior year. The increase was driven primarily by increased investments in new technology and product development programs in particular digital spatial profiling and Hyb & Seq. SG&A expense was up 20% year-over-year to $18.6 million for the quarter. The increase largely reflects added staffing to support the company's growth most of which went toward the scale up of our sales and marketing teams as Brad described. Stock based compensation expense was $2.8 million compared to $2.4 million for the second quarter of 2016. Our net loss decreased to $4.6 million or $0.20 per share from $10.8 million or $0.55 per share for the second quarter of last year. We ended the quarter with approximately $99 million of cash and investments. This included $56 million of proceeds from the follow on offering completed in May. I'll close with an update to our 2017 financial guidance. We are raising our total revenue guidance to a range of $114 million to $118 million for the year which corresponds to revenue growth of 32% to 36% over 2016. Our previous guidance which we provided when we reported the Medivation and Astellas termination was for $106 million to $111 million in total revenue. The increase is the result of raising our outlook for collaboration revenue. Previously it was a range of $25 million to $26 million and it has now increased to approximately $33 million. This change reflects our updated outlook on the Celgene and Merck the collaborations together with the impact of our new Hyb & Seq collaboration with Lam Research.. The Lam collaboration will add both collaboration revenue and R&D expense to our P&L. Picking up where Brad left off, the accounting treatment is summarized on Slide 8 of the slide deck. The value of the warrant estimated using the Black Scholes model will come out of the funding proportionally as we receive it from Lam and will be added to stockholders equity. The remainder will be considered collaboration revenue. Incremental cost will be added to R&D expense over and above our baseline level of spending on the program and we expect that the collaboration revenue and incremental R&D expense will roughly offset each other and therefore we expect no material change to the bottom line resulting from the collaboration. With respect to product and service revenue we are maintaining our full year guidance of $81 million to $85 million, but based on recent growth trends we are increasing our outlook for Prosigna revenues from approximately $6 million to a range of $7 million to $8 million. While our results for the first half so us tracking toward the low end of our product and service revenue guidance range for the year, we expect the expansion of our sales channel and the introduction of new products and programs to shift the growth curve positively in the second half. For the third quarter of 2017 we expect total revenue of $26.5 million to $28.5 million including product and service revenue of $19.5 million to $21.5 million and collaboration revenue of approximately $7 million. We're maintaining our guidance for gross margin and product and service revenue at 57% to 58%. We're increasing our operating expense guidance to $123 million to $126 million for the year to reflect the added Hyb & Seq development costs that will be funded through the Lam collaboration. Previously we guided to $117 million to $120 million for the year. We continue to expect approximately $10 million to $11 million of stock based compensation expense. Our GAAP operating loss for the year is now expected to be lower in the range of $42 million to $46 million from the original $49 million to $53 million. 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 also expected to be lower at $48 million to $52 million compared to $55 million to $59 million previously. On a per share basis, we're now expecting a net loss of $2.03 to $2.20 per share compared to the original $2.51 to $2.69 per share. This reflects both the lower net loss and the added share count from our follow on offering. We continue to expect total capital expenditures between $4 million and $5 million for the year net of resold improvement funding from our landlord. So with that, I'll turn it back to Brad to wrap up.

[Brad Gray:]

Thanks Jim. It has been more than 14 years since the completion of the human genome project and we are beginning to see a substantial impact on the practice of medicine. In June with the approval of KEYTRUDA for use in patients with microsatellite instability, the FDA approved the first ever drug for treating cancer based on the genetics of the tumor rather than the location of the tumor in the body. It has been a long journey and we believe that we are entering the golden age of biomarkers. This is especially true in immuno-oncology where there are more than a thousand active clinical trials in which biomarkers can be used to evaluate patients in tailored therapy. We believe that NanoString is exceptionally well positioned to leverage this opportunity to drive long term growth of our business. We are already a leader in gene expression and with a fully funded pipeline including digital spatial profiling of Hyb & Seq we are poised to transform all aspects of molecular profiling. And now I’d like to open the line for your questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Doug Schenkel from Cowen and Company. Your line is now open.

[Unidentified Analyst:]

Hey guys. This is Adam on for Doug. Thanks for taking my questions. I had, first one is on consumables, you indicated in your prepared remarks that the research consumables came in below the guided pull through due to some biopharma lumpiness and academic sales dynamics. I was just hoping to get maybe a little bit more color on the academic side with lower than expected sales here primarily due to the ramping of new hires or was it due to a shift of your existing sales force into the more distinct [indiscernible] consumable roles?

[Brad Gray:]

Thanks for the question Adam. I think on the academic side the trend that we've experienced in the first half has been modestly lower than historical pull through levels that we attribute to the squeeze on our sales force that we described earlier in the year. That is over the last several years now. We've expanded our installed base at a rate of about 30% plus a year while also asking our account managers to launch the SPRINT system which of course requires a larger number of instrument unit sales per, per amount of revenue growth that's contributed. And that's really put a squeeze on these reps that’s made them have to choose sometimes between focusing on prospecting for new instrument sales and serving the need of our incumbent installed base. And we found that generally the consumable sales have gotten the short end of the stick and it was really for that reason that at the beginning of the year we decided to make sales force expansion of about 25% to higher field based consumables reps as well as inside sales reps that would support sales of catalogue consumables like the panel products. Most of those hires were made in the second quarter and were not made in time to make a material contribution to the overall Q2 performance. And I'd say the academic portion of our installed base which is the largest portion is the group that suffered most from a lower than needed sales activity. As I mentioned in the prepared remarks, some of the early signs and territories that were first filled with consumable reps are encouraging and we believe as these reps come online through the second half we will start to see a turnaround in the pull through rate amongst the academic customers.

[Unidentified Analyst:]

Okay, that's certainly helpful and then maybe expanding on that should these sale force hires, should the impact there be pretty broad based on the terms of consumables and instruments are overly primarily drive growth in a particular product line or end market?

[Brad Gray:]

Well the way we've organized is that each inside sales rep or consumable field based consumable rep, is paired with a regional account manager that owns a piece of geographic territory and they work as a team. So, while the primary focus of inside sales and consumable reps will obviously be the consumables portion of our business which is more than half of our product and service revenue. They'll work in tandem with the account managers on the specific customers in that territory and we, just to remind you, we have separate sales organizations that are dedicated to academic customers and small biopharmas on one hand versus large biopharma companies on the other, so they tend to specialize.

[Unidentified Analyst:]

And maybe just one last one from me, I might have missed it, but did you provide any color on how your various geographies played out in Q2? Thanks.

[Brad Gray:]

No, I didn't but I’m happy too. I think the geographic mix was their overall revenue was very similar to what it has been in the past. I'd say the relative strength was highest in areas like in EMEA who had a good quarter and accounted for about 29% of product and service revenue. APAC also had a strong quarter to 11% of product and service revenue and things were more flattish in the Americas for us.

[Unidentified Analyst:]

Great, thank you.

[Operator:]

Our next question comes from Tycho Peterson. Your line is now open.

[Unidentified Analyst:]

Hey guys, this is Tejas on for Tycho. I just wanted to follow up on that earlier question Brad, I mean can you share some color on the instrument revenue decline? Obviously it was a nice sequential uptick. I'm trying to sort of like tie it to the fact that when you initially gave guidance you didn't account for any sort of big budget flush. Since then obviously NIH funding has come in a little bit better than expected. There is still uncertainty though around 2018 and things like that. So where does it all net out, I mean especially given the fact that also have a sale force in place?

[Brad Gray:]

Sure, that maybe there's a couple different pieces there. I think some of it was about the instrument trend looking back at Q2 and maybe there's a piece also about the outlook for the balance of the year. So, in Q2 I focused on sequential growth in the comments because as you recall a year ago we had a very unique second quarter, in the secsond quarter of 2016 as we had a major catch up in the instrument revenue line from instrument that it slipped out of the first quarter into the second. And so we think the sequential trend from Q1 to Q2 is more indicative of the strength we're experiencing in instrument demand then the year-on-year comp would have been. And I think that I would describe the instrument performance as relatively in line with our expectations in the second quarter and really biopharma who accounted for 40% of instrument revenue being a real area of strength and actually our distributor territories also had a strong quarter on the instrument side. Looking at the balance of the year, if you're in a process of updating your model and it appears now that based on where Q2 landed the year looks more backend loaded, I think, I mean that's not manically true. But I think our guidance remains consistent with the idea that, that back end loadedness is not a result of a budget flush dynamic that we're anticipating rather, it's tunes to the initiatives and the investments that we've made mostly in the second quarter beginning to pay off in the third and even more so in the fourth. And there are three things that I would highlight of course are the expanded sales force now 25% more people in it, as will be becoming affective in the third and fourth quarters. Some initiatives that Chad Brown our new leader has, has put in place that we think are going to have an impact in the third quarter or even more in the fourth around the spirits revitalizing kind of spirit of system demand amongst the disparate academic customer base and biopharmas and then capitalizing on our new product launch in immune-oncology. And then finally, the new product launches, some of which were made in the first half and some of which are coming in the third quarter. All of those are going to contribute meaningfully to Q4 and so those are different than a classic budget flush. It is just about the timing in which customers choose to spend. They’re really NanoString specific dynamics.

[Unidentified Analyst:]

Got it, that's helpful. And then just a quick follow up on the OUS side of things, I know you commented earlier, but are you still seeing uncertainty related to Brexit impacting demand over there?

[Brad Gray:]

No, I wouldn't say that, that has continued to be the drive uncertainty for us. The EMEA team had a good quarter especially on the consumable side. So I don't think that uncertainty in EMEA has been a challenge in Q2.

[Unidentified Analyst:]

Got it and then one final one here on the collaborations. I know you sounded incrementally more cautious in terms of pipeline being a little bit slower to materialize but how do you think about the existing collaborations specifically the one with Merck, a big at a label expansion or an approval in September for gastric or frontline lung and so on. What kind of an impact does that entail for you guys in the back half of the year? Is that's something that you've already factored into guidance or will that be more upside.

[Brad Gray:]

Yes, I think what Merck is having obviously great success and continue to expand the label of KEYTRUDA. To date all of those label expansions have dealt with either PDL-1 IC is a convenient diagnostic marker or microsatellite instability testing none of which are today run on NanoString’s technology. So some of the success that you’re seeing with them are really not going to have a material impact one way or another on or revenue in the near term. We really remain focused on the keynote 158 study which you may remember was a basket trial in 10 different tumor indications. And that's the one is continuing to accrue, has the potential to read out over the months or year ahead and which could yield for us an approval if the study results are positive. And that would have a material impact for us in terms of some eligibility for milestone payments, but more importantly, for products revenues. And I think that that would be from a product revenue perspective, it will be a 2018 of that at the earliest. So, it's really not a not having an impact in the back half of this year, but it is setting up a very exciting catalyst for next year.

[Unidentified Analyst:]

Got it, thanks so much guys.

[Brad Gray:]

Sure.

[Operator:]

Thank you. Our next question comes from Catherine Schulte from Robert W. Baird. Your line is now open.

[Catherine Schulte:]

Hey guys. Thanks for the questions. I was wondering if you could go into a little more detail on the some of the initiatives that Chad is introducing particularly the one focusing on guidance SPRINT sales.

[Brad Gray:]

Sure so, one of the. With SPRINT we have as we described in the past of vastly expanded number of customers and these are the individual researchers who can afford a SPRINT, but who can never have afforded our MAX and FLEX system and that would have been too much throughput in any case. One of the things that, that were going to be introducing in the second half of the year are our initiatives to provide those individual research customers with experience on the SPRINT system even in advance of purchase as a way of building their conviction that if the right technology for them. And the higher affordability of the lower cost of the SPRINT system really makes it possible to do that in a way that's not practical for our higher throughput systems so, that's an issue that we've done in a very small scale in the first half and had some good experiences with it, we’ve some piloted in a few places and it's something we're going to rollout more expansively of we're in the process of rolling out more expansively today.

[Catherine Schulte:]

Okay and then just touching on the consumable side again. I was just wondering if you could break out what you are seeing for SPRINT versus the high throughput platforms then at this point two years into that because all on to SPRINT and target thinking about that pull through.

[Brad Gray:]

Yes, SPRINT pull through has been good and have been a line or maybe even a little stronger than the expectations that we had at the time of our initial launch which was that it would be about half. What the pull through of the MAX and FLEX, so I think we have guided for people to think about $50,000 to $60,000 per year and in consumable pull through on SPRINT I think it's been at the high end of that range so for so SPRINT pull through has been healthy.

[Catherine Schulte:]

Great. Thank you.

[Brad Gray:]

Thank you.

[Operator:]

Thank you. Our next question comes from Paul Knight from Janney. Your line is now open.

[Unidentified Analyst:]

Hi good afternoon. This is actually Carolina. I have been interested one for Paul Knight. Thank you for taking the questions. I wanted to follow up you had a little earlier they attend your prepared remarks that your pipeline of biopharma collaboration's was maturity modest slowly then expected I was wondering I if you could comment on why is that this is due to all though technology that’s– biopharma right now to develop companion diagnostics or some other research that you could comment on?

[Brad Gray:]

Yes, so I think that the primary reason is that biopharma companies are being extremely cautious both in terms of their selection of companion diagnostics and in terms of selection of partners. We don't think that there's a large number of companion diagnostic deals of the type that we have done in the past getting done away from NanoString, rather there's been just a slow pace of new companion diagnostic deals happen in period. And the reason is that, these pharma companies were in the faced with bedding enormously expensive Phase III studies on new technologies really are choosing to do a lot of homework before they select a companion diagnostic and that can mean the retrospective analysis of one and sometimes many more than one Phase II studies to convince themselves that the diagnostic is predictive prior to entering a partnership. I say that's the number one reason that we've seen a slowdown. We've had many discussions ongoing for a long time that at the beginning of the year I would have told you by now would have matured to the state of having a companion diagnostic deal announced which where the work is still ongoing. So I say that's the number one factor.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

I'm currently showing no further questions. I would not like to turn the call back to Brad Gray, President and CEO for further remarks.

[Brad Gray:]

Well, thank you all for your interest in NanoString Technologies today. We will be at the Morgan Stanley and their conferences coming up in September and we look forward to seeing many of you there.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today’s program. You may all disconnect. Everyone have a great day.