NanoString Technologies, Inc.
Q4 2018 Earnings Call Transcript

Published: 8 Mar 2019

[Operator:]

Good day ladies and gentlemen and thank you for standing by. Welcome to the NanoString 2018 Fourth 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 presentation Mr. Doug Farrell. Sir, please begin.

[Doug Farrell:]

Thank you, operator. On the call with me today is Brad Gray, our President and CEO; and Tom Bailey, our CFO. Earlier today, we released our financial results for the fourth quarter and fiscal year 2018. During this call, we will 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, 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. Those are 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 those statements publically. Now I would like to return the call to Brad.

[Brad Gray:]

Thanks, Doug. Good afternoon and thank you for joining us today. We have introduced an extremely dynamic theory for the Company, following a strong 2018 performance we begin a new year with renewed sense of confidence and energy. We have returned our core business to double-digit growth and generated substantial interest in our GeoMx Digital Spatial Profiler. We’re currently defining a new open-ended market in the field of spatial genomics that shares many characteristics and customers with a rapidly growing field of single cells genomics. When we commercially launched our GeoMx DSP less than a month from today, we will kick-of a product cycle than we expect to both accelerate our revenue growth and transition us into a multiplatform company. 2019 is set up to be a very exciting year. During my prepared remarks, I will provide some highlights on our overall performance in 2018 before outlining our strategic objectives and key milestones for the current year. I will then turn the call over to Tom to review our operating results for the fourth quarter and our financial outlook for 2019. During 2018, our team did a fantastic job of accelerating the growth of our core eCounter business and I am extremely proud of their performance. We generated growth of 16% in our product and service revenue roughly full improvement overall growth in 2017. The commercial teams focus and execution ensured that the investments we made in our sales channel really paid off and we intend to sustain this momentum in 2019. During 2018, we grew our installed base of eCounter systems to about 730 systems at an increase of more than 20% year-on-year. We continued to broaden eCounter sales channel -- sales into smaller labs with our lower-cost SPRINT instruments accounted for 50% of new eCounter placements. In addition, we successfully expanded into new markets such as immunology and neurology. And non-oncology applications accounted for an impressive 40% of system sales, up from only a 15% in 2017. We generated total consumable sales of more than $53 million last year, an increase of 18% over 2017. This growth was the combined results of our strength in commercial channel and the 11 new panel products that we introduced last year. The largest market remains oncology where our cancer research panels grew by about 30%, led by our immuno-oncology portfolio including our number one selling PanCancer Immune Profiling Panel and our fastest growing IO 360 panel. 2018 also saw meaningful consumer growth outside oncology including immunology and neurology panels which grew 65% year on year. Finally, Prosigna delivered another successful year with 40% growth. In parallel, we successfully advanced our prelaunch activities for GeoMx DSP without distracting attention from our core eCounter business. We expanded our Technology Access Program and have completed more than 70 projects for more than 50 customers. We designated three leading research centers as GeoMx centers of excellence and have installed 7 data GeoMx instruments at customer sites. Perhaps, the most impressive achievement was securing preorders for 30 plus GeoMx instruments, and the clear sign yet that we have seen of the market hunger for spatial profiling and the compelling nature of the GeoMx product profile, a full 70% of these preorders came from customers outside of our TAP program who repurchased GeoMx site unseen. Overall, we bring great momentum into 2018 and our objective is to build on this momentum by focusing in three areas. Our first objective is to sustain double-digit growth in our core eCounter business by continuing to execute on the strategies that made us successful in 2018. This starts by selling a similar number of new eCounter instruments to what we delivered in 2018. We expect that SPRINT instrumental will once again account for about half of new instruments placements as we continue to diversify in the smaller labs and research areas beyond oncology. The pace of eCounter instrument sales is expected and strengthened over the course of the year with some GeoMx system placements in the second half of 2019 being bundled with new eCounter systems. We expect that the most important driver of eCounter growth in 2019 will be consumable sales. We begin the year with eCounter installed base that is 20% larger than this time last year and believe that the combination of a focused consumable sales channel and compelling products can maintain the annualized consumable sales at $75,000 to $80,000 per system rate that we delivered in 2018. We plan on modest expansion of our effective consumer sales channel, adding key account managers and inside sales reps who can service this expanded customer base. In addition, we plan to continue launching new panel products, expanding into market outside of oncology by introducing develop and collaboration with leading experts in fields such as metabolism and fibrosis. On the diagnostic side, we expect to continue to grow for signals revenues, driven primarily by recent positive health technology assessment such as the NICE decision in the United Kingdom. Both Prosigna and LymphMark continued to garner attention from researchers looking to identify biomarkers that select patients for therapy as illustrated in December by the presentation of a total of over 80 eCounter base abstracts at the American Society of Hematology or ASH meeting and in San Antonio, Breast Cancer Symposium. While we’re not expecting to generate revenue from LymphMark Assay during 2019, we do expect to see the results from the ongoing Phase 3 robust study which could be followed by regulatory submissions. Our second strategic objective is to launch of our GeoMx Digital Spatial Profiler on a trajectory for long-term success. Over the last two years, we've executed a comprehensive market development plan for GeoMx, and during that time, we've become convinced that spatial profiling will involve into a large market with diverse applications. The interest in GeoMx is coming from two primary markets. The first is translational research where the search for biomarkers is driving the need for spatial analysis of protein and RNA expression. The second target market is more basic discovery research where scientists have embraced single-cell RNA sequencing to discover previously unknown cell populations and are now hungry for technologies that will show these where these cells are located within tissues. We have engineered GeoMx with the capabilities required to serve both of these markets. Our 2019 launch is focused on translational researchers who value the GeoMx that GeoMx can provide both RNA and protein profiling and has the high throughput required to officially process hundreds of FFPE clinical trial samples as read out on an eCounter system. In 2020, we intend to expand basic discovery research by introducing ultra-high flex RNA expression assays that can be analyzed using ubiquitous next-generation sequencers. Following the strategies that we believe will replicate the success of the most popular single cell technologies. While GeoMx will not be the only technology used for spatial profiling, we believe that our earlier entry into the market and unique product profile will be less well positioned to capitalize on this growing field and to help shape how the market develops. Last week, we seized on the opportunity presented by the Advances in Genome Biology and Technology or AGBT Meeting to hold the Inaugural Spatial Genomics Summit and to introduce the power of GeoMx to researchers at the bleeding edge of discovery research. Our Spatial GeoMx Summit through a crowd of nearly 150 attendees, many of whom flew in a day early for the events and accept the tone for a busy week. During the plenary session on the first morning of the conference, our collaborators from the Broad Institutes highlighted GeoMx as an important new spatial capability, sharing data generated in their lab during the first few weeks after receiving there beta instruments, which profiled 1,400 RNAs across six different tumor types. Over the day that follows Spatial GeoMx emerges a major theme of the meeting at presentation by our researchers using GeoMx and other emerging technologies created substantial buzz. This included a total of three oral presentations and six posters contained GeoMx DSP data as well as the workshop differing two of our Technology Access Program, customers who presented their experience in front of the audience of nearly 300 researchers. In our annual survey of AGBT attendees performed by the DeciBio Group and published online earlier this week, spatial profiling was identified by AGBT attendees as the most exciting theme of the meeting, which GeoMx as the top of mind associated technology. Overall, we simulated substantial interest in GeoMx and generated 100s of new leads that would look forward to be getting the converts into orders over the next 24 months. Our official commercial launch of GeoMx is now just a few weeks away and will take place during the annual AACR Meeting in Atlanta. The launch will target the cancer focus translational researchers who form the core of our eCounter customer base and will unveil details of the systems specifications, consumable panels and pricing. Our launch event will include presentations by TAP customers from Stanford University and our early access customers at the Mayo Clinic. In addition, at least 11 studies will be presented by biopharma companies and academic researchers that include digital spatial profiling data, generated under our Technology Access Program. These studies will build upon the three peer review publications and more than a dozen abstract previously presented and should provide compelling illustrations of the unique capabilities of the GeoMx platform. The April launch will be followed by the first installations of commercial GeoMx systems beginning during the third quarter. While we look forward to spending the second half of 2019 getting GeoMx into the hands of the leading research institutions, it will be even more important to position GeoMx for success in 2020 and beyond. Therefore, our top priority will be to ensure that customers having an exceptional user experience. This will require that we manage the pace of insulation to ensure that customers enjoy the level of service and support that they have come to expect from us. During the beta installations over the past several months, we found that approximately three weeks are required to install a GeoMx system, train its users and guide them through their experiments. While by 2020, we plan to streamline this process to bring the timeline down to just two weeks per system, we expect to operate under this high touch model through the balance of 2019. As a result, during the second half of 2019, we expect to install approximately 25 to 30 of the GeoMx preorders received last year. The incremental orders that we book during 2019 are likely to go on to our wait list and be fulfilled in 2020. We believe that the GeoMx launch will accelerate our revenue growth beginning in the second half of the year and will keep us busy through 2020. Given the magnitude of the addressable market opportunity, which we estimates will grow to about $4 billion in 2020, it’s critical that GeoMx received the attention and resources it deserves. And parallels to commercializing GeoMx, we will continue to invest in our third strategic objective which is to advance our Hyb & Seq platform towards a commercial launch in 2021. In 2018, the Hyb & Seq program made substantial progress. We skilled up our chemistry to contain the entire 4,096 sequencing barcodes and incorporated the use of order arrays which have allowed us to increase throughput of our platform about 25-fold. Our contractor manufacturer has now delivered 10 prototype instruments each of which is roughly 100 times faster than the modified SPRINT instruments previously used in our proof-of-concept studies. During the AGBT Conference last week, we presented three studies that illustrate the progress we're making and highlighted key clinical applications. In the field of oncology, our collaborators at Cambridge University presented the first data from our full-skilled sequencing chemistry and where they used all 4,096 Hyb & Seq barcodes to sequence the entire coding region of the TP53 gene, using a sample to answer workflow. In the field of infectious disease, our collaborators at the Broad Institutes presented a unique technique for Hyb & Seq-enabled cultural independent pathogen identification and rapid phenotypic antibiotic susceptibility testing. Finally, NanoString's own scientists presented a novel end-to-end sequencing analysis pipeline called HexSembler designed to assemble Hyb & Seq readout and accurately detect genomic variance. Hyb & Seq received a healthy amount of attention to AGBT and potential customers seem to understand and appreciate the value proposition of providing simplicity and rapid turnaround time. We believe that the NGS market is hungry for alternative platforms and that Hyb & Seq is well differentiated in the competitive landscape. During 2019, we’re focused on reducing the sample and off course requirements, increasing the number of targets simultaneously profiled and refining the use of the platform for gene expression. The next major technical update on Hyb & Seq displayed us for the Association of Molecular Pathology Meetings during the fourth quarter when we plan to present data from a solid tumor panel. In the meantime, we look forward to updating you on our progress on this program during future calls. Now, I will turn the call over to Tom to review our financial results for Q4 and outline our financial targets for 2019.

[Tom Bailey:]

Thanks Brad. I will begin by reviewing our fourth quarter and fiscal 2018 results and then I'll conclude with our outlook for 2019. For fourth quarter of 2018, products and service revenue is 23.6 million which was above the high-end of our Q4 guidance and represents the year-over-year growth of 12%. Our product and service revenue included 5.9 million in instruments sales and 15.3 million in consumable sales. Life science consumable revenue excluding Prosigna was 13.1 million, reflecting 14% year-over-year growth, driven by strong panel adoption. Prosigna sales were 2.2 million, an increase of 24% over the prior year. Service revenue was 2.5 million with 36% growth posted over the prior year driven by our Technology Access Program for GeoMx DSP. Revenue from collaborations was 6.4 million and we received cash from collaborators of 3.8 million. The majority of cash received a collaboration revenue recognized was derived from our partnership with Lam Research with the balance derived from our Celgene collaboration. Gross margin on product and service revenue was 54%. This was primarily driven by instruments sales mix as well as yearend cleanup of some non-cash items. R&D expense was 16.5 million, an increase of 21% over the prior year. This increase was driven by our investment in Hyb & Seq, which is fully funded by Lam Research. Our SG&A expense of 20.3 million increased by 3% over the prior year. This was a result of an increase in professional fees incurred from our Sarbanes-Oxley compliance and audit activities. For the fourth quarter, stock-based compensation expense was 2.8 million and depreciation and amortization expense was 1.1 billion. We ended the quarter with 94 million of cash, cash equivalents and short-term investments. For the full year 2018, our product and service revenue was 83.5 million, above the high-end of our previously raised guidance, representing 60% year-over-year growth. Gross margin was 57% in line with our guided range. Our total 2018, R&D expense was about 1.6 million above our guidance, primarily driven by investments made to prepare for and support the launch of GeoMx DSP. Our total SG&A expense was the line of our guidance and cash used in operating activities of the capital expenditures was 59.6 million also in line with our guidance. I'll conclude my comments now with our financial outlook for 2019. For 2019, we expect product and service revenue of 98 million to 103 million representing total annual growth of 17% to 23%. We expect revenue growth in the first half to be driven primarily by nCounter consumable products and for instant revenue to strengthen in the second half of 2019 following the commercial launch of GeoMx. We expect 92 million to 95 million of that total product and service revenues come from our base business. We expect our core nCounter business trajectory to be consistent with last year with instrument revenue in line with 2018 and total consumer pull-through of $75,000 to $80,000 per install system including Prosigna. We expect to see a similar seasonal pattern of roughly 45% of our base nCounter revenue reported in the first half of the year and 55% in the second half. We expect to recognize from $6 million to $8 million of GeoMx revenue in the second half of the year, reflecting the installation of approximately 25 to 30 instrument preorders that we received under our GeoMx priority site program in 2018. We expect total revenue of 118 million to 123 million, which includes approximately $20 million of revenue recognition from collaborations. It's worth noting that in the absence of any new partnering activity, we expect 2019 will be the last year for any material recognition of deferred collaboration revenue. We expect gross margin to be in the range of 57% to 59%, consistent with 2018. This outlook reflects the balance of the positive gross margin impact of increasing consumable sales in our core nCounter business and the offsetting impact of GeoMx DSP sales, which consists almost entirely of instruments in 2019. In 2019, we expect to realize significant operating leverage by growing operating expenses at about one quarter of the rate of the growth in our product and service revenue. For research and development expenses, we expect a record 62 million to 64 million or just slightly above the amount we reported in 2018. We expect about one third of our total planned expenditures to be offset by support payments from Lam. For selling, general and administrative expenses, we expect to report 82 million to 84 million, an increase of 5% to 7% as compared to 2018 with our overall growth of these expenses being substantially less than our expected rate of revenue growth. As for other items, net interest and other expenses expected to be approximately $7 million, with approximately $5 million representing the cash portion of interest expense. Stock-based compensation expenses are expected to be approximately 13 million. Planned capital expenditures for 2019 are expected to be between $9 million and $10 million, and we expect our general working capital needs may increase in 2019, depending upon the trajectory of our GeoMx DSP orders and installations which could impact our levels of necessary inventory and receivables. Lastly, cash used in operating activities for capital expenditures is expected to total between $55 million and $60 million in 2019, which is approximately the same as 2018. For the first quarter, we expect total revenue of approximately 25 million to 26 million, including 20 million to 21 million in product and service revenue and about $5 million in collaboration revenue. Now, I will turn the call over to Brad for our closing comments.

[Brad Gray:]

Thanks, Tom. During 2018, NanoString got its groove back, returning nCounter to double-digit growth. In 2019, we expect the launch the GeoMx digital spatial profile to accelerate our growth as we transition to a multiplatform company. We believe that the next several years will bring a rate wave of research enabled by spatial profiling and reposition the Company accordingly. We expect it to be an exciting multiyear ride. With that, I'll open up the lines for your questions.

[Operator:]

[Operator Instructions] Our first question or comment comes from the line of Daniel Brennan from UBS. Your line is open.

[Daniel Brennan:]

I guess I want to start off maybe with AGBT and maybe some of the feedback there. Brad, I think you mentioned significant number of leads, but I think the market that you are addressing there is, as you mentioned, more of a 2020 versus 2019. Maybe can you expand a little bit in terms of what you learn there? And how you think about that market developing anything this year or if not in 2020?

[Brad Gray:]

I think DSP is a product where at every possible juncture, the demand for spatial profiling have exceeded our previous expectations. This happened with our Technology Access Program which largely addressed the needs of our translational research market that happened with the GeoMx's Priority Site Program, where we presold 30 instruments again in the translational market, and really it happened again last week where our expectations for the enthusiasm from the basic research community for spatial genomics or spatial profiling was overwhelming. A year ago, we first at AGBT, we first reviewed the opportunity for spatial profiling and we were surprised at that time by the level of interest from classic sequencing jobs in the idea of looking at whole tissues and where cells and genomics vary across those tissues. But this year, we really weren't the only one talking about that, there were several other companies and their collaborators and customers presenting on the idea spatial genomics, and they will position very much in the, as the next logical phase of the Human Cell Atlas efforts that's been going on for several years. And so, it was really rewarding to hear the bright voices from other leading companies as well as institutions like to Broad who are saying that Spatial is really a next big way. 2019 is going to be a year where we focus primarily on the traditional translational researcher who really was not represented by the groups who were at AGBT last week, but we will open up the product for next-generation sequencing readout early next year. And that’s really when we expect to unlock the demand that's characterized by the enthusiasm in AGBT. And that being said, we’re following up on literally hundreds of leads that we captured at our symposiums, at our workshop, at our posters in our booth last week, and we'll spend this year really developing those leads into actual purchase orders, with the hope of having spatial genomics enabled leading genome centers in 2020. But overwhelm and I think overwhelmingly, we felt positively surprised about the degree to which the community seems to be embracing Spatial as the next frontier in GeoMx.

[Daniel Brennan:]

And just a follow-up in terms of the placement number for this year, in terms of the focus on making sure this goes as high quality launch is possible. Can you walk through like the thought process there in terms of possibly given the large nascent or growing market with a lot of interesting new competitors coming? And kind of how you’re balancing the focus to please customers at the same time where trying to be a first mover and kind of place -- kind of capture the share that in front of and not make your customers wait too long? In terms of maybe additional hiring that you might do or how you kind plan the ramp in the installation process?

[Brad Gray:]

So, the first thing that we’re focused on of course is capturing demand word exists even well ahead of the actual fulfillment of that demand. And you saw us I think execute that very well in the second half of 2018 with GeoMx Priority Site Program, which captured committed orders from people, well advance to six months of instrument delivery. We will continue doing that throughout 2019, we’re not standing still. We do expect to continue to take orders even though the fulfillment of those words may take some time. People will get in line for an exciting new technology knowing that they will get access as fast as they can. So, we do expect that our moderation of installed pace puts us in any sort of competitive disadvantage or any risk of missing the market opportunity. When you asked sort of how do we arrive at an estimate on the guidance that to expect insulations of 25 to 30 systems in the second half, let me kind walk you through that logic. Remember, so far we have installed seven systems. So our experience in terms of installation and customer support is still relatively early in its development. Those systems each took a team three weeks to go ahead from all the way from all the away from installing the system to training customer to actually holding their hands with their first experiments. That means that, if we start early in the second half of the year, the two teams that have up and running right now will be able to get 16 installations done. And if I scale that up to three teams, I will be able to get 25 installations done. So, the bottom end of our range basically assumed that I have three teams continually supporting customers in a high-quality way through the balance of the second half, and the top end of my rang I assume I scale that up to 14. So, that’s really how we arrived at that. I think we will of course really did it as we gain more experience in installations, what the most is rest of responsible pace of installation might be and then we will provide you updates on that over the course of the year. But based on the seven installations we done and our desire to provide absolute white-glove service, we think this is the right place for us to initiate guidance for the year.

[Daniel Brennan:]

One final follow up. Will you provide, what should we expect in terms of color on the pipeline you gave 30 plus orders at JP Morgan? And I’m sure, you don’t want to give too much clarity on this, but since this is an exciting part of the story. What should we expect on that front in terms of clarity going forward in terms of pipeline of DSP orders?

[Brad Gray:]

The next earnings call that we'll likely have will be our Q1 call, which traditionally held early in May. By that point in time, we will finish the first quarter and we've been through our AAC, our launch event. I think we will be able to provide some more color on the nature and volume of customers dialogs at that time. That being said, we will be less than a month after the official commercial launch of the product. So, I don't expect a miraculous wave of orders in the first few days after our full commercial launch. So, I think we will provide some degree of color, but as you said, we will probably be reticent about absolute transparency on the order flow and funnel. But we will do the best we can to provide commentary over the course of the year and now demand is evolving in this very important part of our business. We understand the hunger for that.

[Operator:]

Thank you. Our next question or comment comes from the line of Tycho Peterson from JP Morgan. Your line is now open.

[Tejas Savant:]

This is Tejas on for Tycho. Just wanted to get some color on supply chain for DSP, I know in the past, you've talked about the box being sort of fairly optimized at this point in terms of the supply chain and some work to be done on the consumables front. Can you just give us an update on where that process stands today?

[Tom Bailey:]

So, our GeoMx instruments will be -- as our instruments are at NanoString will be contract manufacturer for us. We placed an order for promotional instruments that should more than fulfill the 2019 demand for installations. We will expect to receive those instruments late in the first half of the year and sometime in the second quarter. We want to bring those in put those through internal QC measurement, load them with software, make sure that they're robust as expected before we begin to place those in the hands of customers in the third quarter. I don’t see a lot of risk in the timeline of receipt of instrument inventory from our contract manufacturer. In terms of the development timelines, as we discussed in the past and people who are AGBT saw firsthand, the software that allows customers to interact with the imaging data, the region of interest selection and then co-visualization of the image and the GeoMx data is a hugely important part of the customer experience, and we have invested very heavily in that getting our software right ahead of launch. In terms of the development timelines that the most important set of work items that remains to optimize and debug. People who are AGBT saw a fully functional set of software capabilities, so you know that we’re very far along the line there. Again, I don’t see a more to risk in terms of completion of that software activity ahead of second quarter. So, I'd say, overall, it's an interesting launch situation at the end. Most launch situations are in a sense demand moderated in terms of their pace. I don’t think that's a situation we're actually in here, some are supply moderated. I don't actually think we’re in the place either. We’re in a situation where one modulating the pace of revenue recognition on launch by customer experience. What's the fastest we can bring our customers while continuing to delight them? And that’s good because that’s something that we have a reasonable degree of control over, and we of course be making the right balance of investments between scaling up our capacity there and meeting potential for revenue growth and thinking long-term about the customers experience.

[Tejas Savant:]

And then just turning to the base business, you talked about nCounter and SPRINT revenue expected to be largely flat year-over-year. Can you just walk us through your underlying sort of assumptions in terms of what's going on in the market that is making your call for a flat year-over-year growth profile there?

[Brad Gray:]

Sure, flat instrument revenue is what we've delivered for approximately the last several years. 2017 was actually down from 2016. 2018 was just 3% growth over 2017. So for the last several years, we found ourselves in a situation where we are selling into an oncology market that we done a pretty good job of penetrating already. We’re mostly selling into new smaller accounts with our SPRINT instruments, maybe further down in the market than we had penetrated in the past that's where small biopharma companies that are just in the Company formation stage. And then, we diversify beyond oncology in the areas like immunology, neurology which are new markets for us. So I think that trend will very much continue in 2019 and will be the same set of dynamics trading those parts of the oncology market that we haven't yet reached and then continuing to move beyond oncology. Remember that we’re asking our same instrument reps at the same time to take on the burden of selling GeoMx instrument as well in coordination with our technical sales specialist that we've added. So, what we’re actually asking of each individual our channel is quite a bit more this year in terms of order capture. So, it's not like we’re standing still. But I think from our nCounter business by continuing to place the same number of instrument every year with our very healthy consumable pull-through stream, we can still generate double-digit growth for the next couple of years on that platform, while of course layering on top the GeoMx launch.

[Tejas Savant:]

And then one final one here and collaboration revenue, seems -- looks like it came in a little bit late versus at least our models. So, was it all a related to Lam revenue recognition there? And also, can you walk us through drivers behind the slight sort of push out in Hyb & Seq timing?

[Tom Bailey:]

Yes, it's actually Thomas. Specifically with respect to the revenue on the [Benoit] -- Tejas comment on the Hyb & Seq. The collaboration revenue, the revenue recognition is determined upon the pacing of the program. And so depending upon what activity is done and when exactly they get done that revenue recognition can fluctuate just a little bit from quarter to quarter. So, it's really an activity based things and opposed to something that we could always dial in to perfection. So, some of fluctuation and the actual revenue recognition is related to that. And that’s true to a much lesser extent for the Celgene as well. There is some collaboration revenue in reported collaboration revenue for Celgene as well. That’s the reason for it. It's really a timing thing and then in subsequent periods likely to catch up. And you saw some of that fluctuating from quarter to quarter happening throughout the course of 2018, probably a bit of that this year as well.

[Brad Gray:]

Yes, and Tejas, I will take the question about the Hyb & Seq timeline. Really, there are two things to work here. I mean first, sequencers are challenging to build and sometimes the development efforts take a little longer than you think, and I think our reframing of the launch time lines from 2020 to 2021 is not really a full year slip as several quarters slip based, at least in part on technical timelines changing. I'd say the other and maybe more strategic answer, the Company could only do so many things very, very well. We think with the GeoMx opportunities we have real once-in-a-lifetime opportunity to really find a very exciting market in early play on a very exciting market, and we want to management bandwidth and commercial bandwidth focused on capturing that opportunity over the course of 2019 and 2020, and a reluctant to throw a launch of new product on top of your GeoMx in its early phases now that we’ve actually come to market. So, that’s an important factor as well. By moving into 2020, we allow GeoMx to fully mature, we allow the Hyb & Seq program to be developed at a national pace in high-quality way, and we can add another wave of growth beginning in 2020.

[Operator:]

Thank you. Our next question or comment comes from the line of Catherine Schulte from Baird. Your line is now open.

[Catherine Schulte:]

Given your GeoMx placement rate as a resource constrain at this point, would you be open to a potential commercial partnership to ensure a smooth launch ramp either now or after the open up to the sequencing market?

[Brad Gray:]

Catherine I think our focus is on the customer experience in these first few quarters of launch and I think now more than ever, we want to control that experience. So, in the very near term while we are focused in 2019 on selling into our nCounter installed base and we want to make sure to delight our customers, we’re not looking to partner with anybody. I don’t think we need the partnership and frankly I would be a little worried to hand the destiny of this very exciting product to anyone else at this point in time. That could change in the future. I think the two events that could cause us to revisit partnership would be of course opening the platform up for next generation sequencing read out in 2020 that could bring much larger market opportunity to us, and of course and the longer your clinical applications that maybe -- that may warrant having a clinical pathology channel for GeoMx sales. But neither of those is an urgent priority for us, so expect to watch us go to loan and hopefully executing a very high-quality way this commercial launch in 2019.

[Catherine Schulte:]

And then about a year ago, you mentioned that roughly 20% of nCounter users were interested in GeoMx. Where does that interest level been today? I assume much higher.

[Brad Gray:]

Yes, I would say modestly higher, it's probably 25% to 30% today. On an installed base, it's 20% bigger. So, if you do the math, that’s about a 50% increase in the total number of people who own nCounter today and are engaged. They would have been 20% of 600 instruments install base a year ago now its 25% to 30% of 730 instruments install base. So, that’s a substantial growth and what I call the text translational research or interest level. Remember, we’re still coming up on the official launch. So, I expect that number to increase when we go just major meeting for cancer researchers, the number one meeting of the year, which takes place just a month’s time and really began to unfairly what this technology can do.

[Catherine Schulte:]

And then last one for me. You mentioned the potential Celgene robust trial readout this year. Any thoughts on timing there? And then, what are the next steps following readout, if that trial is successful?

[Brad Gray:]

I think if you go to clinicaltrial.gov today which is sort of the official non-confidential resource for the timing of clinical trial readout, you will see that the primary analysis is scheduled for a month or two from now, so some time in the spring. And I would expect that it will be up to Celgene about when and how they make those results public. But following a positive result, we expect to begin final preparations for a submission for P&A sometime later in 2019.

[Operator:]

[Operator Instructions] Our next question or comment comes from the line of Doug Schenkel from Cowen and Company.

[Doug Schenkel:]

Hi, this is Adam Wieschhaus on for Doug. I believe you guided 2019 nCounter pull-through to be at the same levels as it was in 2018. Could you believe there could be upside to this range considering your augmented consumable sales force still ramping in 2018? It seems like the maximum pull-through is still quite a bit higher than that.

[Brad Gray:]

That’s for the question, Adam. No, I don't see a tremendous amount of upside to the pull-through at this time. 75,000 to 80,000 was the range we gave last year. The full year range ended up near the top end around $80,000 for the full year. But a couple of things have been going on in our installed base over the last year, one is, it's 20% bigger now. And so, in many ways the additional consumable sales channel that we’re in the process of adding is addressed that expanded customer base more than increase penetration of our existing customer base. And two is, our installed base continues to shift towards smaller laboratories with the SPRINT system accounting for half of new instrument placement. And so, that is a very natural drag on consumable pull-through system as smaller labs continue to be a larger fraction of our customer base. So heading into 2019, we think $75,000 to $80,000 per system range is still where we expect our unit to be in this current year.

[Doug Schenkel:]

And how would you characterize your initial GeoMx demand relative to level you've seen with your earlier rollout such as a SPRING instrument? And maybe I missed it, but how does that three-week installations period compared to previous rollout? And does that short that all of the customers all you have in nCounter?

[Brad Gray:]

First, the demand for GeoMx is unlike as anything I've ever seen in my career. And certainly, it's unlike anything that we see here at NanoString on pass rollouts. The nCounter system as distinctive as it was, when it was launched in 2009 was entering in gene expression market that had a lot of different alternative technologies at that time, such as microarrays or quantitative PCR and was finding a unique place at the mix flex with a very simple workflow. In contrast, GeoMx is entering a market that's just developing, where there has been tremendous latent demand for spatial profiling at high flex kind of sitting on one hand on the translational research site and on the other kind of sitting alongside single cell RNA seat. But there have been no real solutions, and so, we’re fortunate to have a very compelling product profile in a market with a lot of latent demand where there is plenty of room to growth without bumping into competitors. And that’s a very different situation than the nCounter system was. So in addition, we've of course been executing for 12 to 24 months, a very careful pre-launch market development effort that has used major meetings, our technology access program, et cetera to educate the market about this opportunity. And so, we’re coming to market with a certain amount of demand as evidenced by the preorders. So it’s a very different situation, it’s a very exciting one. In terms of your capacity to install, the three weeks is either quite a bit longer than it takes to install nConnter system and that’s really for good reason. nCounter systems is a very simple to use GeoMx system with a reasonably common set of procedures that you do from a simple liquid handling et cetera workflow. In contrast, GeoMx to deploy novel system that acts researchers to interact through software in the selection of regions of interest, THE analysis of images and then merging of those images with the data that is GeoMx in high flex in nature, it's unlike anything that I've ever actually seen before. And so, both in terms of the focus workflow and in terms of the experimental design and analysis, it requires some handhold in the first time to introduce them to these new operations of they haven't done. And right now that’s why taking three weeks. Now that number should come down over time, as our team get better at more efficient installation and of course, as we learn how to train efficiently and effectively as possible. We think that number would come down to two weeks, but it will never quite reach the simple out the box kind of experience the nCounter. Today, you've asked. Does it help accelerate training meaningfully, if you already have nCounter system? I would say probably it’s a margin of course we don't have to teach you how to use an nCounter system, if you already own one and know how to use it. But honestly, that’s a relatively small part of the overall experience of GeoMx, the vast majority is focused on these other operations. So, it only makes the marginal increase in the speed with which a site can be brought up.

[Operator:]

Thank you. I’m showing on additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

[Doug Farrell:]

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[Operator:]

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