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Cowen Downgrades NanoString to Market Perform on Preannouncement of 'Huge Q3 Miss'

NEW YORK (GenomeWeb) – Cowen has downgraded NanoString Technologies to Market Perform from Outperform after the company released preliminary third quarter revenues that fell well short of its own guidance.

After the close of the market on Wednesday, NanoString said that it had calculated preliminary total revenue of approximately $25.9 million to $26.9 million for the third quarter of 2017, which includes product and service revenue of approximately $16.9 million — a significant shortfall from the firm's previous guidance of $19.5 million to $21.5 million from products and services.

NanoString President and CEO Brad Gray attributed the discrepancy to softness in the company's instrument and consumable sales during the quarter. In addition to its preliminary product and service revenue, Nanostring estimated $9.0 million to $10.0 million in revenue from collaborations in Q3. The company said it plans to release detailed operating results for the quarter on Nov. 2.

In a note to investors on Thursday, Cowen analyst Doug Schenkel noted the company's "huge Q3 miss," and said that while meeting quarterly targets has been a problem for NanoString for many years, the bigger problem now is that "several things appear to be trending in the wrong direction. While our Q3 expectations were low, this was far worse than expected. We hate reactionary downgrades, but we have no choice when trends are deteriorating and a turnaround does not seem imminent."

The company's preliminary Q3 total revenues were almost $1 million short of Cowen's expectations, which had already been reduced by $500,000 to account for weather-related concerns, Schenkel said. Its preliminary product revenues, meanwhile, came up nearly $4 million short of the bank's forecasts. "Had collaboration revenue not come in [about] $2 million better than management guided, this update would have been even more of a disaster," Schenkel added.

Despite that fact that the end of the academic fiscal year is usually a strong sales quarter for instruments makers, NanoString has found the academic end market to be its "biggest problem" market, Schenkel wrote. "Sprint placements are not ramping anywhere close to expectations. Further, existing instruments are being used less."

The company does have an asset in its nCounter technology, according to Schenkel, but he believes the platform would be better off in another company's hands, adding that NanoString should consider a strategic sale.

He further noted that the firm's companion diagnostic partnerships may be "tougher to find on terms resembling those entered into over the past few years," and cited pricing concerns for NanoString's Prosigna assay for gauging breast cancer recurrence due to the Protecting Access to Medicare Act.

Cowen had recently cut its price target on NanoString's shares to $18.50 from $20. With this downgrade, the bank cut the price target again to $13.

NanoString's shares fell 36 percent to $10.10 in morning trading on the Nasdaq.