NEW YORK (GenomeWeb) – Uneven revenue growth from instrument sales is spurring NanoString Technologies to overhaul its sales and marketing operation.
In a conference call with analysts yesterday, CEO Brad Gray announced an organizational shakeup that will affect everything from the top of the commercial operations on down, calling it the company's "number one strategic objective" for 2017.
"It's about addressing commercial effectiveness," he said on the call to discuss the firm's fourth quarter and full-year 2016 financial results. "Our commercial resources and processes have become stretched following years of revenue growth that outpaced the expansion and evolution of our commercial channel."
NanoString will look for a new head of sales and marketing as well as split-off consumables sales into a new role staffed by dozens of new hires. As the firm preps to develop two new instruments over the next several years, it hopes to let field-based sales reps to focus on placements while the new staff focuses on sustaining consumables pull-through.
Gray also noted that the firm will be launching a new website in the second quarter of 2017 and has doubled the size of its business development team.
The move comes as NanoString dealt with two quarters of backsliding instrument sales compared to the respective prior-year periods. In the first quarter, instrument sales slipped 22 percent to $3.4 million from $4.4 million, and NanoString missed Wall Street revenue projections. In the fourth quarter, the firm was forced to revise its own revenue projections downward, and while it beat Wall Street's quarterly revenue estimate, instrument sales dipped 5 percent to $7.5 million from $7.9 million.
"Despite record revenue in the fourth quarter, we fell short of our expectations," Gray said. "To put this in perspective, our Q4 product and service revenue increased sequentially by 29 percent and 40 percent in 2014 and 2015 respectively while our sequential growth in Q4 of 2016 was only 6 percent."
Despite entering the quarter with a "reasonable funnel" of opportunities, Gray said a couple external factors contributed to the decline in instrument sales. For example, the firm did not see an expected year-end spike in instrument purchases, especially in the academic end market. Gray also ventured that some sales evaporated as funds were directed towards purchases from other genomics firms offering steep year-end discounts; others weren't closed, perhaps due to funding uncertainties related to the US election and Brexit vote.
"When these instruments fell out of our Q4 sales funnel, we did not have a sufficient number of backup opportunities to make up the gap," Gray said. But he attributed most of the inability to close to internal factors.
"We had not sufficiently supported the field-based reps to achieve productivity," he said. Sales reps had been responsible for both instrument and consumables revenue, even as the installed base in each territory grew.
Doug Schenkel, an analyst at Cowen and Company, explained in a research note that key salespeople were asked to sell approximately 40 percent more instruments while continuing to drive consumables revenue growth. "This proved to be too much, and unfortunately, it did not become apparent until the backend of the most important quarter of the year," he wrote.
Thus, the firm is pursuing structural changes to the sales organization.
The change starts at the top. On the investor call, Gray lauded the contributions of Senior VP of Sales and Marketing Barney Saunders but indicated he was no longer the right person for the job. NanoString has already begun a search for his replacement. Meantime, Saunders will stay on through the search, which could take up to six months, and for a transition period before being let go.
Gray also outlined a plan to divide the sales team into "hunters" — primarily responsible for growing the installed base — and "farmers" — consumables specialists responsible for maintaining sales on those placements.
The addition of the benchtop nCounter SPRINT instrument has changed the firm's addressable market. "The launch of SPRINT both drove an increase in our install base of about 33 percent over the last year and basically demanded that each rep sell 40 percent more instrument units than they had in the past," Gray said. "Meanwhile, their installed base, in any given territory, has gotten quite material: 15 to 20 instruments per territory that need to be serviced with respect to driving that $100,000 per system, per year consumable pull-through."
NanoString will increase its sales and marketing staff by as much as 25 percent, or about 30 people. Of those, some would be considered part of a routine sales force expansion, but the rest would fill the newly designated roles. The firm will also seek inside sales experts to work with field-based reps.
"We expect this to free up our incumbent sales reps to invest more time on instrument sales," he said.
"Over time this should allow the company to re-accelerate revenue growth in a balanced way," Schenkel said.
The firm also plans to invest in R&D. On the call, NanoString officials noted that the firm is planning development of two new instruments, a digital spatial profiler (DSP) and a clinical sequencing instrument based on its Hyb & Seq chemistry. The DSP early-access program using in-house prototypes has encouraged the firm to target an instrument launch in late 2018. For Hyb & Seq, Gray said the firm may look for partners to help with instrument development, targeting a 2019 launch. While this year will be devoted to refining that chemistry, Gray said he hoped to have "more clarity on a partner" by the start of 2018. That partner could come from either the technology or clinical diagnostics side.
"There could be a whole range of different arrangements," he said. "I think we have time over the course of this year to figure out what's best for this product and what's best for our shareholders in terms of how we move forward."
Gray also noted that the firm is upgrading its marketing efforts, including lead generation, automation, and handoff. The firm recently added VP of Marketing Anna Berdine, who has expanded the firm's presence at trade shows and conferences, helping to lodge the company in customers' minds. Berdine is also responsible for a new website that will go live with digital marketing initiatives.
NanoString has also doubled the size of its business development team working with collaborators on pilot studies exploring companion diagnostic development. The firm ended the year with 41 ongoing pilot studies with 18 companies. "We are well positioned to add multiple new biopharma collaborations in 2017," he said.
As for the instruments NanoString missed out on selling in Q4, Gray said he expects to close on most of them, eventually.
"I'll caution that unlike our experience in the first quarter of last year where the cause of delay was primarily administrative in nature, where purchasing processes just were taking a few extra weeks and we therefore recaptured a very large fraction of those slipped instruments very quickly," he said. "We think it will take more time to recapture these instruments in the funnel, but they're there, and I'd say about half of them are timed for the first quarter with the balance over the course of the year."