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NanoString Technologies Banking on Spatial Biology Growth Despite Tumultuous 2023

SAN FRANCISCO – After a string of legal losses and layoffs, NanoString Technologies is reinforcing its strategic priorities for 2024 of penetrating the spatial biology market and continuing to progress to cash flow breakeven, CEO Brad Gray said in his presentation Wednesday at the JP Morgan Healthcare Conference.

In November, the company was presented with a significant hurdle after losing a patent infringement lawsuit against 10x Genomics, causing NanoString to withdraw its fourth quarter and full-year 2023 financial guidance. The firm's shares declined by more than 50 percent the day after the $31 million jury verdict was announced, but NanoString said it plans to appeal. Gray said in his JP Morgan presentation that the firm expects to submit all of its post-trial motions by the end of January and intends to appeal the verdict, with "realistic timing" for an appeal decision in mid-2025.

The firm had already been dealt a legal setback in September when 10x won a preliminary injunction in Europe that prevents NanoString from selling its CosMx spatial biology platform and associated RNA detection reagents in Europe. NanoString appealed the European decision and is anticipating the ruling, he said. And in May, the company received a permanent injunction against CosMx in a German court that was stayed by an appeals court in December.

In addition, in September NanoString faces another jury trial in the US with 10x Genomics related to NanoString's CosMx spatial biology platform. Gray said there are "four ways to win in this trial," including proving non-infringement, invalidating the patents, the unclean hands defense, and an anti-trust counterclaim. The unclean hands doctrine bars relief to a plaintiff that has engaged in inequitable behavior, such as fraud or deceit, related to the subject matter of that party's claim.

When asked by a meeting attendee whether the firm has seen cancellations of orders because of the litigation, Gray said that the bigger issue is that 10x Genomics "deliberately used the questions that surround litigation to instill fear with customers in a way that slows down their buying cycles."

In light of its uncertain legal situation, Gray said the company hasn't decided if it will issue financial guidance for 2024. However, he noted that in his view, the investment community is "misjudging the long-term impact of litigation on NanoString's ability to flourish and lead in spatial biology."

The subject of the lawsuits, NanoString's spatial biology platforms GeoMx and CosMx, are poised for growth in 2024 on the back of recent and new launches, Gray said. The GeoMx Immuno-oncology Proteome Atlas panel, which began shipping in Q3 2023, enables spatial profiling of more than 500 immuno-oncology-relevant targets and contains immunohistochemistry-compatible antibodies from Abcam's immuno-oncology portfolio.

In the first six weeks of its launch, the panel generated orders totaling $1 million from more than 50 customers for trial usage, he added. Further developments to the platform are also expected to enable research beyond immuno-oncology to other fields, he said.

In the first quarter of 2024, NanoString plans to commercially launch its CosMx Human 6K Discovery Panel, which will cover 6,175 RNA targets and offer six times higher multiplexing than current CosMx panels, Gray said.

Another upcoming potential growth catalyst is the CosMx Human Whole Transcriptome Panel, which covers about 19,000 RNA targets for full coverage across all protein-encoding genes. Its first application showed the utility of the test in pancreatic tissue, where it was able to identify all major endocrine cell types, including rare cell types, Gray said. In a statement, the firm said it plans to commercially launch the panel in 2025.

Improvements in multiplexing are a priority for NanoString because "scientists want to get the maximum amount of insight from their very precious tissue samples that they've collected," he said. Multiplexing has "always been a primary axis of competition," he added, and although throughput is also a key performance metric, it "so far … hasn't been a main component of our conversations with customers."

Outside of its spatial biology franchise, the company is also recommitting to its gene expression platform nCounter. The revenue and gross margin profile from the nCounter installed base of about 1,200 instruments have been "helping subsidize our entry into spatial," he said, but the franchise has been underserved by the company in recent years.

NanoString announced two reorganizations in 2023, including layoffs of about 25 percent of the company's workforce in the last four months, and these were an attempt to pursue profitability but also focus the firm on improving capabilities around its existing platforms. The first reorganization focused on R&D and manufacturing, eliminating some roles that were associated with instrument development, while the second — announced earlier this week — dealt with the commercial organization, simplifying the company's go-to-market strategy, Gray said. After the most recent layoffs, NanoString now has dedicated sales teams for nCounter and spatial biology sales.

"At peak we were probably placing about 120 new nCounters a year, and that's dropped to about 50 a year," Gray said. Although it may not reach 120 annual placements again, he noted that NanoString would like to see placements go up modestly and to reactivate some of the "dark sites" — customers that have moved away from the instrument.

Gray also addressed macroeconomic concerns that have plagued the life sciences industry, saying that NanoString has largely been insulated from the downturn because it is "lucky enough to be in a very exciting field where most labs are building a brand new capability, and even in tight environments for capital spending, these new capabilities tend to be prioritized."