NEW YORK – Reporting the third consecutive disappointing quarter of the year, NanoString Technologies announced on Monday that it will eliminate approximately 95 staff positions and reduce spending in non-personnel areas.
In a filing with the US Securities and Exchange Commission, NanoString said it was going to reduce its global workforce by approximately 10 percent, completing the layoffs by Dec. 31. As of the end of 2021, the firm had 766 employees.
"While these decisions are difficult, especially if we consider the impact on our people, these actions will ensure that a more substantial portion of expected 2023 revenue growth falls to our bottom line and that we are positioned to deliver on our commitment to achieve breakeven without the need for additional financing," NanoString President and CEO Brad Gray told investors in a conference call recapping the Q3 results.
For the three months ended Sept. 30, the Seattle-based spatial biology company's total revenues were $29.5 million, down 21 percent from $37.2 million for Q3 2021 and falling short of analysts' consensus estimate of $35.6 million.
Investors reacted negatively to the results: By Tuesday midafternoon, the company's share price had plummeted almost 40 percent to $5.59.
NanoString's Q3 product and service revenues dropped 20 percent to $29.5 million from $36.9 million a year ago, and its Q3 collaboration revenues shrunk to $75,000 from last year’s $226,000.
NanoString reported $9.3 million in GeoMx Digital Spatial Profiler (DSP) revenues in Q3, consisting of $4.7 million in instrument revenue and $4.6 million in consumables revenue. It reported nCounter revenue of $20.2 million, comprising $3.3 million in instrument revenue, $12.0 million in consumables revenue, and $4.9 million in service revenue.
By the end of the third quarter, NanoString grew its GeoMx DSP installed base to approximately 330 systems, representing 47 percent year-over-year growth. The total nCounter installed base rose to approximately 1,105 instruments, representing 7 percent year-over-year growth.
While instrument orders were relatively robust during the quarter, Gray called consumable sales "the largest contributor" to the Q3 shortfall. "We experienced a decline in annual consumable pull-through per system for both nCounter and GeoMx, which we believe was due to a combination of lumpy ordering patterns, customer life cycles, and macroeconomic factors," he said.
Specifically, for nCounter, Gray said the consumable pull-through dropped "across virtually all geographies and customer segments." The decline seemed to be driven by a decrease in demand from the older systems in the installed base. For GeoMx, "the weakness seemed to be primarily a product of lumpy ordering patterns and the impact of a relatively large number of newly placed systems still ramping to their full consumable run rate," Gray added.
Beyond these factors, Gray said, consumable sales were further hindered by broader market conditions, including continued clinical trial delays among large pharma customers, reduced spending from small biotechs, and COVID-19 lockdowns in China. According to him, China represents about 5 percent of overall revenue for the company and small biopharma companies contribute about 15 percent to revenues.
Offering updates on the company’s anticipated CosMx system, Gray said the NanoString team has already generated 100 orders for the new platform, which is expected to be shipped in the coming weeks, accumulating a revenue backlog valued at approximately $23 million. As such, Gray said NanoString expects its spatial instrument order mix to remain CosMx-heavy in the near term.
Meanwhile, growth for the nCounter system remains flat for the company, as the number of new platforms being placed approximately equals the number of older systems being inactivated. That said, the company no longer views nCounter as a future growth driver, Gray said.
NanoString's Q3 net loss swelled to $36.7 million, or $.79 per share, from approximately $31.3 million, or $.69 per share, in the same period last year. This failed to meet analysts' average expectation of a loss per share of $.51.
NanoString's Q3 R&D spending decreased 11 percent to $17.0 million from $19.1 million, primarily due to the capitalization of approximately $3.5 million of software-related product development costs that will be expensed in future periods, according to CFO Tom Bailey.
Its SG&A expenses increased 12 percent to $33.8 million from $30.3 million, mainly driven by investments made in spatial biology-related commercial initiatives.
The company finished the quarter with cash and cash equivalents of $117.1 million and short-term investments of $113.4 million.
Looking ahead, Bailey said the company expects to achieve over 60 orders for spatial biology systems for the fourth quarter, with approximately two-thirds from CosMx and one-third from GeoMx. The firm now estimates total Q4 revenue to be between $33 million and $35 million.
NanoString also updated its full-year 2022 outlook, now expecting total product and service revenue of $125 million to $127 million compared to previous guidance of $140 million to $150 million.
Additionally, the company now estimates that its 2022 nCounter revenue, inclusive of all service revenue, will be $83 million to $84 million, down from previous guidance of $90 million to $95 million.
"The third quarter and year-to-date 2022 have presented challenges as our business mix has continued to evolve, and we have taken steps to streamline our cost structure while maintaining our investments in spatial biology," Bailey said in a statement. "With our strong balance sheet and 2023 revenue backlog, we expect improved profitability in the future and to reach cash breakeven with our current financial resources."