NanoString Technologies sees its recently launched nCounter Elements general purpose reagents as the "single most important launch" of its life science business in years, and believes that the availability of the new product will encourage adoption of NanoString's technology in the laboratory-developed testing market, according to the firm's CEO.
Brad Gray also told investors on an earnings call last week that the Seattle-based company is making progress toward launching its Prosigna Breast Cancer Test in the US by early 2014.
But while diagnostics is a focus of NanoString's, sales of consumables and instrumentation to life science researchers continue to generate the bulk of its revenues. Of the $7.2 million the Seattle-based firm posted last week in second-quarter revenues, $7 million was attributable to consumables and instruments sales to researchers, with the remainder attributable to the sale of a Prosigna system to a European laboratory that plans to offer the breast cancer subtyping assay to customers in the Middle East.
On the call, Gray provided an update on the company's efforts to grow its core life science business as well as its diagnostics plans.
According to Gray, NanoString expects "two catalysts" to propel its life science growth in coming quarters: the launch of its nCounter Elements general purpose reagents, and expansion of its sales and distribution channels.
Gray said that Elements, in particular, should allow the firm to reach customers it has missed in the past.
Although NanoString has launched kits to profile gene and microRNA expression, and to analyze copy number variation in samples using its nCounter Analysis System, the firm has been unable to serve translational researchers and clinical laboratories that wished to create custom assays using the company's technology.
"Historically, we have not opened up our standard chemistry for ... lab-developed tests," said Gray. "As a result, we've given up many instrument placement opportunities."
To reach such customers, the firm last month launched its Counter Elements reagents, which enable users to combine standard sets of barcodes provided by NanoString with probes purchased independently from third-party oligonucleotide manufacturers (BAN 7/30/2013).
"This is by far the single most important launch of our life science business over the past two years and it expands our market reach enormously," Gray said.
Citing a US Centers for Disease Control and Prevention estimate of 9,000 CLIA-certified, high-complexity labs in the US, two-thirds of which perform molecular diagnostic testing, he said that the launch of nCounter Elements "opens a substantial opportunity that would not previously have been accessible using our standard chemistry."
The availability of Elements, which will be shipped to early-access customers later this month, will allow NanoString to reengage clinical labs that had expressed interest in the firm's technology in the past, and to help researchers translate their discoveries into diagnostic services and lab-developed tests, Gray said.
He added that the firm expects these early adopters will primarily develop gene expression-based tests, particularly in the area of cancer.
According to Gray, NanoString has worked to broaden its global reach through expansion of both direct and distributor sales channels.
He said that NanoString has grown its life science commercial team by about 30 percent since the beginning of the year. Three quarters of those new hires were in North America, and the remaining quarter was in Europe, he said. He did not provide the number of employees currently making up the life science commercial team.
NanoString expects to see the benefits from this sales team expansion later this year, given instrument sales cycles of up to six months in length, and as the new sales personnel "become effective and build their sales funnels."
NanoString has also added seven distributors since January, including deals with Chennai, India's Spinco Biotech, and São Paulo, Brazil's UniScience. In total, the company now has 13 distributors worldwide, allowing the firm to reach customers in "more far-flung geographies."
Gray anticipated that sales to emerging markets will be a "secondary contributor" to the firm's life science growth going forward. "I don't think they'll contribute quite as much as our direct sales staff will, but we'll look forward to having them come on line as well," he said.
Prosigna and Gen-3
As NanoString looks to expand sales to life science researchers in both academia and industry, the company is also developing its diagnostics business.
Its first molecular diagnostic assay, Prosigna, relies on a 50-gene signature to subtype and classify different kinds of breast cancer. The company achieved a CE-IVD Mark in September 2012, and has been marketing the test in Europe and Israel since earlier this year.
Gray said that NanoString is preparing to launch the test in the US in the first quarter of 2014. It continues to engage the US Food and Drug Administration about its 510(k) submission, and he characterized the discussions as "highly interactive" and "constructive." He also said that the FDA has not requested additional studies from NanoString.
NanoString is also working to generate interest in its test in Europe. In addition to its sale to the unnamed commercial lab in Europe that aims to serve customers in the Middle East, NanoString also loaned two Prosigna systems to Spanish researchers at the Hospital of the University of Gregorio Marañon in Madrid and the Vall d'Hebron Institute of Oncology in Barcelona.
Gray said that the Spanish researchers will use Prosigna in a "decision impact study" that will "give regional key opinion leaders hands-on experience" with the test system, as well as "demonstrate to local payors that the introduction of Prosigna can reduce the cost and the side effects of chemotherapy by minimizing the over-treatment of low-risk patients."
He said that such studies are a "critical component of driving long-term demand and reimbursement in Europe," where he said that genomic testing for breast cancer has not yet been widely adopted.
While NanoString's diagnostic venture progresses, it is also "on track" to launch a compact version of the nCounter next year.
Referred to as Gen-3, Gray said that system development has moved past assessing technical risks into an engineering phase. For competitive reasons, Gray declined to provide further details about the features of the next-generation instrument.
Elsewhere in Q2
NanoString Technologies went public in late June, raising $47 million in net proceeds.
The firm reported last week that its Q2 revenues rose 22 percent to $7.2 million for the three months ended June 30, compared to $5.9 million a year ago.
Instrument revenues fell to $2.5 million from $2.6 million a year ago, but consumables revenues increased to $4.3 million from $3.1 million, and service revenues climbed to $390,000 from $310,000.
CFO James Johnson said on the call that NanoString continues to see fluctuations in instrument sales from quarter to quarter, particularly in individual geographic regions. "Bear in mind that at a list price of $235,000, the shift of one or two instruments between quarters can have a significant impact on trends," he told investors.
The firm's net loss for the second quarter was $5.5 million, or $13.69 per share, compared to a net loss of $3.6 million, or $16.02 per share, during the second quarter of 2012. On an adjusted basis, NanoString had a loss of $0.65 per share, beating the consensus Wall Street estimate of a loss of $0.78 per share.
The company increased its R&D costs 20 percent year over year to $3.6 million from $3.0 million, and more than doubled its SG&A spending to $6.7 million from $3.3 million.
Johnson attributed the increase in R&D expenditures to investments in technology development and support, as well as preparation for the launch of Prosigna.
He said the increase in SG&A spending reflected "Prosigna launch costs for Europe and Israel, investments to expand our life science sales channel, and the costs of preparing for life as a public company."
NanoString finished the quarter with $10.8 million in cash and cash equivalents. Johnson noted that the firm received its IPO proceeds on July 1. Including the IPO proceeds, NanoString had approximately $61 million of cash and equivalents at the beginning of the third quarter, he said.