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NanoString Provides Update on Sales Channel Expansion, CDx Development, New Technologies


NEW YORK (GenomeWeb) – NanoString Technologies this week provided investors with a mixed bag of news as it released its second quarter earnings and financial outlook for the rest of the year.

The Seattle-based developer of life science research products and molecular diagnostics reported a 53 percent year-over-year increase in Q2, but that spike was largely due to a one-time payment related to the termination of a companion diagnostic development agreement.

Meanwhile, NanoString's product and service revenue grew 5 percent year over year, driven primarily by 7 percent growth in consumables revenue. In this category, however, the company's US Food and Drug Administration-cleared Prosigna breast cancer prognostic gene signature assay kits had sales growth of 47 percent, but sales of other consumables related to the company's nCounter gene expression instrument portfolio were flat year over year. In addition, instrument revenue fell 6 percent year over year.

The company also informed investors that its efforts to develop companion diagnostics with pharmaceutical companies are moving more slowly than anticipated as potential partners have recently become more cautious in evaluating NanoString's so-called tumor inflammation signature (TIS), which gauges 18 markers for immune system response to a tumor.

On the flip side, the company plans to introduce new research-use-only immune-oncology assays for its nCounter platform in coming months, and recently took important steps to develop its technologies into marketable products, including a new gene- and protein-expression analysis system and a clinical sequencing platform.

NanoString President and CEO Brad Gray discussed these items and more during a conference call Tuesday recapping the company's Q2 earnings.

Expanding sales channels

Regarding the company's flagging consumables sales, Gray noted during the call that biopharma pull-through continues to be strong, though lumpy, while academic pull-through in Q2 was below the company's historical average. This, Gray noted, can be attributed to NanoString's sales team "becoming thinly stretched across the following years of [nCounter] installed base growth that outpaced the expansion of our sales channel."

NanoString's top strategic objective for 2017 was to optimize its commercial sales channel, and Gray noted during the call that the company has made "substantial progress" in this regard in recent months.

First, in July the company hired Chad Brown as its senior vice president of sales and marketing. With more than 35 years of experience in life science tools and clinical diagnostics, Brown has held executive commercial operation positions with Qiagen, Roche Diagnostics, and others.

Furthermore, Gray said that NanoString has added 20 new sales positions since the beginning of 2017, primarily to drive consumables sales for its installed base of about 540 nCounter systems. "We believe that this increased sales and marketing activity will begin to accelerate growth in the second half of the year and reach full impact in 2018," Gray said.

Another important step in improving consumables pull-through is expanding the assay menu for the nCounter system, which NanoString plans to do in the second half of this year. First, the company will soon launch an immune-oncology product called the Pan Cancer IO 360 Gene Expression Panel, "a 770-gene expression panel specifically designed to support drug development by profiling multiple potential mechanisms of immune resistance," Gray said.

This panel incorporates more than 15 potentially predictive research-use-only biological signatures including the 18 gene TIS that is the subject of an ongoing companion diagnostic development pact with Merck and was recently described by researchers from that company in a Journal of Clinical Investigation paper.

In addition, NanoString plans to launch a panel for neurodegeneration research, Gray said.

Meanwhile, the company's Prosigna IVD kit remains a bright spot for the company. During Q2 NanoString saw record Prosigna revenue of $1.8 million "driven by reimbursement decisions in 2016 as well as continued momentum in adoption [in] both the US and abroad," Gray said during the call. In Q2, he added, 11 new labs launched Prosigna, increasing the number of active Prosigna sites to 65 labs worldwide.

CDx development

Another strategic objective for NanoString continues to be the establishment of companion diagnostic development deals leveraging the company's gene expression platform. NanoString has two such deals in place — with Celgene and Merck — and had a third one in place with Astellas Pharma and Medivation for an investigational breast cancer drug, until that collaboration fell apart through no fault of NanoString. In fact, the termination of the latter agreement led to a one-time payment to NanoString of $10.6 million, helping drive up the company's total revenues for Q2.

Gray noted during this week's earnings call that the Celgene partnership reached an important milestone as the ROBUST clinical trial in diffuse large B-cell lymphoma completed enrollment recently, "setting the stage for a potential study readout sometime in 2018 and potential regulatory approval in 2019." The ROBUST trial is assessing the efficacy of adding the Celgene drug lenalidomide (Revlimid) to chemotherapy in patients with activated B-cell-like DLBCL, guided by an nCounter-based companion assay.

The Merck partnership is also progressing, Gray said, as scientists from the pharma company presented data at the recent American Society of Clinical Oncology meeting demonstrating the ability of NanoString's TIS to predict response to therapy more effectively than competing biomarkers with data in head and neck, gastric, and bladder cancer. In addition, a basket trial covering 10 tumor types continues to move forward as planned and could yield a pre-market authorization filing to the FDA for TIS as early as 2018, Gray noted.

And, while "many biopharma companies beyond Merck have also expressed interest in TIS … it has become clear that they are considering a wide variety of biomarkers," Gray said. "They are not prepared to move directly to a companion diagnostic development program without evidence that TIS predicts response to their specific therapy."

Potential partners are more interested in retrospective exploratory studies, Gray added, and therefore "full-scale companion diagnostic collaborations are being delayed" as potential partners conduct this type of work. "While our pipeline of biopharma discussions remains strong with numerous active dialogues, we acknowledge that the deal pipeline is maturing more slowly than expected," Gray said.

To address this, NanoString is making the TIS available for such pilot studies. "Since soft launching of this program at ASCO, we have entered five pilot studies with four different companies and have many more discussions underway," Gray said. "Across our pipeline of three companion diagnostic products we have entered a total of 50 pilot studies with 20 different biopharmas."

Technology pipeline

NanoString also shared more details on various technology platforms it is attempting to transform into commercial products to diversify its product portfolio.

Of note, concurrent with the release of its earnings NanoString disclosed a partnership with Lam Research Corporation to develop a clinical-grade sequencing platform around NanoString's Hyb & Seq chemistry.

NanoString provided an update on the Hyb & Seq technology in February at the Advances in Genome Biology and Technology meeting, where it showed off a prototype instrument and ran an 11-gene oncology panel on site.

During this week's earnings call, Gray noted that the total addressable market for clinical sequencing is projected to reach $44 billion by 2022 with the largest opportunity being in oncology. Despite this potential, "clinical sequencing adoption is currently constrained by the high complexity of traditional next-generation sequencing platforms, which can require 25 different steps and complex bioinformatics. We believe that unlocking this massive market potential requires a simple, fast, sample-to-answer sequencer that can be easily run at hospital laboratories or community oncology practices."

The Hyb & Seq chemistry, running on a dedicated instrument to be developed by Lam Research, can be that platform, Gray said.

"Hyb & Seq's workflow has just four simple steps and does not require complex and time-consuming laboratory preparation," he noted. "As we demonstrated [at] AGBT … the turnaround time from FFPE to initiation of sequencing is less than 60 minutes with only 15 minutes of hands-on time. In addition, Hyb & Seq offers unique attributes which are attractive to genome researchers such as high consensus accuracy at low coverage, simultaneous sequencing of both DNA and RNA, and the ability to provide both long and short reads."

NanoString plans to present proof of concept for targeted sequencing and liquid biopsy at the AGBT Precision Health Conference next month. Then, at the main AGBT meeting in February 2018, the company expects to present data generated using the "complete complement of sequencing optical barcodes" as well as data generated with external collaborator samples, Gray said. NanoString plans to launch beta instruments in 2019 with a full commercial launch the following year.

In anticipation of its first revenues from the Lam Research collaboration, which could be worth up to $50 million over the next three years, NanoString upped its revenue guidance for 2017 to a range of $114 million to $118 million from previous guidance of $100 million to $105 million. This guidance increase also reflects additional collaboration revenue from the terminated Astellas/Medivation CDx partnership.

Finally, the company provided an update on its "digital spatial profiler," which was first unveiled in November of last year and combines NanoString's legacy barcoding and nCounter analyzer technology with photocleavable antibody-driven 3D biology assays to enable "the precise spatial quantification of proteins and gene expression," Gray said.

NanoString remains on pace to launch commercial instrument based on this platform in late 2018. "Demand remains high for the technology-access program that allows our customers to access DSP capability as a service with 16 customers signing up to date," Gray said.

"The technology-access program and our internal developmental studies resulted in seven presentations at scientific meetings during Q2 including three studies covering immune-oncology in response to therapy presented at the ASCO meeting," he added. The company plans to provide its next major public update on this technology at the Association of Molecular Pathology meeting in November.