NSTG

NanoString Technologies, Inc. (NSTG)

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NanoString Technologies, Inc. (NSTG)

Q2 2013 Earnings Call

August 6, 2013 4:30 PM ET

Executives

Lynn Pieper – IR

Bradley Gray – President and CEO

James Johnson – CFO

Analysts

Tycho Peterson – JPMorgan

Scott Devitt – Morgan Stanley

Dan Leonard – Leerink Swann

Jeff Elliott – Robert W. Baird

Presentation

Operator

Good day, ladies and gentlemen, and welcome to NanoString 2013 second quarter financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference call may be recorded.

I would now like to hand the conference over to Ms. Lynn Pieper. Ma’am, you may begin.

Lynn Pieper

Thank you. Earlier today, NanoString released financial results for the quarter ended June 30, 2013. If you’ve not received this news release or you’d like to be added to the company’s distribution list, please call Westwicke Partners at 415-202-5678.

Before we begin, let me remind you that the company’s remarks include various forward-looking statements including projections and future Life Sciences business growth, estimates and revenue-generating potential of new product offerings, anticipated outcomes of ongoing clinical studies, anticipated outcomes of ongoing regulatory interaction, expectations for the timing of launch of the company’s product pending FDA’s review and projected financial results for the year 2013. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond NanoString’s control including risk and uncertainties described from time to time in NanoString’s SEC filings.

NanoString’s results may differ materially from those projected on today’s call. NanoString undertakes no obligation to publicly update any forward-looking statement. Additionally, non-GAAP financial measures may be referred to during today’s call. A reconciliation of these non-GAAP measures is included in today’s press release, which is available on the NanoString website.

With that, I’d like to turn the call over to Brad Gray, the President and CEO of NanoString. Brad?

Bradley Gray

Thank you, Lynn. Good afternoon and thank you for joining us on our Q2 call. Before commenting on our financial results and business accomplishments, I want to personally thank our team at NanoString for their focus, dedication and efforts over the past several months. Not only did we together continue to deliver on our operational objectives, but we also completed a successful initial public offering, bringing $47 million in net proceeds to the company. This capital will enable us to continue to realize the promise in translational medicine by executing on our strategy and achieving many milestones that lay ahead. I’m extremely proud to work with such an outstanding team.

Our second quarter results were strong with overall revenue of $7.2 million, reflecting 21% growth versus a year ago. We achieved important milestones in both our Life Sciences and diagnostics businesses. On today’s call, I’ll provide an update for both our businesses and then turn the call over to our CFO, Jim Johnson, who’ll provide more detail on the financial results and will provide our outlook for 2013. We will then open up the call for your questions.

On the Life Science side of our business, we achieved $70 million in revenue in Q2, reflecting 18% growth over 2012 and 24% sequential growth. Consumable revenue was particularly strong at 41% year-on-year growth, and pull-through was on the high end of our historical experience on a revenue per instrument basis. North America drove the majority of Life Sciences revenue growth, increasing 35% year-on-year driven by strength in the industrial segment.

Two important drivers for our growth during Q2 were cancer researchers and biopharmaceutical companies. Cancer biomarker discovery and validation is a major focus for NanoString and we estimate that approximately 75% of our new instrument placements in the second quarter were customers focused on cancer research. We expect cancer research to continue to be a driver of growth due to the importance of pathway-based biology and our technology’s unique capability to unlock genomic information from formalin-fixed paraffin-embedded samples.

Also, the use of nCounter technology is expanding, from specialized academic research labs to mainstream centers, and is becoming widely accepted. For example, during the second quarter, approximately 25% of our new instrument placements and 35% of consumable sales were to biopharma companies. One of these customers purchased both their fifth and sixth nCounter systems, making them our largest customer in terms of total instrument placements. Meanwhile, another biopharma customer ordered over $0.5 million in consumables during the quarter. This illustrates deep commitment to nCounter for mainstream customers and one of the most important end markets in genomics research.

Meanwhile, our Life Science customers continue to publish high-impact peer-reviewed research at an impressive rate. During the first half of 2013, our customers published 64 new peer-reviewed articles, a pace that is more than 50% greater than during the same period in 2012, bringing the total number of papers published using our system to more than 240. Looking ahead, there are two catalysts we expect to propel our Life Science growth further in the coming quarters: one, the ongoing strengthening of our sales and distribution channels; and two, the recent launch of our new chemistry, nCounter Elements.

We’ve recently broadened our global reach through expansion of both direct and distributor sales channels. So far in 2013, we’ve increased our Life Science commercial team by about 30%. Most of these additions have been direct sales professionals in North America and Europe. In addition, we’ve added seven distributors in markets such as India, Brazil and Russia, bringing our distributor network to 13 in total. We expect to see increasing impact of these additions over the second half of the year with even more meaningful contribution in 2014.

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