NanoString Technologies Inc (NSTG) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NanoString 2015 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 follow at that time. (Operator Instructions)

I would now like to introduce your host for today's conference, Ms. Leigh Salvo, Westwicke Partners. Ma'am you may begin.

Thank you. On the call with me today is Brad Gray, NanoString President and CEO, and Jim Johnson, CFO. Earlier today NanoString released financial results for the second quarter ended June 30, 2015 and a copy of the press release can be found on the Company's website at nanonstring.com.

During this call, we will make a number of statements that are forward-looking, including statements about financial projections, existing and future collaborations, future business growth, trends and related factors. Prospects for expanding and penetrating addressable markets, interactions with third-party payers and the timing and outcome of any related reimbursement decisions, our strategic focus and objectives, and the development, status and anticipated success of recent and other planned product offerings.

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publically update any forward-looking statements.

With that I would like to turn the call over to Brad.

Thanks, Lee. Good afternoon and thank you for joining us today. The last several months have been pivotal for NanoString. Through the achievement of many milestones, both large and small, we believe that we have positioned the Company for long-term growth and leadership in the field of precision oncology.

Let me provide a few highlights. We substantially expanded the market opportunity for our products in oncology research through the launch of the nCounter SPRINT profile and the introduction of our unique RNA:Protein assays. We positioned the Company as a leader in the dynamic field of immuno-oncology platform in partnerships with leading academics, recruiting a Chief Medical Officer with expertise in tumor immunology and forming a partnership with Merck to develop biomarker assays for KEYTRUDA, one of the highest profile Cancer-Immunotherapies in the field. And we've continued to demonstrate our capabilities to develop and commercialize molecular diagnostics by achieving key milestones for Prosigna, including recognition in the International Treatment Guidelines, and positive draft coverage policy for Medicare.

On our call today, after briefly highlighting our Q2 financial performance, I will focus my remarks on the tremendous progress towards our strategic objectives for the year. Jim will comment in more detail on our financial performance and outlook and I will then make some brief closing remarks before opening up the call for your questions.

Total revenue for the second floor was $13.1 million, with a growth of 20%, driven primarily by instruments and consumable sales. We continued to rapidly expand our installed base of nCounter Systems, while achieving annualized pull-through of $100,000 per system for total consumables.

Instrument sales were $4.4 million in the second quarter, representing growth of 17% and bringing our worldwide install base to over 300 systems. Instrument revenue growth was particularly strong in Asia and Europe where our distributor network made a strong contribution to growth. Life sciences consumables revenue, which excludes Prosigna, was $6.8 million for the quarter, up 17% year-on-year, and 24% sequentially. As expected, the pace of ordering from biopharma companies and customers located in the Northeast recovered during Q2, easing the constraints on consumable revenue experienced during the first quarter. Biopharma companies and their CROs contributed over 30% consumable revenue in Q2, an increase about 50% sequentially from Q1.

Meanwhile, Prosigna sales trended upward to $591,000, and showed particular strength in Europe where we have recently won several competitive tenders for breast cancer recurrence testing. Overall, we are pleased with Q2 results and the outlook for the remainder of the year. I'd now like to transition to reporting progress on each of our four strategic objectives for 2015.

Our first strategic objective for this year is to sharpen our focus in oncology, by solidifying our leadership in tumor profiling and expanding into the field of immuno-oncology, Our oncology focus continues to drive nCounter System placements, as approximately 70% of our instrument sales in Q2 were to labs focused on cancer. Meanwhile, the popularity of our PanCancer panels continue to grow, driving panel revenue to approximately double versus last year and setting another record. Our commitment to oncology cuts across all aspects of our business and we seek to provide best-in-class products (inaudible) tumor biology, yielding insights that can lead to better therapies.

In order to help us deliver on this promise, we recruited a new Chief Medical Officer with a unique blend of expertise in drug development, molecular diagnostics and cancer immunology. Dr. Alessandra Cesano who joined us in July brings more than 25 years of experience and an extensive scientific and executive level background in oncology that is an ideal fit for our growth strategy. Her track record of successful therapeutic development, which include two approved cancer therapeutics, will be invaluable in partnering with biopharma companies on the development of companion diagnostics.

One of the most exciting areas of oncology research and therapeutic development today is immuno-oncology, or IO for short, which looks to harness the power of the body's immune system to fight cancer. IO is becoming a major driver of NanoString's growth and we are already benefiting from Alessandra's IO expertise, which includes a PhD in tumor immunology and almost a decade of IO research experience.

During the second quarter, we established three partnerships, which together have thrust NanoString into the center of the IO field.

In April, we announced a multi-year collaboration with the MD Anderson Cancer Center to accelerate the development and adoption of our new RNA:Protein assays in the field of Immuno-Oncology and targeted therapy. In May, we announced a collaboration with a cancer immunotherapy trials network, to identify biomarker assays for novel cancer immunotherapies. Both of these academic partnerships are progressing well, yielding first experimental results just days and weeks after they were initiated.

Finally, also in May, we announced an exciting partnership with Merck, which both extends our leadership in IO biomarker development and aligns with our second strategic objective of deepening our relationships with biopharmaceutical companies. Some background on the Merck partnership should illustrate why this is such an important event for NanoString. To-date. only a few IO therapies have been approved by the FDA, but many more are in development. One of the first IO therapies on the market is Merck's KEYTRUDA, which is in a class of therapies known as checkpoint inhibitors. KEYTRUDA has been approved for the treatment of melanoma and is in development for many additional tumor types. As in other areas of drug development, researchers have looked to biomarkers that might help predict which patients would benefit from checkpoint inhibitors. Until recently the effectiveness of these biomarkers of selecting patients have been mixed. Despite the fact that checkpoint inhibitors have provided some patients durable responses in previously untreatable disease, the majority of patients do not respond to single agent treatment.

Our collaborators at Merck set out to find more accurate biomarkers for predicting response to KEYTRUDA. Merck was an early adopter of our technology and now operates numerous nCounter Systems across multiple research sites. Sometime ago they began using nCounter technology to search for key expression signatures that identify which tumors respond to KEYTRUDA. They succeeded and at the recent ASCO Meeting, presented results showing nCounter-enabled gene expression signatures that predict KEYTRUDA response across four different tumor types, melanoma, head and neck cancer, bladder cancer and gastric cancer. About a year ago, Merck contacted us regarding these predictive gene signatures and we began discussing how we would work together to move them forward as a companion diagnostic. We agreed to enter a partnership, under which we would collaborate to explore the feasibility of developing and commercializing biomarker assays for KEYTRUDA.

During the feasibility stage, which is expected to bring around $4 million in cash payments from Merck, we plan to optimize the signatures, validate their performance and seek FDA input on the potential development program. Assuming success in this initial phase, we intend to establish a separate collaboration that would govern and fund the development and commercialization of the resulting assay as a companion diagnostic.

We are excited about this new collaboration for several reasons. Importantly, it is a perfect illustration of the power of our business model with clear synergy between our efforts in research and diagnostics. I believe that few other companies in the field of genomics could so efficiently and confidently support Merck's efforts to move their discovery into the clinic.

In addition, this partnership validates our technology and helps establish our leadership position in IO at a time when the field is in urgent need of robust and accurate predictive biomarkers, along with a rapidly growing use of our PanCancer Immune Profiling Panel and strong biopharma interest in our immuno-oncology RNA:Protein profiling panel, we believe our Merck partnership position nCounter as a must-have platform for academic researchers and biopharma companies developing IO therapies.

As illustrated by our Merck collaboration, the use of nCounter technology in research has the potential to yield a menu of molecular diagnostics over time. In order to be a valuable companion diagnostic partner and build a successful diagnostics business, we need an effective diagnostic commercial capability. This brings us to our third strategic objective, which is to further penetrate the clinical laboratory market with our nCounter FLEX system, Prosigna assay and Elements reagents.

Since our last call, we have continued expanding our clinical installed base, as our popular dual-use nCounter FLEX once again drove the majority of new instrument sales. Clinical labs have also continued to adopt Prosigna and today the number per Prosigna sites have increased to 47 clinical labs across 13 countries with a total of 29 laboratories worldwide actively offering Prosigna testing services.

Just as importantly, we've achieved major milestones with Prosigna that demonstrate a growing capability in diagnostic commercialization, that over time can potentially be leveraged across an entire menu of tests. During the past few months, two influential breast cancer guidelines were updated to acknowledge Prosigna for the first time. In May, the St. Gallen International Breast Cancer Guidelines were updated to recognize the power of Prosigna to inform treatment decisions and (inaudible) breast cancer patients on necessary chemotherapy. More recently, the NCCN published a full update to their breast cancer guidelines acknowledging that the PAM50 gene signature that underlies Prosigna has been clinically validated for prediction or prognosis. These guideline updates were in line with our expectations and we believe establish a solid foundation upon which we can continue to build the market for Prosigna.

We also continued to generate compelling clinical data that strengthens the case for Prosigna's clinical utility and may help improve Prosigna's positioning in the future guideline updates.

For instance, an [ASCO] collaborator presented several new studies highlighting Prosigna's ability to inform physician treatment decisions, including a study which demonstrates Prosigna's ability to predict response to chemotherapy. Most importantly, in May, Prosigna received a favorable draft local coverage determination by Palmetto GBA through its MolDx Program. The draft policy provides coverage for Prosigna's entire [indigenous] population, including patients with both node-negative and node-positive disease. The public comment period for this draft policy is now closed and we are waiting for Palmetto to finalize the policy. The policy will become effective 45 days after it is finalized.

The positive MolDx decision was an important milestone for several reasons. For one, the MolDx policy is expected to initially be adopted in six states including North Carolina, (inaudible) all their commercial Prosigna testing. Thus the MolDx policy once finalized will provide what is effectively a national coverage for patients tested [July 4]. In addition, the MolDx process is viewed as one of the more sophisticated and influential technology assessments in the US and we believe the decision is likely to positively influence the coverage policies of other Medicare carriers and private payers.

Finally, this milestone is a demonstration of our reimbursement team's ability to effectively convey to payers the analytical validity, clinical ability and clinical utility of Prosigna.

Our fourth strategic objective is to expand our addressable market. We achieved this objective in July with the launch of our single and most important new product of the year, our low-cost nCounter SPRINT Profiler. The nCounter SPRINT represents a major step forward in making nCounter technology more broadly acceptable to researchers and provide the same highly precise nCounter chemistry as our previous systems, but with a smaller footprint in a sample throughput and cost tuned to the needs of individual researchers. Using a microfluidic processing card, SPRINT integrates sample preps and analysis into a single instrument, minimizing manual steps while further streamlining the overall workflow. The system throughput has been designed to accelerate the [sample to insight] for individualized experiments on our Instrument sized to fit on a laboratory bench top. In combination with our suite of PanCancer panels and custom code sets, Sprint provides the individual cancer researcher with a complete solution for translational research. We estimate that the availability of Sprint will increase our serviceable market to two to three times what it is today and have the potential to accelerate the growth of our installed base in the coming years.

The expanded nCounter lineup now includes three instrument systems, each targeted at different customer segments; for clinical laboratories interested in the Prosigna assay and biopharma companies interested in assay development on an FDA-cleared system, we offer nCounter FLEX. For the core laboratory, we offer the nCounter MAX, which is based on our higher throughput research system, updated with enterprise software that provides enhanced security, controlled access and automated data transfer. For the individual researcher, we offer an affordable nCounter SPRINT. Reaction to this offering has been positive in the three weeks since launch and we look forward to developing an expanded sales force funnel in the quarters ahead.

Also during the quarter, we began working with a select group of customers to field test or new RNA:Protein assay, which allows simultaneous detection of gene and protein expression. Interest has been high and thus far we have limited the access program to just five customers, three biopharma companies and two academic labs. The feedback has been positive and we look forward to moving this product towards full commercial launch later in the year. We expect this unique RNA:Protein capability to further differentiate our technology and expand our strategic advantage in the field of tumor profiling.

Now I'd like to turn the call over to Jim to review our financial results and provide financial guidance.

Thanks, Brad. Total revenue for the second quarter of 2015 was $13.1 million, up 20% versus the second quarter of last year. Total product and service revenue was $12.5 million, up 22% year-over-year. Foreign exchange rate fluctuations reduced the growth in both total revenue and total product and service revenues by approximately 3 percentage points. Instrument revenue for the quarter was $4.4 million, up 17% over second quarter 2014. System sales were strong outside North America, generating over 60% of total instrument revenue, with particularly strong growth from our distributors. The quarter also included the sale of our first two SPRINT systems to the [Broad Institute].

Total consumable revenue including Prosigna was $7.4 million, 23% higher than a year ago and above $100,000 per system on an annualized basis. Life science consumables were $6.8 million of this total, up 17% year-over-year. This is consistent with the guidance we provided last quarter of $1 million to $1.5 million of sequential growth over the first quarter. Within life sciences consumables, we saw a recovery in our biopharma pull-through and from customers in the Northeast after Q1 weather-related issues subsided. Also we continued to see the shift away from custom consumables to panels, with panel sales representing over 40% of total life sciences consumables revenue for the quarter.

Prosigna test kit revenue grew to $591,000, another step-up from the previous quarter and we continue to see increasing momentum in the demand for Prosigna kits, particularly outside the US where our localized testing model clearly resonates. We recorded $568,000 of collaboration revenue for the quarter and most of this relates to our Celgene collaboration, with modest contributions from the new Merck collaboration beginning in June and a small exploratory research collaboration.

Gross margin on product and service revenue for the quarter was comparable to the second quarter of last year at 53% and gross margin during the quarter benefited from increased panel volume in consumables, which was generally offset by the impact of a higher proportion of instrument sales sold through distributors, which generates lower margins than direct sales.

R&D expense was $5.8 million compared to $5.3 million in the second quarter of last year. The increase largely reflects investments in the development of new nCounter products and technology. SG&A expense was $12.8 million for the second quarter, comparable to the $12.9 million reported year ago. This flat trend reflects cost efficiencies resulting from the changes to our sales and marketing organization that occurred in the first quarter of this year. Stock-based compensation expense was $1.7 million for the second quarter of this year compared to $1.3 million a year ago.

Consistent with our increased revenue and moderated operating expense growth, we saw a decline in our net loss for the quarter. Our GAAP net loss was $12.4 million or $0.66 per share, compared to GAAP net loss of $14.1 million or $0.78 per share in the second quarter of last year. During the quarter, we raised approximately $12.5 million net of expenses through our ATM facility. We ended the quarter with $53 million of cash and investments.

Now I'll turn to financial guidance, which we are updating in light of our new collaboration with Merck. We are raising our total revenue guidance to $60 million to $63 million for the year, which includes $4.5 million of collaboration revenue. Previously we'd projected revenue in the range of $58 million to $61 million, including $2.5 million of collaboration revenue.

Although we expect to receive approximately $4 million of cash this year from the new Merck collaboration, not all of that will be recognized as revenue in 2015. Just like with our Celgene collaboration, revenue recognition will lag the receipt of cash. And so we're raising our 2015 collaboration revenue guidance by just $2 million. There's no change to our guidance for total product and service revenue, it remains at $55.5 million to $58.5 million, including $2 million of Prosigna revenue. Overall, for the full year, we continue to expect consumable revenue to be at or above the $100,000 per system we've generated historically.

In Q3, we expect a modest sequential increase in instrument revenue with a more meaningful step-up in Q4, consistent with our historical seasonal patterns and as the funnel for the new SPRINT system begins to mature. We continue to expect that most of the impact from SPRINT sales in the current year will occur in the fourth quarter.

For the full year, we continue to expect gross margin on product and service revenue to be in the range of 53% to 55% and as a reminder, collaboration revenue is excluded from our calculation of gross margin.

For operating expenses, we continue to expect $77 million to $81 million for the year, including approximately $6 million to $7 million of stock-based compensation expense. Our anticipated GAAP operating loss for the year is now expected to be lower in the range of $41 million to $47 million. Previously we guided to a range of $43 million to $49 million. We continue to expect interest expense of approximately $4 million for the year, bringing our revised GAAP net loss guidance of $45 million to $51 million. We still expect capital expenditures of $4 million to $5 million, approximately half of which will be funded by our landlord and leasehold improvements.

So with that, I'll turn it back over to Brad to wrap up.

Thanks, Jim. In summary, NanoString is at a key inflection point. We have delivered solid growth while achieving multiple critical milestones in rapid succession. Any one of these milestones alone could be a major event for the Company. After achieving them in a short burst, over just a few months, we believe we are emerging as a truly different Company, always not just to deliver growth quarter-after-quarter, but year-after-year. We are proud of these recent achievements and optimistic about our future.

I would now like to open up the line for questions.

(Operator Instructions) Steve Beuchaw, Morgan Stanley.

My first question, actually I will ask two, both about SPRINT. So I wonder if you guys have looked at the evolution of the funnel, not just for SPRINT, but for FLEX and MAX? I know that that product has been on the market for several weeks and made any attempt to assess whether the SPRINT launches have any -- having any impact on the traction with FLEX and MAX? And then I'll go ahead and ask my follow-up, because it's related and the follow-up is also on SPRINT. Brad, you again made a comment that the launch of SPRINT can take the landscape of addressable labs to two to three times what it was with just Gen 2 or MAX. Can you remind us how it is you get to that figure? What are the data points you're looking at? And thanks again for taking the questions guys.

So the reaction to the new instrument line-up has been very positive. What it's done is it's effectively changed the nature of the dialog that our sales people are having in the field over the last [few] weeks. From a dialog and -- where in the past, one of the first concerns at a customer would be whether they could afford our technology to a dialog where the conversation is about which of our several instruments is the right one for the customer. And we do believe that with this new product line with three different instruments targeted at three different segments we have an expanded offering that will grow our addressable market. So in the first three weeks, we have not seen the availability of SPRINT have a major impact on traction for MAX and FLEX. It's early days, we are working hard to make SPRINT sales incremental to our normal customer sales in the past. And as a result, I think for Q3 we think for unit placements low to mid-single digit units is a reasonable start in Q3. And we're going to grow it from there.

Let me go to your next question then, why are we confident we're going to be able to grow into this larger addressable market? Before we set out to develop the SPRINT system we commissioned and executed conjoined market research. And what that market research study attempted to do was understand the way that customers, researchers make the trade-off between features like throughput, or number of genes that our system could look at and cost and footprint. The major engineering employed to our design process. And through that conjoined micro market research what we discovered was there was a segment of individual researchers, who we weren't really reaching with traditional nCounter MAX and FLEX configurations, who have lower throughput needs, approximately half of what a core lab would need, and who really wanted a system that costs in a range of $150,000 or less. And really it was for that segment that we built the SPRINT. And when we quantified through our market research how many more customers were in that segment that we weren't yet reaching, compared to the one we were, two to three times as many researchers. So truly on that basis that we have estimated that we'll increase our overall addressable number of placements to two to three times what it is today with the addition of SPRINT.

Tycho Peterson, JP Morgan.

This is [Ashley Tejas] on for Tycho. So my first question is actually on the consumable pull-through that you expect to see on SPRINT and, I know it's still very early, but just from a modeling perspective when you speak about the [100K] in pull-through for nCounter, does that include the SPRINT ramp in the back half of the year as well or is that independent of that number?

It's including the SPRINT ramp in the back half of the year, Tejas. So with SPRINT placements just beginning, with a few in Q3 and more in Q4, we do not expect SPRINT to contribute meaningfully to consumable pull-through during the current year. Our experience when we place instruments is that typically the first consumable order comes in the quarter subsequent to the instrument placements, so for instrument placed in Q3, we have our first orders in Q4 and for instrument placed in Q4, we'd have our first consumer orders in -- not until the new year. So we don't expect consumable pull-through in 2015 to be meaningfully impacted by the SPRINT launch.

Then in terms of [long-term] you may be wondering for modeling purposes what we would say about the long-term pull-through of SPRINT. It's early days still, but clearly we're targeting a segment who by definition have few more samples to process and less budget to spend then a core lab does, so we do expect it to be meaningfully less than a typical MAX or FLEX customer has been, but it is too early for us to provide specific quantitative guidance on that.

And then last quarter I know you've spoken about this lead generation program that you've put in place for driving SPRINT placement. Can you share with us the extent that you can in terms of touch points, how many of these are new to NanoString customers, who couldn't potentially afford an nCounter and how many of these are existing users who are potentially looking for a different use case?

So we started preparing for the SPRINT launch late last year with a new lead generation program. And the objective was to go back to customers who really hadn't been able to afford an nCounter in the past or because they were individual researchers who never really engaged with a company, because that was not the customer segment that we targeted. So the lead generation and the -- I'd say, the initial funnel development is primarily focused on, A, customers who we know had been interested in the past in an nCounter, who likes the technology and like the capabilities, but whose budgets were not sufficient for them to purchase, so we began reengaging with those customers again in the first half of this year. And the second group was individual researchers, who we had never really had a substantial coordinated outreach to in the past. And what we did was through a substantial internal effort, we combed through the literature in cancer research and genomic research to look for individual researchers who are publishing papers and applying for brands that focused on the kind of gene expression work that has been the core use of nCounter in the past. And we began to target marketing at those individuals, even in advance of having announced the availability of SPRINT.

And so, what we're doing today is converting that initial engagement into more of a sales dialog. The typical sales cycle for capital equipment in this price range of between 3 months and 6 months, so it'll take some time to convert that interest into unit placement. But we think we've done a very good job of laying the ground work.

And then just one final one from me on Prosigna, given that you have the guidelines piece of this now mostly in place, are you slightly more optimistic of your Prosigna contributions in the back half of this year and has there been any change in the tenor of your conversations with peers post NCCN inclusion?

So, I'd say, absolutely, I'd say the risk in the back half of our guidance has been reduced substantially by some of the progress in the first half of the year. That being said, it's still very early days and things like MolDx guidelines and NCCN guidelines are mostly going to have a 2016 impact. The implementation of the MolDx policy for instance could still take months and therefore not be completed and effective until very late in the year. So that doesn't have a meaningful necessarily impact in 2015. And NCCN guidelines really are allowing us to kind of go back and re-engage with payers, give them an update about the acknowledgment of the prognostic power of Prosigna. And again those will take time -- it will take time to forward those dialogs yield revised medical policies and then those revised medical policies will take time before they yield kit sales. So all of these dynamics are all very positive, they are in-line with our expectations overall, but they are really setting the stage for growth in 2016 rather than impacting the second half of 2015.

Jeff Elliott, Robert W. Baird.

Congrats on a really successful second quarter. I guess my first question is really a follow-up to the last question is, really following the NCCN guideline update in your conversations with payers, what's your sense? Do payers get the wording in that guideline update that they needed and also move forward?

I think it's early days still to know the answer to that, Jeff. I think the guideline update does provide some payers what they were looking for, which is an acknowledgment by the experts in the field who have reviewed the literature that our test does what it says it does, which is to identify low-risk patients who may be spared the need for adjuvant chemotherapy, because without chemotherapy their outcomes are going to be good. So definitely, I would expect there will be a subset of payers for whom that is sufficient. I'm sure there will be other payers who are looking for even stronger wording than we've got in this round of guidelines. And the good thing about the guidelines is that they are updated from time to time and we have continued to generate long evidence since the submission to the NCCN guidelines in June of 2014 that we hope will improve our position over time.

And then I think too in the preparatory comments you mentioned in the collaboration line there was another smaller research collaboration that contributed revenue. Can you share more color on that, what that is? Is that in the biopharma collaboration? What is that?

Yes, hey Jeff, this is Jim. It's basically like a pilot study. It's related to a Phase II study, where they're using our assay to evaluate whether it has the ability to help select patients for a subsequent study, which would be a Phase 3 study. And in that instance, it would, if it's successful, it will transition most likely to a companion diagnostic collaboration.

So it's a research, a pilot study with biopharmaceutical company, to be clear.

So, your guidance doesn't assume that that kind of flips over to a larger collaboration this year, does it?

No.

Dan Leonard, Leerink Partners.

Hey guys, this is [Mike Cerkone] filling in for Dan Leonard. Can you elaborate on the feedback you're receiving about your RNA:Protein assay from the five customers that are currently using it?

So the question was what have been the feedback to the RNA:Protein assay so far. I think the first feedback have been excitement. A number of biopharmaceutical companies and researchers were very intrigued by the possibility to measure both of these analyzes [NOIs] in a single assay, they were so intrigued that they were willing to do something which is very unusual, which is pay to participate in a product access program for a product that's effectively in beta testing and they all paid a material sum of money for access to 96 samples worth of our assay. So far, these individual -- these groups are in various stages of running their samples. We've been through training and validation with most of them and the first wave of data is coming back. So I'd say, it's a little early for us to share with you some of the results they're seeing, but I think the feedback on the concept and the experience has been positive so far.

(Operator Instructions) Dane Leone, BTIG.

Congrats on the quarter guys. In terms of the dimension, you know, the MolDx covering North Carolina (inaudible) all their Prosigna testing. Just to kind of [couch] expectations for the out years, 2016, 2017, when we think about the Prosigna program, there's kind of two variables. One is a hurdle for people to be allowed to use it i.e. insurance coverage and another one is that the motivation to use it. You made progress on both fronts. But I guess the question is, to really see a ramp in utilization, what do you feel to be the hurdle? If we go back in history of third-party, complex test sales, you really do

need very clear pricing for the test. So I guess one question would be, when do you think you'll get clarity in terms of pricing specific reimbursement for the test itself. The second is, where do you think you're at in the timeline of convincing people to you use it?

I agree with the kind of framework that you described Dan that there are two issues; reimbursement being a gating item and then demand being of course important for generating prescriptions of the test. Really before you get through the reimbursement hurdles, the kit manufacturers, it's nearly impossible to generate demand. So we think the MolDx decision for Medicare, which is the largest group of patients out there in intended use population will be substantially improved with the MolDx decision. So to kind of quantify that, when you look at our intended use population today, we think that post MolDx if you think of MolDx as effectively providing national coverage decision for Medicare, something like 65% of our intended use population will be covered. And that will be meaningfully increased. You could say to a physician, the majority of your patients will have coverage, which is much better than it is today.

And in terms of the pricing that is coming with the MolDx, we would expect pricing to be established around the same time that the coverage policy would become effective. We have provided information to MolDx to help support them in that effort of doing the gap-fill. And we'd expect to probably have clarity on pricing from the minute that the policy is effective. So there won't be a -- we won't expect a pricing overhand or a pricing uncertainty, I should say.

On demand, I think what we hope and expect is that once reimbursement is available, the commercial organizations, the laboratories that are providing the test, like LabCorp, like Quest, like Genoptix, like [Avra] that they will be motivated in the way they aren't today to promote the use of Prosigna to their existing customers. And when you think about those national labs, they are very -- they touch a large number of patients and a large number of physicians, so they do have, we believe, the capability to drive market share once they're properly motivated.

So, we see reimbursement as the key gating event to begin generating demand, but it'll take time, as you point out and that will be a dynamic that we will talk more about as we get closer into giving 2016 guidance.

And so, in terms of the model, who will be doing the direct education to the clinical oncologist in terms of ordering the test?

NanoString has a modestly sized commercial organization that can in a very focused way provide that education and then we will be relying on the laboratory test providers to help us with that, and that ought to be from both the commercial labs, and of course the cancer centers and hospital systems who have also adopted the test.

In terms of the collaboration revenues, can you just help us with the pacing of it? So as a step function to hit that for -- I think you guided to about $4 million for the year now, is the step function for that in the third quarter or the fourth quarter, versus what you just printed obviously?

So, yes, the guidance was $4.5 million for the year. I think that it is -- it's hard to predict the breakdown between Q3 and Q4. It has -- it's entirely tied to the amount of work that's done in each quarter, and so I think it's safe to say that with the new Merck collaboration it's still ramping up. And I would say it's reasonable to assume more of that revenue in the fourth quarter than the third quarter for that reason, but it's a real wonky calculation that you have to do for accounting purposes. So, we tend to focus more on big picture, which is $4 million of cash. And it may vary from quarter to quarter in terms of how much is recorded as revenue, but it's very difficult to make definitive predictions about it.

So best guess is that we should be modeling a little bit -- the bulk of it probably in the fourth quarter and maybe a modest step-up into the third quarter?

Yes, I think that -- I mean I can't make any definitive guidance, but I think there is logic that would say more work being done in fourth quarter than in third quarter.

And then on the outlook for the biopharma [CRA] revenue, are we looking for kind of the normal sequential ramp in the back half Q-on-Q or do you think there is any additional catch up from the weak 1Q that we would see in the back half or are we kind of caught up there?

Yes, I think we believe we're more or less caught up at this stage. Biopharma consumable revenue contribution in the second quarter was about 30% of our total life science consumable revenue; that's virtually identical to what it had been in the second quarter of 2014. So, I think we're back towards being normalized. And I don't think I have any specific guidance to provide about the sequential growth through the course of the year, other than to point out that last year was extraordinary. You may recall that in the fourth quarter of last year, biopharma contributed 50% or more of our overall consumable revenue and I do not think that we can guide that that pattern will repeat itself every year. So I think the big picture here is, overall we expect consumable revenue to be at or above our $100,000 annualized pull-through benchmark through both Q3 and Q4.

And then I guess the last one from me. So the instrument guidance that you gave is more so weighted I guess toward the fourth quarter versus the third quarter as you build the funnel, with a couple of systems with FLEX, but presumably you get a bit more placements in the fourth quarter?

Yes, the fourth quarter is always our strongest instrument quarter for reasons that the way the end of year budget flush tends to work on the capital equipment budget side. So even absent the SPRINT launch, we expect a strong fourth quarter and of course the dynamics of the SPRINT launch are that the funnel is building, and we would hope to see sequential growth from Q3 to Q4.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Brad Gray for any closing comments.

Thank you all for joining our call today. Before we finish, I'd like to invite you to join our first ever Investor Day, which will be held in New York on the morning of Friday, September 11. Please contact us for details and I look forward seeing many of you there.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.