NanoString Technologies Inc (NSTG) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NanoString 2015 fourth quarter financial results conference call.

(Operator Instructions)

As a reminder to our audience, this conference is being recorded.

Now I would like to hand the call over to Leigh Salvo, from Westwicke Partners. Ma'am, you have the floor.

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 fourth quarter and year ended December 31, 2015, and a copy of the press release can be found on the Company's website at NanoString.com.

During this call we will make a number 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 uncertainties, many of which are beyond our control, including 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 publicly update any forward-looking statement.

With that, I'd like to turn the call over to Brad.

Thanks, Leigh. Good afternoon and thank you for joining us today. 2015 was a year of strong growth and substantial progress for NanoString.

We closed 2015 having achieved virtually all of our strategic objectives, with an expanded product lineup, substantially larger addressable markets, increased momentum in diagnostic commercialization, and multiple biopharma collaborations. We have positioned NanoString as a leader in the field of precision oncology with our nCounter platform offering a complete biomarker solution that has been adopted by academic researchers, leading biopharma companies, and clinical labs worldwide.

In 2015, our business model continued to deliver rapid and consistent growth. We grew our install base in excess of 30%, while maintaining robust consumable pull-through, yielding $62.7 million in revenue or 32% year-over-year topline growth. For the fourth-quarter, total revenue was a $22.3 million, up 43% over the prior year. We expanded on our install base to over 350 nCounter systems worldwide, while delivering annualized consumable pull-through of well over $100,000 per system.

Overall we are delighted by the strong finish to 2015 and believe we are well positioned for another great year. We have wasted no time in building on our momentum. During the first two months of the year, we have signed two major biopharma collaborations. These partnerships with Medivation and Astellas for breast cancer and with Merck in immuno-oncology expand our diagnostic pipeline, provide infusion of non-dilutive capital, and underscore the power and value of our technology.

Over the next few minutes, I will outline our four strategic objectives for 2016, and provide some guideposts for how we expect to track progress. I will then turn the call over to Jim, who will comment in more detail on our recent financial performance and financial outlook.

Our first objective for 2016 is to penetrate our expanded market opportunity by building an install base of nCounter SPRINT profilers. SPRINT delivered high-performance with a footprint and pricepoint suited to the needs of the individual researcher. Since its launch last July, SPRINT has been off to a strong start, with 20 systems sold in 2015. We expect the momentum to build throughout 2016.

Based on our experience to date, SPRINT is clearly appealing to the previously untapped segment of individual researchers who appear about twice as likely to buy SPRINT as they were to buy a MAX or FLEX system. This is allowing us to broaden our customer base, with 70% of SPRINTs sold in 2015 going to new nCounter users. Our efforts to engage individual researchers have been successful, and Sprint now accounts for 40% to 50% of the instrument opportunities in our sales funnel. In addition, the increase in the [in age] budget is expected to provide an extra boost to SPRINT demand in the second half of this year, as this more affordable system is marketed directly toward grant-funded academic researchers.

Our second priority for 2016 is to expand our suite of 3D biology products. 3D biology is a unique application of our barcoding technology that allows measurement of any combination of DNA, RNA, and protein simultaneously on any nCounter system from a single tissue sample. We believe that 3D biology will enable researchers to make entirely new observations about cancer biology, while maximizing the data generated from their valuable samples.

In September, we launched our first product in the 3D biology family: The RNA protein PanCancer immune profiling panel. This product builds on the success of our most popular gene expression panel and enables researchers to simultaneously measure 30 important proteins that are therapeutic targets in immuno-oncology, such as CTLA-4, PD-1, and PDL-1. This first 3D biology panel has proven popular and was used by about 20 different customers during 2015, two-thirds of which were biopharma companies.

At the AGBT conference earlier this month, we demonstrated the performance characteristics of our new DNA mutation assays. These assays were able to detect single nucleotide variants with performance that is comparable to next-generation sequencing for PCR. In the months ahead, we plan to launch additional panels focused on DNA mutations and protein expression. By the end of year, we expect to have a core set of three proteomics and three DNA mutation panels that can be combined with our traditional gene expression panels to enable a wide array of 3D biology experiments.

In many cases, we are focusing the panel content specifically in immuno-oncology, where 3D biology can fulfil the need to understand both the mutations driving tumor growth, and the RNA expression and protein expression indicating immune response. We plan to launch the next wave of 3D biology assays under an early access program beginning at the AACR meeting in April. This family of 3D biology assays, in combination with the SPRINT profiler, will provide a product suite that is both more powerful and more affordable than we have offered in the past. While we are excited about the longer-term opportunity for 3D biology to grow consumable pull-through, we expect the primary financial impact of 3-D biology in 2016 will be to help accelerate instrument placements.

Our third major priority for the year is to extend our leadership in the development and commercialization of molecular diagnostics based on gene expression signatures. We expect to do this both by continuing to grow the market for our Prosigna breast cancer assay, and by building a pipeline of companion diagnostic assays in collaboration with biopharma companies.

Turning first to the companion diagnostic opportunity, 2016 is already off to an incredible start. Earlier today, we announced an expansion to our collaboration with Merck that we believe represents the most substantial financial commitment ever made by a biopharmaceutical company to any specific diagnostic assay. The expanded partnership provides $12 million for technology access, up to $12 million in near-term milestones on or before the initiation of clinical studies, plus development funding in undisclosed downstream payments.

We have been collaborating with Merck since May 2015 to develop an assay that combines and optimizes several immune related gene expression signatures and to evaluate the potential to predict benefit from our Merck's anti-PD-1 therapy, KEYTRUDA. Under the expanded collaboration announced today, we will proceed to develop, get regulatory approvals for, and commercialize the optimized gene expression signature of the diagnostic assay to predict response to Protruda in multiple tumor types. Importantly, NanoString retains the flexibility to independently develop and commercialize additional indications for the resulting diagnostic assay alone or in partnership with other biopharma companies.

This collaboration is a landmark for both our Company and for the field of precision oncology, solidifying our position as the leader in immuno-oncology biomarker signatures. The signature itself offers a technique for selecting patients for immunotherapy that we believe to be superior to the IHC assays used today, and which could become the gold standard for informing treatment with checkpoint inhibitors. Over time, it could form the basis for an expanded immuno-oncology test, with the ability to direct use of multiple therapeutic classes.

In January, we announced a collaboration with Medivation and Astellas to translate a novel gene expression algorithm into a potential contain and diagnostic for patients with advanced triple negative breast cancer. We plan to incorporate the novel algorithm into our PAM50 base Prosigna assay and then use the assay to enroll a pivotal phase 3 study of the androgen receptor inhibitor, XTANDI. If the study is successful and the parties determine to proceed, we will seek regulatory approval and commercialize the diagnostic test.

Under this agreement, we are eligible to receive up to $22 million in near-term payments, comprised of a $6 million technology access fee, which was received in January, up to $6 million in milestone payments on or before the initiation of the phase 3 study, and up to $10 million in R&D funding to support the assay development. In addition, we anticipate receiving additional undisclosed milestones upon regulatory clearance.

We believe that biopharma partnerships represent a scalable and sustainable business that can provide cash flow and revenue growth over the years to come. To the best of our knowledge, our new partnerships with Merck in immuno-oncology, with Medivation and Astellas in triple negative breast cancer, and our June 2014 partnership with the Celgene in Lymphoma represents the top three companion diagnostic partnerships ever announced in terms of financial -- disclosed financials. We believe that these partnerships clearly demonstrate the tremendous value that biopharma companies are ascribing to our technology and capabilities.

We have since been continuing to build a funnel of additional biopharma collaboration opportunities by executing a series of pilot studies that allow potential partners to determine whether our existing lymphoma and breast cancer assays predict response to their drugs. As of January, we have initiated 17 studies with 11 different biopharma companies, and we anticipate that some of these will ripen into full-fledged companion diagnostic partnerships over time.

Just as importantly, we continue to achieve major milestones with Prosigna, demonstrating a growing capability in diagnostic commercialization that we expect to leverage across an entire menu of tests over time. Earlier this month, the ASCO clinical practice guidelines were updated to recommend use of Prosigna for guiding treatment decisions in early-stage breast cancer patients. Prosigna was one of only two assays to receive a strong recommendation, together with a high rating of evidenced quality. The guidelines placed Prosigna on equal footing with historical market leader in Oncotype DX, strengthening our case for reimbursement and market adoption. Overall, this is the fifth global breast cancer treatment guideline to the updated to include Prosigna in the last 12 months.

Within the US, we now estimate that our reimbursement team has brought coverage to over 70% of the indicated population. We continue to make progress in winning Medicare coverage on a region-by-region basis. In January, the Medicare carrier for Florida published a positive local coverage decision for Prosigna. We expect that Meridian, which administers Medicare in California and several other states, will finalize its coverage decision sometime during the first half of the year.

For the balance of the year, our reimbursement team will turn its focus to US private payers, where we believe the newly updated ASCO guidelines will be impactful. While the specific timing of policy updates is difficult to predict, we believe that our case has never been stronger.

Outside the US, we will be focused on growing our business by continuing to successfully compete for government tenders. In Spain, we have won 11 regional and hospital tenders since the beginning of 2015, which we expect to deliver over 1,000 tests per year. In France, Prosigna was one of only two tests selected in December under the first tender by a major French hospital system, bringing the potential for hundreds more tests during the year.

Our fourth and final strategic objective, which is longer term in nature, is to expand our market even further with new applications enabled by our powerful optical barcoding technology. We have recently unveiled two R&D programs that previously were being developed within the Company in a stealth mode for which proof of concept data is being presented publicly during the first half of this year.

The first program is our Hyb & Seq chemistry, which is a novel, massively parallel, single-molecule sequencing chemistry. Hyb & Seq is designed to enable a workflow that is simpler and faster than current sequencing methods due to the absence of library preparation, enzymes, and amplification. While Hyb & Seq chemistry is highly flexible, we are focusing our efforts on the clinics, where we believe it may have critical advantages to run in targeted cancer panels.

During the AGBC conference earlier this month, we presented the first proof-of-concept data for Hyb & Seq, which was generated using a prototype sequencer based on a modified SPRINT. The raw single pass error rate was measured at approximately 2% for a single target, and between 2% and 4% for mixtures of up to 10 targets. To the best of our knowledge, this is the lowest error rate ever measured from one pass on a single molecule sequencer.

In addition, Hyb & Seq demonstrated the ability to provide high accuracy at low coverage by nondestructively sequencing the same native DNA multiple times. Our estimates, based on the results obtained to date, are that Hyb & Seq can provide high-quality sequence data with only about 20% of the reads required by other sequencers. The feedback we received from the scientific audience at AGBT was extremely positive, with good input on performance requirements and potential additional applications.

We're continuing to focus on developing the chemistry, and expect to present further data during the second half of this year. Investment in this program will be relatively modest in 2016, potentially increasing in the future as the program is de-risked and the focus begins to shift from chemistry to engineering. Provided that we are successful, commercialization of Hyb & Seq is still several years away, but we are tremendously excited by its potential.

The second new application enabled by our optical barcoding technology is a direct extension of our proteomics effort. It is a technique that measures protein expression spatially, capturing information on how multiple proteins are being expressed across the surface of a [slide nano-tumor] biopsy. Based on conversations with pathologists and biopharma companies, we believe this technique could fill an important unmet need for our quantitative and highly multiplex alternative to IHC.

The need is especially acute in immuno-oncology, where researchers work to understand how foreign immune cells are infiltrating the tumor microenvironment or the tumor itself. To date, we have performed proof-of-concept [stepped] experiments with two separate academic collaborators, and have generated data on up to 36 proteins simultaneously off of a single slide. Data from these experiments have been accepted for presentation at the AACR meeting in April, and we will plan to provide more details at that time.

Now, I would like to turn the call over to Jim to review our 2015 financial results and provide financial guidance for 2016.

Thanks, Brad. Total revenue for the quarter was $22.3 million, up 43% versus the strong comp in the first quarter of the prior-year.

Total product and service revenue was $19.4 million, up 36% year-over-year. Foreign-exchange rate fluctuations reduced the growth in total product and service revenue by approximately 4 percentage points. Instrument revenue for the quarter was $7.9 million, 25% higher than in the fourth quarter of 2014. The growth was driven by sales of SPRINT, and geographically, instrument sales in the Asia-Pacific region recovered in Q4 from the slowness experienced in Q3.

Life-sciences consumable revenue was $9.9 million, up 38% year-over-year. The key growth driver was a substantial increase in the sale of panel products, especially our PanCancer immune profiling panel, which has now become our biggest seller. Prosigna IVD kit revenue was $822,000 for the quarter, growing 24% sequentially, with ex-US markets continuing to generate a majority of sales. In total, we had record consumable revenue for the quarter, with pull-through of $10.7 million, up 46% versus fourth quarter of 2014, and significantly above $100,000 per system on an annualized basis.

We recorded $2.9 million of collaboration revenue for the quarter. The surge in revenue resulted from substantial progress in our original collaboration with Merck, and an amendment to our agreement with Celgene which brought in $1.6 million of cash during the fourth quarter. Gross margin on and service revenue for the quarter was 56%, up from 53% reported for the fourth quarter of 2014. The increased result is largely from a shift in product mix toward consumables and other factors, including improved margins on consumable revenue and service revenue.

Road expense was $7.1 million for the quarter, up 30% over the fourth quarter of the prior year. The increase reflects increased investment in products under development for the life science research market, such as 3-D biology panels and Hyb & Seq chemistry, as well as higher costs related to diagnostic development, including our original Merck collaboration.

SG&A expense was down slightly year-over-year to $13.2 million for the quarter, and this reduction reflects cost efficiencies resulting from the reorganization of sales and marketing that occurred in the first quarter of 2015. Stock-based compensation expense was $1.5 million, compared to $1.3 million for the fourth quarter of 2014. Our GAAP net loss decreased to $8.8 million or $0.44 per share, compared to $12.4 million or $0.68 per share for the fourth quarter of 2014. We ended the quarter with approximately $49 million of cash and investments.

I will now turn to financial guidance for 2016. We are currently projecting total revenue of $86 million to $90 million for the year, assuming constant currency, which is an increase of 37% to 44% over 2015. It includes collaboration revenue of approximately $15 million from our agreements with Celgene, Medivation and Astellas, and Merck. It does not include any additional collaborations, which represent upside to our guidance. Following the announcement of new collaborations, we will update our guidance to reflect the impact on revenue and expense.

Total product and service revenue is projected to be $71 million to $75 million for the year, reflecting growth of 25% to 32% over 2015. In 2016, we expect MAX and FLEX instrument placements to be down modestly from 2015, with instrument revenue growth driven by SPRINT placements. We have included $5 million of Prosigna IVD kit revenue in our guidance, reflecting an assumption that Prosigna will continue to grow steadily based on the guideline inclusions and reimbursement wins achieved over the past year. In total, we believe that consumable pull-through per system can continue to approximate $100,000 per system in 2016 with the increased contribution from Prosigna compensating for the lower than expected pull-through on SPRINT systems.

Before moving to costs and expenses, let me take a moment to talk about quarterly revenue trends in 2016. Consistent with our experience over the past three years, we expect consumable pull-through in the first quarter of the year to be lower on a per system basis than in the other three quarters. We also expect to see typical seasonality on instrument sales.

As a result, we expect first quarter product and service revenue to be in the range of $13 million to $14 million. For the remainder of the year, we expect product and service revenue to breakdown by quarter similarly to 2015. For collaboration revenue, we expect substantial growth from quarter to quarter in 2016, starting at approximately $1 million to $1.2 million in Q1, growing modestly in Q2, and then more substantially in Q3 and Q4 based on expected milestone payments under the new Medivation, Astellas, and Merck collaborations.

For growth margin on product and service revenue, we expect to be in the range of 54% to 55% for the year with collaboration revenue excluded from the calculation. Gross margin on product and service revenue will likely fluctuate from quarter to quarter, based on the mix between consumables and instruments. However, ignoring this revenue mix impact, we expect it to continue to trend upward, as the scale of our consumables manufacturing operation grows.

We're expecting total operating expenses of $94 million to $99 million in 2016, which represents an increase of 21% to 27% over 2015. The increase in operating expense will be largely driven by increasing R&D expense, including the incremental costs related to our diagnostic collaborations. Also the increase stems from our decision to make incremental strategic investments in projects like 3D biology, Hyb & Seq chemistry, and our immunohistochemistry alternative. We expect operating expenses to include approximately $8 million to $9 million of stock-based compensation expense for the year.

Our GAAP operating loss for the year is expected to be in the range of $40 million to $43 million. Interest and other expense is expected to be between $5 million and $5.5 million for the year. We expect GAAP net loss for the year in the range of $45 million to $48 million, or $2.30 to $2.45 per share. Total capital expenditures are expected to be between $4 million and $5 million for the year, net of lease-hold improvement funding from our landlord.

Finally, turning to cash outlook. As noted earlier, we finished the year with approximately $49 million in cash and investments. We expect the collaborations with Medivation, Astellas, and Merck together will bring in $40 million to $45 million of cash in 2016. This should put us very close to net cashflow breakeven for the year, and with one additional collaboration we could be cash flow positive. Furthermore, with our cash on hand, our two recently announced collaborations, and our untapped borrowing capacity, we believe that we have sufficient capital available to take us beyond 2017. We expect to sign additional collaborations during this time, and these should provide us with an even longer financial runway.

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

Thanks, Jim. To wrap up, we're proud of our 2015 performance and believe that we are well positioned for 2016 and beyond. We have attractive near-term growth opportunities created by nCounter SPRINT, new 3D biology assays, and our leadership in immuno-oncology.

We have compelling longer-term opportunities, such as growing our diagnostics business and expanding our powerful barcoding chemistry into new markets such as sequencing and pathology. Finally, our recent biopharma collaborations have validated our platform, strengthened our leadership in precision oncology, and will provide substantial near-term cash flow. With so many drivers and catalysts, we are extremely optimistic about the future.

We will now open up the call for Q&A. I look forward to taking your questions.

Thank you.

(Operator Instructions)

Doug Schenkel, Cowen and Company.

On the Merck collaboration -- of course, before I get into that, congratulations on that development.

Thank you.

Given what you provided in terms of guidance on total amount of cash you're going to be bringing it across all of your agreements, it does seem like there is probably a decent upfront component to the agreement or certainly something that gives you some amount of confidence that there's going to be a decent amount of cash coming in, in 2016 via that agreement. Can you give us anything more specific there, in terms of what is guaranteed in very near-term or up-front funding associated with that deal?

Sure. Thanks for the question, Doug. Overall, the Merck collaboration is expected to provide about double the overall economic value in cash of the previously announced Medivation and Astellas collaboration. The reason is the Merck collaboration is a multi-indication collaboration. So as I said in the prepared remarks, Merck includes a $12 million technology access fee at the very beginning of the collaboration, which is not contingent upon performance.

Up to $12 million in near-term financial milestones that are pre-clinical in nature, meaning many or all of them could be achieved in the current calendar year, and in addition Merck provides R&D funding. And while the exact resource allocation for that collaboration will be determined by a joint steering committee, we would expect it to be about double what we were putting into the Medivation and Astellas collaboration.

Okay. That is very helpful. And I'm just looking through my notes, and hopefully this isn't dated, but I think last time we asked, you indicated that there were -- at different stages, and some of them were just in evaluation. But, I think you said you had ongoing programs with nine different biopharmaceutical companies. Has that number changed at all, now, as we sit here in early 2016?

Yes. I think there was an update that maybe we'd provided in late 2015. As of today, Doug, we have executed 17 different pilot studies with 11 different biopharma companies.

As a reminder, these pilot studies are designed to provide access to our lymphoma assay or our breast cancer assay, so that biopharma companies can test samples they've collected in clinical studies and determine whether or not they believe that our test might predict response to their therapy. The idea is that those, if it does, there may be a potential for much larger companion diagnostic collaboration along the lines of what we've done with Merck and Medivation and Astellas that would follow.

And one last one, Brad, and then I'll get back in the queue. Along the same lines, thinking about your operating expense guidance for the year. You've guided us to expect operating expense to increase just under $20 million year-over-year, I believe, if I have the math right. It sounds like some of that is associated with the new agreements you have entered into.

Separate from that, it does sound like most of the increase in spend is going towards R&D. Is any of the spend being taken on in advance of additional agreements being entered into, essentially making sure you have the staffing in place to support additional deals? Thank you.

Yes. I think R&D does represent a large fraction of the increase. Largely, its driven by our companion diagnostic deals, and it's in response to the signing of the Medivation, Astellas, and the Merck agreements. We are, of course, making sure that we have a good set of bench strength to continue to be able to scale this business, but in general, we don't higher capacity far in advance of signing those collaborations.

Anything you want to add to that, Jim?

No, I think you've got it. It's slightly more of the dollar amount that would be attributable to the R&D growth, but obviously on a percentage basis, that's on a much smaller base. So the increase in R&D will be, on a percentage basis, much higher than SG&A

Thanks guys, and congrats again.

Thank you.

Tycho Peterson, JPMorgan.

Following up on Doug's questions earlier about bandwidth around companion diagnostic collaborations. First of all, some of the incremental costs, can you talk to us about how much of this is going down a regulatory pathway on your end? And are you going to be spending on -- in the Merck deal, in the expanded Merck deal, you talked about retaining the flexibility to develop broader assays. Is that something you're going to be spending on in 2016?

Most of the incremental R&D expense goes to supporting our existing -- our new Medivation and Astellas and Merck collaborations. And during the current calendar year, that's mostly assay development work. Our obligation to our partner, our focus is to develop those assays to deliver them in the second half of the year to our partners, so that they can begin applying them in their studies.

That does not entail too much regulatory expense in the current year. Most of it is R&D. It is R&D focused. The regulatory expense would come several years down the road, in the wake of having executed those studies as we are preparing filings. That's the focus of the growth.

In terms of the amount of investment we'll be making in 2016 on the sort of universal assay concept, I would say that's very modest. First and foremost, we want to do well by our partner at Merck and deliver that assay to them. In parallel, I'm sure we'll begin some partnership discussions with other companies who may be interested in that, and we'll begin thinking about universal assay, but I wouldn't expect that to be a major driver of R&D expense in the current year.

Okay. And then a question on the service and product guide of $71 million to $75 million, that includes or excludes Prosigna in service there?

That includes Prosigna's.

And then I guess just lastly, on 3D biology. Can you maybe just talk on the reimbursement landscape? What you are hearing from customers? Especially as you expand the assay menu. Are you having to help facilitate some of the reimbursement discussions to try to make sure your customers are getting paid?

So, 3D biology is initially a research-use-only application. None of the 20 customers who accessed it in 2015 were doing so in the effort of developing a clinical assay. They were using it for their classic biomarker discovery, biomarker research efforts. Most of these were, in fact, drug companies. 3D biology is, I think for the next several years, a research-use-only product line for us, and therefore the challenges of reimbursement are not expected to have any impact whatsoever on the trajectory of 3D biology.

Okay. Thanks.

Steve Beuchaw, Morgan Stanley.

Good afternoon guys, this is Liza on for Steve. I just have a couple of quick housekeeping questions. I was hoping you could maybe provide an update on the biopharma consumable spending in the quarter, and how we should be thinking about that in 2016?

Sure. Biopharma demand for consumables was strong in the fourth quarter. They represented about 40% of our consumable revenue, and they were a primary driver of that increase in panel spending that Jim characterized. In particular, our PanCancer immune profiling panel, which is now our number one selling research panel has proven popular with our biopharma customers.

Great. And then when I'm thinking about the ramp to Prosigna adoption after the Meridian decision and Medicare comes onboard, how should I think about that, logistically, in times of the timeline in the funnel? And also, if you could just help with international contribution and how we should think about pricing ex-US for Prosigna?

So we expect demand for Prosigna to grow across the course of 2016 in a way I usually describe as linear. And that's just because we've learned that it takes time for new guidelines and new reimbursement decisions to translate into increased kit sales. The Meridian decision will of course be really a great milestone for us, as we have several important commercial customers in California who would benefit from having Medicare coverage, but I would not look for a major inflection in the wake of that decision.

In terms of international contribution, as I think we've noted in the past, ex-US Prosigna in our revenue has so far accounted for the majority of our Prosigna revenue. In 2016, I would expect the US to catch up, with both regions contributing materially to growth.

Pricing for Prosigna is -- it does vary by region. Pricing is not an important dynamic in our competition in the US, but it is ex-US, so we're doing rational discounting when competing for government tenders overseas. That being said, it's still an extremely profitable product, and still probably the most highly priced in vitro diagnostic kit in the world.

Great. Thanks so much. I will jump back in.

Dane Leone, BTIG.

Brad, as you kind of go forward in 2016, and you've obviously had good momentum in terms of the partnership side of things, how do you think about your capacity to handle these additional partnerships? Whether it's kind of [RA-on] assays you have, or the partner wants to develop new assays. How do we think about your capacity or utilization of the team to really go after these new deals?

I think with three partnerships now, the utilization of the team, capacity utilization is high. We will have to make some incremental hiring to support our new partnerships. But these partnerships, the work is on a rolling basis once you get a portfolio.

As we demonstrated with Celgene, it really took nine months of work between the time that we signed that collaboration and we delivered the assay to Celgene for the enrollment of their phase 3 robust study. And then after we delivered that assay, while the work doesn't stop completely, it changes in nature. So the assay development team who delivered the assay can roll onto a different study, while the clinical team comes in and supports the trial. And I think now, by the time we scale up early this year in the wake of these two new agreements, I think we'll have a nicely sized team that can manage a portfolio of these efforts on a go-forward basis.

In addition, we are certainly hoping that, in the future, some of our new diagnostic efforts will be to re-partner some of the existing assays with additional companies. For instance, with Medivation and Astellas, as you can imagine, the assay development work is substantially less than it was for our Celgene collaboration because we're largely repurposing the Prosigna reagent with a new algorithm, as compared or opposed to developing a whole new assay. As we move into re-partnering existing assays, I think the demands on the team from each incremental deal will be less and less.

Thank you very much.

(Operator Instructions)

Catherine Ramsey, Robert W Baird.

A quick question for us, as far as 2016 guidance. Could you talk about what impact you are baking in for the NIH funding increase, and then a little more color on what you're expecting from 3D biology this year?

Sure. I think NIH funding increase is baked into our instrument revenue in the back half of the year in a very modest way. I think it's good tailwind for SPRINT, the SPRINT launch in particular, because SPRINT is really targeted toward the academic markets. But I wouldn't say our guidance hinges materially on NIH funding. I'm sorry, the other question, Catherine, was?

What your expectations are for 3D biology this year? Are they baked into guidance?

2016 is a building year for 3D biology. We're trying to go from having really only one proteomic assay to having a suite of DNA, RNA, and protein assays that can be used in combination. It's going to take us most of the year to get full commercial launch of those assays. And so, we do not factor a tremendous amount of 3D biology product revenue into our consumable guidance.

However, our experience has been that 3D biology is a motivating factor for instrument placement, and in fact several the instruments we sold in the first quarter were partly motivated by the excitement of specific customers about 3D biology. So I would expect 3D biology to show up in our instrument line in 2016, and then more on our consumable line in 2017 and beyond.

And you talked about the trend towards panels. Could you remind us what percent of revenue those are now, and what their margin profile is relative to other consumables?

Sure. Panels have increased as a percentage of our consumable revenue substantially over the last 12 months. In the fourth quarter, the growth year on year was about 100%. It doubled, year on year, to about 50% of our consumable revenue, our life sciences consumable revenue.

So that's been a really nice win for us. We aren't specific in terms of breaking out the margins of panel products versus our custom-made products. But I think you're right to infer that they are more profitable, because we build them at scale and we inventory them. So it's a very good trend in our business.

All right, great. Thanks, guys.

Thank you. There are no further questions. I would now like to turn the call back to Brad Gray, CEO of NanoString, for closing comments.

Thank you all for taking the time to dial in and hear our updates. We hope you all have a great night.

Ladies and gentlemen, this does conclude today's program and you may all disconnect. Everybody have a wonderful day.