NanoString Technologies Inc (NSTG) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NanoString 2017 First Quarter Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Doug Farrell, Vice President of Investor Relations. Mr. Farrell, you may begin your conference.

Thank you, operator. Good afternoon, everyone. On the call with me today is Brad Gray, our President and CEO; and Jim Johnson, our CFO. Earlier today, NanoString released our operating results for the first quarter of 2017. A copy of the press release can be found on our website. During this call, we may 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, the timing and outcome of any related reimbursement decisions, our strategic focus and objectives, and the development status and anticipated success of recent and planned product offerings.

Forward-looking statements are subject to risks and uncertainties, many of those 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 update these forward-looking statements. I'd also like to let you know that later this month we'll be participating in the Bank of America Healthcare Conference and early in June, we'll be participating in the Jefferies Healthcare Conference.

So with that, let me turn the call over to Brad.

Thanks, Doug. Good afternoon, and thank you for joining us today. My prepared remarks will include an overview of our performance in the first quarter and an update on our strategic objectives for the year. Then I'll turn the call over to Jim to review our Q1 operating results and our guidance for Q2 and 2017. Our year is off to a good start as we made solid progress against both our commercial and strategic objectives. We rapidly expanded our installed base, breaking through the milestone of 500 systems, while at the same time, completing 2/3 of our planned sales force expansion. We launched a number of exciting new consumable products and demonstrated progress in the development of our pipeline of future instrument platforms.

We continue to strengthen our leadership in precision oncology, selling 80% of new systems for this application and raising our profile at the AACR Annual Meeting with record numbers of scientific presentations and customer interactions. I'm pleased with our performance and our momentum. During the first quarter, our products and service revenue grew by 30% and our total revenue increased by 23% over the prior year. Our products and service revenue grew robustly across all customer segments with particular strength in biopharma and diagnostics, which grew 40% and 90%, respectively. Instrument revenue in the first quarter increased by 31% over the prior year. Demand was particularly strong in our biopharma business, which accounted for about 40% of instrument revenue and continued to diversify our installed base.

Academic instrument demand was also strong, driven by sales of nCounter SPRINT, which accounted for approximately half of the units sold. SPRINT's combination of performance and affordability is extending our reach to new customers. As every SPRINT sold in Q1 went to a customer with no previous nCounter platform. Our overall consumable revenue, which includes both life science consumables and Prosigna increased by 26% over the prior year. Our panel products continue to drive consumable growth, accounting for more than half of our life science consumable sales. The increasing importance of biomarkers in drug discovery and development remains an important growth driver for us. And biopharma companies and CROs, once again drove over 40% of life science consumable revenues. Additionally, consumable growth benefited from record Prosigna revenue, that was driven in part by a number of new reimbursement wins over the last year.

Overall, we're pleased with our commercial performance during Q1, which reflected the benefits of our expanded product lines and diversified customer base.

Now I'd like to provide an update on our strategic objectives for 2017.

As we outlined on our year-end call, our #1 strategic objective for 2017 is to optimize our commercial channel. We are making significant investments in our commercial capabilities, including new sales personnel and state-of-the-art marketing tools. On the sales front, we're rapidly recruiting talented new members to our commercial team. On our last call, we outlined our plans to add 20 new sales positions and expand our commercial channel. Our commercial expansion is on track and to-date, we've filled about 2/3 of those new positions, including the vast majority of our new consumable sales specialist.

We expect to be fully staffed by midyear and to begin experiencing the benefit of these investments in the second half. In parallel, we're making steady progress in our search for a new senior commercial leader. We're actively interviewing candidates and hope to have our new commercial leader on board in the months ahead. I'm impressed by the strong field of candidates that we have attracted, which I believe reflects our unique positioning and growth profile.

On the marketing front, we've just completed a major new branding initiative, that emphasizes our unique commitment to translating insights from research conducted on our platform to impact on patients' lives. This new branding will be showcased on our refreshed corporate website that will go live within the next week. The new website allows us to use dynamic content to engage users, such as by highlighting in real-time the momentum of nCounter-based publications that are being generated across a wide range of applications and diseases.

We believe that this enhanced digital marketing will help us capitalize on potential customer interest, generate new leads and efficiently incorporate them into our funnel of commercial opportunities. Meanwhile, we continue to enhance our presence at major medical conferences, where our marketing efforts are complemented by the rapidly increasing volume of high-quality research being presented by our customers and collaborators. A great example of this is the annual meeting of the American Association of Cancer Research in Washington, D.C., which was held in April. The conference is considered a most important event of the year and the 2017 meeting exceeded our expectation.

There were more than 45 scientific abstracts using our nCounter technology, a substantial increase over last year, which helped generate record group traffic and sales leads. Also at AACR, we hosted approximately 100 private meetings with -- many with biopharma companies interested in accessing our technology for biomarker research or companion diagnostic development. Overall, we expect these sales and marketing initiatives to optimize our commercial operations and to increase the volume and quality of customer interactions, supporting continued growth in 2017 and beyond.

Our second strategic objective is to launch new products to drive near-term growth and increase our competitive advantage. So far this year, we've launched several consumable products that we expect to become important contributors to our growth over time. In March, we launched our new PlexSet chemistry, opening up a market currently served by qPCR, that involves projects that profile small numbers of genes over large sample sets. PlexSet's simple workflow enables high throughput expression analysis without the need for RNA purification, cDNA conversions or upfront probe validation, which means that customers have far less hands on time and shorter turnarounds, as compared to qPCR. One PlexSet application that we highlighted during the launch is quality assurance for CRISPR-based genome-editing research. PlexSet reagents allow researchers to simultaneously confirm CRISPR hit validations and perform functional testing for up to 24 custom gene targets. This has generated substantial interest from customers in this fast-growing area of research. I'd also like to highlight 4 new products launched during the AACR meeting. The first is the new Low RNA Input Kit, that dramatically reduces the sample input required for gene expression applications. This kit strengthens our value proposition by enabling nCounter to profile even smaller samples than in the past, making new studies possible and extending the competitiveness of our platform. We also announced the commercial launch of our Myeloid Innate Immunity Panels, which were codeveloped with OHSU and the Stand Up To Cancer - Lustgarten Foundation Pancreatic Dream Team. These new panels provide researchers studying the role of the innate immune system in cancer or other diseases with a tool for rapid, comprehensive profiling of human or mouse RNA. These panels should appeal to our current installed base of immuno-oncology researchers and also enable growth in more traditional immunology labs. Additionally, 2 recent product launches expanded our 3D biology portfolio. One is the Vantage 3D RNA Panel for the MAP kinase and PI3 kinase pathways, which complements our Solid Tumor SNV and protein offerings. The other is a new universal cell capture kit, that allows our immune cell signaling assay to provide in-depth immune characterization with minimal starting sample.

Overall, the year has been the most -- one of the most productive periods of new product introduction in our history. We've already begun to see the impact of these new product launches, as several Q1 and Q2 instrument sales have been motivated in part by 3D Biology or PlexSet. And we believe that these products will help drive consumable and instrument sales through the balance of the year.

Our third strategic objective is to continue to lay the groundwork from expanding menu of diagnostic assays. This starts with strong commercial execution on our Prosigna breast cancer assay. During the first quarter, we achieved record Prosigna revenue, nearly doubling sales over Q1 of 2016. Much of this growth came from Europe where Prosigna's ability to enable localized testing is resonating strongly.

We also saw solid growth in the U.S., where improved reimbursement is catalyzing the centralized testing within integrated delivery networks and large community oncology practices.

In March, the St. Gallen International Breast Cancer Consensus panel made up of 43 renowned experts from across the globe voted on positive recommendations for the Prosigna assay. The panel supported the use of Prosigna as a tool to guide early-stage breast cancer patients who do not require adjuvant chemotherapy due to their low risk of recurrence. Full details of the panel recommendations are expected to be published within the next few months.

Meanwhile, our pipeline of active companion diagnostic partnership discussion is larger and more dynamic than ever. Interest in biomarkers that predict response to immunotherapies is particularly high, and we're in dialogues with multiple biopharma companies about the research and diagnostic applications of our tumor inflammation signature or TIS.

At the AACR conference last month, researchers from NanoString presented results from a study applying our gene expression-based TIS algorithm to the cancer genome Atlas database. This study showed that tumor inflammation levels vary substantially across and within tumor types and that those with the greatest sensitivity to [anti-PD-1 blockade] tend to have higher average inflammation as measured by TIS. This suggests that TIS may have utility across a broad range of tumor types. In addition, TIS provides immune status information not provided by mutational load assays and may complement tumor mutation burden as a predictive assay for immunotherapy.

This study is consistent with our observation that biopharma companies are likely to hedge their bets across multiple testing modalities, including PD-L1 IC tumor mutation burden and gene expression signatures focused on interferon-gamma pathway and tumor inflammation. Meanwhile, we continue to feel biopharma interest in our lymphoma subtyping test and PAM50 breast cancer assay, resulting in a growing number of exploratory pilot studies. We exited Q1 with 47 pilot studies with 19 different companies, more than doubling the number of diagnostic pilot studies from the prior year. Our recently expanded business development team is extremely active, and we remain confident that we're well positioned to add new CDx collaborations in 2017. Our fourth strategic objective is to advance our portfolio of breakthrough technologies, including Digital Spatial Profiling and Hyb & Seq. We're highly engaged with the scientific community regarding both of these programs and based on their feedback, we believe that both have enormous potential. Since we initiated our technology access program for Digital Spatial Profiling last fall, we continue to add new partners, most of whom are translational researchers at BioPharma companies. Over the past few months, we've begun to share output data, both privately with program participants and in scientific meetings, such as ASCO-SITC and AACR. The response to early data that we have provided has been overwhelmingly positive, and we've begun to see program participants return for additional expanded studies.

At AACR, we hosted a spotlight theater presentation on Digital Spatial Profiling with our Senior Vice President of R&D, Joe Beechem, and collaborator, Dr. Gordon Mills from MD Anderson. In front of a standing-room-only crowd, Joe and Gordon reviewed the performance attributes that make DSP such a unique platform, including best-in-class multiplexing capabilities and throughput, robust performance in FFPE samples, simple workflow and no destruction of the original tissue sample.

A new DSP study was also presented at AACR by the lab of Yale researcher, David Rimm, who is well known in the pathology community as the inventor of the AQUA platform, which performs tissue-based protein analysis on 4 to 5 plex using quantitative immunofluorescence.

This study demonstrated the DSP data was well correlated with the benchmark AQUA technology and has the advantage of multiplexing up to 10x as many proteins on the same sample. The team from Yale was particularly impressed with the dynamic range of DSP, which is at least 100x greater than AQUA. The positive feedback from experts and users made us more excited than ever about the commercial potential of DSP, and we're on track for a commercial launch in late 2018.

Lastly, I'd like to provide an update on our Hyb & Seq platform. In February, we demonstrated the ease of use and rapid sample-to-answer capabilities of Hyb & Seq at the AGBT conference. This generated a lot of excitement with thought leaders of the sequencing community, who were impressed with unique attributes of the platform such as long read lengths and the ability to sequence DNA and RNA simultaneously.

According to a survey of AGBT attendees conducted by an independent market research firm, Hyb & Seq was the most noteworthy technical development presented at the meeting. The capabilities demonstrated at AGBT has stimulated significant interest from academic collaborators, and we're planning additional proof-of-concept studies to showcase the unique capabilities of Hyb & Seq. In addition, we're fielding interest from potential partners who may wish to fund the development of Hyb & Seq in exchange for a financial or commercial interest in the product, and we're optimistic that these interactions will bear fruit.

Overall, we're pleased with the pace of progress in these programs and believe that our pipeline of breakthrough instruments is poised to drive substantial growth and strategic value over time.

Now I'd like to turn the call over to Jim to review the details of our operating results.

Thanks, Brad. Total revenue for the quarter was $18.1 million, up 23% versus the first quarter the prior year.

Total product and service revenue was $15.8 million, up 30%, compared to the first quarter of 2016.

Foreign exchange rate fluctuations reduced the growth in total products and service revenue by about 160 basis points. Instrument revenue for the quarter was $4.5 million, 31% higher than in Q1 2016. And approximately half of systems sold in the quarter were SPRINT, consistent with our expectations.

Life sciences consumable revenue was $8.6 million, up 19% year-over-year. Prosigna IVD kit revenue was a record $1.4 million for the quarter, growing 91% year-over-year and in total, our consumable revenue for the quarter was $10 million, an increase of 26% from the first quarter of 2016. While the pull-through was below $100,000 per system on an annualized basis, it reflects the seasonal trend similar to what we've experienced in the first quarter of prior years. And it was incorporated in our guidance for 2017.

Service revenue increased by 64% to $1.3 million for the quarter. A significant portion of the increase was generated from technology access program for Digital Spatial Profiling.

We recorded $2.3 million of collaboration revenue for the quarter, compared to $2.6 million in the first quarter of 2016. The amount of revenue recognized in the first quarter was impacted by incremental assay validation work added to the development plan that effectively reduced the percentage of completion as of the end of the first quarter.

Most of this incremental work will be completed in 2017 and thus the impact is to shift revenue from Q1 into later quarters. Gross margin on products and service revenue for the quarter was 55%, an improvement of approximately 300 basis points from the 52% reported for the first quarter of 2016. The increase resulted largely from 3 things: The addition of high margin DSP service revenues; reductions in inventory-related period costs; and a lower royalty rate on the license of the foundational nCounter patents due to the achievement of a cumulative revenue milestone that took effect in Q3 of last year.

R&D expense was $10.8 million for the quarter, up 50% compared to Q1 2016, but up only marginally versus the fourth quarter. Year-over-year increase was driven by growth in our R&D investment over the course of 2016 and it was divided approximately evenly between diagnostic development cost related to our biopharma collaborations and investment in our new platform technologies, 3D Biology, Digital Spatial Profiling and Hyb & Seq.

SG&A expense increased by 18% year-over-year to $17.6 million for the quarter. The increase predominantly reflects investment in the expansion of our sales channel and increased product marketing activities. Stock-based compensation expense was $2.3 million, compared to $1.9 million for the first quarter of 2016. Our GAAP net loss for the quarter was $18.9 million or $0.87 per share, compared to $14.6 million or $0.74 per share for the first quarter of last year.

We ended the quarter with approximately $57 million of cash and investments. Now I'll turn to our 2017 financial guidance.

We reiterate our guidance for total revenue of $100 million to $105 million for the year, assuming constant currency, which is an increase of 16% to 21% over 2016. This includes revenue from our existing biopharma collaborations of approximately $19 million to $20 million. And it does not include revenue from any new collaborations, which represent upside to our guidance. We continue to expect total product and service revenue of $81 million to $85 million, including Prosigna revenues of approximately $6 million.

For the second quarter of 2016 -- I'm sorry, of 2017, we expect total revenue of $23.5 million to $24.5 million, including product and service revenue of $18.5 million to $19.5 million and collaboration revenue of approximately $5 million.

The product and service revenue -- this represents 21% sequential growth at the midpoint and is consistent with our typical seasonality.

For gross margin on product and service revenue for the full year, we expect to be in the range of 57% to 58%, with collaboration revenue excluded from the calculation. For operating expenses, we continue to expect a total of $117 million to $120 million for the year, including approximately $10 million to $11 million of stock-based compensation expense. Our GAAP operating loss for the year is expected to be in the range of $49 million to $53 million, and we continue to expect interest and other expense to be approximately $6 million for the year. Our expected GAAP net loss for the year is unchanged at $55 million to $59 million or $2.51 to $2.69 per share. We expect total capital expenditures between $4 million and $5 million for the year, net of leasehold improvement funding from our landlord.

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

Thanks, Jim. In closing, I'm pleased with our performance in the first quarter. We continue to benefit from the commercial opportunities and rapidly expanding markets in precision medicine and immuno-oncology and continued strength in our biopharma business has further diversified our end markets. We've a robust pipeline of potential diagnostic partnerships and believe that these CDx collaborations can open new revenue streams and provide an important source of nondilutive capital to help fund our growth initiatives.

Lastly, we continue to be successful in engaging customers and partners in our pipeline of breakthrough technologies ahead of our commercial launches over the next 2 years.

At this point, I'd like to open up the call for your questions.

(Operator Instructions) Our first question comes from Tycho Peterson of JPMorgan.

Brad, maybe I'll just start out on the academic side of things. Was there a catch-up effect from -- on the instrument side from the shortfall last quarter? And then any thoughts, comments on just the funding dynamics with the NIH bump. Could you see a little bit of a bolus in spending here in the near term?

Thanks, Tycho. On -- in Q1, we did recapture a few of the instruments that we had characterized as having fallen out of the Q4 funnel. But I don't think that was a major contributor to Q1 growth that we saw. As a reminder, the dynamic that we experienced in Q4 was different than we had experienced in Q1 of 2016, in the sense that it was not a series of purchasing processes that were simply delayed by a few days or weeks from the fourth quarter into the first. Instead it was more of a set of funding uncertainties that were faced by, in particular, our academic customers. So we recaptured several of those instruments that had slipped, but I don't think it artificially inflated in any way our fundamental growth during the first quarter.

With respect to NIH funding, obviously, we were cautiously optimistic that the President will sign into law the budget that was agreed over the last several days and that, that will continue to fund important academic research, including helping to grow our business. I don't necessarily think that it will translate into a bump in the very near term as purchasing processes are slow, and we often see a timing disconnect between when NIH funding budgets change and when it actually shows up in capital purchases. I point out that over the last year or so, as our business has diversified, NanoString's overall reliance on U.S. academic funding has been reduced. Over the last 2 years, U.S. academic exposures come down from about 34% a couple years ago to about 26% of our product and service revenue today. And when you hear us talk about the strength and the diversification of our revenue base, it's partly about making up the balance there with biopharma companies who are increasingly important and diagnostic companies as Prosigna comes -- or diagnostic labs as Prosigna comes online.

And then on the companion front, I know you highlighted some of the momentum you've had in the pilot studies. If we think about interest there, can you maybe just talk on how much of that is single indication similar to what you have Medivation versus multi-indication like you have with Merck. And should we be anticipating a larger deal at some point later this year?

Yes. So the nature of the interest I'd say right now is spread about equally across immuno-oncology with our Tumor Inflammation Signature and a lymphoma subtyping test for diffused large B-cell lymphoma. Obviously, all of the DLBCL interest tends to be single indication in nature, and we would expect collaborations in that deal to look a lot like the Medivation economics from 2016. The Tumor Inflammation Signature interest sometimes is single indication and sometimes is multi-indication. It's a little early for us to describe what we think those deals look like, but the interest is robust.

Okay, and then just one last one on Hyb & Seq. You mentioned strategic interest. I mean, should we think about you guys doing a development deal at some point in the next couple of quarters to get the [box] funded?

Yes, Tycho I could -- I think, we've been explicit that the Hyb & Seq program is extremely high potential program. But unlike Digital Spatial Profiling, it will be a material R&D investment. As we described at AGBT, we think it could require up to $50 million in incremental R&D funding. And we think it would benefit from the expertise and the capital and muscle of a partner. So we're fielding interest coming out of the interest that we generated at AGBT. We're not in an incredible hurry to do a deal, because our focus remains on completing the scale up of the chemistry. But we would like to find a partner over the balance of the quarters ahead. We're going to take our time to do the right partnership. It can come in a variety of forms that range from technology companies taking an economic interest in the development of the instruments, while -- but not using necessarily their commercial channels. Or it could be at the other end of the spectrum, a more traditional commercial partnership where our partner would take commercial rights in some application or territory, et cetera. So we're thinking relatively flexibly about it right now. But stay tuned over the quarters ahead.

Our next question comes from Doug Schenkel of Cowen.

I guess, I have a question on guidance. Your guidance implies that I think it's 58% to 59% of sales recorded in the second half of this year. This is pretty normal for you guys going back to -- at least to 2013. Is it fair to assert that your guidance does not reflect meaningful benefits associated with any of the changes you are making in commercial strategy? And then if the hires or the change in strategy yield benefits quicker than anticipated that, that could lead to some upside to what you've contemplated in guidance?

Yes, thanks for the question, Doug. Let me go back to the year-end call and describe again our guidance philosophy for 2017 and then, I'll put that in the context of the first and second quarters.

This year we took a deliberately different approach to our revenue guidance. Really coming off the back of 2016, where we failed to meet our expected range. We really did 2 things in guidance. One was we were deliberately cautious in the way we thought about the first half of the year, noting that we were going to be making a change in commercial leadership and scaling up our sales force in a way that would both distract from the business of growing the business in the first half and which would yield a benefit more in the second half than the first. Then at the same time, and I guess, offsetting from a seasonality standpoint, we did not assume a major Q4 budget flush, because as we learned in 2016, that can introduce substantial risk into the way that your guidance is laid out across the year and if that budget flush fails to materialize, it can be highly problematic. So really that's the commentary we said on the last call. I think, with Q1, we had a strong Q1. We're pleased with the degree to which the commercial team was able to both scale up its hiring and deliver a strong quarter in the first quarter. In the second quarter, we're -- I think, our guidance at the midpoint is about 21%, 22% sequential growth, which we think represents continued progress. But we are not guiding for a heroic second back half of the year. I think, if you look at the way that the revenue is distributed between the first and second half, as you pointed out, it's pretty typical of what we've had in the past. And I don't think it -- it does assume, obviously, some effectiveness to the hiring activities of the first half, but I don't think we're planning for -- we're guiding for perfection in the second half.

Okay, that is helpful color and some useful reminders on what you stated earlier. Pivoting to biopharma. Biopharma product and services sales grew, I believe, you said 40% in the quarter and also accounted for 40% of sales. Embedded into guidance -- another guidance question, embedded into guidance, are you assuming that biopharma momentum continues at the same levels, excluding companion diagnostics, just looking at products and services?

We have had a lot of momentum in biopharma, and I would call the growth in the first quarter as being extremely strong in biopharma. That being said, it can be lumpy from quarter-to-quarter, because biopharma even more than academics tends to have very large order sizes and sometimes that's a great thing, especially in the consumables front. Sometimes when you have a tough comp or those large orders don't show up, it can be a negative thing.

So I don't know that we'll show the same growth numbers every single quarter through 2017 that we've shown from biopharma. But generally speaking, over the balance of the year, as we look at our sales funnel, we do see good strength, particularly in the instruments funnel from biopharma. And when we think about where the company and our products are positioned, right at the heart of immuno-oncology and precision medicine, we think biopharma is going to continue to be a very important segment for us going forward. But I would not say -- I wouldn't want people to believe that our guidance hinges on 40% revenue growth in biopharma every single quarter in 2017, it certainly doesn't.

Okay. And one last one. I'm not sure if this is better for Brad or better for Jim. You burned through about, I think, it's $17 million in cash in the quarter, which I think was largely in line with expectations, certainly in line with what we had in our model. You reiterated your operating burn guidance for the year, I believe. How confident are you in your ability to close additional companion diagnostic deals as you have in the past that we'll have enough of an upfront or near-term economic component this year as a means of extending your cash balance runway well into 2018, if not beyond?

Yes. So Doug, as you know, we think about opportunistic and creative ways to fund our investment in the business all the time. And I think, we have a good track record of accessing 3 different sources of capital. Our favorite, of course, is nondilutive capital from biopharma partnerships. And we've been highly successful in the past at funding the business from that source. But we've also been from time to time opportunistic about tapping equity through ATMs and debt through advantaged term loan agreements. Our business development pipeline is extremely active and dynamic. I'm on -- in meetings on effectively a daily basis, thinking about how we can execute our strategy. And those partnerships, I feel confident, will come over the course of this year, and we'll be able to continue to tap that as a source both of (inaudible) for our pipeline as well as cash. From time to time, and really depending on the timing of those biopharma deals, we may opportunistically choose to act as other sources of capital. So I wouldn't want you to believe that we'll never do that. But I do want everyone to understand that we continue to be just as confident in biopharma as a means of growth for our business as we have been in the past. Jim?

I think, maybe just to add. We, I think, have been very successful over the last few years pursuing the strategy. We've brought in, I think, somewhere over $60 million from collaborations. We've increased our borrowings by $20 million to $25 million and raised $40 million under an ATM. So it's -- and doing that really at the same time is adding some really quality shareholders to our shareholder base. So we think it's been a good approach, been disciplined, but it's worked out well for the company and also for the shareholders.

Our next question comes from Catherine Schulte of Robert W. Baird.

With the success you've had from the technology access program for DSP, would you consider continuing to offer that as a service once you have a commercial instrument, pharma companies didn't want to have to do it themselves or add another instrument?

So -- Catherine that's a great question. I think, it's still pretty early days on Digital Spatial Profiling. Certainly, the success of the technology access program is encouraging us to continue to offer that as a service until the time of a product launch an instrument launch, which would be late 2018. So I would expect that we will use a DSP-based service to remain engaged with our customers until that time. It's still a little early for us to decide whether we want to scale up that business in the wake of an instrument launch or whether we'd like to just simply rely on the CROs, many of whom use our technology today and do a great job with it, as we have in the past. I mean, to-date we've chosen, rather than to build our own service model on our nCounter technology to empower the CROs. And they do an increasing share of our biopharma business as biopharma companies move to outsourcing. So we think that's a perfectly valid avenue for us once we have an instrument to sell them.

Okay, that makes sense. And then, can you elaborate on your assumptions for instruments versus consumables in your second quarter guidance? And for the consumables pull-through, will that bounce back up to the 100,000 annualized rate next quarter?

So 100 -- approximately $100,000 in total pull-through remains our guidance for the full year. As we've seen in the past though, it can fluctuate quarter-to-quarter. The first quarter consumable pull-through was typical of the seasonality that we see. The first quarter is very often less than that $100,000 pull-through. It's probable that it will recover in the second quarter. But it may or may not exceed the traditional benchmark of $100,000.

I think, if you look back historically, it's pretty much gone up each quarter throughout the year. So I think our expectation would be Q2 pull-through will be higher than Q1 and Q3 higher than Q2 and so forth to the end of the year. So it should be higher than Q1, probably around $100,000 level.

Okay. And then last one from me. Can you just talk about what you saw from the different geographies this quarter, U.S. versus Europe versus Asia Pacific, specifically on instruments?

So overall, U.S. and Europe were -- had good strong quarters. They were above our overall global product and service growth rate. Asia had a weaker quarter in terms of growth against actually a pretty strong comp from the first quarter of 2016. So that was true, I think, on both a total revenue basis as well as an instrument line item basis. So strength in Americas and the EMEA, relatively soft in Asia.

(Operator Instructions) Our next question comes from Paul Knight of Janney.

When you're looking at these published papers, we were often seeing the ease of sample prep. What are users saying right now? Or what are these published paper saying, anything incrementally new? Obviously, 3D biology is big, but sample prep always stands out. What's incremental in these publications that you cited in the prepared comments?

So Paul, specifically the news flow from AACR or just more general?

AACR papers.

So I'm not sure, which of our 42-or-so abstracts from AACR you're referring to, Paul. But ease of workflow has been a very fundamental part of our value proposition from the very beginning. In fact, nCounter really built its original following on being the simplest and most robust platform with the hardest to work with tissue type, which was formalin-fixed paraffin-embedded tissue. And one of the key competitive advantages that nCounter has over either quantitative PCR on one hand or RNA sequencing on the other is the ability to process samples with an RNA extraction or only a lysis before loading on the instrument. We've extended that simplicity to all the new products in our pipeline, so -- and recently launched one. With PlexSet, which is our new chemistry that we're competing in the low plex, high volume, sample volume market with, all of those advantages that are traditional to nCounter exist. So that's just -- there's no enzymes or amplification in the chemistry. And what we do in PlexSet effectively is put multiple samples in each lane of a cartridge, so that a cartridge that would normally have processed 12 samples, looking at a lot of targets, can process up to 96, looking at a few. And so the throughput of the system with that simple workflow is just enormously expanded. Similarly with Digital Spatial Profiling, one of the big value propositions is simplicity of workflow, because instead of having to stain many, many slides individually, each with a 1:4 markers per slide, you can just stain one slide once with 30 or even up to 50 different protein markers at once. So that's again the extension of that simplicity. And then finally, on Hyb & Seq, Hyb & Seq is a distinctive feature, has really the ability to go directly from a sample like a cancer biopsy to the initiation of a sequencing run in less than 1 hour with 15 minutes of hands-on time. So that is the kind of workflow we think is required to put sequencing to work in basic hospitals. So in all cases, I'd say the simplicity of the workflow is distinctive and a big part of the -- sort of the value proposition of our technology.

I've heard a couple of diagnostics lab site increased sensitivity, specificity versus microarray. Is that a refrain you're hearing from the customer base?

It is, Paul, it is, in addition to a sample workflow, I'd say, the incredible ability to get sensitive and specific gene expression information has always been a part of our nCounter value proposition. Compared to microarrays, nCounter has about 100x more dynamic range. So the ability to look at low-expressing transcripts and high-expressing transcripts at the same time in the same assay is much better on nCounter than it would be on an array and that can be really important for diagnostic developers too.

Ladies and gentlemen, I'm not showing any further questions at this time. I would like to now turn the call back to Brad Gray.

Thank you all for your -- taking your interest in NanoString. And as a reminder, we'll look forward to seeing many of you at the Bank of America Conference in a couple of weeks' time or the Jefferies Conference in early June. Look forward to seeing you soon.

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