NanoString Technologies Inc (NSTG) 2017 Q2 法說會逐字稿

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

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

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 financial results for the second quarter of 2017, and a copy of the press release can be found on our website at nanostring.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 our 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 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 the call today, and we undertake no obligation to make publicly any forward-looking statements. We'll be participating in both the Baird and Morgan Stanley Health Care conferences next month, and we look forward to seeing many of you there.

Now let me turn the call over to Brad.

Good afternoon, and thank you for joining us today.

Over the past several months, we have made substantial progress toward our strategic objectives. We have expanded our sales team and recruited a new commercial leader who is in the process of revitalizing our sales approach. We have strengthened our balance sheet, securing equity capital to invest in our growth and pipeline. And today, we have announced a groundbreaking strategic development collaboration with nanoscale technology leader Lam Research that brings together world-class innovators in molecular profiling and semiconductor technology to advance our Hyb & Seq platform, with the goal of building one of the world's simple clinical sequencers. This collaboration with Lam Research represents an exciting moment for NanoString and for the broader genomics industry. Lam Research is new to life sciences but is well known in technology circles as a top-performing company and leading innovator in semiconductor manufacturing. We expect that Lam's expertise in nanoscale engineering and manufacturing will significantly boost our Hyb & Seq product development. In addition, the collaboration announced today fully funds Hyb & Seq development with minimal dilution and, most importantly, without any strategic encumbrances on our product or company.

I'll provide more color on this partnership later in my prepared remarks. In the meantime, I direct you to the Investor Relations section of our website where you can find a set of slides under the events tab and second quarter financial results that I'll use to outline the details of the collaboration.

Now I'd like to provide an overview of our performance in the second quarter and an update on our strategic objectives for the year before turning the call over to Jim to review our operating results and guidance.

During the second quarter, our total revenue grew by 53% over the prior year, with collaboration revenue growth of over 200%, and product and service revenue growth of 5%. Collaboration growth was driven by continued progress in our ongoing collaborations with Celgene and Merck as well as the wind-down of our companion diagnostic collaboration with Medivation and Astellas following the previously disclosed termination of enzalutamide development in triple negative breast cancer.

Our products and service revenue of $18.3 million came in near the lower end of our expected range as in-line instrument sales were offset by lower consumable growth.

Instrument revenue was up 35% sequentially from Q1. Demand was particularly strong among biopharma companies, which accounted for 40% of instrument revenue and continued to diversify our installed base. Our higher-throughput MAX and FLEX systems remained especially popular among our biopharma customers, helping drive Q2 instrument mix to approximately 60% high throughput systems and 40% SPRINT systems.

Our overall consumable revenue, which includes both life science consumables and Prosigna, increased by 7% over the prior year. Consumable growth benefited from record Prosigna revenue which was up almost 50% year-on-year, while life science consumables were relatively flat.

Panel products continued to grow in popularity, accounting for over 50% of life science consumable revenue. While our biopharma pull-through continues to be strong, we experienced some lumpiness as several large biopharma customers ordered less than in the prior year period. Among academic customers, pull-through was below our historical average, which we attributed to our sales team becoming thinly stretched across the following years of installed base growth that outpaced the expansion of our sales channel.

Despite the soft product and service revenue growth in Q2, we remain confident that the initiatives we have underway will accelerate growth in the second half.

Our number one strategic objective for 2017 is to optimize our commercial channel, and we've made substantial progress against this goal over the past quarter. Last month, we appointed Chad Brown as our new Senior Vice President of Sales and Marketing. Chad is an industry veteran with deep experience in both tools and diagnostics. He has led promotional organizations through periods of tremendous growth and scaled the infrastructure of these organizations to meet their expanding opportunities. I'm excited to have Chad on board, and the commercial team is clearly energized by his arrival.

Chad has hit the ground running, and he has already introduced several new initiatives to enhance our commercial effectiveness. These include programs to stimulate SPRINT system sales to academic researchers and small biopharmas and initiatives that leverage our distinct immuno-oncology assets to extend our leadership in that dynamic market.

The impact of Chad's leadership will be amplified by the substantial commercial expansion we've executed in the past several months. Since the beginning of the year, we've added 20 new sales positions, expanding our life science sales force by over 25%. Most of the these hires are focused on driving consumable sales into our installed base of approximately 540 nCounter systems.

While nearly all of this hiring took place during the second quarter and, therefore, did not materially impact our reported results, we're beginning to see encouraging signs of what we can expect as these new reps come up to speed in the second half. For instance, in several territories where consumable reps were hired earliest, order volume has grown substantially faster than in territories where the new positions took longer to fill. Our regional account managers in these same territories tell us that the addition of consumable reps has allowed them to use their time to identify and develop more instrument opportunities.

We have augmented our sales force expansion with more vigorous lead-generation activities which should further grow our instrument sales model. Our website was relaunched in May, helping drive web traffic up 25% year-on-year, and we expanded our presence at leading scientific meetings.

At the annual meeting of the American Society of Clinical Oncology or ASCO, interest in our products was strong, driven in part by the record number of abstracts presented by our customers. We generated record booth traffic, more than doubled our lead generation over the prior year, and hosted more than 200 meetings with potential customers and biopharma partners, triple the number of meetings compared to the prior year. We believe that this increased sales and marketing activity will begin to accelerate growth in the second half of the year and reach full impact in 2018.

In parallel, we are making exciting progress in our second strategic objective by launching new products to drive near-term revenue and increase our competitive advantage. We've launched a record number of new products in the second quarter and we're starting to see the benefit. New applications are broadening the appeal of our technology and helping drive instrument sales.

3D Biology influenced more than 40% of instrument sales in Q2, while another 15% of systems sold went to customers who were interested in running our new PlexSet product line for high-throughput gene expression analysis for small gene numbers.

In expanding the range -- expanding the range of applications for nCounter remains a key priority, and we have several consumable product launches slated for the second half of the year. One upcoming launch that is expected to appeal to existing customers is a revolutionary new immuno-oncology product called the PanCancer IO 360 panel, which is a 770 gene expression panel specifically designed to support drug development by profiling multiple potential mechanisms of immune resistance. In addition, we will launch a panel for neurodegeneration research which is expected to attract new customers. We believe adoption of this wave of new products will bolster growth in the second half.

Our third strategic objective is to continue to lay the groundwork from expanding menu of diagnostic assays. During the second quarter, we posted record Prosigna revenue of $1.8 million, driven by important reimbursement decisions in 2016 as well as continued momentum in the adoption of both the U.S. and abroad.

In the last quarter, 11 new labs launched Prosigna, increasing the number of active Prosigna sites to 65 labs worldwide. In parallel, we made steady progress in our existing biopharma collaborations with Celgene and Merck. Our partnership with Celgene reached an important milestone that the ROBUST trial in diffuse large B-cell lymphoma completed enrollment, setting the stage for a potential study readout sometime in 2018 and potential regulatory approval in 2019.

Our Merck collaboration has entered a dynamic period with a steady flow of exciting new data and the evolution of ongoing studies. In June, Merck published a seminal paper in the Journal of Clinical Investigation describing how the Tumor Inflammation Signature or TIS was developed to predict a tumor response across multiple tumor types.

I want to encourage anyone interested in understanding how biopharma companies are using our technology to spend 10 minutes watching the video that accompanied the publication of the paper. There's a link to the video on our home page.

At ASCO, Merck presented an important data demonstrating the ability of TIS to predict response to therapy more effectively than competing biomarkers, with data in head and neck, gastric and bladder cancer. However, in some cases, conventional testing, such as PD-L1 IC is expected to be an adequate predictor of therapeutic response.

Consistent with this logic, Merck recently modified the protocol for studies KEYNOTE-180 and 181 in esophageal cancer to move the assessment of clinical outcome and patient populations defined by the TIS assay from a primary to an exploratory endpoint. While these studies will yield potentially valuable information regarding the performance of TIS, we do not expect KEYNOTE-180 or 181 to result in a PMA filing for TIS as a companion diagnostic.

Meanwhile, the KEYNOTE-158 basket trial covering 10 tumor types continues to move forward as planned and could yield a PMA filing for TIS as early as 2018.

Many biopharma companies beyond Merck are also expressing interest in TIS. As we have interacted extensively with these partners, it has become clear that they are considering a wide variety of biomarkers. They're not prepared to move directly to companion diagnostic development programs without evidence that TIS predicts response to their specific therapy. Exploratory studies in which the predictive power of TIS is demonstrated through retrospective analysis of Phase II trials have become a critical step along the path of signing companion diagnostic collaborations. As a result, full-scale companion diagnostic collaborations are being delayed as potential partners conduct exploratory biomarker work.

While our pipeline of biopharma discussions remain strong, with numerous active dialogues, we acknowledge that the deal pipeline is maturing more slowly than expected. We are moving to respond to this need for exploratory studies in 2 ways. First, we have recently made TIS available for pilot studies, following an approach that we have used to successfully engage biopharma developing drugs for breast cancer and lymphoma. Since soft launching this program in ASCO, we have entered 5 pilot studies with 4 different companies and have many more discussions underway. Across our pipeline of 3 companion diagnostic products, we now have entered a total of 50 pilot studies with 20 different biopharmas.

Second, the gene separatist is included in the new PanCancer IO 360 panel that I mentioned earlier. Beginning in September, it will be made widely available to our customers just like our other research-use-only panel products. For an additional fee, we will provide research customers a service to report the results of the TIS algorithm as well as multiple additional gene expression algorithms embedded in the IO 360 panel. Early biopharma response to these offerings has been extremely positive and we are confident that these steps will continue to expand the number of researchers using our technology in immuno-oncology and will, therefore, identify clinical utility for TIS and our IO 360 panel.

Our fourth strategic objective is to further advance our portfolio of breakthrough technologies including, Digital Spatial Profiling and Hyb & Seq. I'll begin with Digital Spatial Profiling or DSP, which is a powerful new research tool for analyzing tissue biopsies that enables the precise spatial quantification of protein and gene expression. Our DSP program is advancing significantly and remains on pace to launch a new instrument in late 2018.

Demand remains high for the technology access program that allows our customers to access DSP capability as a service, with 16 customers signing up to date. The technology access program and our internal development studies resulted in 7 presentations at scientific meetings during Q2, including 3 studies covering immuno-oncology and responsive therapy presented at the ASCO meeting.

The next major public update on DSP is expected at the Association on Molecular Pathology (sic) [Association for Molecular Pathology], or AMP, meeting in November.

Finally, let me provide more details on Hyb & Seq and the Lam Research collaboration which you can follow using the slides found in the Investor Relations section of our website.

Our Hyb & Seq program aims to capture the enormous commercial potential of a simple clinical sequencer. As shown in Slide 3, the total addressable market for clinical sequencing is projected to reach $44 billion by 2022, with the largest opportunity being in oncology. Despite the potential, clinical sequencing adoption is currently constrained by the high complexity of traditional next-generation sequencing platforms, which can require as many as 25 different steps in complex bio informatics. We believe that unlocking this massive market potential requires a simple, fast sample-to-answer sequencer that can be easily run in hospital laboratories or community oncology practices.

Slide 4 illustrates why we believe Hyb & Seq is the right solution for the clinical sequencing market. Hyb & Seq's workflow has just 4 simple steps and does not require complex and time-consuming library preparation. Amplification or enzymes -- library preparation, amplification or enzymes that are required by existing NGS platforms. As we demonstrated in the AGBT meeting in February, the workflow is so streamlined that the turnaround time from FFPE to the initiation of sequencing is less than 60 minutes, with only 15 minutes of hands-on time.

In addition, Hyb & Seq offers unique attributes which are attractive to genome researchers such as high-consensus accuracy at low coverage, simultaneous sequencing of both DNA and RNA, and the ability to provide both long and short reads.

While we have independently advanced the Hyb & Seq chemistry over the past several years, the collaboration with Lam Research that we announced today is a major inflection point for this program.

As Slide 5 illustrates, by combining NanoString's molecular profiling expertise and novel barcoding chemistries with Lam's capabilities in nanoscale manufacturing, we believe we can deliver powerful and highly scalable solutions. We have found that when we put the lead sciences from both companies together in a room, the chemistry between the teams and the ideas that emerge are compelling. We envision our collaboration with Lam will enable open-ended innovation at the intersection of semiconductors and genomics, the potential of which we're only beginning to appreciate.

As described on Slide 6, under the terms of the collaboration, NanoString will contribute the Hyb & Seq chemistry and lead the product development program. Importantly, NanoString retains full global commercial rights to the instrument and assays that result from the collaboration. Lam will provide advanced engineering and technical support as well as up to $50 million of funding intended to cover the remaining cost of development and regulatory approvals over a period that is expected to last approximately 3 years. In return, Lam will receive a warrant to purchase up to 1 million shares of NanoString common stock at $16.75 per share as well as a modest royalty on all products that result from the collaboration that is not expected to materially impact margins.

Slide number 7 describes the timeline of key events expected between now and the full commercial launch. At the AGBT Precision Health conference next month, we plan to present proof of concept for targeting sequence -- targeted sequencing in liquid biopsy samples. At the full AGBT meeting in February of 2018, we expect to present data generated using the complete complement of sequencing optical barcodes as well as data generated with external collaborator samples. We plan to launch beta instruments sometime in 2019, with a full commercial launch following in the next year.

The expected accounting treatment and financial impact of the collaboration is summarized on Slide 8, and Jim will cover these in his prepared remarks.

In summary, with the announcement of this partnership, Hyb & Seq development is now fully funded beginning an exciting new chapter for us. By retaining exclusive worldwide rights to the resulting product, we believe we are creating substantial strategic value for our shareholders. We look forward to collaborating with Lam to deliver a platform that we believe will be transformative.

I'd now like to hand over the call to Jim to review our financial results and outlook.

Thanks, Brad. Total revenue for the quarter was $34.6 million, up 53% versus the second quarter of 2016. Total product and service revenue was $18.3 million, 5% higher year-over-year. Foreign exchange rate fluctuations reduced the growth in product and service revenue by approximately 1 percentage point. Instrument revenue was $6 million, 6% lower than in the second quarter of 2016, which was a particularly strong quarter, due to instruments that shifted from the first quarter of 2016. Total consumable pull-through for the quarter was $11 million, up 7% year-over-year, which was below our historical run rate of over $100,000 per system on an annualized basis. Life-sciences consumable revenue, which is the largest component of system pull-through, was $9.2 million, up 1% compared to the second quarter of 2016. Prosigna IVD kit revenue, the other component of pull-through, was $1.8 million for the quarter, up 48% year-over-year, with ex U.S. markets continuing to generate the majority of sales.

We recorded $16.3 million of collaboration revenue for the quarter compared to $5.1 million in the second quarter of 2016. The increase resulted from the termination of our collaboration with Medivation and Astellas which triggered a $1 million termination fee and the immediate recognition of previously deferred revenue, together representing $11.3 million of the second quarter revenue.

Gross margin on product and service revenue for the quarter was 55%, roughly constant compared to the second quarter of 2016. Gross margin benefited from a shift in revenue mix from instruments to consumables and from a lower royalty rate on our license of the foundational nCounter patents that we have mentioned in the past quarters. These favorable trends were tempered by the sale of a higher proportion of instruments to distributors which generate lower gross margins compared to direct sales, and a write-off of raw materials that did not meet our quality specifications.

R&D expense was $11 million for the quarter, up 25% over the second quarter of the prior year. The increase was driven primarily by increased investment in new technology and product development programs, in particular, Digital Spatial Profiling and Hyb & Seq.

SG&A expense was up 20% year-over-year to $18.6 million for the quarter. The increase largely reflects added staffing to support the company's growth, most of which went toward the scale-up of our sales and marketing teams, as Brad described.

Stock-based compensation expense was $2.8 million compared to $2.4 million for the second quarter of 2016. Our net loss decreased to $4.6 million or $0.20 per share from $10.8 million or $0.55 per share for the second quarter of last year. We ended the quarter with approximately $99 million of cash and investments. This included $56 million of proceeds from the follow-on offering completed in May.

I'll close with an update to our 2017 financial guidance. We're raising our total revenue guidance to a range of $114 million to $118 million for the year, which corresponds to revenue growth of 32% to 36% over 2016.

Our previous guidance, which we provided when we reported the Medivation/Astellas termination, was for $106 million to $111 million in total revenue. The increase is the result of raising our outlook for collaboration revenue. Previously, it was a range of $25 million to $26 million, and it is now increased to approximately $33 million. This change reflects our updated outlook on the Celgene and Merck collaborations together with the impact of our new Hyb & Seq collaboration with Lam Research.

The Lam collaboration will add both collaboration revenue and R&D expense to our P&L.

Picking up where Brad left off, the accounting treatment is summarized on Slide 8 on the slide deck. The value of the warrant, estimated using the Black–Scholes Model, will come out of the funding proportionately as we receive it from Lam and will be added to stockholders equity. The remainder will be considered collaboration revenue. Incremental costs will be added to R&D expense over and above our baseline level of spending on the program. And we expect that the collaboration revenue and incremental R&D expense will roughly offset each other and, therefore, we expect no material change to the bottom line resulting from the collaboration.

With respect to product and service revenue, we're maintaining our full-year guidance of $81 million to $85 million. But based on recent growth trends, we are increasing our outlook for Prosigna revenues from approximately $6 million to a range of $7 million to $8 million.

While our results for the first half show us tracking toward the low end of our product and service revenue guidance range for the year, we expect the expansion of our sales channel and the introduction of new products and programs to shift the growth curve positively in the second half.

For the third quarter of 2017, we expect total revenue of $26.5 million to $28.5 million, including product and service revenue of $19.5 million to $21.5 million, and collaboration revenue of approximately $7 million.

We're maintaining our guidance for gross margin and product and service revenue at 57% to 58%. We're increasing our operating expense guidance to $123 million to $126 million through the year to reflect the added Hyb & Seq development costs that will be funded through the Lam collaboration.

Previously, we had guided to $117 million to $120 million for the year. We continue to expect approximately $10 million to $11 million of stock-based compensation expense.

Our GAAP operating loss for the year is now expected to be lower, in the range of $42 million to $46 million from the original $49 million to $53 million. 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 also expected to be lower, at $48 million to $52 million compared to $55 million to $59 million previously.

On a per share basis, we're now expecting a net loss of $2.03 to $2.20 per share compared to the original $2.51 to $2.69 per share. This reflects both the lower net loss and the added share count from our follow-on offering.

We continue to 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 to Brad to wrap up.

Thanks, Jim. It's been more than 14 years since the completion of the Human Genome Project and we're beginning to see a substantial impact on the practice of medicine. In June, with the approval of KEYTRUDA, for use in patients with microsatellite instability, the FDA approved the first-ever drug for treating cancer based on the genetics of the tumor rather than the location of the tumor in the body.

It's been a long journey, and we believe that we are entering the golden age of biomarkers. This is especially true in immuno-oncology, where there are more than 1,000 active clinical trials in which biomarkers can be used to evaluate patients and tailor therapy.

We believe that NanoString is exceptionally well positioned to leverage this opportunity to drive long-term growth of our business. We are already a leader in gene expression, and with a fully funded pipeline, including Digital Spatial Profiling and Hyb & Seq, we are poised to transform all aspects on molecular profiling.

And now I'd like to open the line for your questions.

(Operator Instructions) Our first question comes from Doug Schenkel from Cowen and Company.

Guys, this is Adam on for Doug. The first one is on consumables. You indicated in your prepared remarks that the research consumables came in below the guided pull-through due to some biopharma lumpiness and academic sales dynamic. I was just hoping to get maybe a little bit more color on the academic side. Was the lower-than-expected sales here primarily due to the ramping of new hires? Or was it due to a shift of your existing sales force into the more extinct instrument and symbol roles?

Thanks for the question, Adam. I think on the academic side, the trend that we've experienced in the first half has been "modestly lower than historical" pull-through levels that we attribute to the squeeze on our sales force that we described early in the year. That is over the last several years now we've expanded our installed base at a rate of about 30-plus percent a year, while also asking our account managers to launch the SPRINT system which, of course, requires a larger number of instrument unit sales per amount of revenue growth that's contributed. And that's really put a squeeze on these reps that's made them have to choose sometimes between focusing on prospecting for new instrument sales and serving the need of our incumbent installed base. And we found that generally the consumable sales have gotten the short end of the stick, and it was really for the reason that at the beginning of the year we decided to make a sales force expansion of about 25% to hire field-based consumables reps as well as inside sales reps that would support sales of catalog consumables like the panel products. Most of those hires were made in the second quarter and were not made in time to make a material contribution to the overall Q2 performance. And I'd say the academic portion of our installed base, which is the largest portion, is the group that suffered most from a lower-than-needed sales activity. As I mentioned in the prepared remarks, some of the early signs in territories that were first filled with consumables reps are encouraging. And we believe, as these reps come online through the second half, we'll start to see a turnaround in the pull-through rate amongst the academic customers.

Okay. That's certainly helpful. And then maybe expanding on that, should these sales force hires -- should the impact there be pretty broad based in terms of consumables and instruments? Or will they primarily drive growth in a particular product line or end market?

Well, the way we've organized is that each inside sales rep or consumable -- field-based consumable rep is paired with a regional account manager that owns a piece of geographic territory, and they work as a team. So while the primary focus of inside sales and consumable reps will obviously with the consumables portion of our business, which is more than half of our product and service revenue, they'll work in tandem with the account managers on the specific customers in that territory. And we -- just to remind you, we have separate sales organizations that are dedicated to academic customers and small biopharmas on one hand versus large biopharma companies on the other. So they tend to specialize.

And maybe just one last one from me. I might've missed it, but did you provide any color on how your various geographies played out in Q2?

No, I didn't, but I'm happy to. I think the geographic mix was their overall revenue was very similar to what it has been in the past. I'd say the relative strength was highest in areas like EMEA, who had a good quarter and accounted for about 29% of product and services revenue. APAC also had a strong quarter at 11% of product and service revenue. And things were more flattish in the Americas for us.

Our next question is from Tycho Peterson.

This is Tejas on for Tycho. I just wanted to follow-up on an earlier question. Brad, I mean, can you share some color on the instrument revenue decline? Obviously, it was a nice sequential uptick. I'm trying to sort of tie it to the fact that when you initially gave guidance, you didn't account for any sort of big budget flush. Since then, obviously, NIH funding has come in a little bit better than expected, but still uncertainty, though, around 2018 and things like that. So where does it all net out? I mean, especially given the fact that you now also have a sales force in place.

Sure. Maybe there's a couple of different pieces there. I think some of it was about the instrument trend, looking back at Q2, and maybe there's a piece also about the outlook for the balance of the year. So in Q2, I focused on sequential growth in the comments because as you'll recall, a year ago, we had a very unique second quarter, in the second quarter of 2016, as we had a major catch-up in the instrument revenue line from instruments that had slipped out of the first quarter into the second. And so we think the sequential trend from Q1 to Q2 is more indicative of the strength we're experiencing in instrument demand than the year-on-year comp would have been. And I think I would describe the instrument performance as relatively in line with our expectations in the second quarter. And really, biopharma, who accounted for 40% of instrument revenue, being a real area of strength. And actually, our distributed territories also had a strong quarter on the instrument side. Looking at the balance of the year, if you're in a process of updating your model and it appears now that based on where Q2 landed, the year looks more back-end loaded, I think -- I mean, that's mathematically true. But I think our guidance remains consistent with the idea that, that back-end loadedness is not a result of a budget flush dynamic that we're anticipating. Rather, it's -- it tuned to the initiatives and the investments that we've made, mostly in the second quarter, beginning to pay off in the third and even more so in the fourth. And the 3 things that I've highlighted, of course, are, the expanded sales force, now 25% more people in it, will be coming effective in the third and fourth quarters. Some initiatives that Chad Brown, our new leader, has put in place that we think are going to have an impact in the third quarter, and even more, in the fourth around the SPRINT revitalizing kind of SPRINT system demand amongst the disparate academic customer base and small biopharmas, and then capitalizing on our new product launch in immuno-oncology. And then finally, the new product launches, some of which were made in the first half and some of which are coming in the third quarter. All of those are going to contribute meaningfully to Q4. And so those are different than a budget -- a classic budget flush that's just about the timing in which customers choose to spend. They're really NanoString-specific dynamics.

Got it. That's helpful. And then just a quick follow up, on the OUS side of things, I know you commented earlier. But are you still seeing uncertainty related to Brexit impacting demand over there?

No, I wouldn't say that, that has continued to be a driver of uncertainty for us. The EMEA team had a good quarter, especially on the consumables side, so I don't think that uncertainty in EMEA has been a challenge in Q2.

Got it. And then one final one here on the collaborations. I know you sounded incrementally more cautious in terms of pipeline being a little bit slower to materialize. But how do you think about the existing collaborations, specifically the one with Merck, if they get a label expansion or -- and approval in September for gastric or frontline lung and so on? What kind of an impact does that entail for you guys in the back half of the year? Is that something that you've already factored in the guidance? Or will that be more upside?

I think what -- Merck is having, obviously, great success in continuing to expand the label of KEYTRUDA. To date, all of those label expansions have dealt with either PD-L1 IC as a companion diagnostic marker or microsatellite instability testing, none of which are today run on NanoString's technology. So some of the success you're seeing with them are really not going to have a material impact one way or another on our revenue in the near term. We really remain focused on the KEYNOTE-158 study, which you may remember as a basket trial in 10 different tumor indications. And that's the one that will -- is continuing to accrue, has the potential to read out over the months or year ahead, and which could yield for us an approval if the study results are positive. And that would have a material impact for us in terms of some eligibility for milestone payments, but more importantly, for product revenues. And I think that, that would be, from a product revenue perspective, be a 2018 event at the earliest. So it's really not having an impact in the back half of this year, but it's setting up a very exciting catalyst for next year.

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

I was wondering if you could go on to a little more detail on some of the initiatives that Chad is introducing, particularly the one focusing on driving SPRINT sales.

Sure. So one of the -- with SPRINT, we have, as we described in the past, a vastly expanded number of customers. And these are the individual researchers who can afford a SPRINT, but who can never have afforded our MAX and FLEX system, and for whom that would've been too much throughput in any case. One of the things that we're going to be introducing in the second half of the year are our initiatives to provide those individual research customers with experience on the SPRINT system even in advance of purchase as a way of building their conviction that it's the right technology for them. And the higher affordability of the -- or lower cost of the SPRINT system really makes it possible to do that in a way that's not practical for our higher-throughput systems. So that's an initiative that we've done on a very small scale in the first half and had some good experiences with it. We've sort of piloted it in a few places, and it's something that we're going to roll out more expansively -- or we're in the process of rolling out more expansively today.

Okay. And then just touching on the consumables side again. I was wondering if you could break out what you're seeing for SPRINT versus the high-throughput platforms, and at this point, 2 years into the launch of SPRINT, how you're thinking about that pull-through.

Yes. SPRINT pull-through has been good, and has been in line or maybe a little stronger than the expectations that we had at the time of our initial launch, which would be about half what the pull-through of a MAX and FLEX is. So I think we had guided for people to think about $50,000 to $60,000 per year in consumable pull-through on SPRINT. I think it's been at the high end of that range so far, so SPRINT pull-through has been healthy.

Our next question comes from Paul Knight from Janney.

This is actually Carolina Ibanez-Ventoso on for Paul Knight. I wanted to follow up, you alluded in your prepared remarks that your pipeline of biopharma collaborations was maturing more slowly than expected. I was wondering if you could comment why is that. This is due to all the alternative technologies that is more appealing for biopharma right now to develop companion diagnostics or some other reasons that you could comment on.

Yes. So I think the primary reason is that biopharma companies are being extremely cautious, both in terms of their selection of companion diagnostics and in terms of their selection of partners. We don't think that there's a large number of companion diagnostic deals of the type that we've done in the past getting done away from NanoString. Rather, there's been just a -- I'd say slow pace of new companion diagnostic deals happening, period. And the reason is that these pharma companies who are in the -- faced with betting enormously expensive Phase III studies on new technologies really are choosing to do a lot of homework before they select a companion diagnostic. And that can mean the retrospective analysis of one and, sometimes, many more than one Phase II studies to convince themselves that the diagnostic is predictive prior to entering a partnership. I'd say that's the #1 reason that we've seen a slowdown. We've had many discussions ongoing for a long time that at the beginning of the year, I would've told you by now would've matured to the state of having a companion diagnostic deal announced, which -- where the work is still ongoing. So I'd say that's the #1 factor.

I'm currently showing no further questions. I would now like to turn the call back to Brad Gray, President and CEO, for further remarks.

Well, thank you all for your interest in NanoString Technologies today. We'll be at the Morgan Stanley and Baird conferences coming up in September, and we look forward to seeing many of you there.

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