NanoString Technologies Inc (NSTG) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NanoString Fourth Quarter 2017 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, Mr. Doug Farrell, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator. Good afternoon, everyone. Joining me on the call today is: Brad Gray, our President and CEO; and Tom Bailey, our CFO. Earlier today, we released our financial results for the fourth quarter and fiscal year 2017. 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 our addressable markets, interaction with third-party payers, and the timing and outcome of any reimbursement-related decisions, our strategic focus and objectives and 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 update publically any forward-looking statement. With that, let me turn the call over to Brad.

Thanks, Doug. Good afternoon, and thank you for joining us today. Before I get into details of our results, I want to introduce Tom Bailey, who is appointed as our CFO in January. Tom brings more than 20 years of relevant experience, including a decade in the med tech industry, as well as 10-plus years in investment banking at Crédit Suisse and DLJ. We're excited to have Tom on-board and many of you will have a chance to meet him at the Cowen Conference in Boston next week.

I'll begin my prepared remarks with an overview of our performance during 2017 and specifically in the fourth quarter followed by a summary of our strategic objectives for the year ahead. Then I'll turn the call over to Tom to review the details of our Q4 operating results and provide guidance for 2018. Over the last year we have been focused on transferring NanoString from a small scale, single platform company to a fully scaled company with multiple technology platforms. This transition requires that we continue to execute on our existing nCounter commercial opportunity while in parallel advancing our robust pipeline of highly differentiated technologies. During 2017, we suffered growing pains when challenges in our base nCounter business resulted in lower revenue during the third quarter as we waited for a number of personnel, organizational and process changes to have an impact.

During the fourth quarter, we began to stabilize our business as a number of these changes began to bear fruit. We delivered products and service revenue that grew 24% sequentially and 3% year-on-year. Sequential growth was strong across both academic and biopharma customers. While instrument revenue came in below Q4 of the prior year, SPRINT recovered nicely from the Q3 challenges. SPRINT placements were up approximately 30% year-on-year and over 60% sequentially, and accounted for approximately half of our units sold. Life science consumables showed double-digit panel revenue growth, offset by relatively stable sales of Custom CodeSets compared to Q4 of the prior year. Importantly, our mid-2017 investments in consumable sales reps showed encouraging signs of impact as territories with field-based consumable reps substantially outperformed territories using our traditional channel model. Overall, I'm pleased with our Q4 performance and believe we are poised to improve the growth profile of our core business over the course of 2018.

Now I'll outline our strategic objectives for the year. Our primary focus for the year ahead is growing our core nCounter business. A critical factor in our success will be achieving our number 1 strategic objective, which is to continue extending our leadership in oncology research and diagnostics. Over the past several years, NanoString has carved out a strong position in the field of oncology. Our nCounter platform is uniquely suited to profile large numbers of molecules from tiny tumor biopsies. In 2014, we began to introduce our PanCancer series of panels, which have since become widely adopted in both academic and biopharma research. These panels along with our FDA cleared Prosigna Breast Cancer Assay have driven a vast majority of our consumer growth over the past 3 years. Our leadership in the field is further demonstrated by the tremendous growth in a number of scientific presentations made by our customers at major cancer research meetings. As our platform has become a must-have tool for many cancer researchers, oncology has become a primary motivation for nCounter system purchases, accounting for approximately 85% of new instrument placements in 2017. In 2018, we expect to continue this leadership with growth driven by the continued adoption of our existing PanCancer panels and by a relatively new line of consumables called the 360 series. Our legacy PanCancer Immune Profiling Panel remains our #1 selling research consumable with sales growing at double-digit rates during 2017. In September, we launched the first panel from the 360 series, the immuno-oncology focused IO 360 panel, and it quickly became the most successful application launch in company history. The IO 360 panel probes the complex interplay between the tumor, microenvironment and immune response in cancer. It incorporates the tumor inflammation signature that was developed in collaboration with Merck, and has particularly appealed to drug developers. In 2018, we are expanding our 360 series with the launch of additional panels that leverage our diagnostic signatures. At AACR we will formally launch the breast cancer 360 panel, which is anchored by the PAM50 signature that is the basis for Prosigna. Later in the year, we plan to introduce a lymphoma 360 panel that is built around the cell of origin signature that underlines our lymphoma subtyping assay. We expect that these panels will not only drive consumable revenue growth, but also facilitate studies by biopharma companies that may one day lead to companion diagnostic collaborations.

Diagnostic applications of our technology are another driver of growth in our core business. Our first diagnostic product, Prosigna, was a meaningful revenue driver last year, growing to $6.7 million in 2017, a more than 60% increase over 2016. Prosigna testing is now covered and reimbursed for over 90% of breast cancer patients in the United States as well as for many patients in France, Spain and Denmark. Many new Prosigna testing laboratories are coming online, including 9 new sites in Q4. Prosigna enters 2018 in the strongest competitive position we've ever enjoyed and we're optimistic about continued growth. The next milestone in our diagnostic business is the potential PMA filing for our lymphoma assay, which we have branded LymphMark, which could occur over the next 18 months pending results from ongoing studies.

While oncology is expected to remain the most important market for NanoString, we see exciting opportunities for growth in other markets. Our second strategic objective for 2018 is to drive nCounter into new therapeutic areas and applications, in order to expand our addressable market and our funnel of instrument opportunities.

Last year, we carefully scanned the [Lam state] for new vectors of potential growth. We look for areas with strong funding by NIH and biopharma as well as scientific problems for which nCounter is well-suited. We prioritized 2 new therapeutic areas and 1 new application area, and then looked to apply the same playbook that made us successful in oncology by developing compelling consumable products, targeted at key scientific questions and pain points in these fields. The first therapeutic area that we prioritize is immunology, a field where gene expression can profile the mixed and activation state of immune cell types. Immunology has historically been our #2 market behind oncology and we already offer several legacy panels for this field. In 2018, we'll be introducing new panels that are more focused on disease mechanism, such as our autoimmune discovery panel covering approximately 10 diseases.

The second prioritized therapeutic area is neurology, which actually receives more NIH funding than oncology, but which is traditionally been underserved by genomic tools. Unlike -- like immunology the field of neurology is characterized by disease processes dependent on the abundance and activation states of different cell types. Our neuropathology panel, which was launched in the third quarter provides the abundance of 5 important cell types and is suitable for research on diseases such as Alzheimer's, Parkinson's, ALS, dementia and Huntington's.

Our neuroinflammation panel, which was launched earlier this quarter provides the abundance of 19 central nervous system and immune cell types and assesses 23 inflammation pathways important in neurological disease.

In terms of new application areas, we prioritize entry into the low plex, high throughput gene expression market traditionally dominated by qPCR. Our PlexSet product line, which we introduced in 2017 reallocates nCounter barcodes across both genes and samples. This allows each nCounter run to profile the expression of 96 genes on 96 samples using a workflow that is vastly simpler than the equivalent qPCR experiment. PlexSet has already helped motivate the purchase of approximately 20 nCounter systems, and is expected to continue driving interest in 2018.

Our third strategic objective is to launch our Digital Spatial Profiling instruments under an early access program by year-end. Digital Spatial Profiling, or DSP for short, is a novel and proprietary technology that enables the precise quantification of protein and gene expression spatially across the landscape of a tissue sample. Regions of interest can be any shape or size, down to a single cell level. Combining both multiplex nucleic acid and protein on the same platform gives researchers the ability to spatially measure RNA when suitable antibodies do not exist. Throughout 2017, we engaged with potential DSP customers through a technology access program that allowed them to pay us to run their samples on prototyped instruments. The oversubscribed program has included over 30 projects to date and resulted in a steady stream of presentations at major scientific meetings. It has also helped us cultivate demand for DSP instruments that we believe will support the launch.

Prior to this year, all of our studies have focused on reading out DSP experiments using our own nCounter platform. Last month, we announced our plans to open DSP for a readout on next-generation sequencers or NGS, a move that we believe will both strengthen the product profile and substantially expand the market opportunity. The combination of DSP and NGS could have numerous advantages for our customers. First, given nearly universal customer access to NGS, virtually any laboratory could enter the field of spatial genomics with the purchase of a DSP instrument. Second, the high throughput of NGS allows DSP to profile hundreds of regions per slide or thousands of target molecules in each region. These advantages were highlighted in 2 studies presented last month at the AGBT conference in Orlando. In one study, slide-mounted tissue samples were processed on a prototype DSP instrument and were then read out using [Illumina] MiSeq platform, simultaneously profiling 30 proteins and 20 mRNAs in each of 96 regions spanning the biopsy. In the second study, slide-mounted biopsies were processed on our DSP platform and then read out using our own Hyb & Seq NGS platform, simultaneously profiling more than 1,000 unique transcripts in each region of interest. These studies seem to capture the imagination of AGBT attendees, who are already adopters of innovative technologies. The positive response exceeded our expectations and highlighted the potential for DSP to penetrate the installed base of over 15,000 next-generation sequencers. We now believe that DSP has the potential to open a new era of spatial genomics, moving beyond biomarker research in pathology and into the realm of basic science, much as single-cell genomics has over the past several years. We are preparing for a full commercial launch of the DSP instrument during the first half of 2019. In the meantime, we plan to continue our successful technology access program cultivating customer interest in the platform. At the AACR meeting in April, we'll provide a preview of the instrument and its workflow, and several technology access programs participants will present DSP data. Late in the year, we'll begin limited shipments under an early access program, so stay tuned.

Finally, our core strategic objective is to advance our Hyb & Seq platform towards a commercial launch in 2020. We've made substantial progress with Hyb & Seq over the last 12 months. Our focus was on industrializing the workflow that we first demonstrated publicly during AGBT in February 2017. Most important -- the most important achievement of 2017, was securing a partnership with nanoscale technology leader Lam Research, who is both funding the development of our sequencer and supporting the development of ordered arrays that increase its overall performance. Hyb & Seq unprecedented simplicity and rapid sample-to-answer capability can make the platform exceptionally well-suited for clinical applications. At the AGBT conference last month, collaborators presented studies demonstrating the potential of Hyb & Seq in 2 important clinical markets, oncology and infectious disease. In the first of these projects, Dr. Chris Mason of Cornell presented applications -- application data using the Hyb & Seq platform for detecting a diverse set of infectious organisms. Dr. Mason described how Hyb & Seq's unique ability to simultaneously and directly sequenced DNA and RNA was used for the cross kingdom identification of pathogens that included bacteria, fungi and viruses. The rapid sample-to-answer capability of Hyb & Seq has the potential to replace multiple tests of infectious disease, surveillance and monitoring. In a second collaboration, researchers from Cancer Research UK presented data from an experiment in which they used Hyb & Seq to simultaneously profile cancer mutations, copy number variations and gene expression in ovarian cancer samples. The study highlighted Hyb & Seq's quick turnaround time, suitability for molecular testing from formal and fixed paraffin-embedded samples and sequencing accuracy, which was comparable to that obtained from Illumina MiSeq platform. Over the next 12 months, we plan to collaborate with more customers to demonstrate the unique attributes of Hyb & Seq such as the ease of use and robust performance. Look for the next set of data to be presented at the ASHG or [ANT] meetings in the fall. We aim to place beta instruments at a number of customer sites in 2019 followed by a full commercial launch in 2020. Now I'll turn the call over to Tom to review our financial results for Q4 and outline our guidance for 2018.

Thank you, Brad. Before we get to our financial results and our 2018 outlook, I'd like to begin by offering my thanks to Brad, our Board of Directors and the team here at NanoString for the opportunity to be a part of this company. My excitement about NanoString's future has grown each day as I learn more about the business, technology and our people, and I look forward to contributing my experience in supporting Brad and our teams, as we continue to grow the business, improve the creditability of our revenue, and pursue future business development and financial opportunities. With that, I will turn to a review of our fourth quarter results.

For the fourth quarter of 2017, our total revenue was $35.2 million. Of that total, product and service revenue was $21 million, representing a return to year-over-year growth of that $21 million, we recorded $5.9 million from instrument sales. While that was a decline compared to the fourth quarter of 2016 we demonstrated good progress in stabilizing our business as evidenced by the 33% sequential growth in instruments revenue. We reported record consumable revenue of $13.3 million for the fourth quarter, which represents 11% year-over-year, and 24% sequential growth. Life science research consumables, including Prosigna were $11.5 million reflecting 5% year-over-year and 28% sequential growth. $1.8 million of our revenue was from Prosigna, which was an increase of 74% year-over-year. Service revenue was $1.8 million in the fourth quarter, significant increases compared to 2016 with a primary driver being our DSP technology access program. With respect to collaborations, we recorded $14.2 million in the fourth quarter, $11.6 million of this total was derived from accelerated revenue recognition from our Merck collaboration due to the previously announced decisions not to pursue a PMA filing for the companion diagnostic product. The majority of the remaining fourth quarter collaboration revenue was generated by our partnership with Lam Research.

Gross margin on product and service revenue for the quarter was 56% as compared to 59% for Q4 '16, the decrease was driven primarily by promotional activities we undertook in 2017 to drive instrument placements and approve our sales funnel, including driving adoption of our nCounter platform into new markets.

R&D expense was $13.7 million for the quarter, representing an increase of 37% over the prior year and 20% sequentially. R&D support for our Hyb & Seq program received from Lam Research during the fourth quarter was about $3 million, and accounted for virtually all of the sequential spending increase. The majority of the remaining R&D relates to our investment in DSP, which is a new platform that is less than a year away from a full commercial launch.

Our SG&A expenses was $19.7 million for the quarter, an increase of 18% as compared to Q4 '16. This increase is primarily the result of investments made in our commercial channel in 2017, with the fourth quarter representing the first full period for which many new personnel were on board.

Stock-based compensation expense for the quarter was $3.2 million and we ended the year with $77.6 million of cash and short-term investments.

Before moving on to the details of our guidance, there are a few highlights that we believe are important takeaways. First, we expect product and service revenue will continue to stabilize in 2018 with our outlook supporting product and service revenue growth in mid-single to low-double digit ranges. Second, our use of cash to support operations is expected to increase only marginally in 2018 as compared to 2017, despite an increase in our expected GAAP net loss. With that introduction for the year ending December 31, 2018, we currently expect total revenue of $100 million to $105 million. Of those amounts, total products and service revenue is expected to be $75 million to $80 million. We believe our revenue growth will improve over the course of the year, and expect that just over 45% of product and service revenue will be recorded in the first half of the year with approximately $16 million to $17 million expected during the first quarter. This outlook assumes instrument revenue is consistent with 2017, and that SPRINT placements continue to comprise between 40% to 50% of our instrument placements.

We expect consumable pull-through, including Prosigna to be between $75,000 and $80,000 per system in 2018 driven by an increasing percentage of SPRINT systems in our installed base, and the continued shift of our consumer sales mix toward panels. This outlook also assumes Prosigna growth continues in a linear fashion with annual sales in the range of $8 million to $9 million.

For gross margin on product and service revenue, we currently expect a range of 56% to 58% consistent with 2017. We anticipate this range may vary from quarter-to-quarter, depending on the mix and pace of instrument placements and our mix of consumables among panels, CodeSets and Prosigna. Collaboration revenue is expected to be about $25 million. We expect to receive collaboration cash of about $23 million, including approximately $20 million from Lam Research, and that's a good lead-in to the expense discussion. We expect research and development expenses to be in the range of $57 million to $60 million, an increase of approximately 25% as compared to 2017. We expect about $20 million of our R&D expense to be offset by amounts received from Lam to support our Hyb & Seq development projects, the remaining R&D expense relating to our core business, and DSP is expected to be between $37 million and $40 million, which is modestly lower compared 2017.

For selling, general and administrative expenses, we expect to record $76 million to $78 million, an increase of only 1% to 2% as compared to 2017 and a reduction relative to our annualized fourth quarter 2017 run rates. Importantly, we expect to support the launch of DSP, primarily through our existing sales channel with the majority of additional DSP -- investment for the DSP launch being for marketing and application support. As for other items, stock-based compensation expenses are expected to be $13 million to $14 million, net interest and at the expense is expected to be approximately $6 million with approximately $4.5 million representing the cash portion of interest expense. Planned capital expenditures for 2018 are expected to be between $5 million and $6 million. GAAP net loss is expected to be between $65 million and $70 million and cash used in operating activities and for capital expenditures is expected to be -- is expected to total between $55 million and $60 million, which is only marginally more than 2017 and is lower than our 2018 GAAP net loss. We expect 2018 collaboration revenue and cash received to be about the same given the structure of our last Lam collaboration. With respect to cash, we believe our current resources and the additional business development and financial opportunities available to us are abroad and will enable us to support and continue our current initiatives. In addition to the cash support we expect to receive from Lam Research, we've established and maintained a $40 million at-the-market agreement that will enable us to raise additional equity should conditions and terms be favorable for us to do so. Aside from these options, we believe other creative alternatives may be available to unlock value and access capital.

Thank you for your time today and for your interest in NanoString, and I'll now turn it back to Brad to conclude our discussion.

Thanks, Tom. In summary, we believe that our core nCounter business has begun to stabilize, and is well-positioned to deliver improved topline growth over the course of 2018. We are beginning to benefit from our strengthened team and an expanded commercial channel. The adoption of nCounter technology is being driven by our established leadership in oncology as well as our expansion into substantial new markets such as immunology and neurology. Consumable sales growth is benefiting from installed base that's now 25% larger than it was a year ago. In addition, to our recovering core business, we are in a period of unprecedented innovation with 2 new and highly differentiated instrument platforms expected to launch in 2019 and 2020. I look forward to updating you on our progress over the course of 2018. We now would like to open the line for questions.

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

Hi, guys, this is Adam Wieschhaus on for Doug. It looks like your revenue stream in Q4 approximate around $93,000 or so, which will be a record consumable quarter for you guys. Can you provide any more color on how much of this was due to maybe slipped revenue, a budget flush or any onetime factors versus the impact of your expanded sales team, any metrics that can reinforce that this is like a sustainable pull-through going forward would be very helpful?

Thanks, Adam. So consumable pull-through in the fourth quarter was about $90,000 when you include consumables, life science consumables and Prosigna. That was our strongest quarter of the year, which is typical to see the strongest quarter in Q4. And it was a substantial improvement over the total full year pull-through, which is closer to $85,000 for 2017. We were encouraged to see the large sequential jump and the increase in pull-through. We were particularly pleased that CodeSets, Custom CodeSets revenue was about flat year-on-year, recovering from the substantial decline that we saw in the third quarter, and we continue to see double-digit growth in panel revenue. That being said, our guidance does implicitly assume for 2018 that we continue to make -- to see a transition or a decrease rather in pull-through per system. Tom, as he mentioned in his guidance, had guided to $75,000 to $80,000 per system per year in consumable pull-through in 2018 and there is a couple of reasons for that. The first is, the balance of our installed base sets, the nCounter SPRINT system, which is expected to have lower pull-through goes up every year, which naturally decreases our pull-through as time goes on. The second is, we continue to -- we expect to continue to see pressure on Custom CodeSets revenue in 2018 just as we did in 2017. That being said, we did see some great productivity from the commercial changes that we made on the consumable side and midyear impact in Q4. As I mentioned in my prepared remarks, those regions that had regional sales specialists or consumable reps substantially outperformed those regions that didn't and that was not just on the consumable side, but actually also on instrument sales, which suggests that by offloading some of our sales possibility for consumables to these new reps our instrument reps are becoming more productive. So overall, we are pleased with the recovery we saw in Q4, but we want to be clear, $90,000 consumable pull-through we experienced in Q4 would be too high to model 2018. Our guidance assumes $75,000 to $80,000.

Okay, I appreciate all the color, on the instrument side I think you have demonstrated that your dedicated consumables reps are now pretty well-ramped, which would imply that your incumbent sales reps that were previously burdened with consumable sales could perhaps close instrument opportunities at a faster rate than previously, and may be coupled with this large instrument funnel and large opportunity overall could position you well for placements for this year. Just want to make sure that's a reasonable assumption. And then, if you could provide any color on the cadence of instrument placements that we should expect over the course of the year considering 2017 had some unusual dynamics in Q1 and then in Q4 as well?

Yes, so as I mentioned in the last question I answered. Yes, we do believe that the new consumable reps are going to increase the productivity, rather potentially increase the productivity of our instrument reps. That being said, it's still reasonably early days, and the changes in our commercial structure and our guidance implies basically constant instrument revenue from 2017 to 2018. So I think, we are not at this stage prepared to guide for substantial increases in instrument revenue from '17 to '18. But instead, are guiding to a stabilization of instrument revenue. And as you'll recall, instrument revenue was down about 14% from 2016 to 2017. So in a sense, stabilizing with flat instrument revenue does represent an improvement in the teams overall performance. In terms of the phasing over the course of the year, I think, the best guidance we have for you are the comments that Tom made that overall about 45% of our total revenue for the year is expected in the first half, and 55% in the second half, and then specifically for Q1 we are guiding to $16 million to $17 million in products and service revenue.

Our next question comes from Tycho Peterson with JP Morgan.

Hey. Brad, I just want to follow-up on that instrument guidance question. Given the consumer overhaul, why is flat instrument growth the right way to be thinking about it this year, just given the incremental investments you've made in the channel?

Yes, I think with Tom coming on board and wanting set the company up for success, as we head into 2018, we have not guided for perfection. We're guiding for stabilization in the first half of the year, followed by continued improvement and a return to more -- more historical-type growth rates in the second half. We had a great productivity in those territories where we added consumable reps in the fourth quarter, but one quarter does not a trend to make. And I think we're taking a cautious approach by guiding for instrument revenue to stabilize and be flat from '17 to '18, really following a year where instrument placements were down.

And then on Prosigna, can you talk a little bit more about what your expectation is there, specifically following the CMS price correction?

Yes, so -- Prosigna has substantial momentum, it grew over 60% year-on-year in 2017, It grew even higher than that in the fourth quarter. We had, as you know, a challenge with CMS that emerged in the middle of last year that came out of [PMA,] we successfully addressed that. Prosigna will be reimbursed with over $300,000 per test per patient in the United States. So I think when we look at 2018, we see continued growth in both Europe and the United States. I'd say we continue to see 2/3 or more of our Prosigna revenue coming from Europe, where our momentum has been growing. Recently, Prosigna was made really the exclusive test that's covered by the government in the country of Denmark as a recent example of our successes there. And that's going to help drive growth in the Nordic regions. And the reimbursement challenges that we have historically face in the United States, in terms of covered lives have been solved with the private payer coverage decisions and the CMS. So all that is to say we feel good about the momentum, but as in the past, we don't think the nature of this market is for inflection-type growth or rapid shifts in market share. We continue to face a strong incumbent competitor in the United States and so market share gains will be slow and laborious. I think we look at Europe as the primary source of growth in 2018.

Okay, and then on the companion front, I know the kind of the big marquee deals aren't necessarily on the table these days, but can you just talk a little bit about what the pipeline is for companion discussions, how active those are?

Yes, we continue to be in discussions with a large number of biopharmaceutical companies about potential companion diagnostic projects. As you know, the best mechanism for driving those discussions forward is to do what we call pilot studies providing our diagnostic assays to these companies for retrospective analysis of samples they collected in Phase I or Phase II trials. And in 2017 we increased the number of cumulative pilot studies by 55%. So we were extremely active. In addition, the 360 series of panels, which are just sold as straightforward research-use-only products, give another means for pharma companies to test out our tumor inflammation signature with IO 360 or Prosigna PAM50 signature with breast cancer 360 et cetera. So that is increasing overall level of engagement of pharma companies. So we remain optimistic and hopeful that we will be able to put in place biopharma partnerships in the future, but none of them are included in guidance, and I am not in a position to handicap the timing of the next deal at this time.

And then lastly on DSP, you were talking early access customers and kind of the $5,000 per sample range. I guess, not necessarily big revenue contributor this year, but as we think our next year in a commercial release. How should we be thinking about consumable pull-through? And does opening it up to NGS change that dynamic at all in terms of expected pull-through?

Yes, so we think of value of spatial information far out -- exceeds the value of the basic nonspatial gene expression information that we provide today. And the best indication of that, as you suggested was, the fact that our technology access program customers are paying us $5,000 per sample to run their samples on our DSP prototypes. That contrasts with about $250 a sample, which is what we sell on most popular panels for. So an increase of 20x the value that NanoString's is capturing between those 2 different modes of interacting with customers. So that gives us a lot of hope that the consumable -- the price point and the consumable pull-through for the DSP instrument will be substantially higher than the 75 to 80 that we're experiencing on nCounter today. We are not yet prepared to guide to a pull-through number on that system. I think we are still undertaking a lot of customer dialogue and market research about what the elasticity of demand looks like. I think, our objective, as we launch the instrument though will not be to skim the market and maximize the price that we are trying to capture, instead it's going to be to drive wide adoption of the spatial genomics concept and put as many of these Digital Spatial Profiling systems in front of next-generation sequencers and nCounters as we possibly can. So that we can really own the spatial genomics revolution that we think is to come. So that's probably all, it makes sense for us to say, a year out from launch, but look for more information on how we're thinking about pricing, pull-through and commercialization as the year goes on for DSP.

Our next question comes from Catherine Schulte with Baird.

Now that you have the NGS readout capabilities for DSP, do you have any plans to get a sequencing company to potentially cold market that instrument with you? And then, just how many customers have you worked with to get DSP written into grant application so far?

Yes, so I think, first on that DSP grant application, I think at last count we had supported a couple of dozen potential grant write-ups for DSP instruments and I suspect that number will continue to grow in the wake of our showing at AGBT and upcoming AACR meeting and that's a major prelaunch initiative for us this year. Many of those customers would have been ones that we interacted with on the technology access program, who decided that they wanted to have access to a system once it became commercially available. On the question of whether we could have partnership with a sequencing company, I mean, I think that's not out of the question. I think there is a win-win situation you might imagine between us and the sequencing world where Digital Spatial Profiling has the potential to drive increased utilization of existing sequencers to drive sequencing into market that it hasn't penetrated substantially like pathology. So there may be an opportunity for a partnership there. That being said, I don't think we need one. Our existing sales force is fully capable of going out and reaching, both basic research and what I'll call translational research or biomarker-oriented accounts, and we can do great things with this product on our own.

All right, makes sense. And then in regards to pull-through, as you're moving into more nononcology markets, does that have an impact on your thoughts on utilization per system? Do those customers have different use habits than in oncology?

I think it's a little early for us to say whether immunology and neurology have different utilization patterns. Obviously, the cancer market is in a sense sample-number limited. It's limited by the number of patients who you enroll in a clinical trial or the number of mouse xenograft models you're able to run on a preclinical study. Neurology is also sample limited, as you might imagine. Most of the research there is done on mice model rather than humans, as you might think. Immunology on the other hand is must less limited, right? Most of the samples are blood samples, so they're not hard to come by and the nature of those diseases is there is a large number of people, patients impacted. So I'm sure it will be different. I don't know that it will -- that we're in a position to handicap exactly how that will play out at this time. Even if it is materially different with our 600-instrument installed base, and mostly new systems being placed in these areas, it will take a while before it has a meaningful impact, positive or negative on our pull-through.

Okay, and then just last one for me. What's your assumption in guidance for year-end cash? And do you think the credit facility and ATM are sufficient for capital needs in 2018?

So Catherine, it's Tom and I look forward to meeting you, hopefully, soon we get a chance. So we had given the guidance at $55 million to $60 million in terms of our expected use of cash for the year, about the same as last year. And so when you look at that number and look at the year-end cash, I think it would be in our credit facility plus the ATM. With those 2 things, I think it would be safe to say that we feel very comfortable that we'll have sufficient cash for operations for this year when you put the Lam support on top of that in particular. I think, with that said, that Brad has mentioned as part of the discussion we'll be in the process of evaluating a variety of potential options, including creative ones similar to the ones that we've done in the past with partnerships and the like, as we think about capital planning for the future, but with respect to this year we feel very comfortable that we've got the resources to support the 2018 plan.

And our next question comes from Steve Beuchaw with Morgan Stanley.

I have one for Tom and one for Brad. First of all, Tom welcome to the call. I'd love to open it up to you a little bit and give you a chance, given that you have a number of orthogonal points of view and a lot of interesting background. Can you give us a sense of what you've seen not just in terms of the demand profile and the prospects for the company, but can you talk to us about how you are thinking about changing or maybe not changing the forecasting function there? How you are saying about strat planning and what your role you want to play there and how you can help investors get a deeper grasp on the outlook for the company. It would be interesting to hear, how you are thinking about these dynamics? And then I have one for Brad after that.

Sure, thanks, and look forward to meeting you too as well, Steve. So I think, you've given me the opening to say something, I didn't have in my script, but I think it is important that I have discovered here in my first eight weeks. I'll use this opportunity to offer some thanks to Jim Johnson, my predecessor and the team that he has assembled here. I think, Jim left the team and everything here in really terrific shape, and in fact, I could say that for a company of NanoString size, we have a very well-constructed processes, controls and systems, consistent with what I've personally observed and experienced at much larger organizations and the access to information here has been rapid and seamless and I know the team, many of whom are probably listening on the call, have been working incredibly long hours to assure that I get up to speed rapidly in addition to their day dock jobs with the audit crunch and everything this year. So folks are listening, thanks for a great start and I appreciate everyone's prudence and patience with me to date. So more specifically, to your question about forecasting and outlook. I think with our processes and budgeting being robust for a company of our size, and from our early observations, I wouldn't change too much with respect to the overall process. From what I have seen, our new commercial leadership here and the members of Chad's team are working very directly and seamlessly with our finance team every day to assess and improve our forecasting process and accuracy and the assessment of the funnel. So as a whole, I am confident at this stage that we have a good process for building our outlook and I think you see that reflected in some of the perspectives that we've laid out when we gave our outlook a few minutes ago. And also as part of that processing our opportunities and risks. So I think the changes and differences might be more philosophical. I think as a philosophy or approach with the company of NanoString's development stage and revenue profiles, it is important to balance, what I call a realistic forecast with reasonable conservatism and to establish a range. We feel confident that we can meet, but that we have a reasonable chance to exceed. So I think that's what you see inputted into the numbers that we presented. There could be a bigger standard deviation around plans for a company of our size as compared to larger competitors with similar business model. So we've established a range, we feel comfortable that we can meet, but that acknowledges the stage and the business risk and forecasting for a business of our size. So that's a bit of philosophical backdrop. And I think over time, the other thing that you might find for me, Steve, and others is I like to provide a bit of additional detail that might inform results or forecast as compared to other CFOs on average. You saw a bit of that with today with a bit more detail given on the guidance on the expenses. And I look forward to getting yours and everyone's feedback on what data and perspective here might be helpful or that might aid you in further assessing our business results and outlook as we have future calls.

Well, thanks, Tom, really appreciate that. I have one for Brad, as I continue to ask rather open-ended questions. Brad, I wonder if you could take the line of thinking in your prepared remarks where you talked about some of the products evolution, new panels, some of the smaller panel offerings are going to take our PCR and maybe re-spin it from the perspective of someone who is actually in the lab? And I ask the question because, because when I think about the proposition for NanoString and the nCounter as a product and as a company, will the river really meets the road is the decision that someone in the lab has to make about whether they use a different technology or whether they use the nCounter, right? Because there a lot of ways they can run a lot of different experiments. So I don't want to get you too deep into the weeds on specific products, and technologies, pull-through or cost, but what do you think as a company? How do you change the minds of researchers with regard to why it is a do or don't use the nCounter? We know it's easy to use, it's incredibly accurate, it's reliable. What it is that you need to do to create an inflection in that decision-making process?

Thanks for the opportunity to espouse the virtues of our products. When we talk to customers, there's really 3 things they highlight about why they love our technology. The first is speed, which is the ability to go from the experiment they have to a publishable result extremely fast, and that's what academic researchers value, and in the biopharma world that's prized as well. Simplicity, which means they can run the system and analyze the data on their own, independent of a whole bunch of other experts, and like an army of bioinformatics people. And third, content, meaning, we've anticipated the scientific question that they're going to ask and we've built them a tool that will quickly and efficiently do that, so that they don't have to go out and design their own panel or experiment. Those 3 things are sort of the value proposition of our technology and when you see our strategy, it's all informed by that. So when for instance, when we go with into the field of immunology. We want to be able to offer a panel that anticipates the type of questions they ask probably by spending a lot of time with actually immunology researchers, and deliver that content along with a simple workflow, and an instrument that they can operate themselves, so that they can turn samples into papers as fast as they can. The same is true of neurology, where we try to understand what the state-of-the-art thinking is on neurodegenerative disease or the immune system's role and inflammatory process role in neurology. The same is true when we look at a qPCR customer, who is maybe frustrated by the constant pipetting steps that they need to undertake to do 96 samples, 96 genes by 96 samples and offering them a way to do that all on 1 cartridge and 1 nCounter run with incredible efficiency. So at NanoString, we often say, we tried to out simple the competition. It's the basis for why so many people use our technology and communicating that efficiently and to these new markets is going to be critical to our success in the years ahead. Steve, did I answer your question?

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

Hi, this is actually Carolina Ibanez-Ventoso on for Paul Knight. I was wondering what were your instrument sales in Europe? And if you can provide some more color on the market conditions there beyond Prosigna?

Great. Thank you for the question. Europe has been a good market for us. And with strong growth in Q4, in particular, instrument sales in Europe were solid relative to the Americas and APAC is actually, is a very good quarter for us in Europe. And I'd say the outlook in Europe remains strong.

Okay, and then after restructuring, what is your current head sales count and how they are distributed into field reps, consumables and Prosigna specialist? And are you going to expand your sales force going into the launch of DSP later this year?

Yes. So our sales force is divided into 2 basic groups. One that focuses on our life science products, instruments and consumables and then a much smaller force that focuses on our diagnostic products today, namely Prosigna. And I'd say of the people in the field, there are approximately 125 people we have in the field, probably 3 quarters or more maybe 80% are focused on life sciences and the balance on diagnostics. So on the life sciences side, we have maybe 3 or 4 different roles. One, we call our regional account manager is our traditional rep, who in the past would have been in charge of the entire business within a territory, but increasingly it's focused on instrumentation. And I think worldwide we have today between 40 and 50 of those ramps. Then we have a newly created role for field-based consumable reps, and that group is comprised of today about 15 to 20 field-based reps. We have an inside sales organization who are largely focused on consumables and that's another group of about 15 to 20. And then we have application specialists, who are focused on supporting customers with experimental design et cetera and that makes up the balance. So as we enter into the DSP launch, we think we have most of the pure sales capacity that we need and that we will not need to substantially expand our sales force. Of what we will need at the margin are some additional applications specialists who help us to explain to our customers this new technology to design experiments on it and so forth. And so those will be more technically capable people than your average sales rep. And that's really where the focus of our investment will be. Most of that investment will happen actually in 2019 rather than 2018, because we're fully capable of the early access launch that will be underway this year without the need to expand the force in any material way. So we do not have plans to expand the force during 2018 meaningfully.

At this time I'm showing no further questions. I'd like to turn the call back over to the company for closing remarks.

Very good. Thank you for joining us today. If you did miss any portion of the call there's a replay available. To access the replay, please dial (855) 859-2056. If you're calling internationally, please dial (404)-537-3406. The conference call ID for both is the same 538-9066. With that, we'll sign off and look forward to seeing many of you at Cowen next week. Thanks.

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