NanoString Technologies Inc (NSTG) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the NanoString Q4 and Fiscal Year 2019 Operating Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Vice President of Investor Relations, Doug Farrell. You may begin.

Thank you, operator, and 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 2019. If you don't have a copy of the press release already, there's one available on our website.

During the call, we may make various statements that are forward-looking in nature, including financial projections, existing and future collaborations, future business growth trends and related factors, prospects for expanding and penetrating addressable markets, our strategic focus and objectives and the development, status and anticipated success of recent and planned product launches. 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 these projections, and we undertake no obligation to update these forward-looking statements.

Later in the call today, Tom will be discussing our 2020 guidance. In connection with the guidance, we've made modifications to our earnings release and guidance approach that we believe will make it easier to interpret and compare our financial results.

We have prepared a supplement to GAAP financial measurements, selected non-GAAP adjusted measures, the calculation of which are described in detail in our press release. Throughout the call, all financial measures will be GAAP, unless otherwise indicated. In order to help analysts and investors model these changes, we've posted a reconciliation for each quarter and fiscal year 2019 under the financial tab of our Investor Relations home page. You can find reconciliations of GAAP to non-GAAP measures as well as the description, limitations and rationale for using these measures in our press release as well.

I'd like to remind everybody that we'll be in Boston next week for the Cowen Healthcare Conference. We look forward to seeing many of you there.

With that, let me turn the call over to Brad.

Thanks, Doug. Good afternoon and greetings from Marco Island, Florida. We are just wrapping up the final day of the AGBT conference and a fantastic few days for NanoString. Our focus this week has been to promote the emerging spatial genomics market and to generate customer interest in our GeoMx Digital Spatial Profiler or DSP.

Spatial genomics was the talk of AGBT with nearly 30 research studies presented, a 50% increase over last year, with GeoMx being the most well-represented platform across these studies. The coming spatial genomics revolution has been hailed not just by NanoString and our GeoMx customers but numerous other leaders in the field such as the first 4 speakers at the AGBT Plenary Session, including NIH Director, Francis Collins, who commented on the importance of integrating spatial tools into the research continuum.

We kicked off the meeting on Sunday afternoon with our 2nd Annual Spatial Genomics Summit, which featured GeoMx data presentations by researchers from leading centers such as the Broad Institute, the Sanger Institute, the Garvan Institute and Stanford University, as well as panel participants by senior scientists from Illumina and Bio-Techne. Our summit drew a crowd of more than 170 attendees, an increase of more than 60% over the inaugural summit that we held last year. These attendees arrived in Florida early and spent extra time away from home for the opportunity to learn from many GeoMx early adopters and to imagine the possibilities that are unlocked when the GeoMx DSP is used in conjunction with Next-Generation Sequencing or NGS. They remain engaged for the full 4-hour duration of the summit, despite the temptation to wander outside to Marco Island's lovely beach, and many followed up throughout the week by visiting us in our suite to learn more about GeoMx. I could not be more delighted with our AGBT commercial presence and customer engagement, and I'll share more details on the momentum of our GeoMx DSP launch later in my prepared remarks.

Now I'd like to provide an overview of our strong performance in 2019 and outline our strategic objectives and key milestones for the year ahead. After that, I'll turn the call over to Tom to review our operating results for the fourth quarter and provide our financial outlook for 2020.

2019 was a transformative year for NanoString. Through our December transaction with Veracyte, we simplified our business, streamlined our cost structure and focused our energy on growth opportunities in the research markets. With the launch of GeoMx DSP, we introduced our first new platform in a decade, accelerating our product and service revenue to 24% growth for the full year.

nCounter demand remains robust, and we grew our installed base to approximately 855 systems in 2019, an increase of about 17% over the prior year. nCounter placements benefited from our expansion into immunology and neurology, which accounted for about 30% of system sales. We generated record life science consumable sales of about $51.6 million last year, an increase of 18% over 2018. We continue to expand our core business both within and beyond cancer with the introduction of 4 new panels throughout the year, including strong launches such as our CAR-T Characterization and Human Organ Transplant panels.

More importantly, we made tremendous progress in commercializing GeoMx. DSP orders exceeded our expectations and totaled more than 60 systems during 2019, bringing the total cumulative GeoMx orders to over 90 systems. This GeoMx launch pace is vastly outpacing what we achieved with nCounter, which did not reach 90 cumulative orders until its 13th quarter. Q4 was our first full quarter of GeoMx installations, and our product and service revenue growth accelerated to more than 40% year-over-year, marking our eighth consecutive quarter of double-digit growth. We ended the year with 44 systems shipped, 35 installed and 24 sites trained. We intend to build on this momentum in 2020 and are making GeoMx commercialization our top priority. For 2020, we expect GeoMx order volume to increase by about 50% over 2019, equating to about 90 new GeoMx orders this year. This group will be -- this growth will be achieved by targeting both customers who will read out spatial experiments using nCounter and others who will use NGS as the readout.

Overall, the company will focus on 4 strategic objectives for 2020. Our first objective is to accelerate the adoption of GeoMx DSP in translational research. Translational research describes scientific efforts to develop cures for human disease through the search for biomarkers and the development of therapies. Translational research has been the core market for NanoString for a decade, as reflected by our large installed base of nCounter systems within biopharma companies and academic medical centers. Within translational research, the search for biomarkers is driving the need for spatial analysis of protein and RNA expression among the enormous trove of FFPE human tissue samples collected during clinical studies and held in biobanks. Almost every GeoMx systems sold to date has gone into translational research, and we have substantial momentum and leadership within this market.

In addition to record GeoMx orders in the fourth quarter, we see a number of positive leading indicators in this market. One indicator is our TAP program, which provides a mechanism for customers to test drive GeoMx ahead of instrument purchase. We saw steady sequential growth in TAP projects throughout 2019 and booked about 50 new projects in the fourth quarter. To date, we've completed more than 200 TAP projects for more than 125 unique customers.

A second important indicator is peer-reviewed publications, which are also gaining momentum. To date, there have been 13 peer-reviewed publications that included GeoMx data, a rate that is about double the pace achieved during the nCounter launch. Importantly, these GeoMx publications are taking on a high profile within their fields. In the past 6 months, GeoMx studies have been featured on the cover of 2 AACR publications, starting with Clinical Cancer Research in September and followed by, more recently, in the February issue of the journal, Cancer Research. In January, 2 GeoMx-enabled publications were published simultaneously within the same issue of Nature, demonstrating the high -- the potential for high-impact results.

These strong leading indicators, along with the steady expansion of our sales funnel, inform our expectation for a 50% increase in GeoMx DSP orders in 2020. As in 2019, we'll continue to pace installations to ensure that customers have an exceptional user experience. For instance, we had about 20 systems that were shipped in Q4 but were not installed or trained by year-end. So we'll need to temper the pace of shipments of them in Q1 in order to get caught up. Tom will provide more details when he reviews our guidance.

Our second strategic objective is to expand GeoMx adoption into the discovery market with the midyear launch of Next-Generation Sequencing readout. Discovery researchers represent a distinct customer group, often focused on basic biological research to understand pathways, structures and mechanisms. For these customers, more information is usually better, so the massive increase in RNA content using NGS readout for GeoMx is compelling. By putting GeoMx systems upstream of the installed base of Illumina sequencers, we will increase our addressable market by approximately twentyfold.

We've been laying the groundwork for our launch into discovery's research over the past several months. In November, we launched the Cancer Transcriptome Atlas through our Technology Access Program. The Cancer Transcriptome Atlas is the first GeoMx assay that is -- uses NGS for the readout, allowing the simultaneous analysis of more than 1,800 RNAs. We also brought our first 2 external NGS early access sites online in Q4 and expect them to provide valuable input as we finalize the commercial software and user interface for NGS readout.

We used AGBT to unveil our road map of NGS-based GeoMx applications that will be available to the discovery market over the coming year. All 10 GeoMx studies presented during AGBT took advantage of NGS readout, demonstrating the scalability of the GeoMx platform as well as the flexibility to provide any target in any region on any sample. Researchers took full advantage of the versatile tools that the GeoMx software provides for automated region selection, demonstrating insights that result from focusing on cell types of interest or the unique geometry of biological structures. Most of the GeoMx studies presented at AGBT included use of our Cancer Transcriptome Atlas, which will become commercially available around midyear. This assay will be priced at $1,250 per sample and will -- and is expected to appeal to both discovery and translational researchers.

We also unveiled the first data from our Whole Transcriptome Atlas, which profiled 18,000 protein-coding genes. We plan to develop the Whole Transcriptome Atlas assays for both human and mouse, which we expect to be available for trial use under our Technology Access Program by the end of 2020, followed by a full commercial launch in 2021. We expect these whole transcriptome offerings to accelerate uptake across the discovery continuum and to drive the next leg of growth in 2021 and beyond. The audience response to our road map was extremely positive, as discovery customers made it clear that the ability to span from focused panels to whole transcriptome content is a unique and powerful advantage for GeoMx.

Our third objective for the year is to maintain the momentum in our nCounter business. nCounter demand remains robust at an average of about 125 new system placements annually over the last several years. This linear growth in our installed base has fueled healthy growth in consumable revenue, as existing sites maintain their annualized consumable pull-through and new sites come on line.

In 2020, we expect the dynamics of the nCounter business to be very similar to those in 2018 and 2019, except without the distraction and the expense of Prosigna and the nCounter diagnostic business. We expect to once again place approximately 125 nCounter systems and for consumable pull-through to be similar to 2019 when adjusting for the impact of the Veracyte transaction. We expect to launch at least 4 new nCounter panels this year and to grow the adoption of panels that were introduced late last year. To meet this continued nCounter growth, we have recently opened a state-of-the-art manufacturing facility in Bothell, Washington, which will double our consumable manufacturing footprint and expand our instrument storage and quality -- and QC space by fourfold.

Our fourth strategic objective is to identify the key applications for our Hyb & Seq platform and to pursue partnerships that can support our emerging commercial strategy. Key applications that're our focus include infectious disease testing, which was described in 2 peer-reviewed publications last year as well as the application of Hyb & Seq to specialized research applications. Updates on this program will be limited as we plan to focus most of our energy and communications on GeoMx.

In addition to the 4 strategic objectives that I've outlined, another goal for the year is to demonstrate a meaningful step on our path towards breakeven. This will be enabled by the combination of accelerating revenue growth, operating expense discipline and the elimination of costs associated with our nCounter diagnostic business. Tom will expand on these as part of our outlook for 2020.

With that, I'll now turn it over to Tom.

Thanks, Brad. I'll start with a review of our fourth quarter and fiscal 2019 results and conclude with our outlook for 2020. For the fourth quarter of 2019, product and service revenue was $33.6 million, representing year-over-year growth of 42%. In December 2019, we completed our transaction with Veracyte, under which we now recognize about 1/3 of the previous Prosigna revenue over the same units sold. On a pro forma basis, for the effect of this transaction year-over-year, product and service revenue growth was 48%. Product and service revenue included record instrument revenue of $13.8 million. Our fourth quarter instrument revenue included $7.8 million from 34 GeoMx systems shipped during the quarter, representing an average revenue per GeoMx system of about $230,000.

Q4 life sciences consumables revenue was $14.9 million, representing 14% year-over-year growth and driven by strong nCounter panel sales. Life science consumables revenue also included approximately $700,000 of GeoMx consumables shipped in Q4. Q4 Prosigna revenue was $2 million. Sales in dollars were approximately 10% lower as compared to the prior year, which reflects the start in December of our new transfer pricing arrangement with Veracyte. Q4 nCounter consumable pull-through was approximately $79,000, with approximately $70,000 contributed by life sciences consumables and approximately $9,000 by Prosigna. Absent the December impact of the Veracyte transfer pricing arrangement, Prosigna Q4 pull-through would have been approximately $12,000, and total Q4 pull-through would have been approximately $82,000.

Service revenue was $3 million, representing 18% growth over the prior year and driven by strong demand for our GeoMx TAP service. Gross margin on product and service revenue was 56%, an improvement as compared to prior year and driven primarily by increased life sciences consumable sales and our instrument sales mix.

Turning to operating expenses. The Veracyte transaction resulted in onetime gains and costs during the fourth quarter. Transaction costs incurred were recorded across general and administrative expense, research and development and other expense. In addition, increases in stock-based compensation, in part driven by the increase in our stock price, have impacted comparisons of our GAAP reported expenses across periods.

For the fourth quarter, total stock-based compensation expense was $4.8 million, up from $2.8 million in the prior year period. Q4 R&D expense was $18 million, an increase of 9% over the prior year. Excluding the impact of transaction-related expenses and stock-based compensation, R&D expense was approximately in line with the prior year. Q4 SG&A expense was $26.9 million, an increase of 33% over the prior year period. Excluding the impact of transaction-related expenses and stock-based compensation, SG&A increased approximately 20%, driven primarily by investment in the GeoMx launch.

For the full year 2019, product and service revenue was $103.7 million, representing year-over-year growth of 24% as reported and 27% pro forma. Gross margin was 58%, in line with our guided range. 2019 R&D expense was about $1 million above our updated guidance as a result of restructuring expenses related to the Veracyte transaction. SG&A expense was about $3 million above our updated guidance, with approximately $1 million related to Veracyte and approximately $1 million related to GeoMx commercial efforts. Cash used in operating activities and for capital expenditures was approximately $60 million, in line with our guidance. We exited the quarter with approximately $157 million in cash, cash equivalents and short-term investments.

Transitioning to 2020 guidance. As Doug mentioned, we've made modifications to our earnings release and guidance approach that we believe will make it easier to interpret and compare our financial results. The Veracyte transaction led to onetime gains and costs that were recorded in Q4. In addition, in 2019, we implemented changes to our stock-based compensation plan that coupled with a recent rise in our stock price, impacted the amount of expense required to be recorded and therefore the comparability of our operating expenses across periods.

As a result, we have prepared as a supplement to our GAAP financial measures selected non-GAAP or adjusted measures, the calculation of which is described in detail in our press release. These measures make adjustments for 3 main items: First, for onetime gains and costs related to Veracyte; second, for collaboration revenue, as with nCounter diagnostic rights now owned by Veracyte and the completion of our Lam collaboration, that revenue will no longer be a material part of our future business; and third, for stock-based compensation, which is a noncash item and can be challenging to estimate.

Measures include adjusted operating expenses and adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA. Adjusted EBITDA is a measure we use internally to evaluate business trends and profitability as a supplement to GAAP operating and net income or loss. In order to help analysts and investors model these changes, we've posted a reconciliation for each quarter and of the full year 2019 on our Investor Relations home page.

With that backdrop, we'll transition to the specifics of our 2020 outlook. Commencing with revenue, we expect 2020 product and service revenue of $124 million to $131 million, representing annual growth of 20% to 26%. Taking account of the Veracyte transaction impact, pro forma annual revenue growth is expected to be 26% to 34%. We expect $94 million to $96 million of that revenue to come from our base nCounter business. We expect nCounter's trajectory to be consistent with the last 2 years, with instrument revenue approximately in line with 2019. We expect total consumable pull-through of approximately $65,000 per installed system, which reflects the new pricing we received for Prosigna per the terms of the Veracyte transaction and would imply total nCounter consumables revenue inclusive of Prosigna of approximately $60 million in 2020. Note that in 2020, we will report Prosigna revenue together with life sciences consumables and no longer as a separate revenue line item in our earnings releases or SEC filings. We expect to see a similar seasonal pattern of roughly 45% of nCounter revenue recorded in the first half of the year and 55% in the second half.

We expect GeoMx revenue of $30 million to $35 million, with approximately $25 million to $30 million derived from instrument sales and approximately $5 million from consumables. With GeoMx, we also expect to see a seasonal pattern of roughly 45% of revenue recorded in the first half of the year and 55% in the second half. We expect adjusted gross margin to be in the range of 54% to 55%, which would be approximately flat compared to 2019 when considering the impact of the Veracyte transaction on Prosigna gross margins.

Transitioning to expenses and profitability. In 2020, we expect to post an approximately 15% reduction in total adjusted operating expenses year-over-year. This positive step realizes the full impact of actions that we've taken in late 2019 and early 2020 to rebase our operating expenses in support of our longer-range business and profitability objectives.

Started -- starting with adjusted research and development expense. We expect to record $46 million to $48 million, a 24% to 27% reduction compared to 2019 adjusted R&D expense, reflecting the full year impact of the Veracyte-related reductions we made in December and our plans to refocus R&D investments in spatial genomics. For adjusted selling, general and administrative expenses, we expect to record $76 million to $78 million, a reduction of 6% to 8% as compared to 2019 adjusted SG&A expense, reflecting the full year impact of the Veracyte-related reductions.

Turning to adjusted EBITDA. We expect to record an improved adjusted EBITDA loss of $46 million to $51 million in 2020, reflecting the combined benefit of the expected revenue growth and reduced expenses. That expected range represents a 37% to 43% improvement compared to 2019. Lastly, cash used in operating activities and for capital expenditures is expected to total between $55 million and $60 million in 2020, which is approximately flat as compared to 2019 and reflects the offsetting effects of our improved adjusted EBITDA and the conclusion of our Lam collaboration.

For the first quarter, we expect product and service revenue of approximately $25 million to $28 million, representing pro forma product and service revenue growth of 26% to 41%. This wider-than-usual quarterly range reflects uncertainty as to the impact of COVID-19 on our Q1 results. As recently as yesterday, there were additional reports of potential travel and other restrictions that may impact countries where we do business both in and outside of Asia.

At this time, we have elected to set our full year guidance assuming any impact will be reflected primarily in the first quarter. Our current range reflects base nCounter revenue of $19 million to $21 million, which assumes an approximately $1 million to $2 million impact of potential business disruption due to COVID-19. Our Q1 range also includes $6 million to $7 million in GeoMx revenue, which reflects a more tempered pace of instrument shipments as we catch up on installs and training for systems shipped in Q4. Also, as Brad mentioned in his remarks, we currently expect GeoMx system orders to grow by approximately 50% this year, which would infer an expectation of 15-plus orders in Q1. This number of expected orders is consistent with the typical Q4 to Q1 seasonal pattern we've experienced with nCounter. Our current -- estimates for Q1 GeoMx revenue and system orders at this time assume a negligible COVID-19 impact on GeoMx.

Now I'll turn the call back over to Brad for closing comments.

Thanks, Tom. In closing, 2019 was a transformative year, and 2020 is off to a great start. The GeoMx road map unveiled this week secures our leadership in translational research and provides a strong entry into the discovery markets. We're set up for acceleration in our revenue growth in 2020 while making important steps on the path to breakeven. I look forward to updating you on our progress over the course of the year.

With that, I would like to open the line up for questions.

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

This is Adam Wieschhaus on for Doug. Your guidance of 90 new GeoMx orders for 2020 would be more on a quarterly basis than the 20 you generated in Q4 '19 or the 15 you generated in Q3 '19. So just trying to understand if you believe this inflection in orders will be timed with the launch of your new products such as your upcoming NGS compatibility or is it more broad-based? Just trying to understand your line of sight into hitting this number for 2020.

I think we have good line of sight dating this number for 2020. Most of our instrument sales this year will continue to go into the translational market and are already supported by the funnel that we've been building in the translational markets over the almost 12-month period since the launch last April. We have great leading indicators of that strength coming both through our funnel, which increases every week, and the great leading indicator of Technology Access Program test drives that have been done by customers who are interested in potentially purchasing the GeoMx. In addition, yes, we will begin to benefit from the entry into the discovery markets through the opening up of NGS readout. That benefit will accrue in terms of orders largely in the second half and will further increase the overall momentum of the business. But overall, in terms of pacing throughout the year, I'd say if you look at the 50% year-on-year increase, I would expect that to be spread pretty evenly throughout the quarters of the year. As Tom mentioned, that would imply about a 15-plus set of orders in Q1, up from the 10-plus that we did in Q1 2019.

Thanks, Brad. And the divestiture to Veracyte removed a material amount of operating expense, as evidenced by your 2020 OpEx guide. You've also chosen to deprioritize the Hyb & Seq program relative to GeoMx. Rather than investing in both, I think you've mentioned there's just a lot of excitement around GeoMx and you're choosing to capitalize on that in the near term. Was there any thought to maintain the Hyb & Seq development program considering the restructured P&L? And I believe in the past, you've talked about a profitability of around -- at around $200 million in revenue. Could this happen sooner now?

Yes. So I want to be really clear. We are continuing to invest in Hyb & Seq. While we are not investing perhaps at the pace on a dollars per quarter basis that we did at the peak of that program when we were collaborating closely with Lam Research, we are continuing to invest in that program. And we do believe that, that chemistry will have an important part of our future product lineup. That being said, with GeoMx, we have really once -- a once-in-a-career opportunity to transform an entire new field of spatial genomics. And we and the Board and the entire management team are excited to fully capitalize on that opportunity on behalf of our shareholders. So we have moved resources. We have reduced the number of resources on Hyb & Seq and moved them over towards GeoMx, and we'll continue to do so.

If you look carefully at the guidance that Tom provided, I think you will start to see the mathematical underpinnings of how we will achieve cash flow breakeven at the $200 million revenue mark. I think we're showing that really for the first time here in this guidance. That being said, I do not think that we are -- you're -- we're constraining our operating expense enough to break even any faster than that. I mean, that remains our goal, and the divestiture of the diagnostic business to Veracyte was just one important step along that goal. I think in the years ahead, look for us to grow our product and service revenue at a substantially faster rate than we grow operating expenses. But we remain sort of guided by the idea of cash flow breakeven at $200 million in product and service revenue.

Okay. That's great. And then maybe just to close on coronavirus. I appreciate the commentary on the potential impact of that to Q1 revenue. But have there been any updated thoughts on your exposure to China from a supply chain perspective?

Yes. So we've been obviously carefully looking at both our exposure from a supply chain perspective and the disruption that our customers are feeling that could lead to delays in orders or deliveries. I'm glad to say we don't have any major supply chain challenges at this point. Most of -- our instruments themselves are assembled and manufactured in North America and in Japan, where we have not yet seen a major disruption. But we're obviously keeping an eye on that, and we'll let you know if anything changes.

Our next question comes from the line of Catherine Schulte.

This is actually Tom Peterson on for Catherine. I'm just wondering at AGBT this past week, we had heard one of your spatial competitors talk about enabling protein analysis and FFPE capabilities in 2021. So can you just remind us how you're viewing your competitive positioning, specifically in the discovery market?

Yes. So yes, I think we did hear a lot here at AGBT about spatial -- excitement about spatial. And of course, with that comes new product offerings and new product road maps in the overall spatial genomics area. Yes, I would, again, divide it into the translational and discovery markets. In the translational market, we feel very secure in our leadership. GeoMx provides today, not in the future but today, the exact combination of the ability to look at any sample, meaning both FFPE and fresh frozen; any targets, meaning RNA or protein on any region as related to the sophisticated regional selection tools inside GeoMx. Other competitors are beginning to lay out a road map that emulates some of those features. But the timeline of that road map is such that we think we will be able to continue to extend our leadership, including in protein expression, in the translational market before some of those capabilities are available in ways that translational customers are likely to embrace.

The discovery market is different. We are the newcomer in the discovery market. We feel very confident in the road map we've outlined, but we see more competition in that market in the year ahead. And it's incumbent on us to demonstrate the full power of GeoMx when combined with Next-Generation Sequencing, which we feel we've done an excellent job of here.

Great. And then do you have any sense that you'll see some of the customers holding off on a GeoMx order until you see the whole transcriptome unlock? Or do you think they'll go ahead and order ahead of time and -- in anticipation of this capability?

I think overall, we think the unveiling of the whole transcriptome capability on our road map increases customer interest in purchasing GeoMx systems. It does not decrease it. It's hard to predict the exact timing of when all the interest we're generating in discovery will manifest as orders. We'll begin to see that in the second half, I would expect, and we'll have more commentary on the mix of instrument orders between the translational and discovery markets as the year goes on. But to answer your question, I don't think that the unveiling of whole transcriptome in any way hurts the momentum of GeoMx. It helps it.

Understood. And then last one from me. And understanding it's still early, but any qualitative feedback you guys can provide from some of the early access on the sequencing readout?

Well, I mean, I think the best feedback that we -- is the 10 studies that were all presented here this week, all of which used NGS readout. Most of those were done where the NGS capability was affected here in our Seattle facilities, but some was done by our early customers who've actually received the full pipeline and been able to run the sequencing data themselves. And if you were here, you would have seen overwhelmingly enthusiastic presentation of those results and really positive reception of them. And so I think it's a great showing of NGS readout across both cancer transcriptome and whole transcriptome data here this week, and it's all positive so far.

Next question comes from the line of Dan Brennan from UBS.

Brad, I know you gave a lot of information during the prepared remarks and some in the Q&A. But can you just review again, if we think about whatever information you provided on the sales funnel, to the first question, Doug's team talking about the 90 orders, and you gave really good visibility on the funnel, can you just remind us again? I know you mentioned some qualitative factors during the prepared remarks. But just what can you share with us today about metrics on the sales funnel and kind of how that's maybe expanded over time?

Yes. I mean, our sales funnel for GeoMx expands every week. We have whole teams now dedicated to marketing efforts, to lead qualification efforts. And it doesn't just grow at major conferences like we're holding here. It grows every single week, and it grew substantially over the course from 2019 to the beginning of 2020. And if we apply our basic funnel metrics and the conversion rate that we're seeing, the current funnel, it supports a 50% increase in orders this year. We're not done obviously generating new leads. Just this week, we had 170 participants who has validated their interest in spatial by sitting in a dark room for 4 hours when there was an 80-degree beach day happening 100 yards away. Interestingly, we recorded a spatial summit that took place on Sunday, and we used the recordings to host earlier this week what we call a GeoCast, a set of summits in 11 cities simultaneously around Europe. We had another 275 people watch replays of some of the summit presentations and engaged with us there. We have similar plans in North America over the weeks ahead. So we are both generating leads at a very rapid pace, and we're qualifying those into the sales funnel and feel that, that underpins the guidance that we've provided.

And given the increase in [materiality] and the visibility in the publications, have you seen conversion rates tick up? I'm sure it's a complex formula, depending upon the type of customer that's expressing interest. But I'm just wondering what you can share on conversion rates.

No. I mean, it's so early that you can't parse conversion rates too finely over time. So yes, we feel good about the conversion rate. We've seen the Technology Access Program and the test driving type of offering that we have become an important part of converting interest into actual orders. I don't think anything has changed there. For the past several quarters, we've talked about 30% of our instrument orders coming through Technology Access Program test drives. That will continue. And then that -- then what we look for is good, strong, sequential growth in technology access program test drives, which really over the course of 2019 grew almost 20% sequentially every quarter. So those are the kind of indicators that we see. I'm not really in a position to provide too much more color than that, but that's quite a lot to work with.

Got it. And then maybe just 1 or 2 more. I know in the previous question or maybe 2 ago, there was a question related to the competitive landscape. And obviously, there's -- given the size of the market, there's a lot of companies going after it. But specifically related to protein, did you mention that we should expect even more innovation or changes to how you're doing your translational approach? Or I was kind of unclear from your answer whether or not there were some improvements to be expected.

Thanks, Dan. I didn't -- I don't think I alluded to any improvements, though we're not standing still. I mean, I guess on the protein readout, the primary thing we're doing now is continuing to add antibodies to our library. So today, I think we have about 200 antibodies that are available to select from. We have a team that's dedicated to continuing to validate and label antibodies. We, of course, have our partnership with Abcam, the largest antibody manufacturer out there. So for protein, for us, at this stage, it's really about growing the size of the library so that our customers have just a tremendous number of proteins to choose from. And I think we have a nice head start there for now.

Got it. Got it. Okay. And then maybe the last one, just on the discovery side. What's your plan to address that market in terms of the sales force? Is that baked into your OpEx? Because I mean, you're going after relatively -- I don't know how much overlap there is with the nCounter market for that discovery market. I'm just wondering what you can share with us today, how you attack that market? And is it possible that market develops faster than the translational market, just given your experience having 1 year under your belt targeting that market?

Yes. So any operating expense associated with the launch into discovery is baked into our guidance. The same sales reps who carry nCounter and GeoMx for translational customers will also be the sales reps who are targeting the discovery market. And the discovery market is usually different researchers within similar institutions to academic institutions to what we've had in the past. So where we might go to -- we might go to Harvard University in 1 day and talk to a cancer researcher. We can got to Harvard University tomorrow and talk to a biological researcher. So we haven't felt the need to make a major head count increase. What we have done, of course, is redirect our small group of specialist sales force -- I'm sorry, GeoMx technical sales specialists towards the cultivation of those customers who would be interested in the NGS readout. As we've been now in the GeoMx launch for about 10 or 11 months, most of our sales reps have become capable of selling GeoMx to translational customers without much hand-holding from our technical sales specialists. That frees them up to focus on the new offerings like the NGS readout. So that's the way that we're kind of evolving the sales force.

In terms of the pacing, yes, it's just too early to say whether adoption in discovery will be faster than adoption in translational. We'll be able to update that as the year goes on.

(Operator Instructions) Our next question comes from the line of Dan Arias from Stifel.

This is Carolina Ibanez-Ventoso on for Dan Arias. Brad, in the past, you mentioned that about 60% of the completed TAP projects using DSP were for unique accounts. Are you still finding that the proportion of unique accounts remains about the same for your new TAP project orders? Or are you seeing an increase there?

Yes. I'd say, today, the fraction of new TAP orders is greater than 60% at this stage. Most -- we're trying to evolve the Technology Access Program away from its original mix of doing large studies that were designed to really answer scientific questions and result in peer-reviewed papers towards something that's really meant to be simple, fast, relatively modestly scaled test drives. And as a result, people who want to do large GeoMx projects and not own an instrument, we're redirecting them to one of -- to several CROs who've adopted GeoMx, and we're allowing them to service that so we can continue to direct our Technology Access Program towards potential instrument customers. So I expect that number to continue to go up in terms of the percentage of people who are coming along to take their first test drive.

That's helpful. Can you also comment on the progress made on the transition of the diagnostics business to Veracyte? In addition to the commercial product lines already mentioned, the Prosigna, LymphMark and FLEX, do you stand to benefit from collaborations between Veracyte and biopharma companies like the one that -- it was recently announced with Acerta Pharma, while they are still in the R&D phase before the commercialization of a diagnostic test?

Well, we -- the -- we will participate, as needed, in those collaborations, that our participation will be, I think, largely focused on the manufacturing of the consumables as the sort of contract manufacturer. I would not say that we stand to be a primary beneficiary of those efforts. That's really the role of Veracyte and the team that they have. So any benefit that we would experience is built into our guidance and is relatively immaterial in size.

Okay. And then the last one for me -- from me. Now that you're coming out from the AGBT conference, can you review for us what other conferences or events are going to be important for this -- for the DSP platform this year? And then on the Hyb & Seq side, when can we expect an update on commercial applications and partners there?

Sure. So for GeoMx, the next major conference will be AACR, which this year happens, I believe, in late April. Yes, AACR is the most important conference of the year for NanoString to engage with translational oncology research customers. It's the meeting at which we launched GeoMx last year, and it's the place where we'll really be unveiling the Cancer Transcriptome Atlas in a commercial way. We also know already that we -- that some of our customers who've been working with the GeoMx system will have some exciting data that they're presenting. I'm aware of at least 2 oral presentations so far that have been awarded to GeoMx customers. And so stay tuned. I think we'll have a lot of demonstration of what the technology is capable of at that time. And that's probably about as much as I can comment on so -- on the GeoMx front.

For Hyb & Seq, I think don't expect a lot in the way of updates until probably the second half of the year as we start to enter meetings like ASHG and the AMP conference, where we've traditionally provided our technical updates. I don't think we'll probably have a lot of updates to provide until the second half.

Next question comes from the line of Julia Qin from JPMorgan.

Congrats on coming out of a successful AGBT.

Thank you.

I just had a question regarding GeoMx ASP because looking from your guidance of $25 million to $30 million of instrument revenue for 2020, it seems to suggest an uptick in ASP compared to the $230,000 that you guys realized in 4Q. So could you just help us understand a little bit better the underlying assumptions here? And where do you see GeoMx ASP going in the next couple of years, especially in light of competition?

Sure. I'll take the quick one -- the first one quickly. So we've mentioned -- as we mentioned it in the last couple of calls, we've been working through some of the early GeoMx priority site orders that we took back in 2018, which were at -- part of bundles. And so the ASPs relative to those orders were slightly lower than what we expect to realize this year. So we've gone from $220,000 in the Q3 ASP approximately to about $230,000 this quarter to what is inferred in our guidance, which is about $240,000-ish or so ASP throughout the course of this year, off of a base price of $295,000, which is pretty consistent with the types of discounts that we see on other platforms, that we see -- a little bit less than other platforms, given the early stage of this. But generally speaking, that's the trend that is built into our assumptions. And I can let Brad comment on some of the longer-term ASP trends we might see.

Yes. So for now, I think pricing is -- we're in a good position with respect to pricing on GeoMx. If you compare our instrument to the other spatial genomic instrument out there from Fluidigm, GeoMx looks like a bargain by comparison in terms of the capital expenditure that is required. The other major competitor has chosen a format that does not have instrumentation at all. So while -- so it's not really -- it's sort of an apple-and-oranges type of comparison in terms of the competitive dynamics. So I'm optimistic that we will be able to maintain instrument pricing. By way of reference, we've maintained the list price of the nCounter system at $235,000 for the base MAX and its equivalent now for a decade, and discounting has been relatively consistent over that whole period. So I think we have a good history of maintaining instrument pricing discipline in our traditional core business, and I anticipate the same in the spatial business.

The last question comes from the line of Dan Brennan from UBS.

Wanted to follow up with one. Just so in terms of the presentations there at AGBT or other research that your customers are doing, in what cases are the customers finding new and important signatures they wouldn't have found if they had not done this spatial approach? Because I know early on, it was really validation. But the key is going to be finding new signatures that they can't find. So maybe can you just discuss that a little bit, number one. And then also, I think the question that wasn't asked, what was the split this quarter in terms of placements between the types of end market customers, CRO versus biopharma versus academic?

Yes. I will do the second question first. So our mix of end market is -- continue to be about 60% academic and then 40% biopharma plus CRO, with most of those being biopharma. So that's held remarkably stable over the period of time that we've been taking orders for the GeoMx system.

In terms of the biological insights coming off GeoMx, yes, I think they're incredible. And they're happening in almost every case. None of the 10 presentations given here at AGBT were technical validations in nature. They were not designed to compare GeoMx performance against traditional immunohistochemistry or other profiling. They were all focused on biological insights. One of our presentations that was given just 2 nights ago, for instance, successfully identified a new potential diagnostic marker in the development of melanoma. This was done by identifying markers that are expressed more frequently as melanoma develops. And in particular, by looking at expression in the non-melanoma cells, the keratinocytes, which experienced damage as the melanoma develops. And so it's not usually the place where people look for biomarkers. But using spatial profiling, one was identified that seems very intriguing. If you look at our peer-reviewed literature, of the 13 peer-reviewed papers, only 1 of those papers is a technical paper that's designed to simply describe the performance of the system. Every other publication is a biomarker publication that identifies new biology using the tool. So we really see this as a very productive instrument in terms of new biomarker identification, and we've moved past the stage of simply having people benchmark our performance versus other platforms.

At this time, there are no more questions.

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With that, we're going to wrap up the call. Thank you again for joining us today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.