NanoString Technologies Inc (NSTG) 2023 Q1 法說會逐字稿

Good afternoon, and thank you for attending today's NanoString First quarter operating results call. My name is Jason, and I will be the moderator for today's call. (Operator Instructions) I would now like to pass the call over to our host, Doug Farrell.

Thank you, operator, and welcome, 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 first quarter ended March 31, 2023. During this call, we may make statements that are forward-looking, including statements about financial and operating projections, future business growth, trends and related factors, expectations regarding future operating results, cash flows, current and future instrument orders and our manufacturing capacity as well as prospects for expanding and penetrating our addressable markets, our strategic focus and objectives as close the development status discussed with recent product offerings and the impact of macroeconomic factors. Forward-looking statements are subject to risks and uncertainties, including those described in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to update any forward-looking statements.

Later in the call, Tom will be discussing our Q1 financial results and guidance for 2023. We have prepared as a supplement to GAAP financial measures, selected non-GAAP adjusted measures in calculation of which are described in detail in our press release. Throughout the call, all financial measures will be GAAP, unless otherwise noted. You can find that the reconciliation of GAAP to non-GAAP measures as well as the description, limitations and the rationale for using each measure in this afternoon's press release. As analysts and investors in building the models, we have posted exhibits under the Financial Information tab of our Investor Relations home page that include a presentation of our non-GAAP or adjusted measures in set of other financial data. I'd like to remind everybody that we will be attending the Jefferies conference in New York City next month. We look forward to having the opportunity to meet with many of you then. I'd now like to turn the call over to Brad.

Good afternoon, and thank you for joining us today. I am excited to report that 2023 is off to a strong start. We drove continued momentum in the business with revenue from both Spatial Biology and nCounter exceeding the guidance we provided on our year-end call. With strong Spatial Biology demand and the successful scale-up of our CosMx manufacturing and installation capacity, we are raising our revenue outlook for the year. Before Tom provides details on these financial results and improved outlook later in the call, I'll provide updates on our progress to our strategic objectives for the year. Our first objective for 2023 is to increase our penetration of the Spatial Biology market. During the first quarter, the Spatial Biology demand was healthy across both instruments and consumables.

Our overall Spatial Biology revenue increased by more than 75% over Q1 of last year. We ended the first quarter with an installed base of 385 spatial systems, an increase of about 31% over the prior year. Our CosMx Spatial Molecular Imager remains the primary growth driver of the business as we further penetrate the rapidly growing market for single cell Spatial Biology. Our rollout of CosMx is tracking ahead of plan. We are ramping our manufacturing capacity and refining the processes that our field service engineers and application scientists used to install CosMx systems and train users. We believe these efforts will accelerate uptake of CosMx's consumables, which are the growth engine of the company over the long term.

Even with our increased pace of CosMx shipments, strong demand-led CosMx instrument orders to exceed shipments in Q1, growing our backlog. About 75% of our confidence orders came from new customers and biopharma customers increased to about 25% of system orders. Oncology applications drove about 70% of the orders followed by immunology and neuroscience. In February, we unveiled our consumable road map for CosMx. We've demonstrated our ability to scale the number of biological targets imaged by CosMx, which is referred to as its plex up to 6,000 RNAs and 120 proteins, more than 10x the content that any competing platform currently offers.

Our substantial advantage in plex has resonated with our customers and is an important factor and why we believe CosMx will remain a market-leading spatial imager. In parallel to ramping up CosMx shipments, we've been connecting customers to our AtoMx Spatial Informatics platform. AtoMx provides seamless and highly scalable storage and compute power for a fraction of the upfront cost of on-site capabilities, making the decision to move data to the cloud and easy one. Customers value the investment we've made to ensure that informatics does not become a bottleneck in Spatial Biology research and are excited to leverage the cloud to collaboratively analyze the massive data sets that Spatial Biology experiments generates.

While instrument demand remained CosMx heavy in Q1, GeoMx placements continued, and our expanded GeoMx installed base drove a meaningful increase in consumable revenue. The speed with which new GeoMx sites became active consumable customers improved from Q4, and we expect to see that trend continue over the balance of the year. In parallel, we're releasing software updates that improve the capabilities and workflow of GeoMx, including a recent update that enables customers to measure RNA and protein simultaneously on the same slide and appealing capability that helps scientists increase the insights that they extract from each sample.

Translational researchers remain the primary users of GeoMx as illustrated by the latest paper to grace to cover of the journal Cancer Research. Team of researchers at the University of Glasgow published a study that used GeoMx to evaluate and subgroup colorectal cancer patients whose cancer has metastasized to their liver. The study demonstrated the ability of GeoMx to characterize tumor heterogeneity and identify novel biomarkers associated with clinically relevant subtypes of colorectal cancer. We recently caught up with the authors of this paper that the American Association of Cancer Research or AACR Annual Meeting, where Spatial Biology featured prominently in the scientific agenda.

Our customers had strong showings with nearly 60 abstracts for GeoMx and CosMx, an increase of more than 40% over the prior year. Our booth was buzzing with activity and customer interest throughout the meeting and lead generation at this year's AACR more than double over the prior year. Customer interactions like these are expanding our instrument funnel and providing visibility to our growth outlook and continued leadership in this dynamic field.

Our second objective is to deliver predictable revenue growth. We clearly achieved this goal during Q1 as revenue for both Spatial Biology and nCounter exceeded our guidance for the quarter. In addition, our revenue visibility is continuing to improve, which bodes well for our ability to deliver predictable revenue to the balance of 2023 and beyond. The recurring consumable revenue streams generated by our installed base of more than 1,500 instruments grew both sequentially and year-on-year with consumable pull-through in line with expectations. This helped our nCounter business, which has a revenue mix that is now more than 90% consumables deliver results above the high end of our guidance even as instrument placements slowed. We also improved CosMx instrument order backlog while scaling up our manufacturing and installed capacity. Since CosMx's instrument revenue is the primary growth driver of 2023, these results drive incremental revenue visibility.

With CosMx demand strong and scale up on track, we expect the quarterly cadence of shipments and installs to increase as the year progresses, and we are in a position to raise our guidance for the year. Given the strong demand, we expect many of the CosMx instrument orders we receive in the coming quarters will remain in backlog as we exit the year maintaining our high revenue visibility as we enter 2024.

Our third strategic objective is to demonstrate progress towards cash flow breakeven. The team remains laser-focused on accelerating our path to profitability. During Q1, our adjusted operating expenses were down $2 million year-on-year. This OpEx reduction offset lower gross margins and kept our EBITDA approximately flat year-on-year during the first quarter. We expect our bottom line to improve each quarter through the balance of the year as our revenue growth accelerates with CosMx shipments. We exited Q1 with approximately $155 million in cash, cash equivalents and short-term investments on hand and believe that we are well positioned to manage our business to profitable growth with our current resources. Now I'd like to turn the call over to Tom to review the details of our financial results and provide an update on our financial outlook for the year.

Thanks, Brad, and thanks all for joining us today. For the first quarter of 2023, total revenue was $35.8 million, $1.8 million above the upper end of our Q1 guidance range and about $3 million above Q1 consensus estimates. For our Spatial Biology business, Q1 revenue was $17.1 million, approximately 77% year-over-year growth, $1.1 million above the upper end of our guidance range and about $2 million above consensus estimates.

Facial instrument revenue was $10.1 million, approximately 110% year-over-year growth, reflecting acceleration of CosMx shipments. We shipped 47 spatial instruments to customers in Q1 with an average realized selling price of about $215,000. Q1 ASP reflects a heavier mix of international GM and shipments and also the deferral of a portion of CosMx revenue that will be recognized in future periods of service revenue as customers use initial amounts of atomics compute and data storage included with each CosMx sale. We installed about 35 spatial instruments during Q1, growing our spatial instrument installed base to approximately 385 instruments.

Spacial Biology consumables revenue was $7 million, approximately 44% year-over-year growth that reflecting in line showing the consumable sales over our growing installed base and continued initial shipments of CosMx consumables. Q1 nCounter revenue, which includes all service, was $18.7 million, about $1 million above the upper end of our Q1 guidance range and consensus estimates. nCounter instrument revenue was $1.2 million. Consumables revenue was $12.8 million, and service revenue was $4.7 million.

At the end of Q1, our nCounter installed base was approximately 1,130 instruments with about 10 instruments installed during the quarter. Turning to margins and expenses. I'll provide results on a non-GAAP or adjusted basis, which removes the impact of stock-based compensation, depreciation, amortization and certain onetime items. Please refer to our press release as well as the exhibits we have posted to our Investor Relations web page for detailed information on how our non-GAAP or adjusted measures are prepared.

Q1 adjusted gross margin was 43%, impacted by revenue mix more heavily weighted to CosMx instruments, which are currently selling at lower gross margins due to higher unit reduction costs that are expected to be incurred in future periods, we scale CosMx production. We also continued in Q1 to make investments to expand our service and manufacturing capacity, and we incurred increased cloud compute costs associated with our Atomics platform. Lastly, in accordance with internal policies, we recorded a larger-than-usual Q1 inventory reserve of just over $1 million that impacted Q1 gross margins by about 3 percentage points.

This reserve is primarily related to our Spatial Biology consumables sales mix shifting away from our more targeted consumable panels and toward our GeoMx whole transcriptome assay and other newer spatial biology consumable products. Adjusted R&D expense was $12.7 million, a decrease of 15% year-over-year and primarily driven by lower personnel and product development costs related to CosMx anatomics.

Adjusted SG&A expense was $29.8 million, an increase of 1% year-over-year, reflecting lower personnel costs, offset by Q1 trade show and other marketing-related expenses that are higher in the first quarter as compared to subsequent quarters throughout the year. Our adjusted EBITDA loss was $27.2 million and our cash, cash equivalents and short-term investments were $154.6 million as of March 31, 2023. As noted on our last call, we expect cash burn and EBITDA loss to be heaviest in the first half of the year as we make investments in working capital to support the significant ramp in CosMx shipments and given other cash expenses such as audit fees, trade show expenses and corporate bonuses that are occurred in the first quarter.

Turning to guidance. For the second quarter, we expect revenue to be in the range of $40 million to $42 million. This range includes $23 million to $24 million of Spatial Biology revenue, representing a more than doubling of spatial revenue year-over-year and $17 million to $18 million of nCounter and service revenue. For the full year, we are raising our revenue guidance range, reflecting our Q1 results and the expected ramp of cosmic shipments in Q2. We now expect our full year total revenue to be in the range of $175 million to $185 million as compared to the previous range of $170 million to $180 million.

Our updated range includes Spatial Biology revenue of $100 million to $105 million as compared to the previous range of $95 million to $100 million and nCounter revenue, which includes all of service and other revenue of $75 million to $80 million, unchanged as compared to the previous range. We continue to expect adjusted EBITDA loss to range from $65 million to $75 million, unchanged from our previous guidance, with EBITDA loss and cash flow improvements still expected to be more subsequent in the second half of the year as our Spatial Biology revenue grows on a reduced operating expense base. We also continue to expect adjusted gross margins will be temporarily lower in 2023 in the 45% to 50% range as our revenue mix shifts towards CosMx instruments were improving in 2024 and beyond as these systems begin to pull through higher-margin consumables.

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

Thanks, Tom. In closing, we feel great about our strong start to 2023. Momentum in our spatial business is building as demand for CosMx is being driven by its market-leading capabilities. Our revenue visibility is increasing on stable consumable pull-through and increasing content backlog. We're well positioned to generate strong 2023 revenue growth while reducing operating expenses, allowing us to make continued progress towards profitability. With that, I'll open the line for your questions.

(Operator Instructions) Our first question is from John Sourbeer with UBS.

Just maybe starting on CosMx. It sounds like that the backlog there is still about that $40 million on a net basis. Just any color on the trajectory of shipments there and how you see that through the year? And when do you think you're going to burn through that backlog?

CosMx scale-up of manufacturing and our installation and training capacity is going just ahead of our plan as implicit in Tom's guidance for Q2, we do expect a major step-up in the number of instruments shipped in the second quarter. And then we would expect to remain at about that same pace of shipments to the balance of the year. We have -- if you look at our increase in our guidance range for the year, we're really increasing the range of spatial instruments that we plan to ship from the previous guidance of 280 to 300 systems to be about at the top end or about 300 systems by the end of the year. And that means that we already have 2/3 of the remaining systems that we expect to ship in 2023 in our backlog. So we have really great revenue visibility at this point in time. For new customers who are coming to us today and putting in CosMx orders, I think there's some chance that they would get their instruments by the end of the year, but more likely than not, we're going to begin pushing new orders into the first quarter of 2024.

Appreciate that. And then you raised the revenue guidance, but maintained the EBITDA loss for the year. Just any additional color you can provide on the cadence of that OpEx burn maybe into the second quarter and remainder of the year?

Sure, John. I think that the reason we maintained our EBITDA guidance is because the gross margin was a little bit lower in the first quarter than we expected due to some of the costs that we're incurring to ramp CosMx manufacturing. So that's -- we decided to take a conservative approach to raise the revenue guidance while leaving the EBITDA guidance the same. Underpinning that is our OpEx guidance is really unchanged. We still expect OpEx to be down year-over-year. And so what that translates into is you'll see a pretty significant second half improvement in both EBITDA and in cash burn as we ramp our CosMx shipments over that reduced operating expense base and as our manufacturing gets more efficient as we make more instruments throughout the year.

And then last one on my end. Just any color on just cash burn? Any change in your outlook there? Do you still plan to get to breakeven on the existing cash through 2024? Or do you think you need to raise potentially next year with that convert coming due in 2025?

Our plans are still to get to cash flow breakeven on our existing resources, and we think that's our internal plans indicate that we can get there. And as we've mentioned before on the convert, we're aware of the security coming in 2025, but given the trajectory of our business, we feel like we'll have a menu of options to consider, and we'll do those prudently and in a time frame that will be usual and typical for managing those types of liabilities on the balance sheet. So we feel -- still feel really good about where the balance sheet is, given the trajectory of the business.

Our next question is from Kyle Mikson with Canaccord Genuity.

Quick question about cost mix consumables. What should we be expecting over the course of the year in terms of cadence of pull-through for CosMx? Could it be lumpy in the first few quarters? Or do you kind of expect things to grow relatively linear rate in the beginning?

CosMx consumables will be a relatively small contributor to our growth in 2023. As we place the new systems, we do expect people to take some time before they ramp up to full utilization. So every quarter, I would expect to see some sequential growth in CosMx consumables. But as a fraction of our overall spatial consumables, it's a relatively small piece. I do not expect lumpiness in terms of unpredictability, but I do expect it to be small and growing sequentially throughout the year.

Got it. And you also said that roughly 25% of new orders came from biopharma. So we have been seeing that some other companies have seen that platform spending could have been positively constrained in recent months. I was just curious if you have any comments on that.

Well, we've really defined biopharma into 2 separate subsegments. You have the large pharma companies, who still remain relatively well financed and whose R&D operations are continuing at full pace. And I would say that most of the incremental demand we see for Spatial Biology is from those larger companies. In contrast, small biotechs, who maybe had enjoyed very inexpensive capital in the last several years are now operating at a much higher cost of capital that are being much more careful with deployment of that capital into new instruments or even the pace of experimentation that's not on the critical path to clinical trial results.

So that portion of the biopharma market has clearly slowed down and has remained slow through the first quarter. Fortunately, for us, the large biopharma is large enough to continue to drive incremental interest. And on the Spatial Biology side, where CosMx initially appealed primarily to academic researchers who were focused on discovery research, and we're probably following up on single cell experiments they've done in a nonspatial manner. We're starting to see biopharma interest in that technology.

Our next question is from Dan Arias with Stifel.

This is actually Evan Stampler on for Dan. I guess circling back to CosMx. Obviously, the instrument has been in the hands of your customers now for a little bit. Just be good to hear like what kind of feedback you're hearing from them? And then maybe just sort of some -- if you have an idea of maybe a time line for first publications, getting out there because when we talk to people, it does seem like some people are just kind of waiting to see data? And I know you have -- you obviously asked himself with the TAP program. If you have any sense of when publication might come out that we should be on the look at for, that would be helpful. And then in your prepared remarks, you did talk about ASPs being at 2.15, and I kind of missed your -- the other portion of that as to what -- because I'm getting just the rough math in terms of instrument revenue for spatial provided by the instruments, I'm getting a much higher number. And I think you tried to explain that. And so if you could just repeat that, that would be helpful.

Sure. I'll cover the first 2 portions, then I'll let Tom cover the piece on the ASP. So feedback on CosMx has been extremely positive. Many of the initial CosMx shipments went to customers who already had GeoMx. And so they were able to very directly contrast their experience and being -- having their CosMx installed and their training to what they experienced with GeoMx. And I think that the sense is that it's gone much more smoothly and then CosMx is actually easier to use and easier to learn system than GeoMx was. And that's largely because CosMx does not need a region of interest selection that rather can typically scan the whole slide. So feedback has been very positive so far. It's early days for those customers. That being said, our technology access program and our data sets that we put out in the public domain are already beginning to yield peer review papers.

So there are 9 peer review papers that have been published so far. Most of them published on data that we posted for free of charge for researchers to play with and to get to understand CosMx data sets. We have at least 18 peer review papers that have been submitted for publication and most of those coming out of our Technology Access Program. And our Technology Access Program has now completed 140 Cosmic products, our projects rather. So we think there will be a really nice stream of peer-reviewed papers coming out of our technology access program, and that will help the community really see more of what CosMx is capable of and gain the confidence to adopt. Tom, do you want to take the question on ASP?

Yes. Evan, just as a reminder, we recognize revenue on instruments when we ship instruments to customers. So sometimes there is some confusion that folks have when they look at the increase in our installed base compared to the instruments we shipped because those 2 numbers tend to be different because we're installing on a lag. So in my prepared remarks, I mentioned we shipped 47 spatial instruments during the quarter. So if you take the $10.1 million of revenue that we mentioned, we got from spatial instruments during the quarter and divide that by those 47 ship unit that gets you to your ASP for the first quarter of $215 that I mentioned in the prepared remarks.

Got you. Super helpful. And then a follow-up. You did talk about a lot of the initial placements for CosMx being with existing GeoMx customers. And in the past, you have talked about bundling and the opportunity set there. I'm just kind of curious like when you go to a customer and you present like a new customer that hasn't used GeoMx and you say, all right, well, if you present them with the bundle opportunity and the customers actually say, no, I'm good. I just want a CosMx. Like what are the kind of biggest things that they're telling you that as to why they're choosing the individual instrument versus getting the 2 together?

Well, thanks for the question. CosMx and GeoMx are both geared towards different types of experiments. So CosMx is an ideal system for following up traditional nonspatial single cell experiments that may have taken place in the past based on droplet-based approaches. So many customers have been doing that type of science and have identified different cell types that are within the tissue, but they don't know where those cell types are. So CosMx is an ideal system for following up on single cell and determining the location of the rare cell types and how they're interacting with other cells. So that is a very easy type of experiment for many discovery researchers to imagine, and that's part of what's drive driven our mix shift from GeoMx towards CosMx over the last 12 months. GeoMx in contrast is a high throughput system that has the advantage of being able to look at the whole transcriptome across multicellular regions of interest.

And it's best employed in biomarker research that compares gene expression over a large number of samples, and that is appealing towards translational researchers who are really hunting for predictive biomarkers. So when we -- when our sales reps walk into an account, they try to understand the science that, that scientist is -- that lab is doing and match them to one system or the other. Sublabs have -- we think in the long term, most labs will have utility for both types of systems, but very few have the capital available to purchase both at the same time. So those situations where a lab is well funded and they have tremendous demand and are scaling up their spatial capabilities very quickly. Those are the situations where we can successfully sell bundles. The other situations would be we would sell a CosMx first and hope to come back and sell a GeoMx later in a future funding period or vice versa.

Got you. That makes sense. If I can just follow it up with just one kind of modeling question. I know you -- now you're talking about a segment just spatial combining GeoMx and CosMx. Is there anything you guys can just give us some breakdown between those 2, whether it's placements, ASP, pull-through or whatever? And that's my last question.

The good news for the simplification of modeling is that the ASPs and the pull-through are expected to be very similar for GeoMx and CosMx. And so to simplify matters, both in terms of our reporting and in terms of your modeling, we've chosen to simply report spatial instruments and spatial consumables. But as Tom indicated, the average ASP across the mix is 215,000 in Q1, which is not that far off from where it has been when we were only recognizing GeoMx. And if you do the calculations on the pull-through, it was right around the same consumable pull-through on an annualized basis as GeoMx has been over the past year. I think it was about 80,000 consumable pull-through for spatial instruments in Q1, which is similar to the 75,000 or so that we were doing last year. So just to keep things simple, we're reporting spatial instruments and overall spatial consumables. And I don't think you should need to model those separately at this time.

So I'm sorry, just one quick follow-up. I'm looking at the at the presentation, spatial pull-through was 66,000, not at 80%, which was, I guess, down.

Not sure what actually have the presentation you're looking at, but if you do, just to do the math consumable impeditive Well, we can -- this is probably something we could hit in the after call about the details. But if you yes, if you do the $7 million of revenue divided by the installed base at the end of 2022 to be $300 if that got you to about the $80,000 number that Brad had mentioned.

Our next question comes from Dan Brennan with TD Cowen.

This is Kyle on for Dan. I just wanted to ask a question about shipments versus installs. So you said you shipped 47 spatial instruments, you installed 35. I think there was some leftover on installed spatial instruments exiting Q4. Please correct me if I'm wrong, pretty wide difference there. Is there any capacity constraint within each quarter for the maximum number of these boxes that you can install? Maybe just start there.

Sure. Yes. So there is a capacity constraint on how many instruments we can install. It's a manpower-based capacity constraint. We have been hiring additional field service engineers and field application scientists and we don't believe that constraint is a major challenge at this point in time. But just to remind you, installation requires more than our own capacity. It requires the cooperation of the customer, and many of them look to schedule their installations and trainings around their own schedules. And that is another determinant for how many instruments are installed in any given quarter. In addition, in situations where the pace of instrument shipment increases throughout the quarter, as was the case in Q1 as we scaled up our CosMx manufacturing, you can often have more instruments that were installed in the latter half -- sorry, more instruments that were shipped in the latter weeks of a quarter that naturally remain uninstalled at the end of the quarter. And given our scale up of manufacturing capacity for CosMx, I would expect that to be the case in Q1 and probably again in Q2.

Awesome. So at what point, is that something that catches up this year? Or do you think much of that will spill over into 2023 -- I mean, excuse me, 2024.

I think probably by the end of this year, we'll be installing and shipping systems at the same pace as our manufacturing capacity levels off and our installations become more continuous throughout the quarter rather than back-end loaded with inventory.

Got it. And then just one more for me. You maintained the nCounter guide. What's the visibility on the pull-through for nCounter for the remainder of the year? How far out is the visibility there? I think relative to what we were expecting, pull-through was a little bit better. Is that business sort of stabilizing here?

That business is stabilizing. We've made some organizational changes within our consumable sales team, a new leader who's doing quite a good job and more involvement from our field application specialists and overall consumables, both on the nCounter and on the spatial side. So I feel increasingly confident that we'll be able to sustain pull-through or stabilized pull-through at a decent rate on nCounter. But that being said, as you can tell from Tom's guidance for the second quarter, where we guided encounters or income revenue overall to be sequentially flat from Q1. We think of that as a very stable predictable business at this time, not one we're looking to drive clearly growth out of at this stage.

Our next question is from Catherine Schulte with Baird.

This is Tom Peterson on for Catherine. I was just curious, obviously, the demand and backlog on CosMx has been impressive, but I'm curious if any updates on what you're seeing within the broader imager category from a competitive standpoint? And to the extent that you can quantify this, the current backlog, how many instruments would you categorize as competitive wins or competitive bids?

Yes, the spatial imager category is a dynamic one. And I think we are dealing with sophisticated customers who, in most cases, are going to look at multiple offerings before they choose to purchase a single system. So I feel it's quite likely that most of the CosMx systems that we're now taking orders for today are being evaluated alongside spatial imagers from other vendors. I think we feel really great about our competitive positioning of CosMx, the primary dimension where we distinguish ourselves is on plex. And we think and many customers agree that plex is the most important specification because it directly correlates to the amount of information a researcher can get from their precious samples. So we can look 6,000 RNA in a sample compared to the 400 or 500 that our competitors can offer. We're providing 10x as much potential data as they are getting out of that same sample. So that is really the reason that we've had such a successful track record of winning business on CosMx.

And then good to hear that the funnel looks good. The commentary from ACR seems positive. But I was just kind of curious, given some of the comments around cash management, are you seeing any broader lengthening of instrument sales cycles or changes in customer purchasing behavior that's associated with some of this kind of more constrained capital environment?

I don't think we're seeing changes in customer behavior outside of that small biotech segment that I've mentioned earlier was the most cash constraints. So by and large, I think the sales cycles have been similar, and we think it will be a good year for Spatial Biology.

Our next question is from Julia Chen with JPMorgan.

This is Marta on for Julian. I just wanted to ask now that you began shipping CosMx and have early customers scale up their experiments. Could you maybe discuss the similarities and differences in the CosMx and GeoMx product cycle anyway?

Well, it's still pretty early days in terms of seeing what CosMx customer behavior is like. But the easiest thing to contrast is the ramp of orders. Throughout 2022, we saw a tremendous flow of new orders for CosMx that outpaced the GeoMx instrument launch by a factor of, I think, 2 plus. Now of course, we're in a different state of the market today where Spatial Biology is much more well known and well appreciated than it was at the time of our GeoMx launch and the market is being conditioned for excitement about spatial images, not just by NanoString, but by several other vendors who are out there aggressively commercialize products.

So we're really seeing a very much steeper ramp in terms of instrument orders and instrument placement that we did in the GeoMx launch. It's a little early for me to talk about whether the site activation and the pace of actual consumable pull-through utilization is happening faster for CosMx than it did with GeoMx, but we believe it will because the system is actually easier and more intuitive to use than GeoMx. And I think, honestly, NanoString has learned a lot about how to support customers and experimental design and ramp up through our experience commercializing GeoMx. So I have a sense of optimism that CosMx will become productive faster than GeoMx has.

And then on nCounter real quick. Could you code more color on the instrument placements? I believe you mentioned 1 during the quarter. What kind of customers the purchasing those? And then what was the number of systems in activated? I believe previous comments last time, you mentioned that it's roughly the same number of new placements and activations. So are there any updates for those numbers?

Yes. So let me start with the types of customers who continue to acquire nCounter. nCounter is a workhorse instrument for researchers who are focused on translational biology primarily in the fields of oncology and immunology and the instrument that we sold in the quarter went into those types of leverage points. We don't have tremendous real-time visibility into instrument and activation. It's something we confer from customer behavior over time. But I would expect that the pace of new instrument placements and the pace of instrument and activation are about the same at this stage, which is why our consumable revenue would be expected to be similar throughout the sequential quarters of this year. The relative amount of active installed base is relatively flat as new instrument placements more or less offset those that are in activation.

Our next question is from Tejas Savant with Morgan Stanley.

This is Edwin. Brad, you previously mentioned about 7,000 labs in the world that could have both a profile and an imager. I was just wondering what percent of these labs would you consider early adopters? Are there about 500 of them or more like 1,500 alone. I was just hoping to get a better sense of the composition here as it could potentially impact decision-making time lines, multiunit purchases and even consumable pull-through.

Yes, it's a good question. I think -- and it's a hard one to answer. I'd say the easiest way to think about it perhaps is what fraction of any market would you consider likely to be early adopters if it were the first 15% or so, that would be the first 1,000 out of that 7,000 labs, right? So perhaps that's as large as the early adopter segment might be expected to be. And if you look at the total installed base across all the images and all the profilers at this point in time, that's probably the group that we have primarily focused on as an industry so far through the launches of all these systems. NanoString's installed base is 385 spatial instruments slightly fewer than 385 total laboratories, but that's largely within that early adopter segment. These revolutions in life single cell biology and Spatial Biology, they play out over the course of a decade. And so even just a few years into it, I think we're still primarily selling our technologies into early adopters, and we still have a long time to go and a lot of growth to still enjoy as we cross the cat into the early majority and kind of mass market segments.

And Brad, you previously mentioned that when you guys first started offering CosMx for your TAP program with the 1,000 plex offering and 100 plex offering, most of your customers -- actually, all of them chose the 1,000 plex option. And I was just wondering with your CosMx currently offering 5 panel options today with 2 of them being about 1,000 plex and another 100-plex IO panel in a protein panel and a custom panel. What is the composition of the mix looking like today for the initial consumable stocking orders at these new CosMx sites?

Yes, I'd say that the vast majority of our CosMx consumable demand remains at the highest plex that we can offer. So today, we're shipping up to 1,000 plex, and that accounts for the vast majority of both our technology access program demand and our consumables that we're shipping into those early sites. Based on my customer field visits over the past weeks, I expect that, that demand is very likely to shift upward towards our 6,000 plex RNA panels once those become available in the first quarter of next year. There's tremendous excitement about the broad coverage that we can offer in 6,000 plex panels.

Got it. And then one more from me. In terms of your GeoMx demand trends, have you seen any changes in the pattern of your spatial demands between your profile and Imager recently? And if there's any way you could provide more color on the unit shift for CosMx and GeoMx for the quarter. That would be much appreciated.

Sure. So I think the only color we can provide is that demand has continued to shift from profilers to imagers. And it's for the reason I described in one of my earlier answers, that the spatial imagers which have single cell resolution are so easy to use for researchers who've been doing single cell biology in a nonspatial manner that it becomes a very natural first instrument to acquire in Spatial Biology. And Q1 was no exception. We had a very cosmic heavy order book, and we would expect that to continue throughout 2023. And we're just fine with that. We're excited about what CosMx will continue to do. We're excited about its price point, it's consumable pull-through dynamics, et cetera. And we expect that it's going to be the most important product in NanoString history.

There are no more questions. I'll pass the call back over to the management team for closing remarks.

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