NanoString Technologies, Inc. (NSTG) on Q1 2022 Results - Earnings Call Transcript
Operator: Hello. And thank you for attending today's NanoString First Quarter 2022 Operating Results Conference Call. My name is Selena, and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. . I would now like to pass the conference over to our host, Doug Farrell, Investor Relations. Please go ahead.
Doug Farrell : Thank you, operator. Good afternoon, everyone. Joining me on the call today is our President and CEO, Brad Gray; as well as our CFO, Tom Bailey. Earlier today, we released our financial results for the first quarter of 2022. During this call, we may make statements that are forward-looking, including statements about financial projections and the impact of COVID-19, future business growth, trends and related factors, prospects for expanding and penetrating our addressable markets, our strategic focus and objectives and the development status and anticipated success of recently 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 in our SEC filings. Our results may differ materially, and we undertake no obligation to update these forward-looking statements. Later in the call, Tom will be discussing our financial results and 2022 guidance. We are prepared to supplement the GAAP financial measures, selected non-GAAP adjusted measures in calculation of which are detailed in our press release. Throughout the call, all financial missions will be GAAP, unless otherwise noted. You can also find reconciliations of GAAP to non-GAAP measures as well as the description, limitations and rationale for using each measure in today's press release. With any analysts or investors in building their models, we have posted exhibits under the Financial Information tab of our Investor Relations page that include presentation of our non-GAAP or adjusted measures and other selected financial data. I'd like to remind everyone that we'll be presenting at UBS Healthcare Conference in two weeks. We look forward to having the opportunity to speak with many of you there. With that, I'd like to turn the call over to Brad.
Brad Gray : Thank you, Doug. Good afternoon, and thank you for joining us. Spatial biology is one of the most dynamic and rapidly growing fields and science. NanoString has established an early lead, and we are continuously evolving our product portfolio and commercial approach to remain at the forefront. Recently, changes in our commercial approach have temporarily reduced the effectiveness of our sales process and our revenue visibility. We have actions underway to address these challenges, and we're beginning to see some improvement. In time, we believe we will emerge even stronger in our leadership position. During the call today, I will review our recent challenges and outline our actions to address them. I'll then review our continued progress towards our strategic objectives before handing the call over to Tom to review our financial outlook. At NanoString, we find ourselves on being clear eyed analytical and transparent about our performance. With the benefit of hindsight, we believe that we have developed a firm understanding of the challenges we encountered in Q1, and this understanding is guiding our path forward. As we described during our April 12 call, we believe that two primary factors drove our Q1 performance: First, uneven sales execution during the fourth quarter resulted in an imbalance between capturing Q4 revenue and developing our 2022 funnel of opportunities. Retrospective analysis shows that our sales reps spend relatively less time in Q4 cultivating long-term GeoMx instrument opportunities, instead focusing their efforts on capturing orders for a record 70-plus spatial biology instruments. Facing the impact into Q1, GeoMx instrument sales, we can see that those sales reasons with the strongest Q4 performance delivered the weakest Q1 performance. Second, our commercial effectiveness was impacted by changes made in January to realign our expanded commercial team, which has grown by about 90 new positions over the past 12 months. Our new mini-team structure is the same approach that we believe is used by many of the largest and most successful companies in our industry and is well-suited to commercializing a portfolio of multiple platforms and reflects the approach used by our top performing districts last year. The disruption caused by this rate of line mix was unexpected and can be traced through to several specific Q1 trends. For example, our retrospective analysis has shown that instrument sales opportunities transferred between reps during the realignment had much lower close rates than those that were not transferred. We also see that newly promoted account managers were less effective selling GeoMx instruments compared to their better in counterparts. On the consumables side, the pace of quoting activity slowed relative to prior periods as reps transition between roles and the more junior consumable reps were not as effective in selling to key accounts as their previous account managers have been. After further review of our Q1 results, we've identified two additional secondary factors that impacted our Q1 performance. One is that our sales team is still learning how to allocate their time and effort across three product lines. Since we transitioned from reactive sales of cosmic since in Q1, each individual sales rep has gravitated towards one spatial biology platform or the other with those overachieving on CosMx underperforming on GeoMx. Another factor is that new GeoMx customers are taking longer than previously expected to reach their full consumable run rate likely due to the strong uptake of the whole Transcriptome Atlas, which requires more sequencing capacity and informatics capabilities. The ramping consumable utilization from our most recently installed GeoMx systems is impacting our overall average pull-through. We have put in motion a targeted set of actions that we expect to improve commercial execution over the next several quarters. First, we are increasing support for the sales team as they adapt to their new roles and structure, providing frontline reps and recently promoted leaders additional training and intense coaching and taking additional steps to ensure customer accounts have been fully transitioned between reps. Second, we're focused on balancing sales efforts across platforms and time horizons. This involves closely monitoring individual sales rep activity via our CRM system as well as specific incentives and programs to speed GeoMx site activation. Finally, we're refreshing our marketing and sales tools to do justice to the breadth and power of our spatial biology portfolio. We plan to better leverage our 115-plus GeoMx publications and to clearly differentiate between the use cases, CosMx and GeoMx. The commercial team has rallied behind these actions, and we see some early indications that sales effectiveness is improving. Quarter-to-date, GeoMx instrument and consumable orders have improved relative to the same periods in Q2 2021 and Q1 2022. As we described during our April 12 call, we expect the recovery in our commercial effectiveness to take a couple of quarters, and this is reflected in our updated annual guidance. We have confidence that commercial performance will get back on track as the year progresses, and we remind ourselves that this is the same team that delivered record results in 2021. In parallel to improving our commercial execution, we continue to strengthen our team. We recently appointed Dr. Teresa Boyd to our Board of Directors. Dr. Boyd is Senior Vice President of Immuno-oncology and Cellular Therapy for Bristol-Myers Squibb and is based in the Greater Seattle area. Terry is an immunologist with over 25 years of experience in the biotechnology and pharmaceutical industries, developing novel therapeutics in areas of oncology and inflammation. She brings deep experience in how life science tools are leveraged to advance biological discoveries, and I look forward to benefiting from her insights as a member of the board. Turning to near-term catalysts. We're looking forward to being back in person in Orlando or action pack advances in Genome Biology and Technology, or AGBT, meeting in a few weeks. We'll be hosting our annual pre-AGBT Spatial Genomics Summit on Monday, June 6, and will live stream the event for those who can't attend. Our Summit will be feature a keynote presentation by Chris Nason of WOW Cornell Medicine as well as presentations from some of our customers, illustrating the synergistic use of GenoMx and CosMx in spatial biology research. The summit will be followed by a briefing for investors during which we will put the science into the context of our business. Now I'd like to provide an update on the strategic objectives for the year. Our first strategic objective is to drive GeoMx DSP further into mainstream research, broadening adoption across multiple areas of discovery and translational research. While we obviously did not sell as genomics instruments as we had expected during Q1, we did increase adoption of our Whole Transcriptome Atlas and Discovery Research and demonstrate the value of GeoMx in the field of translational oncology. The key Genomics trends during the first quarter were very similar to what we saw in Q4, suggesting that there is no fundamental change in customer demand or the competitive landscape. Academic customers continue to represent about 75% of GeoMx orders with the balance going to biopharma companies. More than 90% of GeoMx instruments were sold for NGS readout. On the consumable side of the business, assays using NGS readout accounted for about 75% of pull-through. One highlight in Q1 was the continued penetration of the discovery research market using the mouth Whole Transcriptome Atlas, which grew about 25% sequentially from Q4 to Q1. Oncology research remains the number one application area for GeoMx and our impact in the field was on display last month at the American Association of Cancer Research, or AACR, Conference in New Orleans. We had a record showing with more than 120 of scientific abstracts across our three platforms. The abstracts were for study -- the abstracts for studies performed on GeoMx alone, outnumbered the closest spatial biology competitor by a factor of two to one. Our second objective for 2022 is to launch CosMx as the industry-leading molecular imaging platform. This was clearly a highlight for Q1 as demand for CosMx allowed us to capture more than 15 instrument orders. A majority of these orders came from existing GeoMx customers with the balance of the orders coming from researchers who would use single-cell genomics technologies in the past, but who are new to working with NanoString. Approximately 90% of the instrument orders came from customers who find the system based on NanoString's reputation and the CosMx specs manuscript and public data set without needing a test drive of Cosmic through our Technology Access Program, or TAP. That being said, we booked about 50 CosMx TAP studies to date and completed about 20 of them. We're ramping up our TAP capacity in order to give more customers the opportunity to test drive CosMx a strategy that worked well during the GeoMx launch. The growth in our CosMx instrument sales funnel is exceeding our expectations, and it is already twice the size of our GeoMx funnel at a similar stage of its launch. Other leading indicators of COSMIX -- customer interest in CosMx are also strong. During the first quarter alone, the paper describing the technology was downloaded over 5,000 times, while the 500-gigabyte lung cancer data set was downloaded over 300 times. recently incorporated this data set to a pure view paper in Nature Biotechnology using it to demonstrate the ability of new algorithms to identify multicellular programs marketing marking immune activity and tissue remodeling. Keep your eyes peeled for additional data releases in the months ahead, each of which will underscore the unique capabilities of CosMx. CosMx remains on track to ship commercial instruments in Q4, and we expect CosMx to hit several key milestones during the second quarter. Our beta systems have begun to arrive in Seattle, and we're putting them through our paces internally before shipping the first beta units to customers in June. In addition, next month's AGBT conference, will have numerous CosMx updates, including 10 abstracts and three world presentations. Our third strategic objective for the year is to launch our cloud-based spatial informatics portal. Facial experiments are data-intensive, creating up to 1 terabyte of data per sample by moving data to the cloud, customers can access to massive computing and storage capabilities that enables seamless collaboration across institutions or global consortia. Our spatial informatics portal remains on track for launch later this year and will be compatible with both GeoMx and CosMx. We will be showcasing this portal at the AGBT meeting in June, and we invite you to join us there to learn more. Our fourth objective for 2022 is to sustain our nCounter franchise. At the AACR conference, we introduced our new nCounter Pro and customers want to test with the enhanced functionality. Customers need robust data security and the Pro provides a comprehensive enterprise-wide cyber solution. This is a critical requirement for our biopharma customers. Along with this new version of the instrument, we have relevant gene expression panels used to monitor stem cell manufacturing, vaccine production and Cortene biotherapeutic development. We're also promoting the launch of the Pro with ROSALIND to provide the most advanced collaborative bioinformatics platform, one that harnesses the power of the cloud based on cloud-based computing for complex multi-owned analyses. We've expanded our pharma sales team under a manager with a great track record of success, and we see these changes starting to pay off. Intel remains a foundational platform for the company and that supports our global commercial channel and our innovation intent. With that, I'll hand it over to Tom.
Tom Bailey : Thanks, Brad. And thanks all for joining us today. For the first quarter of 2022, product and service revenue was $30.8 million. For our spatial biology business, Q1 GeoMx revenue was $9.7 million, approximately flat year-over-year. GeoMx instrument revenue was $4.8 million. Consumable revenue was $4.9 million. Q1 annualized GeoMx consumable pull-through was $76,000 per installed system. For CosMx, we secured over 15 new system orders in Q1, bringing our total to over 35 orders. For our nCounter business, which includes all service, Q1 revenue was $21.1 million, a year-over-year decrease of approximately 3%. nCounter instrument revenue was $4.3 million and consumable revenue was $12.6 million, Q1 annualized nCounter consumable pull-through was approximately $48,000 per installed system. Service revenue was about $4.3 million, representing 16% year-over-year growth and driven primarily by increased service contract revenue from our growing instrument installed basis. At the end of Q1, our nCounter installed base was approximately 1,070 instruments with 20 new instruments installed during the quarter and our GeoMx installed base was approximately 295 instruments with 40 new instruments installed during the quarter. Turning to margins and expenses. I'll provide results on a non-GAAP or adjusted basis, which are due to the impact of stock-based compensation, depreciation and certain onetime items. Please refer to our press release as well as 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 55%, an increase of 300 basis points as compared to Q1 of last year, Margins were positively impacted by growth in GeoMx DSP consumables and by initiatives we have undertaken to improve our manufacturing efficiency. These impacts were partially offset by investments we continue to make in manufacturing capacity for GeoMx and CosMx. Adjusted R&D expense was $15 million, an increase of 19% year-over-year, primarily driven by increased personnel and product development costs related to CosMx, and by investments in software and technology that will support data storage and analysis for customers across our Spatial Biology platforms. Adjusted SG&A expense was $29.4 million, an increase of 40% year-over-year, driven primarily by investments made in our Spatial Biology related commercial initiatives, including investments to expand our salesforce, service and customer support groups as well as cost related to licencing and implementing of new information technology solutions to support our virtual operations and finance functions. Our adjusted EBITDA loss was $27.3 million and our cash and cash equivalents were $312.1 million as of March 31. Turning to guidance. For the second quarter, we expect revenue to be in the range of $31 million to $33 million. This range includes $11 million to $12 million of GeoMx revenue and $20 million to $21 million of nCounter in service revenue with the bottom end of the range, reflecting sales performance similar to Q1, and with the upper end, reflecting improvement in the aggregate performance of our sales team in the latter half of Q2. For the full year, we are updating our product and service revenue guidance to a range of $150 million to $160 million. For GeoMx, we are updating our full year revenue guidance range to $60 million to $65 million, representing annual growth of 16% to 25% and an updated full year estimated pull-through range of $90,000 to $95,000. For nCounter and service, we are updating our full year 2022 revenue guidance range to $90 million to $95 million, reflecting annual revenue that is flat over the prior year at the midpoint of the range and pull-through that trend to the conservative end of our $50,000 to $55,000 full year estimated range. The ends of our total updated range are driven primarily by potential differences GeoMx instrument revenue. The bottom end corresponds to a conservative scenario in which the close rate on opportunities in our GeoMx instrument funnel remain at a lower level experienced during Q1 through the balance of 2022. The upper end corresponds to a scenario in which actions underway resulted in improvements to close rates in the second half of the year. Turning to margins and expenses. We are affirming our previous full year guidance for adjusted gross margin which we expect will be in the range of 56% to 58%, and we are making no changes to our previous full year adjusted operating expense guidance ranges. With our updated revenue guidance and the gross margin and expense ranges, we are updating our expected 2022 adjusted EBITDA loss to a range of $65 million to $75 million from the previous range of $55 million to $65 million. Our balance sheet remains strong, and we are confident we have the resources to sustain our key investments through the current period challenges, grow our revenue and to achieve cash flow breakeven. Now I'll turn the call over to Brad for closing comments.
Brad Gray : Thanks, Tom. NanoString market opportunity is compelling, and we're confident in our ability to capture it. Spatial Biology is going to be a critical technique in biological research over the next decade, and laboratories are steadily building out their capabilities. NanoString is poised to remain the leading provider of Spatial Biology solutions based on our company's strengths such as brand reputation, commercial reach and financial strength as well as the unparalleled breadth and quality of our product portfolio. We invite you to join us at the AGBT meeting in June, where you can see the power and synergy of our Spatial Biology product portfolio for yourself. We’re ready for the questions, operator.
Operator: We will now begin the question-and-answer session. The first question comes from Daniel Brennan with Cowen. Please proceed.
Daniel Brennan : Great. Thanks for taking the question, guys. I guess the first one would just be -- just trying to look at the quarter itself. You placed 40 GeoMx, you did $4.8 million in incident revenues. If my math serves me, it implies an ASP somewhere around $120,000. Maybe we're doing something wrong. Can you just walk us through the pricing on GeoMXN in the quarter since if that number is correct, is below what you guys have been tracking at?
Brad Gray : Hey, Dan. Thanks for the question. Let me clarify the difference between revenue recognition and installation of GeoMx systems. So during the quarter, we installed 40 new GeoMx systems, many of which had been sold and revenue recognized during the fourth quarter. So the revenue recognition associated with Q1, GeoMx instruments was on a smaller number of additional orders. And our ASP for GeoMx was stable in Q1 relative to prior periods.
Daniel Brennan : Got it. Okay. Thanks, Brad. So I thought you guys had caught up in terms of placement for equal to shipments. But okay. So for Q2 on the guide, just what's being assumed on GeoMx given -- we're kind of in line with you on the full year, but your Q2 guide definitely below us overall, nCounter a little bit above the gimbal. So within the $11 million to $12 million, what are you assuming for placements in pull-through?
Tom Bailey : Yeah. We typically don't give that kind of detail on a quarterly basis, Dan, but I think I would say two things. Per my comments, the bottom end of the range assumes close rates consistent with Q1, the top end a bit of improvement. And we -- it would also be reasonable to assume that you'd see sequential growth in both instruments and consumables relative to what we did in Q1. So if you're modeling Q2 within our guidance range, those would be good guidance post for you to use.
Brad Gray : I'll add one thing on top of that, Dan. If you look at our historical consumable pull-through for GeoMx, it tends to strengthen seasonally over the course of the year. So it's fair to assume that consumable pull-through for GeoMx will be closer to the bottom end of the range, strengthening over the course of the year and near the top or the higher end of the range in the second half.
Daniel Brennan : Got it. And then I'm sure I know, Brad, you talked about throughout the call a few times where some of the incremental data points that you're seeing that suggest everything is in order and it just kind of working through the sales force realignment issues. Can you just maybe speak to kind of what was communicated or give us a little more color on anything related to piecing? I think folks is a heightened awareness towards is there something going on in the competitive landscape? Or is it really just the sales force realignment? So what can you say regarding April and then even May to date, anything about the sales funnel that would reflect that you feel good about kind of what's in front of you in terms of demand basis?
Brad Gray : Yeah. Maybe I'll break that question into two parts, Dan. First, what gives us confidence that the reasons we outlined on the call are, in fact, the reason for the Q1 under performance and that there's not something going on at a macro or competitive level. Well, it's really the traceability of our Q1 trends back to approach. Those correlations are just too strong to be in coincidental. And furthermore, we just don't see any changes in the competitive environment that would -- we just don't see any changes in the competitive environment that would account for the slowdown we saw in Q1. Our competitive loss rate was low and consistent with prior periods, our transition rate from GeoMx to CosMx was low and consistent with prior periods and the weakness that we experienced was across all parts of our business, which would not be consistent with a competitive threat. So that's may be my first point. On the question of sort of Q2 quarter-to-date trends, I mean, things are off to a good start. As I described in my prepared remarks, both GeoMx and instrument and consumable orders are moving through the quarter at a pace that's materially improved over both the prior year period and the way that the year started in Q1. But we're only about five weeks into the quarter. So it's too early to declare victory. Some of the commercial changes that we're growing into are still going to take time and I think you see that reflected in both our Q2 and full year guidance.
Daniel Brennan : Got it. Okay. And then maybe last one, just I'll go back in the queue. Just the -- as we think about GeoMx and CosMx, I think you talked about just there that you're not seeing anything abnormal in terms of the CosMx orders versus the tracking from GeoMx, but I think that's something we'll learn more about at AGBT. But what could you speak to, again, giving us more factoids whether from customers or anything you're seeing in terms of publications or drawdowns that would reflect that these two products are complementary and that cannibalistic.
Brad Gray : Well, I think the strongest evidence of the complementary nature of GeoMx and CosMx comes from the nature of the orders for CosMx to date. About three quarters of our orders have come from -- accumulatively have come from customers who either already owned GeoMx or bought CosMx and GeoMx together in a bundle. And I think you would not see customers doing that if they did not believe that these were complementary solutions. I'd also invite you to come to AGBT. All three of our oral presentations on CosMx will also include GeoMx data, and they'll show a real scientific experimentation how these two technologies are going to be used together. You'll also have the chance at our Spatial Genomics Summit to see customers talk about their dual synergistic use of these two plasma together. So I think the order trend supports the complementary nature. And if you come to Orlando, you’ll have a chance to speak to a number of scientists who are finding these two technologies complementary in their real experimentation.
Daniel Brennan : Great. Okay. Thanks, guys. I’ll get back in the queue.
Operator: Thank you. The next question comes from Dan Arias with Stifel. Please proceed.
Dan Arias : Good afternoon, guys. Thanks for the questions. Brad, just to put some context maybe to the scope of the changes, what percentage of the sales force, roughly speaking, is now in a new role. And then can you just expand on what you meant by some reps not cultivating the long-term spatial relationships and instead focusing on the near-term sale? Does that mean that once the purchase was made the follow-through just wasn't there in order to drive the recurring revenue stream?
Brad Gray : Yeah. Let me take the second question. First, Dan. So when we talk about the imbalance and the sales effort in the fourth quarter, here's really what we mean. Our instrument sales reps were frequently visiting and cultivating those customers who were due to purchase instruments during the fourth quarter, but they were not spending time with customers who are early in their evaluation of GeoMx and were due to purchase their instruments during 2022. Remember, the sales cycle for a GeoMx system is between six and nine months. Our sales reps need to be in contact continuously with customers over that period length. And if they focus only on those customers who are purchasing instruments in the current quarter, they'll underinvest in the long-term cultivation of future quarters instrument purchases and that will come back to haunt them, and that is what we saw take place in the fourth quarter. On the question of the fraction of sales reps and new roles, I think the answer is because that the majority of our sales reps have had the roles change. Now it doesn't necessarily mean they're title changed. It doesn't necessarily mean their customer list changed materially, but it does mean that what we're now asking them to do has evolved. And the reason is we moved from an overall structure where individual sales reps interacted with the same customer, multiple individual sales reps interacting with the same customer in a one coordinated way to a mini-team or account management structure where a single account manager coordinates the way that our sales reps interact with a customer in a way that makes that customer's life simpler and allows us to deliver better service. So it impacted almost everybody in terms of the way that they work. And that's part of what is going to take some time to grow into.
Dan Arias : Yeah. Okay. Helpful. Maybe just as a follow-up, you were pretty clear last quarter about the belief that the full commercialization of CosMx would not take place until the fourth quarter. Do you see that being mid-fall or more like the holidays? And I'm not trying to split hairs here on an 8-week period, but I am wondering about the ability to just use system availability as a competitive strength just in the sense that you can say, Hey, there are a bunch of new instruments out there to look at, but here's one that you can be installing and using meaningfully before year-end.
Brad Gray : It's too early for us to parse the fourth quarter and determine what we will be actually shipping those instruments in. I do feel confident we'll have instrument availability, but we will meter out the shipment of those new systems in an orderly fashion. I don't believe that system availability in the fourth quarter is a critical competitive factor. I believe customers are evaluating the imager class based on the reputation of the company who stands behind that imager, the publicly available datasets and description of how the technology works and the data that's being presented in real time at meetings like AGBT. So I'm not worried about feeling compelled to ship a large number of instruments in the fourth quarter on a competitive basis.
Dan Arias : Okay. Just lastly, Tom, any -- no change to CosMx revenues not really falling into the back half of the year on that note.
Tom Bailey : That's correct, Dan. No changes we've had. No CosMx revenue in 2022 in our guidance. That's correct.
Dan Arias : Okay. Very good, thanks.
Operator: Thank you. The next question comes from Julia Qin with JPMorgan. Please proceed.
Julia Qin : Hi, good afternoon. Thanks for taking our question. So looking at the GeoMx guide for the full year, it looks like you're not assuming much benefit from instrument recapture in the second half of the year. So I wonder if you could give an update on the GeoMx order funnel. Has any of them being lost or competitive placements. And would any incremental recapture in the second half of the year represent upside to your guidance?
Brad Gray : Julia, this is Brad. So first, we do not see an increase in competitive loss in GeoMx. The number is low and consistent with previous periods. We do actually -- when we look at our guidance imply a substantial step-up in the growth rate of GeoMx revenue in the second half, I believe if you take our Q2 guidance and our full year guidance, you can infer that our first half growth rate on GeoMx is relatively flat as implied by the guide. But it steps ups to between I think 11% and 35% growth rate in the second half at the bottom and top end of the range, respectively. So we are expecting that these actions we have underway will have an impact on our commercial execution after a couple of quarters, and that is fits into our guidance.
Julia Qin : Got it. And as you push GeoMx beyond the early adopters, obviously, generating peer review publications like those expected at AGBT bull whip effect. I wonder, due the next tier of potential GeoMx customers require any tweaks in your sales and marketing approach. Do you expect any differences in the sales cycle from the six to nine months that you've typically seen with previous customers?
Brad Gray : I do think that we need to tweak our sales approach to reach the mass market with GeoMx. I think -- I don't believe that requires any structural changes. Obviously, we've added a large number of sales reps to be able to reach them. I think the number one thing we can do to help this maybe early majority segment understand where GeoMx fits is to improve the way that we communicate that relative use cases of GeoMx versus the imager class, including CosMx and the way that we use the large number of peer review papers to illustrate specific use cases that appeal to each individual researchers. So this simplification of the way we describe the Spatial Biology platforms and their relative uses and what I'll call the weaponization of our peer-review papers is a major focus for our marketing organization today that I believe will have an increasing impact over the second half of this year.
Julia Qin : Got it. Very helpful. And then lastly, on the sales team, I believe you mentioned in the prepared remarks that some reps are dedicated to GeoMx and others focus on cost mix. Given where the products are in their respective life cycles, I assume most of the sales team is focused on GeoMx now. But as the CosMx franchise grows, does that mean you will need to shift GeoMx reps over to CosMx? And how are you thinking about the potential transition down the road?
Brad Gray : Let me clarify my earlier remarks, Julia. We do not separately dedicate sales reps to GeoMx versus CosMx. We have spatial sales specialists who are able to describe the entirety of our portfolio for spatial biology. But what we have observed is that sales reps tend to have a favorite. Some of them feel most comfortable selling GeoMx systems, which they've been doing successfully for some time. Other sales reps have gravitated to the excitement of the CosMx systems. And part of what we're doing with our training and our coaching and our monitoring of sales force activity through our CRM system is helping our sales reps find a balance -- the appropriate balance of selling both of those instruments targeting each one to the applications and the customers for which it's most appropriate.
Julia Qin : Got it. That’s helpful. Thank you.
Operator: Thank you. The next question comes from Kyle Mikson with Canaccord. Please proceed.
Kyle Mikson : Great. Hey, guys. Thanks for taking the questions. So just on the GeoMx guidance, like you were saying a moment ago, Brad, the second half kind of guidance implies, I think it's like two thirds of the total year revenue for GeoMx. Last year, that was 60. Could you just kind of walk through what gives you confidence that you can kind of drive that growth? I think you mentioned 11% to 35% growth year-over-year in the second half of the year. I mean, it's going to be competitive, obviously, in the second half. There's other factors to you're just coming off the sales force realignment. Can you just walk through what gives you confidence in that growth?
Brad Gray : Yeah. I think if you look at the first half, the second half split, implied in our updated guidance. You get a total revenue split of about 40% in the first half and 60% in the second half, pretty close to that. And if you look back at 2020, which because of the COVID-19 pandemic, was a year where we similarly had a slow start to the year with an acceleration in the second half. That's about the same first half to second half split that we would have seen in 2020. So I think it's not without precedent in a year where you experienced challenges in the first half that will leave in the second half. I guess that's the first statement. The second is a confidence that GeoMx remains a tremendously powerful Spatial Biology platform, the peer-reviewed papers and evidence for how powerful it can be, are coming out at a very rapid pace. We do believe that we'll be able to continue to distinguish GeoMx from the imager class of products that's coming out, and that many customers will feel that they eventually need both capabilities as so many of ours already have. And that this will allow us to have a good recovery in the second half.
Kyle Mikson : Great. That's helpful. And you were mentioning, Brad, the GeoMx pull-through is lower due to WTA, I think I heard that dynamic. Can you just kind of walk through that one more time in the higher price point that the workflow is more complex, I guess? And importantly, do you expect that's going to be the new normal as customers shift towards WTA? I think that's obviously a trend that you would like to see -- and would you view this the full year GeoMx pull-through guidance as conservative, but it doesn't seem that far off from the original guidance for '22?
Brad Gray : Yeah. Let me clarify on my prepared remarks again, Kyle. So the -- in the long-term, we expect customers using the Whole Transcriptome Atlas assay to have strong consumable pull-through on GeoMx. That being said, we've observed that it takes multiple quarters for customers who are adopting WTA to reach their revenue run-rate. The reason is setting up a laboratory to run WTA is complicated. It involves gaining access to an appropriate sequencer, creating a data pipeline that goes from that Illumina sequencer back into the GeoMx system. And then in many cases, setting up auxiliary servers with extra store space or processing capability to handle the large data sets. And as a result, those new customers who are embracing WTA take multiple quarters to slowly draw up their consumable pull-through, and that dilutes the overall average pull-through of our installed base. And that's the effect that we've begun to see and to quantify and reflect in our guidance. None of this changes our long-term expectations about what GeoMx pull-through can be over time. But in the periods where we're placing large numbers of instruments, we're going to continue to see that dilutive effect.
Kyle Mikson : Got it. Okay. Thank you for clarification. If I could just ask a really quick follow-up. I know utilization was soft in Q1 for GeoMx. I heard that 75% of the pull-through was for NGS readout. Can you just talk about recent trends for protein-based and RNA-based spatial policy research? And I guess what are you seeing in the current kind of GeoMx installed base? And how do you anticipate that kind of evolve throughout the rest of the year?
Brad Gray : Yeah. Our estimation of the overall total addressable market for spatial biology is that it's about one third protein, two thirds RNA. Most of our customers who were the early adopters of GeoMx acquired it for use with nCounter readout and protein-based assays. And those still account for about 25% of our overall consumable pull-through. And I would expect it to stay based on our stay at that level in the quarters to come as protein will remain an important part of what people do on the system.
Kyle Mikson : Okay. Thanks so much.
Operator: Thank you. The next question comes from Catherine Schulte with Baird. Please proceed.
Catherine Schulte : Hey, guys. Thanks for the question. I guess first, you mentioned in your prepared remarks that for GeoMx instruments, sales regions with the strongest Q4 performance delivered the weakest Q1 performance. I guess now that you've had time to dive further into the results, how much of the GeoMx instrument mix was driven by those regions underperforming versus a broader impact that was perhaps the result of the January realignment?
Brad Gray : It's a great question, Catherine. I'd say that the underperformance of those regions that fail to cultivate long-term opportunities in was really only part of the explanation for the Q1 weakness on GeoMx. It does not fully explain the shortfall relative to our expectations. Clearly, the change in our commercial organization further reduced our ability to capture and close on the opportunities that we have there.
Catherine Schulte : Okay. Got it. And in terms of the actions you're taking, you mentioned specific incentives and programs to speed GeoMx site activation. Can you talk through what those incentives and programs are specifically?
Brad Gray : Sure. Well, in terms of incentives, we have special pricing in place for new GeoMx sites who are able to get activated and get up and running on Whole Transcriptome assays early. So we're providing them a motivation to get their workflow set up and their informatics in place in terms of pricing we can offer the customer. In parallel, we formed kind of a tighter team of internal managerial people who are helping more closely coordinate the efforts to bring sites up quickly and to make them more effective, all the way from the shipment of the instrument the installation of the instrument, the training of the users on the instrument and importantly, the planning of those first critical experiments to help get people experience on the system quickly and to build their momentum.
Catherine Schulte : Got it. Thank you.
Operator: Thank you. The next question comes from Tejas Savant with Morgan Stanley. Please proceed.
Tejas Savant : Hey, guys. Good evening. So Brad, appreciate all the color that you provided on the GeoMx order funnel. But I was wondering if there's any sort of like quantitative metrics that you can share in terms of the vintage of that funnel, right? So if you think about the split between the near-term opportunities versus the longer-term opportunities? It sounds like it's skewed heavily towards longer-term opportunities earlier in the first quarter. To what extent has that balance now being restored to perhaps where it was in 3Q last year?
Brad Gray : I think you're asking, Tejas, thinking about what we would call the maturity of our sales funnel. Where are those instead of opportunities for customers in a real world sales cycle? I would say some of the immaturity in our sales funnel that we had exiting 2021 continues to persist in our sales funnel in 2022. And that is reflected in our guidance, so we’re continuing to try to advance those customers through their purchase process. It’s not as mature as it wanted to be get. One other comment on sort of sales cycle though, I’ve recently just this morning took a look at the overall sales cycle for those instruments that we have taken for quarter-to-date. And there continues to be no evidence that the sales cycle for GeoMx is extending. So it’s really just a question of hitting our sales team in balance between cultivating a long-term opportunities and cultivate current opportunities and letting those purchase processes play through as they do.
Tejas Savant: Got it. That’s helpful. And then in terms of helping new reps ramp on new accounts. Are there any specific changes that you’ve instituted just to help them stay on track and get through that process? I remember after the preannouncement you sort of mentioned to us, things like sort of a day one, week one, month one target and plan and making sure they stay on track. Any further details around these formalized processes for handovers that you can elaborate on?
Brad Gray : No. I think it’s obviously not rocket science, Tejas. But it is hard work that someone have to stay on top of and make sure it happens in a timely fashion. We have revised our onboarding approach for all new sales reps and the ways that they come at reps who help them come up to speed. Those processes have been completed and kind of embodied on a territory planning tool. And that’s being actively used today. Again, that’s a sort of starting point. It will help our consumable reps to get to know their accounts and we believe over the next several that will improve their overall sales factors.
Tejas Savant : Got it. And then in terms of what you just mentioned earlier on the call Brad, around training and monitoring of reps to make sure that there is a balanced focus across all three of your platforms. Is that translating into any sort of new incentives you’re putting in places well to optimize for that behavior? Or is it mainly just a push around monitoring and training.
Brad Gray : Yeah. Our sales reps are paid on a quarterly basis. So their incentive compensation plans should over the long-term reward them for a balanced performance over time horizons. That being said, many reps need coaching and management and controlling to help them stay on track and not overinvest in near term opportunities and underinvest in long-term. So really the primary mechanism for achieving that balance providing clear visibility to both the individual reps and their manager on how they’re spending their time and how active they are with instruments and opportunities at different stages of funnel. And then just helping them find the right balance by coaching.
Tejas Savant : Got it. Super helpful. And then one final one on the guide for be for Tom. Tom, can you just elaborate around just assumptions around a biopharma. Not so much a budget flush, but just health of a biopharma spending environment in the back half of the year. There has been some concerns around some cracks in the mirror there on the broader landscape. And then of that $7 million that you’ve shaved off on the nCounter side of things in the guide. Was that essentially all related to the sales restructuring or was there any incremental downside from Omicron as well.
Tom Bailey: On the nCounter piece, Tejas, I think it’s all related to our execution issues on the guide. And so, there is no incremental impact from any macro factors that we assumed into the nCounter guidance.
Tejas Savant : Got it. And on the biopharma point?
Tom Bailey : Part of yes the biopharma point. So biopharma is, in any given quarter, around 10% or a little over of our total revenues. So most of our revenue from academic and large pharma and other is used outside kind of a small biopharma that are most impacted by the current capital markets environment. So we don't think that plays a significant factor into where we'll land for the year. And so that's not factored into our guide either nor is there any budget flush type of behavior that's layered into our guidance, the quarterly pattern as you recall, when we gave guidance for the year back in March. We expect to be consistent through the quarterly progression as we saw in 2021, albeit at a lower starting point for this year than we originally expected.
Tejas Savant : Got it. Very helpful. Appreciate the color, guys. Thanks.
Operator: Thank you. That concludes the Q&A session. And I would like to pass the conference back to Doug Farrell for additional remarks.
Doug Farrell : Thanks, everyone, for joining us today. If you did miss any portion of the call, I expect a replay to be posted in the next two hours or so. That will be up through the May 17. To access replay, please dial 866-813-9403. Callers outside the U.S., please use 929-458-6194. The conference ID is 221442. Thanks again for your time. That concludes our call.
Operator: Good bye. That concludes today's NanoString first quarter '22 operating results conference call. Thank you for your participation. You may now disconnect your lines.
