NanoString Technologies, Inc.

Thank you for standing by. Welcome to the NanoString first quarter 2021 operating results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Doug Farrell, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Joining me on the call today is Brad Gray, our President and CEO, and Tom Bailey, our CFO. Earlier today, we released our financial results for the first quarter of 2021. During this call, we may make statements that are forward-looking, including statements about financial projections, the impact of COVID-19, 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, including the risks and uncertainties that are described from time to time in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to update these forward-looking statements. Later in the call, Tom will be discussing our financial results and our guidance. We have prepared as a supplement to GAAP financial measures selected non-GAAP-adjusted measures, the calculations of which are described in detail in our press release. Throughout the call, all financial measures will be GAAP unless otherwise noted. You can also find reconciliations with GAAP and non-GAAP measures, as well as a description, limitation, and rationale for each measure in Southampton's press release. To aid analysts and investors in building their models, we have posted exhibits under the financial information tab of our investor relations homepage that include a presentation of our non-GAAP or adjusted measures and selected other financial data for the first quarter of 2021, as well as fiscal year 20. I'd like to remind everyone that we'll be participating in the UPS Healthcare Conference later this month. We'll also be attending the Jefferies Healthcare Conference in early June. 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.

Thanks, Doug. Good afternoon, everyone, and thank you for joining us today. Before I provide a quarterly update, I'd like to take this opportunity to welcome two new directors that joined our board during the first quarter. Dr. Dan Rolison is Vice President, Chief Data Officer, and Associate Center Director of Data Science for the Moffitt Cancer Center. Janet George is Group Vice President of Autonomous Enterprise, Advanced Analytics with Machine Learning, and Artificial Intelligence at Oracle. These appointments underscore our commitment to capitalizing on the unique informatics and big data opportunities presented by spatial biology, and I'm honored to have Dana and Janet join our board. 2021 is shaping up to be an exciting year for nanostrategists. Spatial biology is in a period of tremendous growth, revolutionizing research and fields spanning from oncology to COVID-19 to neuroscience. During Q1, we extended our lead in this dynamic market with Geomics DSP instrument orders setting a new record and exceeding the guided range of 40% to 50% year-on-year growth. The launch of our Geomics whole transcriptome atlas is off to a great start and drove more than 60% of our record 94 new technology access program projects during the quarter. Meanwhile, our encounter business sustained its durable growth with steady demand for new instruments continuing more than a decade after the platform's introduction. Our encounter instrument revenues were particularly strong, increasing 43% year-on-year. While the geomics and encounter instrument sales are powering through the pandemic, COVID-19 does continue to impact our encounter utilization, reducing encounter consumable pull-through per instrument relative to historical levels. We expect this pandemic-related reductions in lab activity will continue to impact in-counter consumables through the mid-year with improvements during the second half of 2021. I'd like to provide an update on the three strategic objectives that we focused on in 2021 before turning the call over to Tom to review the details of our operating results for the first quarter and our financial outlook for Q2. Our first strategic objective for 2021 is to extend Geomix VFP's leadership in spatial biology. During the first quarter, we capitalized on the opportunity to sell Geomix instruments into the large installed base of aluminum sequencers, with NGS readout driving more than half of the Geomix system sold. Geomics consumable revenue for the NGS readout is also accelerating, with NGS readout assays accounting for more than half of geomics consumables sold during Q1. While it remains too early in the adoption cycle to predict how geomics consumable pull-through will differ between systems that use encounter readout versus NGS readout, early signs point to strong utilization of geomic systems attached to NGS. We are working closely with Illumina to illustrate the power of geomics paired with MGS. We recently announced a new collaboration with Illumina Accelerator and their portfolio company, Doloromics, to bring spatial biology to the development of a new generation of pain therapeutic units. Looking forward, we plan to provide a geomics DSP technology access program grant to at least one startup from each Illumina Accelerator funding site. The most important event of the first quarter was the launch of our whole transcriptome, ATLAS, or WTA for short. Nanostring is historically known for providing customers with powerful disease-focused panels in fields such as oncology, immunology, and neurology. The human WTA is the first genome-wide assay that we've ever offered and serves the needs of any researcher studying human tissue samples. The launch of the WTA allows us to introduce the geomics DSP to numerous researchers in the basic discovery market who have not traditionally engaged with our company. The March Advances in Genome Biology and Technology, or the AGBT conference, was the perfect launch venue for WTA. There were a dozen WTA abstracts presented at AGBT in fields such as immuno-oncology, neurodegenerative disease, and COVID research. We plan to build on the WTA momentum during the second quarter by launching a mouse version of the whole transcript on Alice, addressing a critical model organism that we believe accounts for about 30% of the market opportunity in discovery research. We've been providing customers with the opportunity to test drive the WTA through our TAP service, which provides a strong, positive, and leading indicator of demand. We generated record TAP orders in the first quarter, with the number of projects ordered increasing about 75% over the prior year. Our WTA assay accounted for more than 60% of all Q1 TAP projects, up from about 40% of TAP projects during the fourth quarter. In addition to opening new areas of research, WTA captures significantly more revenue per sample than previous geomics panels. priced at about $1,750 per sample, WTA generates about three times the revenue per sample that we record for most geomics panels, which read out using in-cap. We expect that WTA will be a key growth catalyst in 2021 and beyond, expanding the overall addressable research market for geomics to what we estimate is about $3 billion per year. Now I'd like to shift gears towards the translational research where nanostrain has always been strong and where we continue to extend our market leadership. Protein assays for translational research are a popular and underappreciated application for Geomix, accounting for about 30% of the TAM, which have been featured in 90% of Geomix peer-reviewed publications to date. GeoMix is best in class for spatial protein analysis, enabled by the highest PLEX and the largest antibody menu of any spatial biology platform. Because of the simple workflow and fast turnaround time, we expect encounter readout to remain the preferred platform by translational research customers focused on protein analysis. During Q1, approximately 45% of GeoMix instruments ordered will be used with encounter readout. and in-counter readout assays drove about 40% of geomics consumable sales. The importance of spatial biology and translational research was prominently featured during the American Association of Cancer Research, or AATR, conference last month. Researchers presented eight geomic studies, including four studies by investigators from the Geomics Breast Cancer Consortium. an international network of researchers using geomics to develop a comprehensive atlas and data set of novel biomarkers for breast cancer. Dr. Christina Curtis from Stanford gave an oral presentation describing how her group used geomics to identify biomarkers that may someday help to select patients likely to benefit from novel therapies. Dr. Sandra Swain's group from Georgetown University used geomics to demonstrate that primary HER2-positive tumors have more immune cell infiltration than metastatic tumors, which may explain why metastatic disease is so much harder to treat. Peer-reviewed publications continue to be an important indicator of geomics productivity and a driver of future demand. A record number of geomics papers were published during Q1, increasing the body of peer-reviewed geomics publications by about one-third. Two recent papers in the journal Nature demonstrate the unique capability of geomics in COVID-19 research. Researchers from the Brogan Institute of Israel and Weill Cornell used geomics in conjunction with single-cell RNA sequencing to generate a spatially resolved cell atlas to discover fundamentally new mechanisms for COVID-19-induced fatalities. Overall, we're delighted with the expansion of the spatial biology market and with the leading position that genomics occupies. Our second strategic objective is to advance the development of our spatial molecular imager and to feed the market for the commercial launch planned for next year. The spatial molecular imager, or SMI for short, is designed to enable customers to perform high-flex imaging of proteins and RNA down to the single cell and even subcellular resolutions using a single instrument that handles sample prep, imaging, data capture, and quantification. We showcased our new spatial molecular imager at the AGBC conference, and customer interest was robust. seven SMI posters were presented at the meeting, including the first two presentations from our external collaborators at the Fred Hutch and Dana-Farber Cancer Centers. While other imaging platforms were also previewed at AGVT, our SMI demonstrated industry-leading flex and sensitivity, and we believe SMI will be the best in class amongst the emerging imagers. In Q1, we announced a technology access program for SMI with the objective of conducting a small number of high-impact projects with key thought leaders in spatial biology that will help build awareness and seed the market. Interest from collaborators has been high, and we've already booked enough SMI TAP projects to keep us busy for the balance of 2021. Based on initial customer feedback and our market research, we believe that the multi-cell resolution of GeoMix and the single-cell and sub-cell resolutions of SMI are highly complementary and provide a portfolio that covers the continuum of spatial research applications. We expect the launch of SMI will double the size of the spatial biology research market that we serve from 3 billion today to 6 billion in the future. We remain on track for our commercial launch during the second half of 2022, and I look forward to updating you on this program as it advances over the year ahead. Our third strategic objective is to return our encounter business to pre-COVID growth levels. During Q1, we generated year-on-year growth of 25% in our encounter business. The encounter franchise had another impressive showing at the AACR conference, where about 45 encounter-based abstracts were presented. The encounter system remains a platform of choice in oncology research, even as we continue to expand our portfolio into new markets. It ended the first quarter with an installed base of nearly 1,000 encounter systems, an increase of about 15% over the prior year. Demand for new encounter systems is coming from a diverse set of researchers. During Q1, about 80% of new encounters were sold for both gene expression, and about 20% were sold for spatial biology, bundled with a geomix system. While roughly 60% of new customers were sold, sorry, while nearly 60% of new encounters were sold into our core application of oncology research, About 40% of system sales were driven by immunology and other applications. Encounter consumable sales also reflected the diversification of our customer base, as panels targeted towards host response, organ transplant, and fibrosis contributed to growth. Overall, we're pleased with trends in our business and our progress towards strategic objectives. Now I'd like to turn the call over to Tom to review the details of our operating results. Thanks, Brad, and thanks all for joining us today. For the first quarter of 2021, product and service revenue was $31.4 million, representing year-over-year growth of 28%. Q1 geometry revenue was $9.7 million, up 37% as compared to Q1 20 and above the high end of the Q1 guidance we provided in March. $7 million was derived from approximately 30 instruments shipped, and $2.7 million was derived from consumable sales. For NCounter, Q1 instrument revenue was $4.8 million, representing year-over-year growth of 43%. Q1 NCounter consumable revenue was $13.3 million, representing year-over-year growth of 21%. As anticipated by our Q1 guidance provided in March, COVID continued to moderate lab activity in selected customers and geographies, yielding annualized NCounter pull-through of about $56,000 in Q1. As our full year guidance contemplated, we currently expect modestly lower lab activity in some geographies may persist through Q2, and therefore encounter pull-through in the current quarter is expected to be about the same as we realize in Q1. We continue to anticipate a recovery in the second half of the year, and we are reiterating our guidance of 60,000 to 65,000 in annualized encounter pull-through for the full year. Service revenue was about $3.7 million for the quarter, or 17% year-over-year growth, driven primarily by increasing GeoMix DSP cap projects and increased service contract revenue given by our growing instrument installed base. Turning to margins and expenses, I'll provide results on a non-GAAP or adjusted basis, which please refer to our press release as well as the exhibits we have posted to our investor relations webpage for detailed information on how our non-GAAP or adjusted measures are prepared. Q1 adjusted gross margin on product and service revenue was 52% and reflected investments in manufacturing and tap service capacity to support our expected revenue growth and expansion into new product and service offerings. To a lesser extent, gross margin also reflected a Q1 cutoff distributed markets, where realized average selling prices are typically lower. Adjusted R&D expense was $12.6 million, a decrease of 15% year over year. R&D was lower in Q1 primarily due to timing of certain expenses expected to be made for research supplies and personnel as we ramp investment in our SMI product development program. We expect R&D expense will increase through the balance of the year as SMI development accelerates. Adjusted SG&A expense was $21 million, a decrease of 7% year-over-year. Q1 SG&A expense change was primarily due to savings realized from pandemic-related reductions in travel and trade show activities. These savings were offset by investments made in our spatial biology-related commercial initiatives, digital marketing initiatives. Adjusted EBITDA loss was $17.2 million, an improvement of 27% as compared to the prior year. For the balance sheet, we exited the quarter with approximately $410 million of cash, cash equivalents, and short-term investments. For envisioning the guidance, we are reiterating our full-year 2021 financial outlook for revenue, gross margin, and expenses as provided on our March call. For geomics, We continue to expect a seasonal revenue pattern that is weighted to the second half of the year, with roughly 40% of Geomics revenue to be recorded in the first half of the year and about 60% in the second half. As a reminder, we do not expect any material collaboration revenue to be recorded in future periods. For Q2, we expect product and service revenue to be in the range of $31 to $33 million, representing year-over-year growth of 47% to 56%. This range assumes 21 to 22 million of encounter revenue and 10 to 11 million of geomics revenue. Geomics revenue guidance assumes about 40 to 50% instrument bookings growth year over year, consistent with our annual guidance established in March. Now I'll turn the call back over to Brad for closing comments. Thanks, Tom. 2021 is off to a tremendous start. Nanotrain is the market leading product portfolio in the hottest field in life science research. spatial biology. The launch of our Geomix whole transcriptome atlas has added to the substantial commercial momentum of our Geomix franchise, while the unveiling of our spatial molecular integer is driving customer anticipation of its 2022 launch. Our encounter platform is a mainstay of oncology research and continues to reach new customers. Our strong balance sheet supports targeted growth investments that capture our substantial market opportunities, and we are confident in our ability to fulfill our mission to map the universe of biology. With that, we'd like to open up the line for your questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by. We compile the Q&A roster. Your first question comes from the line of Tycho Peterson from JP Morgan. Your line is open.

Hey, guys. Good afternoon. A couple questions, I guess, on pull-through. Overall, you know, Jamek's pull-through was a little bit led. I know, you know, WTA is going to be accretive, so can you maybe just touch on You know, those two dynamics, how pull-through in the quarter kind of trended versus your own expectation. And then, you know, if we think about WTA and the funnel building there, you know, how do we think about overall pull-through trending?

Yeah, thanks, Tycho. You know, I would say that Q1 geomic pull-through was directly in line with Tanner's expectations. We said at the beginning of the year that GeoMix, because of the whole TranscriptoMathless launch, would be about 40% of revenue in the first half and 60% in the second, with pull-through increasing seasonally as the WTA launch began to have more of an impact. In Q1, pull-through was around $85,000 per system per year, which was pretty much exactly what it was in the third quarter. So on a seasonal basis, where we normally expect Q1 to be relatively low on pull-through, that's right where we want to see it. Our guidance for the full year remains intact of consumable pull-through at the $85,000 to $95,000 basis annualized. So that implies, Tycho, that we're at the bottom of that range right now. I think we should expect to see strengthening over the course of the year as the whole transcript on Atlas becomes a more major part of our consumer revenues. We didn't say in a prepared remark, but whole transcriptome outlets contributed modestly to consumable revenue in the first quarter. We didn't begin shipping that product till March. So it was only a few hundred thousand dollars of our overall consumable revenue. It'll make a much bigger contribution.

And I'm glad you alluded to customers, you know, with NGS readout being at higher pull through as well. Are you able to just kind of give us a rough sense of the magnitude there? I know you're not ready to fully quantify it, but.

I would just say, you know, we have a high five figures pull through that we're seeing so far in encounter readout geomics, and we're seeing NGS customers pull through well into the six figures. It's early days, but that is a pattern that we had hypothesized that we would see, and so far it looks like it's playing out.

And then on the commercial side, I got two questions here. One, you touched on the proteomics market. I'm curious if there are efforts underway to tap into that market a little more. And then on the Salesforce front, you're hiring 100 reps. Can you talk a little bit about how that's been going?

On the proteomics front, I don't think we're trying to reposition the company in any way as a proteomics company, but I do think the proteomics capabilities of geomics are a huge differentiating factor in the spatial biology marketplace. Our market research that we outlined at the December investor day did highlight that 30% of the overall pan is in protein. 90% of our publications have been based on protein assays so far. And that is a place where GeoMix just absolutely excels. And it's particularly important and appealing for the highly contested translational research market. In terms of Salesforce expansion, things are off to a good start. We have made hires throughout the first quarter. We'll be continuing to make hires throughout the second quarter with the goal of having all of those new commercial hires on board by mid-year. In terms of when I would expect to see their impact on our revenue line, normally it takes some months. for commercial hires to come up to speed up to six months, depending on the position. So that's really going to contribute to our growth and strengthen the second half.

Brad, can you maybe just comment a little bit more on the selling and spending environment that you're seeing right now?

Bit of a mixed bag in terms of the commentary we've gotten so far on sort of the state of the academic lab base when it comes to centralized versus decentralized labs. And just the level of incremental spending increases that you saw in 1Q and might be expected at 2Q. Anything you can help us with there on just COVID challenges and to the extent that they still are in play here?

Sure, Ben. I'd say it's a tale of two businesses for nanostrings. You know, the, the geomics and spatial biology business is robust and it's really powered through the COVID-19 pandemic. You know, I'll remind you that in 2020, we ended up achieving, uh, our original full year guidance that was issued pre COVID-19, uh, with, you know, a large growth of our installed base and, you know, strong consumable pull through. So that business really was unimpacted in 2020. And I would say it remains unimpacted in 2021. And the reason for that is that we're in the midst of a spatial biology revolution where this has been named Nature's Method of the Year. There's very high profile papers coming out and many institutions feel like they must acquire this capability to remain competitive. In contrast, our approximately 1,000 instrument encounter installed base is working across a wide area of research. Some of it urgently needed and related to COVID-19 and in high priority areas, and some not. In addition, geographically the encounter has a global installed base, and I would say during The improved utilization of our encounter install base in North America was really partially offset by challenges experienced in some European countries where lockdowns reemerged at various points in the port. So overall, I'd say net-net, the encounter and utilization is right where we expect it to be, which is about flat sequentially from Q4 to Q1. Points to improve as the impact of vaccines takes hold and people getting back in the labs using their encounters in the second half.

Okay. Very helpful. Maybe just sticking with spatial, obviously, AGBT brought a few new platforms out of the shadows there. I'm just curious whether you saw anything or you heard from customers anything that sort of informed the product development process for the SMI or the geomics system, I suppose, but just when it comes to specs or performance or capabilities that you want to have setting your instrumentation apart.

Yeah, I think there was a huge theme of spatial biology at AGVT. I'd say overall it's very positive for the market that so many players are out there talking about this field and beginning to offer products in the field. We feel very confident. Most of those new products that were previewed at AGVT were in what we would call the imager category, so products that do single-cell or even sub-cell resolution using an imaging modality, and they would compete with our spatial molecular imagers. The SMI is positioned as the high-plex offering, 1,000-plex compared to some hundreds of plex for the other offerings, and very high sensitivity relative to the other offerings. So we feel really great about the portion of the market that we're likely to occupy. I didn't see anything at AGVT that made me any less confident that SMI is going to be a successful product.

Okay, maybe just one more on SMI, and I'll get out of the way. I think last call you said you had 10 instruments that were gearing up to receive samples, and you just mentioned that you have plenty of work to keep it busy, keep them busy. What would be the aggregate utilization level that you have across those 10 systems? I mean, I know it's not a perfect indicator, but I feel like, you know, if we had a sense for whether they were running at 40% or 80%, it could be helpful. Just sort of an indication there might be good.

Yeah, I think when you look across our product development activities, which of course use the same instruments, and our technology access program, we are running every SMI system we have at very high utilization. You know, we're pushing the limits of the technology from our product development perspective, and we have many eager key opinion leaders who are going to work with us to demonstrate the power of the technology. I don't really have a percentage number, but I know it's very high.

Yes. Okay. Very good. Thanks, guys.

Your next question comes from the line of Dan Brennan from UBS. Your line is open.

Great. Thanks for the question. Just wondering, on the lab openness, if you will, you know, sequentially revenues are going to be up in Q2, and then obviously you've discussed it's more back half way to the year. Any factors to call out when you think about tracking labs, the data you're seeing in terms of the relative change that you saw? in Q1 versus Q4 and kind of what's implied in your guidance here for Q2?

Yeah, I think the guidance for Q2 is completely consistent with the commentary that we have provided, which is really no expected improvement in lab access from Q1 to Q2. So I think Tom was pretty explicit. The encounter consumable pull-through that we experienced, which was $56,000 per system on an annualized basis, And just to reiterate, I think what we saw in the first quarter was some improvements in North America with labs continuing to increase their utilization, providing direct evidence of more people in the lab doing more work, really offset by weakness in Europe where governments began to discourage people from being in the lab maybe as much as they were in the back half of the year as there were waves of outbreaks. This is all consistent with the guidance that we issued at the beginning of March. Our original annualized guidance had anticipated no strengthening and encounter control for the second half. And really, that's what we're seeing.

Brad Pacheco- Got it. And then in terms of the order growth, you said it was above the 40 to 50 percent. I think orders grew throughout the year last year, so any color? Was that surprising, or is that just maybe you had a little bit of an easier comp? Sorry for the dog in the background. Is that just because you had an easier comp on orders in 1-2, or did the order strength surprise you guys in the first quarter?

No, I'd say the order strength in the first quarter was great, but not a surprise. You know, it came in slightly above, you know, the top end of our guided range. So we were pleased with it, but not surprised by it. And, you know, I do think the comps obviously do get harder as the year goes on because we were in a pretty steep launch curve last year as well. So 40% to 50% order growth remains our guided – you know, expectation.

Got it. And then when you think about, you know, some of the growth in TAP that you mentioned, how do we think about that kind of filtering through? Obviously, you have your guidance that's set, but it was a nice sequential step up in TAP. Could that portend potential further strength above and beyond what you're guiding to? What do you expect that kind of strength in terms of the number of TAP projects in one year?

Yeah, I'd say a total number of projects, our one-two performance was right in line with our expectations. If anything, it exceeded the expectations. It was the strength of the continued shift towards the whole transcriptome atlas as the preferred modality there. Only about 15% of the tap orders that we got in the first quarter were for encounter readout, which increasingly people buy without having to do a tap. 85% of new taps were for MGS readout. And I think in terms of how that plays through to instrument purchases, Generally speaking, we see sort of a nine-month period from the time you order a tap, and then maybe it takes a quarter to run your actual project and get your results back. So it's nine months from tap order to actual instrument order. So a strong Q1 in terms of tap sets up a strong second half in terms of geomix instrument purchase.

Got it. And then maybe final one, just in terms of color on customers for GeoMix, you know, obviously now you're going into discovery, so it's going to be more influenced by academia as opposed to, you know, transitional customers. But I'm wondering when you think about, you know, the mixed CROs, pharma, academia, could you just, you know, kind of give us an update on kind of what's happening across the various customers?

Yeah, you're right, Dan. Academics are becoming an increasing fraction of the new geomics instrument purchases as discovery becomes more of an exciting modality. I'd say within our direct markets where we have the best visibility into the customer types, academics outnumber pharma and CRO on about a two-to-one basis. in the first quarter. So I think two-thirds biopharma, sorry, two-thirds academic, one-third biopharma and CROs. So that's a continued enrichment of academics relative to biopharma.

Great. Okay. All right. Thanks, Brad.

Your next question comes from the line of Thomas Peterson from Baird. Your line is open.

Hey, guys. Thanks for taking the questions. Just curious if you could comment on sort of core research activity heading into April and May and sort of how those purchasing activities have trended, especially if you could call it any pacing activities. I know you called out the geographic commentary on the academic research side earlier, but any pacing commentary to call in the quarter and then sort of expectations in the back half around funding environments given, you know, expectations for a strong NIH global funding environments?

Yeah, Tom, I don't know that I have a lot to add to what I've already said, but just to reiterate it, I think we don't see a huge strengthening in lab access as evidenced by our in-counter pull-through between the first and the second quarters. By the second half, We expect fascinations to be widespread, you know, kind of the return to work across all sectors of the economy, including lab research will be well underway. And I do expect, you know, a substantial strengthening of encounter consumable utilization in the second half. But just as a reminder, you know, spatial biology, in contrast to encounter utilization, has powered right through the pandemic from the beginning. And really, I would say there's nothing about the COVID-19 pandemic that is impacting our geomic sales, either on the instrument or on the consumable side at this point. It's really isolated for us to encounter utilization.

Got it. Got it. Appreciate that. And then just quickly, you guys have been hitting a lot recently on sort of potential developments on the software and bioinformatics side. Just curious if you have any updated thoughts here, timelines, as well as any particular customer feedback you're incorporating into development efforts here. Thanks.

Yeah, well, you know, informatics has been something we've always been focused on for spatial biology. And when we launched the Geomext Digital Spatial Profiler, it came and comes with a very sophisticated data analysis suite that's run on instrument at this stage. And it has really delighted customers and allowed them to very quickly visualize and manipulate and understand their data. But we're not done there. We want to continue to make collaboration and sharing of data more possible. That means developing in the future services that would take place in the cloud that would allow for storage of images and storage of the raw data, sharing and collaborating across customers across sites. So look for us, I don't have specific timelines, but look for us to continue to strengthen our offering in that aspect of spatial biology. It's probably more of a 2022 event than it is a 2021 event for us, but it's clearly an area of tremendous importance and investment.

Your next question comes from a line of Doug Schinkel from Cohen. Your line is open.

Tom, a couple of modeling questions. Encounter ASP was a bit lower than we expected in the quarter. Could you just speak to whether there was anything different relative to trend when it came to mix of types of encounters placed in the quarter which might have impacted ASP? And then encounter pull-through would need to jump from I think about 55,000 annualized in the first half to $65,000 to $70,000 annualized in the second half to get into your guidance range for the year. I'm just wondering what you're seeing that gives you conviction that that is actually going to pick up to those levels. I think first, Doug, I'll take the ASP question, and then I'll toss it back to Brad for the trend question. On the ASP question, it was, as I mentioned in the prepared remarks, talking about gross margin, a bit of a tilt to distributor mix. among Sprint and Max Flex that was really a distributor mix that impacted the ASP modestly in the first quarter as compared to others. Hey, Doug, this is Brad. I'll take the question on the consumable trend. You know, I think a corollary to the question you asked is really to say how confident are we that the relatively suppressed consumable fulcrum that we saw and encounter relative to pre-COVID rates is due to COVID We look carefully at the correlation of pull-through on a regional basis to where COVID-19 outbreaks and COVID-19 lockdowns are taking place. And it's a pretty direct correlation. You know, when we hear about lockdowns, we see reduced consumer pull-through in that region. And the inverse is also true. And so, provided that the economy and the overall pandemic begins to relieve in the second half as vaccinations become widespread, not just in North America, but in European countries who are a little behind, we should see a correlating strengthening and control over in the second half. Back to levels that were, call it consistent with our pre-pandemic 2020 guidance. So that's what we, I think that's what we're making our judgment on. Okay. Super helpful. One more along those lines. A couple different points, but pulling them together. You talked about the mix of geomics being placed with sequencers on the back end versus end counters on the back end. And we also talked about consistent with what we've heard across the group, activity picking up a little bit more at the larger cores and major genome centers and maybe lagging a little bit at some of the smaller labs. When I pull those things together, I'm wondering if the mix of genomics being placed in front of sequencers is skewed in part by where there's activity or if this is really a normal mix that we should expect moving forward. Do you have any thoughts on that, Brad? Is this impacted by lab activity levels, or is this the norm that we should be expecting in terms of MIX moving forward? BRAD FITZPATRICK I think it's the norms of what you should expect I think on our March call, we described that we expect at least 50% of geomic systems being shipped this year to go in front of NGS. And I'd say that remains true, and it could very well be higher. You know, NanoString has not observed this differentiation between cores and smaller labs that some other management teams have. have talked about on their calls. I'm not saying it's not there. It's just we haven't had direct experience with that. So I would say everything we're seeing with respect to NGS readout strength is fundamental to the capability set that NGS provides. The tremendous install base of NGS systems, which outnumber encounters by a factor of between 15 and 20 to 1, and the excitement about the whole transcriptome atlas and what that enables in terms of that could be done on geomics in combination with a sequel term. OK. Thank you again.

Your next question comes from the line of Peter from Savant from Morgan Stanley. Your line is open.

Hey, guys. This is Edmund. Thanks for the time for the questions. I guess my first question, I'm going to circle back to your SMI tab. Outside of your strong demands that you're seeing for this new technology, what are some of the key learnings you guys are seeing through this program so far? And to what extent have these learnings impacted sort of the evolution of the new platform? And is it still evolving very quickly, or are you essentially locked down in kind of the alpha prototype, if you want to call it that?

I think maybe the one key learning that is most informative to our product development is the tremendous appetite for 1,000 plex assays that we're seeing. That's the place where The SMI is most different from the competing imagers that are being offered elsewhere. And the excitement about what's possible in a thousand Plex is palpable. And I think that has just made us more confident that this idea of taking the Plex leadership position within the market and serving the need, not only of translational researchers who are more comfortable with targeted, assays, but also discovery researchers who demand Plex. I think that's bearing out to be the right strategy for us.

Got it. Thanks. That's very helpful. And given that the in situ imager will involve a CapEx purchase, how important is it to, I guess, be a first mover in this market? How important is this first mover advantage here?

I don't think that the exact order of product launch is critically important to the extent that we are out front talking about the capabilities of our system and providing researchers the opportunity to experience those capabilities. You know, the wave of imagers that's coming to market is we're all coming to market in a relatively short window. And I think one group getting to market, you know, a matter of months before others is not a huge shift in competitive dynamics.

Got it. And then just one more on the SMI TAP program. I think you guys mentioned earlier that you have 10 instruments running R&D internally and also running the TAP programs. And it's already at pretty high utilization capacity. Are there any thoughts on expanding that to maybe something a little higher to accelerate some of the TAP programs or taking more TAP programs and potentially accelerating the timeline?

Yes, there are. I think over time we will expand our SMI TAP program. At the beginning, though, where the SMI alpha prototypes, they're really not nearly as capable as even the betas or the full launch instruments will be. We don't want to overinvest in capacity on alpha systems, so we're thoughtful about how many alphas we dedicate to SMI versus waiting to dedicate more capable betas versus dedicating And again, that future more capable full commercial system. So we're really growing our capacity in a way that makes sense. Our strategy is for 2021 to really work with a highly select group of geomex researchers to demonstrate the capability of the system in a way that allows us to educate the market. In 2022, we'll move into a higher gear where we're really providing test drives directly to the people who we want to sell instruments to. It's a little early right now for us to be doing that given that the full instrument launch is until the second half of 2022. So we will scale up capacity as we get closer to that launch.

Great. Thank you guys very much for the time.

Thank you. There are no further questions at this time. I turn the call back over to Doug Ferriero.

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