NanoString Technologies, Inc.

Good day. Thank you for standing by and welcome to the NanoString third quarter 2021 operating results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Doug Farrell, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Operator. Joining me on the call today is Brad Gray, our President and CEO, and Don Bailey, our CFO. Earlier today, we released our financial results for the third quarter of 2021. During this call, we may make statements that are forward-looking, including statements about financial projections, the impact of the COVID-19 pandemic, 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 recent and planned product launches. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to update any forward-looking statements. Later in the call, Tom will be discussing our financial results and 2021 guidance. We have prepared as a supplement to GAAP financial measures selected non-GAAP adjusted measures, the calculation of which are described in detail in our press release. Throughout this call, all financial measures will be GAAP unless otherwise noted. You can find reconciliations of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using such measures in 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 third quarter of 2021, as well as for each quarter of the full year 2020. I'd like to remind everyone that we'll be participating in this people virtual healthcare conference next week. We look forward to having the opportunity to speak with many of you there. Now I'd like to turn the call over to Brad. Thanks, Doug.

Good afternoon, and thank you for joining us today. Spatial biology is having a banner year, and nanospray continues to extend its lead in this exciting market. During the third quarter, we posted record geomics revenue as our whole transcriptome assays using next-generation sequencing readout appealed to customers across both discovery and translational research. Earlier today, we unveiled our new Cosmix Spatial Molecular Imager by publicly releasing a data set and manuscript that described the power of this platform to image the expression of almost 1,000 genes and biobank samples stored as oral and fixed paraffin-embedded tissue. Meanwhile, our encounter franchise posted strong instrument placements, while consumable revenue continued to be impacted by residual effects of the pandemic. Let me now review progress towards our 2021 strategic objectives before handing over the call to Tom Bailey to review our results and outlook. Our first strategic objective for 2021 is to extend our lead in spatial biology through the broad adoption of the Geomix Digital Spatial Profiler. Three quarters through the year, our spatial biology business is right on track with the Geomix franchise performance trending towards the top end of our guidance range for both instrument orders and overall geomics revenue. During the third quarter, geomics instrument orders grew 40% and are now on track for the full year geomics instrument order growth of about 50% compared to 2020. Customer interest in using next-generation sequencing as the readout for GeoMix experiments is a key growth catalyst in about 75% of GeoMix instruments ordered during the third quarter or purchased for use with MGS readout. GeoMix consumable pull-through remains strong at an annualized rate of about $95,000 per system. Our GeoMix whole transcriptome atlas, or WCA assays, which were introduced during the first half of the year, leverage MGS readouts and are the first system-wide products that we've ever offered. In Q3, our assays for MGS readouts accounted for about 75% of Geomic's consumable orders, as revenue from our human whole transcriptome atlas increased 70% sequentially from the second orders. Repeat orders were strong, with about half of our WTA customers already placing follow-up orders. Nanostream has a strong history of serving translational researchers who are focused on disease research, and our whole transcriptome assay is really no exception. In fact, about half of the translational researchers who originally had dropped the geomics to use with protein assays using encounter readout are now also using whole transcriptome atlas assays with NGS readout. The WCA assays are also getting traction in the large market for basic discovery research, helping us expand beyond the translational research market that has historically represented our core focus. Mice are the most important model system for discovery research, and researchers with interests as diverse as immunology, neuroscience, infectious disease, and developmental biology have embraced our mouse-full transcriptome assays. In the third quarter, about 20% of our geomics instrument orders came from customers who adopted DSP specifically for mouse whole transcriptome research. We're also seeing strong leading indicators of demand from discovery researchers via our technology access program, which delivered results from a record number of projects completed in the third quarter as we continue to work through a large backlog of projects that were committed earlier in the year. A full 90% of new projects were for NGF-based products, and mouse whole transcriptome assays accounted for about 25% of new projects. In October, we unveiled the first spatial organ atlas, which includes whole transcriptome images of key functional tissue structures for five human organs, including the human brain, kidney, colon, pancreas, and lymph nodes, as well as the mouse brain, Much like the Cancer Genome Atlas and the Human Cell Atlas efforts, we expect our Organ Atlas to become a reference database for spatial gene expression by organ, including both healthy and diseased tissue. We introduced the Spatial Organ Atlas during the American Society of Human Genetics, or ASHG, meeting last month and have been taking it on a roadshow ever since. These data sets can be found on the Spatial Organ Atlas page of the Geomix PSP section of our website, and interest has already driven a meaningful bump in website traffic and lead generation, as well as commitments from several external groups to extend the Atlas to additional organ types. Overall, Geomix continues to drive rapid growth of our leading spatial biology franchise, and we're excited by how quickly this opportunity is unfolding. Our second strategic objective for 2021 is to expand our spatial biology franchise with high resolution offerings by advancing the development of our spatial molecular imager and seeding the market for the commercial launch that's planned for next year. Molecular imaging is shaping up to be an important new category in spatial biology. Imaging platforms measure expression of a targeted number of RNAs or proteins at the single-cell or sub-cell resolution. Our spatial molecular imager provides the perfect complement to hold transcriptome analysis using Geomix PSP, a perspective held by numerous Geomix customers who've already expressed interest in acquiring an SMI and further collaborated and corroborated by several recent customer surveys published by CellSight Analysts. We are in an exciting period as we're beginning to reveal more details about our spatial molecular imager. Let me focus on three key developments outlined in a press release that we issued this morning. First, we've unveiled a brand name for our imager, which is COSMICS-SMI, chosen to provide a celestial complement to our geomics DSP brand. The COSMICS brand is aspirational, captures the imagination, and invokes our mission to map the universe of biology. Second, we publicly released a high-resolution data set generated using the COSMICS SMI, highlighting the unique performance characteristics that set COSMICS apart from competing imagers and allow researchers to see for themselves the power of this new platform. This data set includes RNA expression, massive single and subcellular resolution within eight non-small cell lung cancer specimens. Two key attributes of this dataset contrast with data released by others in the past. First, the COSMIC-SMI dataset maps RNA from almost 1,000 genes, approximately twice the number of genes covered by competing platforms. Second, this was generated using formalin-fixed paraffin-embedded, or FFPE, tissue samples. The compatibility of COSMICS-SMI with challenging FFP samples sets it apart from competing imagers, allowing researchers to unlock value in archival samples as well as to apply the platform to clinical samples. The COSMICS-SMI dataset can be accessed through NanoString's website and analyzed by the research community. The complete dataset consisting of over 800,000 single cells 260 million transcripts, and a spatially resolved cell-type map of non-spellful lung cancer tissue across 150 square millimeters. The data can be explored through an interactive viewer and downloaded for analysis using an open source of third-party informatics packages. Early feedback from luminaries in the field about a sneak peek at the data prior to release has been overwhelmingly positive. and we look forward to discussing it with the broader research community in the months ahead. Our third major revelation regarding Cosmic SMI is the release of a manuscript providing details of the chemistry that powers the platform and the performance that it achieves. This manuscript, which can now be viewed in the online journal bioRxiv, will serve as a reference for customers considering a Cosmic SMI purchase. It describes the performance of COSMIC in FFP tissue, including resolution, sensitivity, and reproducibility, as well as key applications of the platform, such as identifying cell types and measuring cell-to-cell interactions. In addition to providing details on the RNA expression capabilities of SMI, the paper provides a teaser of COSMIC's protein capabilities, showing 81-plex protein expression data in FFP, further differentiating COSMICS from competing molecular imagers powered by genomic chemistry, fluorescence, or mass spec. Together, the COSMICS SMI and Geomics CSP represent a compelling product suite that will span the continuum of applications in spatial biology. The next major event to highlight this portfolio will be our fourth annual Spatial Summit. which we will host on Monday, February 28, at the Advances in Genome Biology and Technology, or AGBT, meeting in Orlando, Florida. This half-day session will provide more details on COSMICS SMI and will showcase early work from outside groups coming out of our SMI Technology Access Program. This session will be open to the investment community, and you do not need to be registered for AGBT to attend. We hope to see many of you there. Our third strategic objective is to return our encounter business to the growth dynamics seen prior to the COVID-19 pandemic. During the third quarter, our encounter performance was mixed, with strong instrument sales offset by a slower-than-expected recovery in consumable sales. Our strong encounter instrument sales demonstrate the continued demand for encounter's unique combination of simplicity, power, and robustness. The sales of encounter instruments during the quarter exceeded consensus estimates for instrument sales by 25% at roughly $6 million. Here today, our instrument revenue is similar to the first three quarters of 2019, indicating that we are returning to pre-pandemic levels on the instrument side of our business. We continue to diversify our encounter into new areas beyond oncology. as about half of our encounter systems were sold for non-oncology applications in the third quarter, including immunology and infectious disease. Meanwhile, the pace with which our customers are publishing papers using Encounter has never been higher. Over the past 12 months, our customers have published more than 1,000 new Encounter papers, bringing the total publications enabled by our technologies to over 5,000 papers to date. Our encounter franchise remains healthy and our customer base vibrant. That being said, slower than expected encounter consumable sales during Q3 illustrate the lingering impact of COVID-19 on one particular segment of our encounter customers. That is, biopharma companies focused on oncology biomarker studies. An estimated 70% of encounter users pursue oncology research, while about 25% of encounters are owned by biopharma companies and CROs. These customers typically analyze samples that have been collected during clinical trials. As the COVID-19 pandemic began, oncology clinical trial enrollments slowed. The downstream consequence of this slowdown was lower volumes for biomarker discovery studies today. which translates into slower sales of encounter oncology panels. Let me illustrate how this phenomenon impacted encounter consumables in the third quarter. During the third quarter, sales to academic researchers returned to more than 90% of pre-pandemic levels in North America and to approximately 80% in both EMEA and APAC. In contrast, consumable utilization by biopharma companies remains deeply suppressed at about 60% of pre-pandemic levels. The specific encounter consumables that were most impacted were immuno-oncology panels that were used extensively in supporting clinical trials. Pharma pull-through has not improved thus far in Q4, and it's difficult to project when pharma biomarker studies will resume at full pace. On this basis, we expect the encounter pull-through will remain below pre-pandemic averages in Q4, recovering further in 2022. To summarize, we continue to see healthy demand in spatial biology with solid momentum in translational research and increased penetration of the discovery market. Our Cosmix SMI is on track to begin shipping in the second half of 2022 and has demonstrated best-in-class RNA flex capability and unique compatibility with FFP samples. Lastly, our encounter business continues to generate strong instrument sales offset by slower recovery than we had previously anticipated on the consumable side of the business. 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 third quarter of 2021, product and service revenue was $36.9 million at the middle of our Q3 guidance range, representing year-over-year growth of 23%. Q3 geomics revenue was $13 million, up 47%, as compared to Q3 20 and at the high end of guidance we provided in August. $8.5 million was from approximately 35 instruments shipped, and $4.5 million was pull-through was about $95,000 per installed system in Q3. NCounter delivered a solid quarter for instrument sales, with $6 million posted in Q3, 11% year-over-year growth, and the second highest Q3 total ever for NCounter instrument sales. In contrast, NCounter consumables continued to be impacted by residual effects of the COVID-19 pandemic. Q3 end counter consumables revenue was lower than expected at $13.5 million for year-over-year growth of 10%. End counter utilization during the quarter impacted most materially in our pharmaceutical industry customers. Annualized consumables pull-through was about $53,000 in Q3. Service revenue was about $4.4 million for the quarter, representing 24% year-over-year growth, and was driven by Geomix DSP tap and increased service contract revenue from our growing instrument installed base. Turning to margins and expenses, I'll provide results on a non-gap or adjusted basis, which removes the impact of stock-based compensation, depreciation, and certain one-time items. Please refer to our press release as well as the exhibits we have posted to on how our non-GAAP or adjusted measures are prepared. Q3 adjusted gross margin was 56% consistent with our annual guidance range and about a 100 basis point improvement compared to Q3 of last year. Improvement was driven primarily by growth in geomics DSP revenue and was partially offset by additional investments made in our manufacturing capacity and increased costs associated with providing our tap service. Adjusted R&D expense was $16.6 million, an increase of 31% year-over-year. R&D was higher compared to the prior year period due primarily to increased personnel and product development costs related to our COSMICS SMI development program. We expect R&D expense will increase through the balance of the year as COSMICS SMI development continues. Adjusted SG&A expense was $23.8 million, an increase of 43% year-over-year. The Q3 SG&A expense increase was due primarily to investments made in our spatial biology related commercial initiatives, including investments to expand our sales force and our service and customer support groups, as well as costs related to licensing and implementation of new information technology solutions to support our commercial operations and finance functions. Adjusted EBITDA loss was $19.7 million, and we exited the quarter with approximately $370 million of cash, cash equivalents, and short-term investments. Turning to guidance, three quarters through 2021, the full-year outlooks for our geomics and encounter franchises have trended in different directions. Our spatial biology franchise continues to be our major growth driver, with geomic system orders and revenue trending towards the top end of our guidance range. We now expect full year 2021 geomics revenue will be in the range 49 to 50 million, driven by instrument order growth of approximately 50% for the full year at the upper end of our annual guidance range. Our updated annual encounter revenue guidance range of 91 to 94 million is based on a continued and an updated 2021 full-year consumables pull-through expectation of approximately $55,000 per installed system. Our updated NCounter pull-through guidance range reflects the potential impact of residual pandemic-related issues on consumables utilization similar to what was observed in Q3. At this time, we believe these residual issues could continue to impact NCounter consumables pull-through into 2022. We will offer further updates when we report fourth quarter results and provide our 2022 outlook in March. For Q4, we expect product and service revenue to be in the range of $38 to $42 million, representing year-over-year growth of 6% to 18%. This range includes $15 to $16 million of geomics revenue, driven by what we expect will be about 40 new geomics instrument orders in Q4. Our guidance range also includes $23 to $26 million of end-counter revenue, with annualized end-counter consumables pulled through in Q4 expected to be approximately $55,000 to $60,000 per installed system. Now I'll turn the call back over to Brad for our closing comments. Thanks, Tom. In closing, our spatial biology franchise is having a banner year as we continue to extend our lead in this dynamic market and to fill our mission to map the universe of biology. Geomic CFP instrument orders are growing 50% year-on-year, and we're successfully expanding beyond our core strength in translational research and into basic discovery. As we reveal more details about our COSBIC spatial molecular imager, its market-leading Plex and unique FFP sample compatibility are capturing the attention of the research community. Together, geomics and cosmics create the most compelling product suite in spatial biology and promise to drive strong top-line growth for years to come. With that, we'd like to open up the line for your questions.

Thank you. At this time, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1 to ask a question. To withdraw the question, just press the pan key. Your first question comes from the line of Tycho Peterson from J.B. Morgan. Your line is now open.

Hi, good afternoon. This is Julia for Tycho.

Starting with encounter, I know you're not expecting any meaningful recovery in your 4Q guidance, but so far into 4Q, what have you observed in terms of trial activities, just to give us a sense? And just to confirm that the entire weakness in 3Q is due to pandemic impact, meaning there is no incremental impact from the NGS readout for 3Q mix.

Thank you, Julia, for the question. You were coming through a little garbled, so I'm just going to repeat back what I heard. I think you asked about whether we have seen any recovery so far in Q4 for our encounter consumable demand and clinical trial activities from biopharma. and how we're confident that this is a pandemic-related impact rather than something competitive. So first, clinical trial activity truly did slow down during the pandemic. I know one research study that we saw talked about 1,000 trials plus being slowed or paused in enrollment during the pandemic. And the downstream effect of that, of course, is fewer biopsy samples collected and fewer biomarker studies being run now in 2021. We have not seen a change to the actual number of biomarker studies that are being run in Q4 so far, but we do expect clinical trial activities to start picking up But remember, biomarker work is kind of a downstream, lagging indicator of clinical trial activity. People who haven't followed the company too long may not appreciate the extent to which our biopharma customers are an important driver of consumable pull-through. There have been many quarters over time where that 25% of our customer base on encounter has accounted for about 40%. So it's not to say that our biopharma customers are not doing a lot of business still with us. In fact, their pull-through on average during the third quarter was $70,000 per system, higher than our overall average. But given that in a typical pre-pandemic quarter, they may have done $100,000 to $115,000 in average consumer pull-through, even that $70,000 per system annualized in the third quarter represents not quite a full recovery to their pre-pandemic level. So that really was, we believe, the primary driver of the pull-through drop in Q3. Now, how do we know it's not a competitive issue? Well, for one, we continue to place a large number of encounter systems. In fact, the third quarter of 2021 was the second highest Q3 instrument demand for encounter ever. Two is there hasn't been any meaningful change in RNA-seq pricing or offerings out there in recent timeframes. So we do not believe anything about the competitive dynamic has changed. It really is, we believe, related to clinical trial activity.

Got it. That's super helpful. And then on the SMI, could you guys give more color on the current TAP program order book, you know, how many projects you're working on and what the funnel looks like?

And with, you know, the release of the first public data set and, you know, the manuscripts, are you expecting to see any significant updates going forward? And have you got any customer feedback so far that may assess it any, you know, to experience moving for a full launch?

Or do you think you're all set for a launch in the second half of next year?

Thank you for the question, Julie. Again, you were a bit garbled, but I think you were asking overall about SMI TAP order book and some of the TAP from now until full commercial launch. So as we've said in past calls, the demand for SMI, Cosmix SMI now, TAP projects has exceeded our capacity to manage those projects. We've so far signed up between 10 and 20 projects. We expect to end the year with more than 20 projects in motion, and that really is the entire capacity that we have. Now, some of those projects are beginning to yield results. We have a few posters being presented this week at the Society of Immunotherapy and Cancer meeting. We had some on the books for the AMP meeting that was scheduled for next week. And, of course, we'll have a lot to show at the AGBT meeting in February. So we're really excited to get more information out there. In terms of what's left for us to do between now and the commercial shipments in the second half, It's really taking the chemistry that we've described now in the paper and wrapping a bulletproof instrument and automation system around that chemistry, as well as the software tools that are required to process and visualize and get insights from the tremendously large data sets. that this instrument can produce. So really, it's instrumentation and software. We look forward to having a beta program where we place some instruments at customer sites in the first half of next year and then shipping full commercial systems in the second half.

Great. Thanks for the call. I'll let Ola hop in.

Do we have our next question, operator?

Yes, your next question comes from the line of Dan Brennan from Calvin.

Hey, guys. Thanks for the questions. Just on geomics, Brad, starting there, you know, you raised the order out to 50 percent. Orders were a bit stronger than we expected here. So I know you gave some color in the prepared remarks. Maybe just a little color on who's ordering. And then, B, as we look at our model for 22, you know, we've got 20 percent increase in placements. So I'm just wondering, with the strength of this order book, any way to think through, like, how the early look is for 22 in terms of a placement opportunity? And, you know, related to that, like, are you gated in terms of the placement, like, rate that you could achieve? I know early on you guys wanted to delight customers. You were limited. So maybe a multi-part question, you know, who's ordering in kind of any early color on 22? Thank you.

For the question, Dan, so Geomix, as you said, the Geomix order book has been strong. We hovered at about 30 instruments per quarter for a few quarters, and we broke through in Q3 to 35, and we expect to deliver about 40 in the fourth quarter. This wave of new orders is really driven by the whole transcriptome atlas and the NGS readout capability, which together are driving 75% of new instrument placements. You know, academic customers who span translational biology and now discovery biology represent the largest group, the vast majority of new instrument orders. The mouse, whole transcriptome atlas, you know, motivated about 20% or 25% of new orders in the third quarters. That is truly a pure discovery set of customers. So we're delighted with the growing demand for the instruments. In terms of 2022 expectations, this year we will have grown 50% in terms of total instrument orders. Of course, we'll enter the year with a much stronger base. We're comfortable with where the street models are now at 20%. There is a potential upside to that, but we would encourage you to keep the models in place for now. Of course, we'll be providing guidance in the February timeframe. In terms of whether there's anything that's gating our ability to fulfill orders, the answer right now is no. I mean, we have the inventory to ship instruments. We have had no supply chain challenges. That being said, we are with the ongoing pandemic precautions that are being taken at many customer sites. We are a little slow to bring some sites up, so it does take a while for us to get those instruments installed and trained, sometimes as much as a couple of three months to get through all of that work while still respecting the protocol that many of our customers have in place for having nanostring employees on site. But there's really nothing in terms of our own human capital or our supply chain that's limiting our ability to fulfill geomics demand at this time.

Great. Thank you. And then maybe as a follow-up, kind of a two-parter, one related to the competitive landscape. Obviously, it looks like you guys are, you know, achieving some really strong growth. So just wondering kind of what you're seeing on the front line there in terms of competition. And then, B, you mentioned, you know, supply chain. That's been a concern. You guys are kind of towards the tail end of the reporting season. But was there any impact at all that you had on supply chain issues, either in the quarter or it's kind of baked into your guidance? Thank you.

I understand. So the second question, first, no issues from a supply chain perspective that impacted during the quarter, and we do not foresee any limitations on our ability to fulfill demand based on the supply chain. The competitive landscape, I think we feel increasingly confident in our competitive position in spatial biology. Within translational research, we remain, I think, the leader with geomics, with not only its FFP compatibility, but its automation, its ability to process. short periods of time, the ability to focus the power of the system on regions of the tissue that translational researchers are focused on, like the tissue microenvironment, and of course our distinctive protein capability, which many translational researchers appreciate. So despite the fact that there is increasing competition out there who have FFP compatible products, we really haven't seen any slowdown or competitive impact from that at this stage. On the imager side, I really think the announcements today position Cosmix as the imager to beat. I mean, I think we have market-leading 1,000-plex RNA capability. We've shown that we'll have 100-plex protein capability. We've shown that we're compatible with the most important tissue type, which is FFPE. I feel really good about our positioning relative to some of the other players who will be bringing imagers to market around the same time.

Great, guys. Thank you.

Your next question comes from the line of Dan Arias from Stifel. Your line is open.

Good afternoon, guys. Thanks. Brad, just to go back to the question on encounter performance, I understand the point on business not looking like it's going to competitive platforms. But what about just work that's staying inside nanostring, but it's going to geomics discovery work that just happens to have an NGS back end? Is that something that could be in the mix?

I think your question really, Dan, is asking, are we cannibalizing encounter consumable sales with geomics consumable sales? Is that your question, Dan?

More or less, yes.

Yes. No, I don't think there's any reason to believe that's the case. You know, because, and I think we can see that because we know what our geomics pull-through is within our biopharma accounts. Biopharma accounts have been relatively slower adopters of the whole transcriptome atlas assay compared to academic researchers. If we were seeing cannibalization, we'd be seeing that directly in terms of who was buying the whole transcriptome atlas. That's really not what we're seeing. If you looked at geomics consumable pull-through within biopharma customers, right now it's less than we're seeing on the average academic account, which kind of corroborates the fact that biomarker research is a little slower than you'd expect it to be, and I think it disproves the hypothesis that we're seeing a cannibalization effect.

Okay. And then maybe on the COSMIC system and the data that you released today, I imagine you're hoping that that sort of steps up interest in the platform. I know commercialization is the second half of 2022 thing, but when do you expect to start taking orders there as we sort of look ahead to getting the instrument in the market? Are there any production constraints that we should sort of think about when you get to the back half of the year? Not necessarily supply constraints, more just manufacturing constraints.

Sure. So we're following the Geomix playbook in the launch of the Cosmix. And as you may recall, we had a really successful priority site program for Geomix that took pre-orders ahead of the actual commercial shipments. That is something that we'll begin to initiate in the first half of next year. And the data that we release, I expect, will start to build the interest in that program, which we'll be unveiling probably around the AGDT timeframe next year. Certainly, by the time we get to the second half of next year and we're shipping our first wave of instruments, I do expect that there will be a very careful rollout of those instruments. just as we did with Geomix, where we're, of course, going to be having the first instruments rolling off a new manufacturing line. We'll be going through our first training procedures. We'll be going through our first customer experiences with the instruments in their hand at scale. So we will have a controlled release of the actual system. And as a result, to the extent you're updating your 2022 models, I would not build much in the way of COSMIC's revenue into the second half of 2022. You know, the pace at which we'll actually be placing instruments and revenue recognizes that we'll be controlled, and we'll have more to say about that in the February timeframe when we issue guidance.

Okay. Thank you. Your next question comes to the line of Catherine Schulte from Baird. Lines are open.

Hey guys, thanks for the questions. I guess first, maybe just sticking on Cosmix, you know, what additional development or optimization is there left to do from a platform perspective before next year's launch? And at this spatial summit at AGBT, should we expect to get pricing and pull through estimates there?

Yeah, so the work that we have left to do, Catherine, is really focused on the instrumentation and making it an overall bulletproof experience for customers. That means making it simple to use so that it works every time and that the data that comes out has the software and informatics back in to allow you to draw insights out of the data you're generating. And so that's a good bit of engineering work. and it's a good bit of software work for us still to do. But none of it is high risk in the sense that we have to do anything inventive. You know, it's just good, solid engineering work. In terms of what to expect at the spatial summit in the February timeframe at AGBT, I think we'll be focused primarily on continuing to educate the research customer community about the capabilities of the system. So expect to see some of our early technology access program customers present their data and their experience. Expect to learn a little bit more about the detailed specifications the system. I don't know that we'll be focused on providing much in the way of economic or financial guidance to Wall Street at that time in terms of pricing or pull-through estimates, but if you really want to understand what the system can do and why we think it'll be the market leader and what will undoubtedly be a competitive imager marketplace, then I think you'll get a chance to really see that there.

Okay, great. And then I think you added about 100 people to your commercial team this year, and I believe most of those are focused on geomics for now. Have you started to see the impact from that added headcount, and how do you think that expanded team sets you up for geomics growth in 2022?

Yeah, so we have our hiring for our commercial expansion has gone well. You know, the overall team today is about a third larger than it was, you know, at the beginning of the year. And we still have some positions still to fulfill. I think we've fulfilled about 85% of our open commercial positions at this time. It takes time for new sales reps to come up the curve and begin to contribute. So I would not say that the third quarter reflects any impact, any material impact from that Salesforce expansion yet. Most of the hiring was done in the second quarter, and people really found, were kind of finding their sea legs. during the third quarter. I hope that the fourth quarter will provide an opportunity for some of those new professionals here at NanoString to show us what they can do and what they can deliver, and I think we built some of that into the guidance that you heard Tom outline.

Okay, great. Thank you.

Again, as a reminder, to ask a question, please press star 1. Your next question comes from the line of pages Savant from Morgan Stanley. Your line is open.

Hey, guys. Thanks for taking the question. This is Edmond on for Tejas. First on your WTA, the traction seems to be really strong for the human and both human and mouse WTA. But are you seeing customers transitioning from an initial pilot study phase to larger-scale experiments? And given that there's been a couple of months with this product on the market, are you better able to quantify what you expect the utilization rates would be at a steady state?

Thanks for the question, Edmund. So, you know, most customers are getting their first experience for the whole transcriptome atlas, you know, right now as we speak. As I mentioned in my prepared remarks, I think about half of our WTA customers have done their first experiment and now ordered their second batch of whole transcriptome atlas assays. So we are beginning to see a repeat utilization, but it's still pretty early in the adoption cycle. I know we have at least one example of a study planned at substantial scale on WTA, but I think there's a lot more of that still to come. I think there'll be more of that as time goes on. In terms of utilization rates, we did raise during our August call our overall consumable guidance On the strength of the early demand for whole transcriptome atlas assays, our guidance right now is for $95,000 to $100,000 per system per year in consumable utilization. That is up materially both from where it was this time last year and where it was in our initial guidance that we initiated with earlier this year. So I would continue to use that number for now. I think that's a good number to model off of.

Thank you. And then in terms of your COVID recovery trends that you're seeing, I know you've previously called out slower recovery in EU and APAC regions, particularly since you rely on distributors. Can you talk about some of the trends you're seeing from a geographic perspective? And then in terms of the sample collection and slower biopharma utilization of encounters, is there a geographic discrepancy that you're seeing?

Yeah, our biopharma customers really operate as global entities, right? Swiss biopharma companies have huge U.S. operations, and U.S. biopharma companies have big European operations. So we don't really see geographic trends within our biopharma customer segment. They tend to behave kind of as a global segment. Academics, though, do vary from region to region. I'd say the strongest performance amongst our academic researchers and the strongest recovery has been here in North America. But both Europe and Asia have improved since our August call. We did see improvement in the academic markets from Q2 to Q3, but really it was that biopharma group who has kept us from fully realizing pre-pandemic recovery.

Got it. And on your academic end market, in light of the robust academic funding environment, are you expecting any sort of abnormal fourth quarter budget flush or seasonality of any sort?

Well, we do see seasonality every fourth quarter as, you know, people tend to use budget that they may have left over before, you know, a year-end deadline. But we do not guide for a major budget flush in the fourth quarter. So, you know, I'd say that our fourth quarter guidance assumes just a typical pattern of seasonality in the fourth quarter, but nothing extraordinary.

Got it. Thank you very much. There are no further questions at this time. I would now like to turn the conference back over to Doug Farrell.

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