NanoString Technologies, Inc.

Hello and welcome to today's NanoString fourth quarter 2021 operating results. My name is Elliot and I will be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I would now like to hand over to our host, Doug Farrell, Vice President of Investor Relations. Please go ahead.

Thank you very much, Operator. On the call with me today is Brad Gray, our President and CEO, and Tom Bailey, our CFO. Earlier today, we released our financial results for the fourth quarter and fiscal year 2021. During this call, we may make statements that are forward-looking, including statements about financial projections, the impact of 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 recently planned product offerings. Statements are subject to risks and uncertainties, many of which are beyond our control, including 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 statement. Later in this call, Tom will be discussing our financial results and 2022 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 and non-GAAP measures as well as the description, limitations, and rationale for using each such measure in this afternoon's press release. To aid analysts and investors in building their models, we've 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 for the fourth quarter and fiscal year 2021, and for each quarter for the full year 2022. I'd like to remind everyone who will be participating in the Callen 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. Nanostring Exit 2021 on a high note. as interest in our spatial biology platforms during the fourth quarter generated more than 70 instrument orders across our geomics digital spatial profiler and our cosmic spatial molecular imager. This robust demand is a testament to the appeal of our unique product portfolio, which addresses scientific questions at any scale of spatial biology and makes NanoString a one-stop shop for researchers in the field. 2022 is already shaping up to be another exciting as we've just completed our fourth annual Spatial Genomics Summit, which was hosted jointly with Illumina. More than 1,200 researchers joined on the online event to learn about the cutting-edge science being conducted by our spatial biology customers and to preview the COSMICS spatial molecular imager and the powerful informatics solutions we will release later this year. During the call today, I'd like to provide a brief review of our 2021 performance before outlining our goals for 2022. During the fourth quarter, we posted record geomix revenue of $18 million, which put us $2 million above the top end of our guided range. This was driven by more than 50 geomix instrument orders and annualized consumer pull-through of approximately $109,000 per installed system. At year-end, we'd established an installed base of approximately 255 geomix systems. We also achieved several important COSMICS milestones. We published a manuscript in the Journal of BioArchive describing COSMICS technology and performance. We also released a data set mapping nearly 1,000 RNAs in situ at single-cell resolution. This data was generated using formal and fixed pair of embedded or FFPE samples, and is the largest publicly released data set of its kind. Together, these releases have created quite a buzz around COSMICS, as evidenced by the nearly 6,000 downloads of the manuscript and 400 downloads of our grant application package for COSMICS. No statistics provide stronger evidence of customer interest in COSMICS than instrument orders. We generated orders for 20 Cosmic Systems in 2021, the start of an order book that we plan to build out over the course of this year. The first 20 orders demonstrated the highly complementary nature of our two spatial biology platforms, as 95% of the Cosmic Systems ordered were either bundled with a new geomex or sold to an existing geomex customer. Meanwhile, encounter instrument sales were strong in Q4, and return to pre-pandemic levels for the full year. This demonstrates the healthy demand for this platform, even as consumable pull-through remains suppressed relative to pre-pandemic levels. Turning now to 2022, I'd like to outline our four strategic objectives for the year. Our first objective is to drive geomic CFD further into mainstream research, broadening adoption across multiple areas of discovery and translational research. When GeoMix launched, it was initially embraced by early adopters with a strong interest in new technologies. Many of these early adopters were focused on translational research within oncology and had been nanosprint encounter customers for years. In 2021, the introduction of the GeoMix whole transcriptome atlas, or WTA, provided a universal assay that reached out on the vast installed base of aluminum sequencers. This is allowing geomics to reach scientists studying the fundamentals of biology in areas outside of oncology. During 2022, we will push adoption into these groups even further with a three-pronged approach. First, we are providing RNA assays that cover virtually every area of biology. The centerpiece of the geomics portfolio are the whole transcriptome assays, which serve the needs of the two most common model systems, When our human WTA was launched last year, it quickly became the most successful launch of any consumable product we've ever offered. We followed with the launch of the mouse WTA, accelerating geomics uptake as the mouse is the primary model system for discovery research. For 2022, we're expanding our offering to cover the long tail of discovery research by launching fully customizable RNA assays. Second, we are enhancing the GEOMIX workflow. Last week, we announced the expansion of our partnership with Leica, enabling full automation of the GEOMIX RNA assay workflow. This will reduce the hands-on time of our RNA assay protocol to less than four minutes per slide and allow customers to prepare up to 30 samples at a time using the Leica Bond Rx autostainer system. In addition, we've introduced a protocol for the co-detection of both RNA and protein from a single FFPE section. We have demonstrated the co-detection of over 145 proteins alongside of our human WTA from a single colorectal cancer tissue section. And finally, we've expanded our customer experience team to accelerate GeoMITS installation, customer training, and site activation. we will publicize data sets and publications that illustrate the power of geomics. In Q4, we released the first installment of the Spatial Organ Atlas, containing data from six organs for which key structures had been profiled with the whole transcriptome atlas. These data have generated interest from researchers across diverse fields of applications, who've downloaded the data sets more than 1,700 times. During 2022, we plan to expand the spatial atlases to include additional organs, and we expect these to become popular reference data sets that customers can access to quickly discover how organs function in both healthy and diseased states. In addition, we recently saw the publication of the 100th peer-reviewed paper that leveraged spatial biology using geomics, and we're tracking many more papers being prepared for submission. Finally, we're looking forward to an action-packed AGBT meeting in June that will feature three oral presentations and nine abstracts using GeoMix. Our second goal for 2022 is to launch Cosmix as the industry-leading molecular imaging platforms. Cosmix provides single-cell and subcellular resolution that perfectly complements GeoMix, enabling a wide variety of experiments. The COSMICS launch will double the size of the spatial biology market that we serve, covering virtually all of the $6 billion TAM for spatial research. In a noisy imager market, COSMICS stands above the competition. COSMICS provides the highest Plex assays of any imager available, already covering up to 1,000 RNAs. COSMICS is the only platform to demonstrate the ability to image both RNA and proteins, COSMICS has demonstrated compatibility with the most important sample type in medical research, which is FFPE tissue. COSMICS will come with a dual run mode capability that allows the system to be tuned to the specific needs of a particular experiment, regardless of whether it is for discovery or translational applications. With tunable run modes, COSMICS enables discovery research by providing hyplex and unbiased whole slide analysis, as well as translational research with low-flex, high-throughput, biology-driven analysis. Cosmix will also benefit from NanoSeren's brand, reputation, established commercial channel, and leading portfolio of spatial solutions that spans the entire continuum of applications. When we put all these attributes together, we believe that Cosmix is poised to become the market-leading imager. The COSMICS launch will be supported by a steady cadence of data presentations and releases throughout the year. Yesterday, our fourth annual Spatial Biology Summit featured several leading researchers who are applying the COSMICS system to solve important biological questions. Jody Carter from the Mayo Clinic presented a study that verified the high fidelity of COSMICS cell segmentation and cell typing. as well as the strong correlation between COSMICS data and the PD-L1 clinical assays she had applied in triple negative breast cancer. Jacob Estes of Oregon Health and Science University presented a study that used the subcellular resolution of COSMICS to distinguish those cells with viral infection from those with virus simply bound to the cell surface. And then he studied the gene expression differences between these cells. We are now actively promoting COSMICS, and we expect to accumulate dozens of orders ahead of the commercial shipments in the fourth quarter. We plan to ship our first beta systems to customers during Q2, allowing us to get feedback on installation, training, and workflow. Around the same time, we will use beta systems to expand the capacity for our COSMICS Technology Access Program, or TAP, which is currently fully subscribed. Overall, the COSMICS launch strategy follows the same playbook that we used successfully with Geomix, so we are confident in its success. Our third strategic objective of the year is to launch our cloud-based spatial biology portal. With this launch, we are aiming to provide a seamless informatics solution for both Geomix and COSMICS users, allowing them to access the massive computing and storage capabilities that are required for spatial genomics. Spatial research typically involves a team approach, integrating the lab technician, pathologist, biostatistician, and principal investigator. Migrating to the cloud will allow this team to collaborate and share data in real time within an institution or across broad networks of researchers. This portal will include a suite of state-of-the-art tools for data analysis and visualization. will integrate with industry-standard platforms, such as Illumina's BaseSpace, as well as a growing universe of open-source software. During our Spatial Genomics Summit, a panel of experts from Weill Cornell Medical College, Boston University, and Illumina identified benefits of migrating spatial biology data to the cloud, including scalable compute and storage capabilities that can leverage the power of AI for complex spatial datasets. We believe that this powerful cloud-based informatics solution will be another important competitive advantage for us, completing our portfolio of spatial capabilities. Our spatial biology portal is expected to progress into beta testing in Q2, and we plan to launch this offering in the fourth quarter. Our fourth objective for 2022 is to sustain the growth of our encounter franchise. Our encounter analysis system provides rapid, highly multiplexed bulk gene expression. The encounter franchise provides the solid foundation on which we are building our spatial business and funds our global commercial channel. Our instrument business has returned to pre-pandemic levels, and we expect a healthy pace of instrument placements to continue in 2022. Consumable pull-through has decreased during the pandemic, especially among biopharma customers. We have a number of initiatives in place to help revitalize this customer segment over the year ahead. We also have a roadmap to expand our NCounter consumable portfolio into new applications that are important in biopharma. We recently introduced a new T-cell repertoire, or TCR, diversity panel that allows researchers to measure the usage of TCR variable regions and shifts in TCR diversity with a simple assay that can deliver results in less than 24 hours. During 2022, we also plan to target cellular and gene therapy applications with new features and assays tuned to that application. In addition, we have recently expanded our BioPharma sales team to ensure that these important customers are being well served. Now I'd like to turn the call over to Tom to review the details of our operating results to provide our financial outlook for 2022. thanks brad and thanks all for joining us today for the fourth quarter of 2021 product and service revenue was 42 million dollars at the upper end of our q4 guidance range representing year-over-year growth of 18 percent q4 geomics revenue was 18 million 48 growth as compared to q420 and above the upper end of our guidance range $11.9 million was from approximately 50 instruments shipped, and $6.1 million was from consumables sales. Annualized Q4 Geomics consumables pull-through was about $109,000 for installed systems. Encounter and service revenue was $24 million in Q4. Encounter instrument revenue was $5.7 million, approximately in line with Q4 of last year. Q4 end-counter consumables revenue was $13.8 million, about flat year-over-year, reflecting lower pandemic-impacted utilization trends. We've detailed previous quarterly calls. Annualized end-counter consumables pull-through was about $53,000 in Q4, but the same as we recorded in Q3. Service revenue was about $4.6 million for the quarter, representing 20% year-over-year growth, driven by Geomix DSP tap and increased service contract revenue. from our growing installed basis systems. Turning to margins and expenses, I'll provide results on a non-GAAP or adjusted basis, which removes the impact of stock-based compensation, depreciation, and certain one-time items. 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. Q4 adjusted gross margin was 54% or about flat as compared to Q4 of last year. Margins were positively impacted by the growth in geomics DSP with that impact offset by investments we continue to make in manufacturing capacity to support geomics growth and the expected 2022 launch of COSMICS. Adjusted R&D expense was $15.7 million, an increase of 28% year-over-year. R&D growth was primarily driven by increased personnel and product development costs related to geomics and COSMICS development activities including investments we are making in software and technology to support data storage and analysis across our spatial biology platforms. Adjusted SG&A expense was $26.6 billion, an increase of 40% year over year. Our Q4 SG&A expense increase was due primarily to investments made in our spatial biology related commercial initiatives, including investments to expand our Salesforce service licensing, and implementation of new information technology solutions to support our commercial, operations, and finance functions. Our adjusted EBITDA loss was $19.6 million in Q4. Turning to full year 2021, product and service revenue was $144 million, representing year-over-year growth of 29%, and in line with the upper end of our updated guidance Archaeomics results landed above the upper end of our updated guidance range and represented 49% annual growth. And encounter results landed near the middle of our updated guidance range and represented 20% annual growth as compared to a pandemic impact in 2020. For the full year 2021, adjusted gross margin was 54% in line with our updated guidance range. 2021 adjusted R&D expense was $59.3 million, representing year-over-year increase of 11%, and adjusted SG&A expense was $93 million, representing year-over-year increase of 24%. Total adjusted operating expense growth in 2021 was about 18% as compared to our 29% revenue growth. Adjusted EBITDA loss was $73.8 million, and we exited the quarter with approximately $349 million of cash, cash equivalents, and short-term investments. We expect that our current cash resources will be sufficient to achieve cash flow breakeven while sustaining the key investments in our business. Transitioning now to our 2022 outlook, we expect 2022 product and service revenue of $170 to $180 million, representing annual growth of 18% to 25%. For geomics, we expect revenue of $73 to $78 million, representing annual growth of 41 to 50% or similar to the Geomix revenue growth we achieved in 2021. We expect Geomix instrument revenue growth of about 25 to 30% year over year. We expect Geomix consumables pull through to be between 95 and $100,000 on an annualized basis. For Geomix overall, we expect to see a quarterly and seasonal revenue pattern that is substantially similar to what we experienced in 2021 with roughly 40% of geomics revenue to be recorded in the first half of the year and about 60% in the second half, with pull-through similar to last year being seasonally lower in the first quarter and then ramping through the course of the year. For end-counter, which includes all service revenue, we expect 97 to 102 million, or about 5 to 11% year-over-year growth. In 2022, we expect end-counter instrument revenue to remain approximately flat as compared to 2021. Our guidance assumes encounter consumable pull-through of approximately $50,000 to $55,000 per installed system for the full year and makes no assumptions as to the timing of any recovery in encounter consumables pull-through to pre-pandemic levels. We expect to see a quarterly and seasonal revenue pattern for encounter that is substantially similar to what we experienced in 2021. Lastly, to be clear, we expect to record our first COSMICS revenue in 2023, and therefore our 2022 guidance does not include COSMICS revenue. We expect adjusted gross margin to be in the 56% to 58% range in 2022, with our revenue mix in 2022 continuing to be instrument heavy given the growth of GeoMix. In 2022, we expect operating expenses to grow more modestly as compared to 2021, as we begin to harvest the benefits of the substantial investments we've made in R&D and our commercial organization. For adjusted research and development expenses, we expect to record approximately 60 to 65 million, a 5% year-over-year increase at the midpoint, reflecting sustained investments in our spatial biology platforms. For adjusted selling general and administrative expenses, we expect to record 95 to 100 million, a 5% year-over-year increase at the midpoint, and customer support efforts. Adjusted EBITDA loss in 2022 is expected to be about $55 to $65 million. For the first quarter, we expect revenue to be in the range of $34 to $38 million, reflecting typical sequential and seasonal patterns. This range includes $12 to $14 million of geomics revenue and $22 to $24 million of encounter revenue. Now I'll turn the call back over to Brad for our closing comments. Thanks, Tom. In closing, 2022 will be the year that NanoString moves from pioneering the spatial biology revolution to establishing ourselves as the clear market leader. The momentum provided by geomics gives us a strong growth outlook, while our cosmics and spatial biology portal launches provide additional catalysts as the year progresses. We believe that our brand recognition, more than a decade of serving the market, and our global commercial channel for sales and support make nanostring the natural choice for researchers who are investing in new spatial biology capabilities. With our compelling product portfolio and healthy balance sheet, we're poised to lead the spatial biology revolution over the next decade. With that, we'd now like to open the line for your questions.

Thank you for our Q&A. If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. And when preparing to ask your question, please ensure your phone is unmuted locally. Our first question today comes from Tycho Peterson from JP Morgan. Please go ahead.

Hey, thanks. I'm going to start out in geomics, and acknowledging here the guide is pretty good and above consensus. On ASPs, though, for the fourth quarter, it looks like you recognized revenue on 50 instruments, but you only shipped 30. So can you maybe touch on that dynamic? And then as we kind of think about the roadmap here with WTA and the mouse assays, how much of this do you think goes to Greenfield customers versus kind of existing? And then lastly, on the Leica automation workflow, how do you think about kind of what the take rate there might look like once you roll that out?

I'll take the ASP question first real quickly, Tycho, and then I'll hand it over to Brad for the others. So on ASP, you're correct. We did ship fewer systems than we rep wrecked in the fourth quarter. And so when you do the math on ASP, our Q4 ASP was a little bit just below 240. So it was pretty consistent with what we've experienced in previous quarters in terms of overall ASP was a little bit lower, but not significantly below what we've achieved for Geomix ASP in previous quarters. I'll take the next two questions. First, we're really excited about what the mouse full transcriptome atlas can do in terms of expanding into greenfield customer segments for us. You know, we estimated that about 30% of the total addressable market for spatial biology is mouse. And that is not a customer set that Nanostring has served substantially in the past. Most of our customers use human tissue on human experiments. We've already begun to see a big impact of introducing the mouse assays. You know, in the fourth, between the third and fourth quarter, mouse assay revenue almost doubled on Geomix. And mouse assays are becoming a meaningful part of our technology access program test driving for Geomix. So we're excited about being able to reach those new customers in 2022. The Lyco autostanding protocol is exciting for the power users of spatial biology. What it really enables is large-scale processing that takes full advantage of Geomix's superior throughput as a spatial biology platform. And where we see it being adopted are in places like biopharma companies and academic medical centers who are working with large numbers of samples. We obviously want to encourage those customers to run large numbers of samples to drive the consumer we'll pull through on our business. So we look forward to seeing that be adopted more broadly now that it's fully automated.

Okay, and then on Cosmic, just curious, you know, what are you hearing from customers as, you know, their reasons for choosing the platform? And then, you know, with 10X pulling forward Xenium, how do you think about competitive dynamics? And are you willing to comment all on the litigation as well? Sure.

Well, I'm not in a position to comment on the litigation other than to reiterate what we've already said. You know, we have studied the claims and are confident that we do not infringe. In terms of why people are choosing Cosmix, I think it's the combination of product features and trust in our overall brand and portfolio that I highlighted in my prepared remarks. Remember, 95% of those who bought a Cosmix in 2021 were also buying in or had already bought into nanostream spatial ecosystem through Geomix. So they know our products. They know they work well. They see the complementary nature of, you know, multicellular resolution at the whole transcriptome with geomics and single and subcell resolution with COSBICs. And they're excited to kind of increase the overall amount of biology they're doing on our system. In terms of the competitive dynamics, I do think the imager field is going to be highly contested with a number of offerings. We feel that we are the natural leaders by virtue of both product specification and corporate capabilities and the power of the portfolio. And, you know, we look forward to demonstrating that with continued growth and demand in the quarters ahead.

Okay. And then just before I hop off, a quick one on the Spatial Cloud solution you're launching in the third quarter. Is that a revenue opportunity or will that be complimentary?

Yeah, the spatial biology portal will ultimately provide a revenue opportunity, though we're still working out what the pricing of that capability will be. to enable our customers to do great science so that they will adopt our instrumentation and run large amounts of consumables. But there will be an incremental revenue opportunity related to informatics. It's probably more of a, it's not a 2022 revenue opportunity, it's a 2023 and beyond revenue opportunity.

Okay, thank you.

Our next question comes from Dan Arias from Stiefel. Your line is open.

Afternoon, guys. Thanks for the questions. Brad, during the spatial summit yesterday, the woman from the Mayo Clinic talked about wanting single-cell resolution for her gene expression work and then wanting the subcellular resolution for her protein work. Is that a preference or a set of preferences that you're seeing or you think you might see when it comes to specs and applications for COSMICS. I'm just wondering, you know, where the breakpoints might come when we start thinking about protein versus RNA and who's looking for different features on the boxes.

Yeah, thanks for the question, Dan. I think time is going to tell what the relative demand for single-cell and sub-cell resolution will be.

Clearly,

RNA profiling at the single-cell level has demonstrated utility as single-cell genomics has been a very productive line of inquiry for the last several years. And being able to do that in space is very natural. I don't think there are yet any strong demonstrations of the power of subcellular resolution in RNA that are broadly recognized. We had one yesterday that was mentioned related to viral RNAs and sort of being able to tell whether the virus is inside the cell and therefore productively infected or whether it's stuck on the surface. But it's still really early days on the value of subcellular resolution for RNA. In contrast, you know, protein staining has been around for a very long time. And microscopy has enabled subcellular resolution for protein staining in the past. So I think You know, pathologists like Jody Carter are accustomed to looking at subcellular resolution for protein. And I think that's going to be something that people naturally want to see because they're used to seeing that with conventional platforms.

Yep. Okay. Helpful comments. And then maybe just on COSMICS expectations for the year. I mean, obviously you have some orders pretty early in the year here. So is the reason that you don't anticipate revenue in the back half because the installations will just be coming later in the year or because you don't think payment and recognition will be worked out as quickly? I mean, I think you had made the comment that you would follow the geomics playbook there and, you know, geomics had some revenues in 2019 in the back half of the year. So just curious.

Yes, I think, you know, we have a lot of confidence that we're going to continue to accumulate orders for conference instruments over the course of 2022 and you know i'd point you back to the trajectory that we had with geomics where you know we were doing uh you know tens and then does you know 10 and 12 and 15 or so per quarter you know that kind of trajectory is what we would expect for for um uh cosmic orders um but the revenue recognition rules for you know when we'll be able to recognize a new platform are not yet worked out with our auditors so you know uh we will be shipping those first systems in the fourth quarter you know it wouldn't be surprising if uh the accounting rules required us to have installed and trained and activated all the systems before rev rec we just don't know and therefore we've kept it completely out of guidance

Okay, just last one on that. I mean, just the guys that have placed the orders early in the year, is it fair to assume that they might have boxes earlier in 3Q and could therefore be generating data by 4Q?

No, I think we will not ship commercial instruments until the fourth quarter, Dan. We will have beta instruments in the field beginning in the second quarter, and certainly we're generating data through those as well as our technology access program. But, you know, we don't expect the first wave of instruments to be shipped commercially in Q3. That will happen in Q4.

Okay, very good. Thanks, guys.

We now turn to Dan Brennan from Cohen. Please go ahead.

Hey, guys. Thanks for the questions. Maybe first one, just starting with geomics pull-through and the guidance. So I would have thought maybe we can go a bit higher on that with WTA and the Omicron impact behind us. So let's walk through a little bit of the math on the 22 pull-through guidance for geomics.

yeah i'll take that dan so you know we i'll remind you you are the impact of the whole transcriptome atlas has already been felt in our pull through guidance we raised in the wake of our um successful launch last year up to the 95 to 100k range that we sort of ended 2021 with so we're initiating in 2022 at that same range recognizing that you know it's customary for pull through to drop sequentially from the fourth quarter to the first quarter and that you were still in the early days of seeing what customer behavior on the use of the WTA is over time. You know, I remain hopeful that over time we're going to see great uptake of WTA and all sorts of science and that the workflow improvements that are a part of our initiative this year will drive pull through even higher. But for now, we're guiding based on the customer behavior that we have line of sight to.

Got it. And then, thanks, Brad. And then I think during the prepared remarks, you mentioned something along the lines of 400 NIH grants or something along those lines. Could you just put that in context? Did I hear that correctly? And what is that? How are we supposed to think about that in terms of what that could mean for orders?

Yeah, I think the remark you're referring to, Dan, is that we have seen already 400 downloads of our grant support package for COSMICS. So this would be the kind of information that would be needed to be included in a grant application to the NIH or otherwise that describes what the platform is and helps a researcher justify getting a grant to purchase it. So I think it's a really great leading indicator of demand. You know, grant cycles are long and you know, those types of grant applications that would be going in now could be yielded, you know, in later this year or in 2023 and drive future demand. So seeing that many researchers express serious interest in applying for grant funding is a nice leading indicator.

Great. And I know at the time of your investor day, I think you sized Cosmix and you sized Geomix. I believe you did in there. You sized a different market. But I'm wondering, now that you're here and you just held a spatial summit yesterday. You've got the data download and you've got some early, you know, the bio archive publication and you've probably got a lot of feedback from customers. How are you thinking about the relative size of this opportunity versus geomics? Do you think they're comparable? Do you think Cosmix is going to be bigger? Just trying to get a sense of, you know, while it's so early, you probably have some more insight into this.

Yeah, Dan, we initially sized them as equal opportunities. of three billion dollars each together for geomix and cosmix together making a six billion dollar research tam you know we said at the time of our investor day that we believed those pans were overlapping with respect to the institutions and researchers and i think the first 20 orders of cosmix have really strongly validated that the same labs will adopt both systems so it's all playing out very well um you know do we have any signals at this point that suggests cosmetics could be bigger i'm not sure but i will share that um the cosmetics funnel has been sales funnel has been growing at twice the rate that the geomic sales funnel was growing at the same point in the geomics launch so we're adding twice as many opportunities per week into the cosmic funnel that may reflect Of course, the expansion of our own commercial channel, the maturing of, you know, and the broad recognition that spatial biology is important. But it's a very good early sign that Cosmix is going to be an important platform for us.

Got it. And maybe just a final one, just on Omicron and BioPharma. Just, you know, obviously you pre-announced the quarter, and then you come out today with, you know, details on the guide and whatnot. But just where are we there? Like, you know, there's some rattlings about, you know, some, emerging biopharma demand being weak due to, you know, macro concerns. But just how are those two, you know, kind of factors figuring into either your 1Q guide or as you look ahead to 2022?

Yeah, I mean, first, just to remind where biopharma, small biopharma, small private or, you know, or recently public biopharma sits in our customer base, you know, for geomics, 25% of overall placements go to biopharma. Broadly speaking, most of those go to big pharma companies who are not subject to the ebbs and flows of the capital markets to the same extent that the smaller companies do. I do think that those smaller companies who represent a small fraction of our overall demand are taking longer to make capital allocation decisions, and it's easy to understand why. That could be a small part of the story behind the slow January. But overall, most of our demand comes from the academic markets, and academic funding is poised to be very good in 2022. And so it doesn't change any of our full year outlook.

Got it. And the slow January, that was your slow January, or are you referring to my leading question about what some other players have mentioned?

No, we experienced, you know, January is always slow relative to the rush that happens in December. I'd say this year's January for nanostring was marginally slower than it has been in years past. I think you see that the impact of that slower January reflected in the broader than usual range that we have on our Q1 guidance, where the low end of that range you know, takes into account, you know, a slow start to the year and the high end of the range takes into account, you know, the recovery that we've begun to see in February continuing and strengthening in March.

Great. Okay, guys. Thanks. I'll get back in the queue.

Our next question comes from Catherine Schulte from Baird. Please go ahead.

Hey, guys. Thanks for the questions. I guess first, any other feedback from the Spatial Summit yesterday? You know, we saw a number of questions in the chat around using Cosmix with brain tissue. Do you have any sense from the interest you've seen so far how the mix will be between oncology or neurology versus other areas and how that might differ from encounter and or geomics?

Yeah, I think two things. The feedback from yesterday's summit was very strong. You know, having so many, you know, 1,700 people dial in live to the event, and that even excludes China, which we haven't broadcast in yet, was a really great outcome. It's larger than any spatial biology summit we've ever held. I think the engagement was extremely high in terms of people answering our polls and asking questions. And, you know, we look forward to processing all of those participants as leads that get follow-up calls and eventually hopefully get engagement about real instrument purchase. So we're very pleased with the outcome. I do think that the Cosmix customer base is likely to have a broader set of scientific interests than NanoString has historically served. We've been very oncology focused in the past. But a lot of the COSMIC's interest is going to come from people who are more traditional single cell biologists. They're probably doing a single cell RNA sequencing today on more basic discovery questions rather than translational ones. And we saw that in the mix of the first 20 orders that we received for COSMICS in 2021. While oncology was the number one reason that people wanted COSMICS, areas like neurology were higher in terms of the ranking of applications than we're accustomed to seeing. And that's great. That means COSMICS is really going to help pull nanostring from our traditional strength in translational oncology

into all the other many productive areas of science where our technology can be used all right got it um and then you mentioned you recently expanded your biopharma sales team can you give a bit more color there you know how big was that team previously and where is it now and any other commercial team expansion needs ahead of the cosmix launch

Yeah, I won't get quantitative in terms of the exact numbers of people we have addressing BioPharma, but I will say that the expansion represents probably a 50% increase in the total number of people we have focused on that important customer segment. We also have a new leader of that team who's performed very well in some other regions that that person's led. So we're excited about revitalizing that important part of our customer base. In terms of other investments in the channel, you will continue to hire this year in our commercial team, not at the same pace that we did in 2021, where we had a very substantial expansion in the sales force, but filling out some of the areas like consumable sales reps, who can help us now manage our very rapidly growing installed base of geomic systems, and of course, our customer experience team, who can help us accelerate the pace at which those geomic systems are installed, the customers are trained, and the sites are activated.

Great. Thank you.

Our final question comes from Teja Savant from Morgan Stanley. Please go ahead.

Hey, guys. Good evening. So maybe I'll start with one on Encounter, Brad. I know you're holding off from baking in a recovery here on the consumable front, but are you seeing anything from your biopharma customers in terms of sample collection rates beginning to normalize or not quite yet?

It's very hard for us to have visibility into the rate at which pharmas are accumulating the samples. I do expect that eventually the slowdown in patient accrual um that that that occurred in the past and is now kind of running through the process of um sample testing for correlative science will play itself out but i don't have a lot of visibility into what the pace of that playing out is got it fair enough um and then on the on the cosmax uh beta launch in the second quarter brad

Is there anything that's going to be different, you know, as far as those units go versus, you know, the final commercial instrument and what you're using in the TAP program? And what's left in terms of the informatics related work on the instrument side? Does the commercial launch essentially hinge on the launch of that spatial biology portal that you highlighted yesterday at the summit?

Yeah, so let me start with the last question first, which is really about what's remaining to be done with COSMICS. So, you know, the COSMICS chemistry was the first thing we locked down, and we've generated the data that you've seen publicly presented and released on prototype instruments that are that are work in our hands here in Seattle, but which would not be appropriate to box up and ship to a customer. In order to do that, we need to improve the overall robustness of the system, finalizing its layout, and importantly, its software interface so that it's easy to use. And that's what represents the predominant amount of engineering between now and launch. We hope that the beta systems will be nearly physically identical to the final production systems, but with software that will still not be quite 100% locked on the system, and that's where we'll be getting some feedback and have a final chance to incorporate that for commercial launch. The spatial biology portal is certainly an important part of the COSMICS launch, but I would not call it the rate-limiting factor in the launch. The rate-limiting factor are the traditional engineering of instrumentation and software.

Got it. That's helpful. And then in terms of the protein detection capabilities, Brad, I think one of the points that Joe mentioned that stood out to us was the cyclic encoded protein approach. How does that sort of like translate into the roadmap in terms of Plex on the protein side? I think you guys are launching with 100, but hope to increase that over time. So any kind of timelines and numbers you can share on that?

Yeah, so, you know, we are launching with 100-plex protein expression on COSMICS. Certainly, the chemistry could allow us to go a lot higher than that if we saw demand for it. I think at some point, the limiting factor on protein-plex will naturally become kind of steric crowding of antibodies on epitope sites in the tissue rather than the actual chemistry. So that's a good place for us to be. It's not the cosmic chemistry that's going to naturally limit Plex. It's going to be other factors. So stay tuned. We'll have probably more to say about that over time.

Got it. And one final one on the GOMX side for me. You know, you've had a few quarters now with the human and mouse holoproms cryptome here. Can you share some color on, you know, how you're seeing customers transition to larger scale experiments there? You know, I think this came up earlier on the call in terms of, you know, that 95 to 100K pull through in embedded into your 22 guide versus where you exited in the fourth quarter here. So just any color on that and what gives you then the confidence around that number steadily increasing as we head to 23 and 24?

Yeah, I think it's still relatively early days for the whole transcriptome atlas assay. I mean, many of our customers began experimenting with that in the second quarter and the third quarter and the fourth quarter. But even three quarters is not enough for a new assay to be fully implemented as a workhorse for customer use. So I don't think we've seen the steady state or upper limit of what people may apply that assay with yet. And of course, you know, we're placing instruments that are very high clip now, especially in the fourth quarter, many of which are not yet activated. We haven't seen what the nature of their demand is. You know, in terms of the outlook for further increases and pull through, I mean, time will tell. I don't want to give the impression that we have multi-year line of sight on geomics pull-through. I believe there is more upside to our geomics pull-through than there is downside, but we're not at this point giving a long-term guide with respect to where that number is going to go.

Got it. Very helpful. Thanks, guys. Appreciate the time. Thanks, Adrian.

We've come to the end of our Q&A. I want to hand back to Doug Fowle, Vice President of Investor Relations.

Excellent. Thank you. If you did miss any portion of the call today, there'll be a replay that should be up in the next two hours or so. To access that, please dial 866-813-9403. The conference ID number is 709416. For international callers, please use the dial in 929- 458-6194 and conference ID the same. So thank you very much for your time. Thanks for joining us today.

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