NanoString Technologies, Inc. (NASDAQ:NSTG) Q2 2022 Earnings Conference Call August 4, 2022 4:30 PM ET
Company Participants
Doug Farrell – Vice President, Investor Relations
Brad Gray – President and Chief Executive Officer
Tom Bailey – Chief Financial Officer
Conference Call Participants
Alex Vukasin – Canaccord Genuity
Dan Brennan – Cowen
Edmund Debler – Morgan Stanley
Dan Arias – Stifel
Operator
Hello and welcome to the NanoString Second Quarter Operating Results. My name is Katie, and I’ll be coordinating your call today. [Operator Instructions]
I’ll now hand over to your host, Doug Farrell, Vice President of Investor Relations to begin. Doug, please go ahead.
Doug Farrell
Thank you very much. On the call with me today is Brad Gray, our President and CEO; as well as Tom Bailey, our CFO. Earlier today, we released our financial results for the second quarter of 2022.
During this call, we may make statements that are forward-looking, including statements about financial and operating projections, the impact of the COVID-19 pandemic and other macroeconomic factors, future growth trends and related factors, expectations regarding current and future instrument orders, prospects for expanding and penetrating our addressable markets, as well as our strategic focus and objectives, and the development status and anticipated success of recently planned product offerings.
Forward-looking statements are subject to risks and uncertainties, including those described in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to update any forward-looking statements.
Later in the call, Tom will be discussing our financial results and 2022 guidance. We have prepared as a supplement the GAAP financial measures, selected non-GAAP adjusted measures. The calculation of which are described in detail in our press release. Throughout the call, all financial missions will be GAAP unless otherwise noted. You can also find reconciliations of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure in this afternoons press release.
With [any] [ph] analysts and investors with their models, we posted exhibits under the Financial Information tab of our Investor Relations home page that include a presentation of non-GAAP or adjusted measures and other selected financial data. I’d like to remind everyone that next week we’ll be participating in both the Canaccord and UBS Healthcare Conferences. We look forward to having the opportunity to speak with many of you there.
Now, I’ll turn the call over to Brad.
Brad Gray
Thank you, Doug. Good afternoon and thank you for joining us. I’m pleased to report strong results from our second quarter, during which we rapidly expanded our spatial biology customer base, while improving our commercial execution. We’ve booked orders for approximately 50 spatial biology instruments, an increase of about 65% year-on-year and 40% sequentially.
We achieved a midpoint of our Q2 revenue guidance even as our order mix shifted towards CosMx Spatial Molecular Imagers, which we’re currently building our backlog rather than generating current period revenue. These solid Q2 results and strong demand for our novel platforms underscore our continued leadership in spatial biology and have set up NanoString for a strong revenue growth in 2023 and beyond.
During the call today, I’ll provide an update on our commercial execution and the dynamics that we’re seeing in the spatial market. I’ll then provide an overview of our progress towards our strategic objectives before handing the call over to Tom to review the details of our financial results, and our outlook for the balance of the year.
Our team is rounded behind the rigorous steps we are taking to sharpen our commercial execution. Members of the sales team are settling into their new roles and are more effectively managing both short and long-term instrument opportunities. We’re pleased with the progress and the expected commercial execution across to continue to improve during the third and fourth quarters of the year.
During June, we had a successful showing at the annual AGBT meeting where spatial biology was a key focus and accounted for about 25% of all presentations and posters. NanoString and our customers led the field in terms of scientific content showcasing 20 scientific abstracts, including 15 for CosMx.
We also hosted our Fourth Annual Station Summit, which drew a standing room only crowd of more than 300 attendees of Orlando and another 30 plus researchers who participated virtually. The AGBT conference also highlighted the degree to which the research community is being rapidly educated regarding spatial biology.
Note here that eight companies are marketing new spatial platforms, primarily single cell imagers in the same product category as our CosMx SMI. Against this backdrop, several new market dynamics have come into focus. First, we’re competing in a spatial biology land graph, as researchers commit to platforms and companies that will power their future research.
The simplest way to measure progress during this phase of market development is the pace of orders for new spatial biology instruments. As a result, total spatial biology instrument orders will begin to feature prominently in our guidance and reporting for the balance of 2022.
Second, the combined energy of so many vendors marketing single cell imagers is rapidly increasing customer interest in this product category. This result for NanoString is that we’re currently finding the volume of orders for our CosMx SMI to be equal to or even greater than the orders for our well established GeoMx DSP.
Rather than fight this market trend, we embrace it. We are equally pleased to place a CosMx or a GeoMx system as either one represents an expansion and a resource community’s commitment to our platform, and an equally valuable revenue opportunity for NanoString. Third and most importantly, we believe that NanoString is well-positioned to win the spatial biology land-grab.
We provide a complete portfolio of spatial biology solutions that includes a whole Transcriptome profiler and the high-plex imager integrated with a cloud-based informatics suite, all supported by Blue Chip partners, including Illumina, Leica, AdCann and [indiscernible]. This portfolio provides researchers with a compelling ecosystem that can offer a solution for virtually any spatial biology experiment a scientist might design.
Now, I’d like to provide an update on our strategic objectives for the year, which are tied to the individual products and our portfolio. Our first objective is to drive GeoMx DSP further into the mainstream, broadening adoption across multiple areas of bio, discovery, and translational research.
During the second quarter, GeoMx instrument revenue grew about 10% sequentially, NGS readout for whole Transcriptome assays continue to be the most popular application, driving about 85% of new GeoMx placements. Two-thirds of systems result in translational researchers who represent our historical customer base, while one-third went to discovery researchers who represent a new target market for us.
Instrument bundles increased in popularity and accounted for a record 35% of GeoMx instrument orders, demonstrating that many new customers are jumping into our spatial biology ecosystem with both feet. Most of these bundles included both a GeoMx and a CosMx system, and several included all three of our platforms. GeoMx, CosMx and nCounter.
Consumable pull through for GeoMx was $77,000 per system on an annualized basis and consistent with our seasonal expectations. About 80% of the cost of GeoMx consumables were for RNA analysis as our whole Transcriptome [channels] [ph] expand to reach beyond the cancer researchers who were our primary early adopters.
In May, NanoString and Illumina launched a seamless, cloud-based workflow that employed the spatial – improved the spatial data analysis experience of customers using Illumina’s NextSeq platform to process samples prepared on GeoMx. This system includes an integrated push button run planning tool, as well as automated downstream processing using the [indiscernible] platform.
We believe that this simple, fast end-to-end solution will improve customer productivity and experience. Our GeoMx customers have already been tremendously productive. As of the end of Q2, they had published approximately 133 publications using GeoMx. And in July, they added another 14 more.
We continue to see positive leading indicators for GeoMx adoption as well. Orders for new GeoMx test drives through our technology access program increased 20% sequentially from Q1 to Q2. GeoMx has driven about have the opportunities entering our spatial biology instrument funnel year to date.
Based on that funnel and improving commercial execution, we expect the pace of GeoMx instrument sales to increase in the second half of the year even as new orders are split about evenly between GeoMx and CosMx.
Our second objective for 2022 is to launch CosMx as the leading molecular imaging platform. The excitement around CosMx continues to exceed our expectations. We took orders from more than 25 CosMx systems in Q2, about double the pace that GeoMx was generating at the same point in its launch.
The synergy between our spatial biology platforms and the appeal of our ecosystem is undeniable as evidenced by the fact that two-thirds of our cumulative CosMx orders that come from customers who have also adopted GeoMx. Reflecting the breadth of excitement regarding CosMx, we are also seeing tremendous interest from customers who are engaging with NanoString for the first time.
During the second quarter, more than 80% of CosMx orders came from new customers. Half of these orders came from researchers working outside of oncology and areas such as immunology, neurology, and a host of other applications. These trends demonstrate that CosMx is helping win the spatial biology land-grab.
While researchers can now choose amongst several molecular imagers, CosMx leads with best-in-class performance metrics, including [highest-plexed] [ph] RNA, the capability to image proteins, robust data quality, all done and challenging FFPE tissue. Although emerging companies are seeking to promote their offerings, these entrants cannot match our specifications product portfolio, commercial channel, brand reputation, partnership ecosystem for financial resources.
We remain on track to begin shipping commercial CosMx instruments during Q4. Earlier this week, we shipped our first beta system to a customer and are planning to ship two more to other customers this month. Meanwhile, we’re allowing customers to test drive CosMx via our technology access program.
About 40% of these test drives have already generated an order for CosMx instrument, while many others have provided data for brand applications that may support future CosMx scores.
Our first strategic objective for the year is to launch our AtoMx Spatial Informatics Platform. AtoMx is an easy to use cloud-based solution that enables image analysis, data visualization, global collaboration, and highly scalable compute and storage capacity for both CosMx and GeoMx.
In addition, AtoMx uses a flexible data structure ready to be examined using artificial intelligence and machine learning approaches. We showcased AtoMx during the AGBT meeting and customer feedback was outstanding. Research was appreciated that we anticipated and addressed the challenge of managing large spatial biology datasets, and we believe that AtoMx provides an important differentiator between NanoString’s portfolio and the more limited offerings of our competitors. We plan to launch AtoMx during this fall.
Our fourth objective for 2022 is to sustain growth for our nCounter franchise. nCounter is a foundational business that supports both our global channel and continued innovation. In April, we introduced our new nCounter Pro, which incorporates a comprehensive cybersecurity solution and can be easily paired with ROSALIND, a collaborative data analysis platform. These enhancements have been well received, especially by our biopharma customers.
We continue to introduce new panels to drive adoption and markets outside of [cancer] [ph]. This quarter, we launched a cardiovascular disease channel, which is now the subject of the collaboration five thought leading institutions. We’ll also expand our cell and gene therapy portfolio for nCounter and we’ll be integrating this application into our spatial platforms. These applications are considered some of the most promising for developing the next generation of therapies across many disease areas.
Now, I’d like to turn the call over to Tom to review the details of our financial results and outlook.
Tom Bailey
Thanks Brad and thanks all for joining us today. The second quarter of 2022 product and service revenue was $32 million. We sold about 50 spatial biology systems during Q2, an increase of approximately 65% as compared to the about 30 systems sold during Q2 of 2021.
Orders were comprised of more than 20 GeoMx systems and more than 25 CosMx systems. Q2 spatial biology revenue was $10.9 million, including GeoMx instrument revenue of $5.2 million and GeoMx consumables revenue of $5.7 million.
Q2 annualized GeoMx consumable pull-through was $74,000 per installed system. At the end of Q2, our GeoMx installed base was approximately 350 instruments. For CosMx, our over 25 new system orders in Q2 added approximately $6 million in revenue backlog bringing our cumulative CosMx total to over 60 orders in our cumulative CosMx revenue backlog to about $14 million.
We expect to begin recognizing material revenue from our growing CosMx order book at the start of 2023. For our nCounter business, which includes all service, Q2 revenue was 21.1 million. Instrument revenue was 4.3 million. Consumables revenue was 12.2 million and Q2 annualized nCounter consumables pull through was approximately $45,000 for installed system.
Service revenue inclusive of all service contract revenue for all platforms and spatial biology cap revenue was about 4.6 billion. At the end of Q2, our nCounter installed base was approximately 1,085 instruments.
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 other 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.
Due to adjusted gross margin was 54%, a decrease of 200 basis points as compared to Q2 of last year, the year-over-year change in gross margins was mainly driven by investments we’re making in our manufacturing capacity in advance of the commercial launch of CosMx. Adjusted R&D expense was 14.5 million, flat year-over-year and adjusted SG&A expense was 30.2 million, an increase of 39% year-over-year.
The increase in SG&A year-over-year was driven primarily by the full run rate impact of investments made and our spatial biology related commercial initiatives, including the expansion of our sales force, service, and customer support groups. Our adjusted EBITDA loss was 27.5 million and our cash and cash equivalents were 272.3 million as of June 30.
Turning to guidance, we are updating our full-year 2022 outlook to reflect an updated expected mix of spatial biology system orders and our current expectation of the pace of improvement of sales execution. For 2022, we now expect to receive orders for about 200 spatial biology systems, consistent with previous guidance as updated in May.
While our expectation for the total number of spatial biology system orders is unchanged, our view of the GeoMx, CosMx, AtoMx has. We now expect our AtoMx this year to be comprised approximately 100 GeoMx system orders at approximately 100 CosMx system orders.
As compared to our last update, which reflected about 140 GeoMx orders and about 60 CosMx orders. We have not included any material CosMx revenue recognition in our 2022 guidance. As a result, we’re adjusting our expected 2022 full-year spatial biology revenue to $50 million to $55 million to reflect our updated expected system order mix.
Our full-year estimated pull through guidance for GeoMx is unchanged from our previous range of $90,000 to $95,000. We also continue to expect full year-end kind of revenue of $90 million to $95 million, an estimated pull through of $50,000 to $55,000, all unchanged from our previous guidance. For total revenue, we now expect to record about $140 million to $150 million in 2022, reflecting the updated expected mix of spatial biology system orders.
Turning to margins and expenses, we are reiterating our previous full-year guidance for adjusted gross margin, which we expect will be in the range of 56% to 58% and operating expenses. We are therefore updating our expected 2022 adjusted EBITDA loss to a range of $75 million to $85 million from the previous range of $65 million to $75 million.
For the third quarter, we expect to book orders for about 55 spatial biology systems, representing about 60% year-over-year growth with an approximate 50/50 mix of GeoMx and CosMx. Spatial biology revenue of $12 million to $13 million, which in Q3 will only include revenue recognized from GeoMx and consumables, nCounter revenue of $22 million to $24 million and total revenue of $34 million to $37 million.
Finally, I’d like to comment on our setup for 2023. The 100 CosMx orders expected in 2022 combined with the 20 orders we received in 2021 would bring cumulative CosMx orders entering 2023 to about [120 total] [ph], representing about $30 million of revenue backlog. During 2023, we expect to recognize substantially all of this CosMx instrument backlog while continuing to accumulate additional orders, which provides line of sight for 2023 revenue growth of more than 40%.
Our balance sheet remains strong and we continue to be confident we have the resources to achieve cash flow breakeven, while sustaining our key investments and growing our spatial biology market share and leadership position.
Now, I’ll turn the call over to Brad for our closing comments.
Brad Gray
Thanks, Tom. NanoString is rapidly winning the most valuable properties and the ongoing spatial biology land-grab. We believe our market position will continue to grow stronger in the future based on our broad portfolio, unique ecosystem, and strong financial position. Because CosMx is not yet shipping, our progress is best reflected and the current growth of our spatial biology instrument orders and our outstanding setup of revenue growth for 2023.
Now, we’d like to open the call for your questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Catherine Schulte from Baird. Please go ahead. Catherine, your line is open. Please ensure you are muted lately. Unfortunately, Catherine, we are unable to hear you. So, we will move to the next question. We take the next question from Kyle Mikson from Canaccord Genuity. Kyle, please go ahead.
Alex Vukasin
Hi, Alex Vukasin. I’m on for Kyle Mikson. Thank you for the update. So, I was just curious, if you could provide some color on the performance of the commercial team during the quarter. Also, some of your competitors had to make some cuts their workforces recently. Other plans to cut costs, given some of the moving recession indicators, also, if so, why are you so confident that this cost cutting won’t hinder CosMx commercial launch? Thank you.
Tom Bailey
Thank you for the questions. First, let me start with the color on the commercial performance. I’m pleased with the improvement in commercial execution that we saw in Q2. I’d highlight two areas in particular: One, the commercial team is really transitioning well into their new roles that were assigned back in January. They’ve all gone through both specific training. We’ve seen the teams work together well each playing in the position that they’re now assigned to.
We’re also seeing more effective management of both short and long-term opportunities, meaning closing business in the current quarter, while continuing to develop a funnel for future quarters. So that performance has been approved. We’ve also seen normalization in the performance of accounts that were transitioned from one rep to the other, which was a real sore point for us during the first quarter that improved substantially in the second quarter and those accounts types are performing basically equally.
I do expect this to continue to improve our performance in the second half. Two areas that we’re looking at in particular are making sure that our account managers who come from a consumable sales background begin to become as just as effective as selling our spatial biology instruments as our account managers who have instrument backgrounds are, and I’m sure they will.
And finally, we’re looking for improved performance from our most junior consumable reps who are still cutting up the curve and learning how to be field based sales individuals. So overall, I’m pleased with the progress, but there’s more still to come.
On your second question, NanoString does not have plans to cut costs at this time. We believe that we have the right commercial infrastructure and people on staff. We expect to grow into that cost base nicely through the second half of this year and in particular when the large backlog of CosMx revenue that we’ll enter 2023 with begins to run through our P&L. So, we have no plans for cost cutting at this time.
Alex Vukasin
Thank you so much for that update. Really good color there. Just one more question, if that’s okay. I was curious about the AtoMx, and most typically, if you guys could provide some updates, on the beta testing and the eventual launch timing. And also just take a high level look at things. So, we always have this the cloud-based [indiscernible] portal that helps you streamline workflows, but I was wondering if you could highlight some of the ways in which this exact portals differentiated from what we’re seeing from competitors in this space? Thank you.
Tom Bailey
Yes. Well we think AtoMx is an underappreciated competitive advantage for NanoString. No other provider is making the investments that NanoString is in cloud-based solutions to manage the massive amount of data that’s spatial biology platforms produce. These are datasets that are so large that can’t be easily emailed around from one researcher to the other. So, we need to create workspaces in the cloud where multiple users can dial in, manipulate, visualize, analyze, and store their datasets.
AtoMx is importantly will also tie together, NanoString’s two separate spatial biology instrument platforms into a single, sort of desktop where all the informatics can be stored, analyzed on the same basic platform. So, AtoMx will launch basically simultaneously with the commercial shipment of CosMx, which is slated to happen in the fourth quarter of this year. Beta testing and there’s ongoing, feedback so far has been excellent. and we look forward to sharing more as time goes on.
Alex Vukasin
Excellent. Thank you very much.
Operator
The next question comes from Dan Brennan from Cowen. Please go ahead, Dan.
Dan Brennan
Great, guys. Thanks for the questions here. I guess maybe first one would be just on GeoMx. For second half pull-through numbers, what’s the visibility on getting to your full-year numbers given the jumping off point right now with the first half of the year?
Tom Bailey
I think that, Dan, as we’ve commented in the last quarter, the seasonal pattern that we’re seeing right now is pretty consistent with the seasonal pattern that we saw for last year. So, if you assume a seasonal pattern and pull-through percentage change in Q3 and Q4 like you saw in 2021 that gets you to our $90,000 to $95,000 giver or take for the full-year.
Dan Brennan
Got it. Okay. And in terms of the shift here towards CosMx, which is showing some nice, you know, really good order momentum, but kind of, you know, someone at the expense of GeoMx, which is a, you know, a big question mark, and kind of how these two products co-exist complementary or cannibalistic like, what – maybe could you give us some color around how you’re thinking about, you gave some color on 2023, how do we think about the jumping off point for GeoMx as we get into 2023?
Brad Gray
Yeah. This is Brad, Dan. I’ll take that one. When we first characterize these two different product categories, the whole Transcriptome profiling category from GeoMx and the single cell imaging platform category for CosMx, we estimated their total addressable market is about equal. We said that there were about 7,000 labs worldwide that could own both of these, that two systems and that most labs in the long-term would need both capabilities, the ability to look at all genes on GeoMx and the ability to get single cell resolution on CosMx.
I think it’s safe to say that we underestimated just how quickly the single cell resolution of CosMx would appeal to researchers and have them shift for that to be their first spatial biology instrument purchase. So, that’s what we’re seeing right now. We’re seeing a lot of excitement about that resolution. That excitement has been reinforced by years of marketing non-spatial single cell biology and by eight different competitors in the market, all of whom are detailing researchers on this capability.
The great news for NanoString is that we’re basically indifferent between, which of those two instruments any customer chooses to order. We are not going to spend time talking somebody who’s interested in the CosMx out of that and then do a GeoMx, just because one revenue recognizes this year. We are happy to get our first platform into their lab with an expectation that in many cases, we will come back in subsequent years and sell them a second of the other platform.
So, I think as we enter 2023, you’re going to hear us talk about total spatial biology instruments rather than trying to project individual installed base growth for the GeoMx versus the CosMx platform. 2022 has taught us that that mix is difficult to predict. And in 2023, minimal revenue recognized both will basically be indifferent to mix.
So, you know, that’s a long winded way of saying we think that GeoMx has tremendous opportunity ahead of it that over time these product lines should remain about equal in their total opportunity and that’s the instrument mix that we expect in the second half and that as [RevRec] [ph] normalizes across these systems, the mix will matter less and less. So, stay tuned.
Dan Brennan
And you’ve talked a lot about CosMx, GeoMx owners, do you expect – have you seen any evidence? Although, CosMx is just seeing some orders now through three quarters now, but from those early orders, are there a fair amount of those that don’t have a GeoMx where you think you could follow-up with a GeoMx? What’s that conversation like?
Brad Gray
Well, as I outlined in my prepared remarks, cumulatively over the approximately 60 CosMx systems that we sold, a large fraction have a GeoMx system either at the time that they purchased or bought in a bundle simultaneously as they made a major investment in spatial biology for the first time. So, I think that shows that it is possible for us to go in and place both of our spatial biology systems and really make that lab a very NanoString oriented spatial biology lab.
In the most recent quarter though, 80% of CosMx went to customers with whom NanoString had never done business. They didn’t have nCounters and they didn’t have GeoMx systems. These tended to be traditional single cell biology researchers who are using droplet based approaches from other providers in the past who are eager to get single cell resolution in their spatial. So, we’re seeing the opportunity for us to expand beyond our traditional installed base as well.
Dan Brennan
Do you mind, if I could sneak in one …
Brad Gray
Dan, let me just add one more piece of color to that I think could be helpful. We think a lot about cannibalization and the question of whether CosMx is likely to cannibalize GeoMx in the long-term. One of the metrics that we keep a close eye on here is the rate at which new opportunities are being added to our GeoMx and CosMx funnels. If we started to see a substantial slowdown and the rate of new customers who are interested in GeoMx relative to CosMx that would be an indicator of cannibalization. We do not see that kind of slowdown.
On a year-to-date basis, the number of new opportunities that we’ve added to the GeoMx and the CosMx funnels are about equal and in fact the number of GeoMx opportunities we’ve put in our funnel has increased year-on-year versus the same period. I think that underscores the idea that in the long-term, both of these instruments are likely to be vibrant businesses and then most labs will need both the whole Transcriptome and a single cell capability.
Dan Brennan
Right. But maybe one more follow-up, but is it fair to say the fact that the GeoMx number is coming down this year, CosMx is going up that, is that due to just you underestimated, maybe or you overestimated the demand this year for GeoMx or is it salesforce capacity or just why, you know, that’s inching data point, but for the GeoMx step down this year, what’s the catalyst for that versus where we were a quarter ago?
Brad Gray
So, we think about it as total instrument opportunities in the year. So, if you look at our May guidance, the implicit guidance was about 200 instruments. At that time, we thought it would be about 140 GeoMx systems that we’d sell this year and about 60 seismic systems. What has changed and the period since is that it’s become clear that that same 200 systems, which is consistent with previous guidance, will be a 100 instrument and 100 instrument mix, rather than a 140 GeoMx and 60 CosMx [mix] [ph].
So, I would say, we properly estimated the total demand for spatial biology instruments during the year, but we misjudged the mix, which is more tilted at least at this point in time towards single cell biology systems. And as I said, I think the answer to a previous question, the reasons are several fold.
One is, single cell biology in a non-spatial format has been a very productive area of science and there’s a whole bunch of customers who are waiting for a spatial solution and provided that and we’re coming in to the market for spatial biology, and two is there’s a lot of marketing of that product category that’s happening right now with eight providers in the space and NanoString is winning, I think a very admirable share of the overall volume of that demand.
Dan Brennan
Got it. And then maybe last one, and I’ll go back in the queue, but just for CosMx, do you feel like as we get out, say, 12 months and more of these players get into the market that, you know, the concern from some is that there’s going to be so many players the market will be kind of you know, there’ll be a lot of inertia from decision making? Are you seeing that yet today? Do you expect to see that? I know you’re right now, you’re in a the leadership position with, you know, AtoMx and the Salesforce and the product set, but, like, do you expect in 12 months for there to be any degradation in your, like, relative share or growth?
Brad Gray
So, quite the opposite, Dan. I think over time, some of the smaller entrants in this market may no longer be meaningful participants. I believe that our market leadership position will be reinforced and grow stronger through the success and elaboration of our product pipeline. And that, like in the NGS market, there’ll be a consolidation around a small number of standards and NanoString will absolutely be one of those. You know, the sales cycle right now on Imagers, on CosMx is incredibly fast. We, of course, weren’t talking about this platform really even publicly 12 months ago and here we are out selling in the most recent quarter GeoMx in terms of number of units.
Our customers are being very decisive about choosing our platform. We believe that has to do both with its superior specifications and with NanoString’s brand reputation and overall space in the ecosystem.
Dan Brennan
Right. Okay. Thanks, guys. Appreciate it.
Operator
Next is a question from Catherine Schulte from Baird. Please go ahead, Catherine.
Tom Bailey
There Catherine?
Operator
We appear to have just lost Catherine’s line, so we’ll move on to the next question. We have a question from Tejas Savant from Morgan Stanley.
Edmund Debler
Hey, guys. This is Edmund on Tejas. Thanks for taking the question. Just circling back to the mix of CosMx and GeoMx’s that are expected, I can’t – I understand what drove the excitement behind CosMx, but I just kind of want to parse out, I think you guys have previously said that sales reps were having problems balancing new products in the portfolio, and some of them are gravitating more towards CosMx versus GeoMx. I’m just wondering if any of that played into this dynamic you’re seeing today?
Tom Bailey
That’s a great question and a good follow-up to some of our commercial execution improvements. During the first quarter, we did see a bifurcation within our sales force between those reps who gravitated to selling GeoMx and those reps who gravitated to selling CosMx. That bifurcation largely disappeared in the second quarter.
All of our reps are enjoying success across both platforms, but overall net, net, you know CosMx slightly outsold GeoMx during the second quarter, but through work and training and repositioning of our platforms, we feel that every rep is positioned to sell each of these platforms successfully.
In fact, most of the time when we enter a customer discussion now, I wouldn’t call it either a GeoMx or a CosMx sales call, it’s a NanoString spatial biology sales call, because we have the leading platform in both the profile or an imager category, as well as in a dramatic suite, we’re able to go in from a very strong position talking about the type of science that that customer wants perform in spatial and helping them navigate which of the systems is the right first system invest for that lab. And that’s really what our sales reps are doing successfully now.
Edmund Debler
Got it. And then, Brad, circling back to your beta instrument for CosMx, that shipped in August, I believe that was initially planned for a shipment in June. I was wondering if you can comment on what caused the delay here?
Brad Gray
Actually, what caused the delay, the primary cause of the delay would be availability of the customer. So, as you can imagine, many customers go on vacation in the summer. When we install the system, we want to have several weeks of that customer’s full attention to install, to train, and to get the utilization of that system going and the best time for that particular customer was to start in August?
Edmund Debler
Got it. That makes sense. And then back to your comment earlier about, in the most recent quarter, 80% of the cosmetics orders went to new to NanoString customers, and these guys are typically single cell workflow researchers, I was just wondering out of these 80% of customers that ordered CosMx, how many of them are currently performing spatial profiling?
Brad Gray
That’s a good question. I don’t have a quick answer to that at this stage, but I would guess it’s a minority. I mean, spatial profiling is so new that most customers who buy any of our systems are making their first investment in that new capability. So, my expectation would be that a relatively small number of them are doing spatial profiling today and most are adopting it for the first time.
Edmund Debler
Got it. Super helpful. Thank you for the time.
Operator
Next, we have a question from Dan Arias with Stifel. Please go ahead, Dan.
Dan Arias
Hi, guys. Thanks for the questions. Some dial-in issues here. So, apologies if you’ve touched on these. But Brad, to what extent is bundling of the two systems playing a role in the orders that you’re driving? And is there anything in the product and service outlook that reflects a pricing change on the GeoMx?
Brad Gray
Hey Dan, thanks for the questions. Bundling has become an important tactic for us. About 35% of the GeoMx orders during the quarter were bundled. I’d say, of that 35% probably 25% of the 35% was CosMx plus GeoMx orders. So, people were kind of doubling down on the NanoString spatial biology franchise, and that’s really a great sign for us. We’re happy to see that.
In fact, as a further answer to some of the cannibalization questions before, when we look at dialogues with customers that began as GeoMx dialogues where they ended up buying a CosMx more time than not, they ended up buying a CosMx in a bundle with a GeoMx rather than switching from GeoMx to a cost. So, it’s another great indication that this is not cannibalization, but rather synergy.
So, bundling is helpful. Our standard bundling discount is about 15%. So, it does not materially change the ASPs of our platforms. And so, we are not modeling any meaningful change in ASP for GeoMx in the second half of this year.
Dan Arias
Okay. Helpful. Maybe on consumables pull-through for GeoMx, I appreciate Tom’s comments on seasonality, but just overall what are you hearing from customers about usage? It sounds like you’re on your way with the commercial team fixes, but that was more of an instrument issue, I believe, and consumables pull-through was 77,000. So, what is it that seems to explain the step down from the mid-90s level that you saw for last year?
Brad Gray
Well, the first thing that explains the step down is the fraction of systems that are relatively newly installed. As we mentioned on our May call, we’ve observed a pattern that shows that customers require quite some time for [indiscernible] fully effective in running their new GeoMx system. This is a more pronounced issue with those customers who are using the whole Transcriptome Atlas who require the connectivity to an Illumina sequencer and very often auxiliary storage and compute capacity to deal with the large data sets.
And so, as the pace of instruments placement has increased throughout the launch, so too has a fraction of our installed base that is relatively new, and that is modestly suppressing the overall growth and pull-through that we might otherwise be seeing. We have an initiative that’s focused on what we call site activation, working to support the customer in building up their own workflow and learning how to design experiments.
It is working in terms of site activation modestly improving in the second quarter, but it’s going to take some time before we see that play through on overall average pull-through.
Dan Arias
Okay. I mean, if I could just push you a little bit on that. I mean, you’re placing fewer GeoMx systems now than you were in the past. So, shouldn’t you have been seeing the impact on the consumables rate last year when you were replacing more GeoMx systems on the consumables pull-through? I mean, it would seemingly be less of a factor now given that you’re in the 20s range and you were in the 30s range last year.
Brad Gray
Well, you ought to remember the very large volume of orders that we had last year were all in the second half, right. So those sites that – the 50 plus, for instance, orders that we had in the fourth quarter, most of them were not installed into the first and activated until the second quarter according to the normal cadence of how shipment, install, and activation work. So, in fact, that huge bolus of instrument orders from last year are exactly the sites that are suppressing pull-through now.
Dan Arias
Okay. Maybe just one more since hopefully we’re at the end of the Q&A here. Is there anything that you would think you would run into manufacturing capability wise on CosMx? In other words, if orders sound like they’re trending pretty nicely, would you run up against any constraints on the production side at all that we should be aware of?
Brad Gray
We’re working very hard Dan to make sure we don’t. As our [firm internal forecast] [ph] for the volume of instruments has been revised upward, we’ve been working very closely with our contract manufacturer to prepurchase parts for the assembly of systems and identifying parts that are at risk and even having them custom manufactured in small batches so that we can be sure that we’re able to fulfill demand. So, we don’t have any line of sight to a supply chain constraint at this time, but we are working hard to make sure that remains the case.
Dan Arias
Yeah. Okay. Appreciate the answers. Thanks, Brad.
Operator
We have a follow-up question from Dan Brennan from Cowen. So, please go ahead, Dan.
Dan Brennan
Hey, guys. Just maybe one or two more. Just on the macro, anything you’re seeing, given the global economy, what it’s doing? Have you seen any pauses or longer sales cycle? And have you baked anything into the back half of the year given the expectation is for the economy to, you know, likely get worse from here?
Brad Gray
Yes. In a rapidly growing product category like spatial biology, macro factors are probably in the noise. China certainly is a factor that we see China. The lockdowns in China without a doubt have slowed down of the commerce and the scientific activity in that region for us. And it probably played through to the tune of $0.5 million to $1 million a quarter for us.
China is a relatively small part of NanoString’s business. It’s more of a growth opportunity for us as a company. than it is a current drag on our overall outlook. We have not seen the challenges in Europe that some of our colleagues have talked about. So, I think it’s relatively modest in terms of what the macroeconomic impact has been for us.
I do think a recovery in China is built into our second half guidance not a miraculous one because it’s a relatively small part of our mix, but we’re starting to see improvement there and we hope they’ll continue, expect they’ll continue.
Dan Brennan
Got it. And then just on free cash, I know you guys have talked about confidence in getting the free cash flow positivity, I guess, with the balance sheet cash you have, you [said] [ph] that your spending a little bit. Just kind of remind us that given the increasing focus on capital preservation and or just capital like a pathway, how do we think about your cash balance today and what the burn rate looks like as we move forward?
Tom Bailey
Yeah. I think the most important factor in that Dan to consider is big backlog of CosMx revenue we’re entering into next year with combined with the comments that we’ve made about moderating our expense growth and growing into our base of expenses in 2023, and particularly you can see we’ve already started to do that with R&D where we had flat year-over-year growth in R&D expenses.
So, when you take the CosMx backlog and expected revenue for next year, run it over what our existing expense base is, you start to get to the math that you need to get you pretty quickly to see our cash balance more than adequate. And to get us to profitability. We’re still thinking about that in the revenue we’ve talked about previously, within the $300 million to $400 million revenue range. It’s somewhere in that zip code is where we would reach cash flow breakeven and resources we have are plenty to get us there.
Dan Brennan
Got it. And then maybe final one, just on CosMx and pull-through, I think you’ve talked about a good place holder is what GeoMx does, I know it’s early, but any color on how we think about the used case for CosMx and is there a headroom on cosmetics to increase the sample throughput at all since it sounds like that could really maybe unlock some new markets as well? Thanks.
Brad Gray
Yeah, Dan for modeling purposes, I’d say modeling CosMx pull-through as similar to GeoMx is still the best answer we’re in a position to give you until we’ve begun to see actual utilization on that system. From the question of what throughput if possible, and whether there are opportunities to increase our throughput the answer is yes. We are working on techniques that would allow us to increase the number of samples that are processed for weeks on that system. And, you know, expecting or more on that as time goes on.
Dan Brennan
Great. Thanks, guys.
Brad Gray
Thank you, Dan.
Operator
[Operator Instructions] Thank you so much. So, I’ll now hand the call back over to our speakers for any closing remarks.
Doug Farrell
Thanks everyone for joining us today. If you did miss any portion of the call, there will be a replay available in the next two hours or so. To access that call, U.S. callers, please dial 866-813-9403, international callers please dial 929-458-6194. The conference ID is the same for both. It’s 426771. Thank you very much. That concludes our call.
Operator
Goodbye. That concludes today’s call. Thank you all for joining. Please disconnect your lines.
Be the first to comment