What happened
Shares of NanoString Technologies (NSTG +0.00%) gained nearly 105% in the first six months of the year, according to data provided by S&P Global Market Intelligence. Investors have become increasingly optimistic about the growth trajectory of the laboratory equipment supplier, especially after it launched an important new product at the end of March.
That excitement allowed NanoString Technologies to raise over $68 million in net proceeds from a public stock offering in March. The company reported approximately $142 million in cash at the end of Q1 2019, which should help it to hit the ground running with its latest product launch.
Image source: Getty Images.
So what
NanoString Technologies generates revenue by selling laboratory equipment and the chemical reagents, called consumables, required to operate them. The business model is similar to that of Illumina, except instead of selling DNA sequencing instruments, the small-cap company sells a niche machine called the nCounter.
The nCounter Analysis System utilizes optical barcoding technology, which allows researchers to count single molecules in a biological sample (such as a tissue sample). The company reported an installed base of 760 nCounter systems at the end of March, which generated $14.5 million in consumables revenue in Q1 2019. The larger the installed base, the more recurring revenue from consumables that can be pulled in.
A larger installed base also provides a great launching pad when add-on capabilities are released. Investors have high hopes for the new GeoMx Digital Spatial Profiler (DSP), which can be used to quantify the physical location of molecules within a sample. That could help researchers to better understand where immune cells are attacking within a sample, which could help them to develop better immunotherapies or checkpoint inhibitor drugs. It's expected to be a significant value-add for the nCounter.
Now what
How excited are investors about the opportunity in immuno-oncology? Well, NanoString Technologies sports a market valuation of over $1 billion today despite generating just $28 million in revenue and an operating loss of $20 million in Q1 2019. A large installed base of nCounter systems does provide optimism that the new GeoMx DSP can hit the ground running, but there isn't much room for failure at the current market valuation.
