NanoString Technologies Inc - Annual Report: 2019 (Form 10-K)

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•	our expectations regarding our future operating results and capital needs, including our expectations regarding instrument, consumable and total revenue, operating expenses, sufficiency of cash on hand and operating and net loss;

•	our ability to successfully commercialize our GeoMx DSP platform;

•	our ability to successfully develop our Hyb & Seq platform and pursue partnerships;

•	the success, costs and timing of implementation of our business model, strategic plans for our business and future product development plans;

•	the regulatory regime and our ability to secure and maintain regulatory clearance or approval or reimbursement for the clinical use of our products, domestically and internationally;

•	our ability to realize the potential payments set forth in our collaboration agreements;

•	our strategic relationships, including with patent holders of our technologies, manufacturers and distributors of our products, collaboration partners and third parties who conduct our clinical studies;

•	our intellectual property position;

•	our ability to attract and retain key scientific or management personnel;

•	our expectations regarding the competitive position, market size and growth potential for our business; and

•	our ability to sustain and manage growth, including our ability to expand our customer base, develop new products, enter new markets and hire and retain key personnel.

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•	increase the number of molecular targets that can be analyzed simultaneously in order to understand the complete biological pathway involving multiple genes;

•	provide more reliable, precise and reproducible data about targeted genes and biological pathways;

•	maximize the amount of biologic information extracted from precious tissue or other biological samples;

•	minimize the computational intensity of complex genomic and proteomic analysis;

•	process difficult-to-work-with specimens, such as tumor biopsies stored in FFPE format;

•	improve the overall efficiency of their laboratories by simplifying workflow and accelerating the rate of successfully completing their research; and

•	create more systematic and reliable ways to help transition their research discoveries into future clinical products.

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Optimized for Pathway-Based Biology and Development of Multiplexed Biomarkers. Our nCounter Analysis System can profile the activity of up to 800 genes in a single experiment, which allows customers to analyze interactions among hundreds of genes or proteins that mediate biological pathways. Our GeoMx DSP system is designed to enable the multiplex profiling of protein and RNA targets in specifically selected regions of a biological sample.

•	Digital Precision. Our molecular barcodes hybridize directly to target molecules in a sample, allowing them to be counted. This generates digital data (1 molecule = 1 count) of excellent quality over a wide, dynamic range of measurements and provides excellent reproducibility.

•	Simple Workflow. Our systems are designed to offer minimal sample preparation and automated workflow, which enables the simultaneous analysis of hundreds of genes and proteins in approximately 24 hours between the time a sample is loaded and results are obtained. Our systems can generate data that customers can evaluate without the use of complex bioinformatics.

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Sample Throughput. Our nCounter system can analyze from between 24 to 96 samples per day, depending upon the system choice and configuration. GeoMx DSP allows for throughput of 10 or more biological samples per day, depending on the number of regions in the sample selected for analysis. The ability to analyze several samples in a single day facilitates the more rapid completion of scientific studies for publication, or the use of our systems for analysis of pharmaceutical clinical trial results with large numbers of patients enrolled.

•	Flexible Sample Requirements. Our systems are designed to unlock biologic information from minute amounts of a variety of challenging tissue samples, including FFPE samples, cell lysates and single cells.

•	Efficient Sample Requirements. Our systems also can generate scientific results using very small amounts of biological material, which may be important in settings, such as pharmaceutical product development, where multiple researchers may desire access to samples.

•	Gene Expression. Researchers can use the nCounter Analysis System to measure the degree to which individual genes in pathways are turned “on” or “off” by simultaneously quantifying the amount of messenger RNA, or mRNA, associated with each of up to 800 genes.

•	Protein Expression. Today, researchers can use the nCounter Analysis System to simultaneously measure up to 30 proteins. Ultimately, we intend to expand this capability to an increased number of protein targets, limited only by the 800 target capacity of an assay and the number of antibodies that can be sourced and combined without cross-reaction.

•	Gene Mutations. In late 2016, we launched our first assay to detect a particular type of gene mutation, known as single nucleotide variations. Our initial panel, targeting solid tumors, gives researchers the power to measure 104 different gene mutations simultaneously, at the same time as measuring the expression of other genes and proteins.

•	miRNA Expression. Researchers can use the nCounter Analysis System to measure the simultaneous expression levels of up to 800 different miRNAs. The nCounter Analysis System is capable of highly multiplexed, direct digital detection and counting of miRNAs in a single reaction without amplification, thereby delivering high levels of sensitivity, specificity, precision and linearity.

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Copy Number Variation. Researchers can use the nCounter Analysis System to probe for structural variations that result in cells having an abnormal number of copies of one or more sections of the DNA. Researchers are able to conduct large-scale, statistically-powered studies of these copy number variations by leveraging the nCounter Analysis System’s multiplexing capacity to assay up to 800 DNA regions in a single tube, with as little as 300 ng of DNA.

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•	Gene Fusions. Researchers can use the nCounter Analysis System to detect gene fusion events that occur when one gene fuses to another gene. A number of design options are available for developing assays for these complex structural variants which have been shown to be important in a number of cancers.

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Molecular Diagnostics. Our nCounter Analysis System has the ability to simultaneously quantify gene expression on tens or hundreds of genes from minimal amounts of FFPE tissue, which makes it well suited for profiling pathway activation in tumor samples. Identifying whether certain genes are active in a biological sample may prove useful in the diagnosis of disease or disease progression, or in determining whether a certain drug therapy may be more or less effective in a given patient. In addition, nCounter has the precision, reproducibility, and simple workflow required of technologies used in clinical laboratories.

(1)	nCounter MAX and FLEX throughput may be increased to up to 96 samples per day by adding a second prep station.

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•	Pan Cancer Gene Expression Panels. A portfolio of panels designed to comprehensively analyze genes driving the growth of cancer cells, the immune system’s response, and the progression of the cancer, including:

•	Pathways. A novel set of 770 essential genes representing the signaling pathways implicated in cancer, including key driver genes, selected using a data-driven approach to identify the genes most relevant to cancer biology.

•	Immune Profiling. A novel set of 770 genes designed in collaboration with cancer immunologists around the globe, combining markers for 24 different immune cell types and populations, 30 common cancer antigens and genes that represent all known categories of immune response including key checkpoint blockade genes.

•	Progression. A novel set of 770 genes addressing the key questions of what happens when cancer metastasizes, including genes for the study of angiogenesis, epithelial mesenchymal transition, extracellular matrix formation, and metastasis.

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360 Gene Expression Panels. These panels include our IO 360 and Breast Cancer 360 and represent a series of next generation panels that combine clinically actionable content for evaluating the tumor microenvironment and immune response along with validated signatures such as our Tumor Inflammation Signature and PAM 50 (breast cancer subtyping) along with up to 30 additional signatures encompassing all aspects of the cancer. These panels may be combined with our 360 Data Analysis Service to provide access to propriety signature algorithms.

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CAR-T Characterization Panel. A new panel developed in collaboration with leaders in the CAR-T field for use throughout the CAR-T workflow (development, manufacturing and monitoring post-infusion clinical trials). The panel represents a step toward standardization by providing molecular characterization for 8 essential components of CAR-T biology using 780 genes with a customizable feature to allow for measurement of the transgene insert that creates the CAR-T cell.

•	Neuropathology and Neuroinflammation Gene Expression Panels. Two panels built in collaboration with leading drug developers, have been designed to address the growing biomarker needs in the field of neuroscience. These panels, which analyze approximately 770 genes, profile mechanisms for neurodegenerative diseases as well as neuropsychiatric disorders.

•	Autoimmune Disease Gene Expression Panels. Two panels created to address the specific challenges of autoimmune disease research and assist with the understanding of the underlying mechanisms of autoimmune disease and for identification of potential responders and non-responders to drug treatments.

•	miRNA Expression Panels. A family of panels that provide a cost-effective profiling solution capable of highly multiplexed, direct digital detection and counting of up to 800 miRNAs in a single reaction without amplification.

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Human Organ Transplant. Developed in collaboration with the Banff Foundation for Allograft Pathology the Human Organ Transplant panel profiles 770 genes for the study of the immune response to transplanted tissue and the pathways behind organ rejection. The panel can be used to identify biomarkers for rejection and uncover the mechanisms behind toxicity and tissue damage brought on by immunosuppressive drugs.

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Human and Mouse Metabolic Pathways. Broad use panel designed for use with cancer metabolism, immunometabolism and metabolic disease to quantify the expression of hundreds of genes involved in core metabolic processes and signaling pathways in the context of cancer and immunity. The panel can be used to understand the underlying molecular mechanisms behind alterations in metabolic pathways, signaling pathways, and cell stress giving researchers a complementary tool to traditional metabolite assays for profiling metabolic checkpoints and discovering potential therapeutic targets.

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Human and Mouse Fibrosis Panel. Broad use panel designed for use with cancer, immunology and cardiovascular disease research. This panel enables researchers to uncover the mechanisms of disease pathogenesis, identify biomarkers of progression, and develop signatures for therapeutic response by combining hundreds of genes involved in the initiation, inflammation, proliferation, and modification of fibrotic diseases of the lungs, liver, kidney, heart and skin.

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Immuno-Oncology Panels. An immuno-oncology-focused panel menu that comprises up to 96 protein and RNA targets for analyzing the tumor and tumor microenvironment compartments in human and mouse tissue samples. The standard, or core, panel offering is comprised of 18 targets, and researchers have the option of adding over 30 additional targets for analysis focused on specific applications such as immuno-oncology drug target proteins, or human immune activation proteins, and 23 additional targets for analyzing mouse samples for pre-clinical applications. In addition, we offer RNA panel content to allow for the analysis of up to 84 targets for human immune pathways.

•	Neurobiology Panels. A neurobiology-focused menu that comprises up to 40 protein targets to profile neural cells in human tissue. The standard, or core, panel offering comprises 20 targets, and researchers have the option of adding up to 20 additional targets for analysis focused on specific applications such as proteins implicated in Alzheimer’s disease or Parkinson’s disease.

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•	our nCounter Analysis System biology, chemistry, methods and hardware;

•	specific applications for our nCounter Analysis System technology;

•	our gene expression markers, methods and gene signatures for recurrence and drug response in certain forms of cancer;

•	biological and chemical compositions, methods and hardware for enzyme and amplification free sequencing; and

•	biological and chemical compositions, methods and hardware for multiplexed detection and quantification of protein and/or nucleic acid expression in a defined region of a tissue or cell.

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•	greater name and brand recognition, financial and human resources;

•	broader product lines;

•	larger sales forces and more established distributor networks;

•	substantial intellectual property portfolios;

•	larger and more established customer bases and relationships; and

•	better established, larger scale and lower cost manufacturing capabilities.

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•	strong clinical and analytical validation data;

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•	acceptance into major clinical guidelines, including the National Comprehensive Cancer Network, or NCCN, the American Society of Clinical Oncologists, or ASCO, and the St. Gallen Consensus guidelines;

•	health economic studies that may indicate that the test improves quality-adjusted survival and leads to reduced costs; and

•	decision impact studies that show the test leads to better treatment decisions.

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•	the Federal Anti-kickback Statute and state anti-kickback prohibitions;

•	the Federal physician self-referral prohibition, commonly known as the Stark Law, and state equivalents;

•	the Federal Health Insurance Portability and Accountability Act of 1996, as amended, commonly known as HIPAA;

•	the Medicare civil money penalty laws and exclusion requirements;

•	the Federal False Claims Act, civil and criminal penalties and state equivalents;

•	the Foreign Corrupt Practices Act, which applies to our international activities;

•	the Physician Payments Sunshine Act; and

•	the European Union’s General Data Privacy Regulations, or GDPR.

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•	changes in government programs (such as the National Institutes of Health) that provide funding to research institutions and companies;

•	macroeconomic conditions and the political climate;

•	changes in the regulatory environment;

•	differences in budgetary cycles;

•	competitor product offerings or pricing;

•	market-driven pressures to consolidate operations and reduce costs; and

•	market acceptance of relatively new technologies, such as our GeoMx DSP instrument.

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•	expand the commercialization of our products;

•	fund our operations; and

•	further our research and development.

•	market acceptance of our products;

•	the cost and timing of establishing additional sales, marketing and distribution capabilities;

•	revenue and cash flow derived from existing or future collaborations;

•	the cost of our research and development activities;

•	the cost and timing of regulatory clearances or approvals;

•	the effect of competing technological and market developments; and

•	the extent to which we engage in strategic transactions, such as the acquisition of, investment in or disposal of businesses, assets, products and technologies, including inbound or outbound licensing arrangements.

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•	required compliance with existing and changing foreign regulatory requirements and laws;

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•	required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data privacy requirements, labor laws and anti-competition regulations;

•	export or import restrictions;

•	various reimbursement and insurance regimes;

•	laws and business practices favoring local companies;

•	longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

•	political and economic instability, such as the exit of the United Kingdom from the European Union;

•	global health pandemics, such as the coronavirus in China and its spread to other countries;

•	potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers;

•	difficulties and costs of staffing and managing foreign operations; and

•	difficulties protecting or procuring intellectual property rights.

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•	dispose of assets;

•	complete mergers or acquisitions;

•	incur indebtedness;

•	encumber assets;

•	pay dividends or make other distributions to holders of our capital stock;

•	make specified investments;

•	engage in any new line of business; and

•	engage in certain transactions with our affiliates.

•	disruption in our relationships with customers, distributors or suppliers as a result of such a transaction;

•	unanticipated liabilities related to acquired companies;

•	difficulties integrating acquired personnel, technologies and operations into our existing business;

•	diversion of management time and focus from operating our business;

•	increases in our expenses and reductions in our cash available for operations and other uses; and

•	possible write-offs or impairment charges relating to acquired businesses.

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•	greater name and brand recognition, financial and human resources;

•	broader product lines;

•	larger sales forces and more established distributor networks;

•	substantial intellectual property portfolios;

•	larger and more established customer bases and relationships; and

•	better established, larger scale, and lower cost manufacturing capabilities.

•	cost of capital equipment;

•	cost of consumables and supplies;

•	reputation among customers;

•	innovation in product offerings;

•	flexibility and ease-of-use;

•	accuracy and reproducibility of results; and

•	compatibility with existing laboratory processes, tools and methods.

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•	the federal Anti-kickback Statute and state equivalents;

•	the federal physician self-referral prohibition, commonly known as the Stark Law, and state equivalents;

•	the federal Health Insurance Portability and Accountability Act of 1996, as amended, commonly known as HIPAA;

•	the Medicare civil money penalty laws and exclusion requirements;

•	the federal False Claims Act and state equivalents;

•	the Physician Payments Sunshine Act;

•	state, federal and foreign marketing expenditure disclosure laws;

•	state privacy laws, such as the California Consumer Privacy Act;

•	the Foreign Corrupt Practices Act, which applies to our international activities; and

•	the European Union’s General Data Protection Regulation.

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•	We might not have been the first to make the inventions covered by each of our pending patent applications.

•	We might not have been the first to file patent applications for these inventions.

•	Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies.

•	It is possible that our pending patent applications will not result in issued patents, and even if they issue as patents, they may not provide a basis for commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties.

•	We may not develop additional proprietary products and technologies that are patentable.

•	The patents of others may have an adverse effect on our business.

•	We apply for patents covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply for patents on important products and technologies in a timely fashion or at all.

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•	actual or anticipated quarterly variation in our results of operations or the results of our competitors;

•	announcements by us or our competitors of new products, significant contracts or commercial relationships;

•	adverse regulatory announcements;

•	issuance of new or changed securities analysts’ reports or recommendations for our stock;

•	developments or disputes concerning our intellectual property or other proprietary rights;

•	commencement of, or our involvement in, litigation;

•	market conditions in the research market;

•	manufacturing disruptions;

•	any future sales of our common stock or other securities;

•	any change to the composition of the board of directors or key personnel;

•	announcements by us or our competitors of significant acquisitions or divestitures, strategic partnerships, joint ventures or capital commitments;

•	general economic conditions and slow or negative growth of our markets; and

•	the other factors described in this “Risk Factors” section.

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•	permit the board of directors to issue up to 15,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;

•	provide that the authorized number of directors may be changed only by resolution of the board of directors;

•	provide that all vacancies, including newly-created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

•	divide the board of directors into three classes;

•	provide that a director may only be removed from the board of directors by the stockholders for cause;

•	require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be taken by written consent;

•	provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and meet specific requirements as to the form and content of a stockholder’s notice;

•	prevent cumulative voting rights (therefore allowing the holders of a plurality of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

•	provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or by the board of directors; and

•	provide that stockholders are permitted to amend the bylaws only upon receiving at least two-thirds of the total votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

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•	revenue recognition;

•	stock-based compensation;

•	inventory valuation;

•	fair value measurements; and

•	income taxes.

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•	Level 1 — Quoted prices in active markets for identical assets and liabilities.

•	Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•	Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

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(i)

design and maintain effective information technology general controls (“ITGCs”) for the significant applications used in the preparation of the financial statements. Specifically, we did not design and maintain: (a) user access controls to adequately restrict user and privileged access to the financial application, programs, and data to appropriate Company personnel, (b) program change management controls for certain financial systems to ensure that information technology (“IT”) program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and

(ii)	design and maintain effective controls to timely detect and independently review instances where individuals with access to post a journal entry may also have edited or created the journal entry; and

(iii)	design and maintain effective controls relating to our accounting for product and services revenues, specifically to ensure completeness, accuracy, and occurrence of customer order entry, price, and quantity during the product and services billing and revenue processes; and

(iv)	maintain effective controls related to the existence of inventory. Specifically, we did not maintain effective controls related to periodic inventory counts, receiving of inventory, and recording adjustments to inventory quantities.

(i)	management implemented an IT Change Management Control Board which oversees and approves changes to key IT systems which impact our financial reporting; and

(ii)

management implemented improved processes for requesting, authorizing, and reviewing user access to key systems which impact our financial reporting, including identifying access to roles where manual business process controls may be required. This implementation included the addition of new preventative control activities associated with user access provisioning (including users’ ability to create, edit or post journal entries) within our key systems which impact our financial reporting, as well as certain detective controls which review user access and activity logs related to systems that were accessed.

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+	Indicates a management contract or compensatory plan.

*	Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K, but a copy will be furnished supplementally to the Securities and Exchange Commission upon request.

†	Certain portions of this exhibit have been omitted because they are not material and would likely cause competitive harm to the registrant if disclosed.

††	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

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