NanoString Technologies (NSTG $12) is an early stage, life science research Company with a proprietary platform product, the nCounter (R) Analysis System. The nCounter utilizes a proprietary bar code chemistry and technology that can multiplex hundreds of  gene targets in a single reaction. The automated, multi-application, digital detection nCounter System performs molecular analysis such as gene expression, miRNA expression, copy number variation and karyotyping panels for translational research that can be developed for clinical diagnostic applications.The genomic information is unlocked from small amounts of tissue useful for analyzing hundreds of genes that are involved in cell signalling pathways in cancer biology. NanoString technology uses unique color-coded molecular barcodes that can hybridize directly to many types of target nuclear acid molecules ideal for a range of life science research applications.

The primary focus of the nCounter Technology is cancer biology and the role of signaling pathways with multiplex capability for more than 800 targets for each reaction.The system is compatible with FFPE (Formalin-Fixed Paraffin Embedded) specimens, widely used in pathology and cancer research.

The nCounter DX Analysis System was launched in the U.S. this November for high complexity, CLIA-certified laboratories which can be used for running the 510k cleared, Prosigna Breast Cancer Assay. The Prosigna Breast Cancer Prognostic Gene Signature Assay provides a risk category and numerical score for assessment of the risk of distal recurrence of the disease at 10 years in post-menopausal women with node-negative (Stage I or II) or node-positive (Stage I) hormone receptor positive (HR+) breast cancer found in tissue. Other multi-mode multiplexed research assays and lab developed tests (LDTs) can also be run on the system.

The Company completed its IPO in June 2013 at $10 share below its original planned midpoint of $14 and collapsed to $8 but quickly rebounded to $10. NSTG had a little timing issue as the life science market was weak in June. Investors in the IPO did well as the stock is up 46% since late June. The market cap is $173M and 73% of the shares are owned by institutions. Q3 Revenues were $8.4M before the ramp of the diagnostic breast cancer product.Q3 losses were $7.7M or (0.53) per diluted share. Total Revenues for 2013 is forecasted in the range of $30-$31.5M. Revenue estimates for 2014 are expected to exceed $50M.The Company ended the quarter with $52.2M in cash and investments. The Company is not profitable.

The Company will participate in the Piper Jaffray Health Care Conference in New York on December 3 and present at 4:30p. Four major investment banks already follow the Company with 3 buys and one hold. Institutional ownership is 27.6%.

We have already written about NanoString (NSTG) at a price $8.14 on August 2, when we attended the 2013 AACC Meeting in Houston, and again last week when the price was $11.30. The stock has already run up from an average base at the $9 level, but there are few new innovative genomics platforms with long term potential.

Investment Thesis-Buy On Weakness For Long Term

  1. Compelling business model with a new proprietary platform technology with hardware and consumables trail of revenue. The life sciences tools sector is strong.
  2. International marketing and regulatory efforts have already begun.
  3. Assuming revenues of $50M for 2014, the valuation at a Price/Sales of 5 has potential for $15+target  price based on $225 market cap.The float has 14.5M shares.
  4. Product development collaboration with life science tools leader BD Biosciences Div.of Becton Dickinson (BDX) for single cell isolation.
  5. Sales growth potential because of broad applications for life science translational research and clinical diagnostics in oncology and immunology.

This article was also published in Seeking Alpha today.

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