EX-99.1 3 nstg-120319ex991.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Overview
License and Asset Purchase Agreement and Service and Supply Agreements with Veracyte Inc.
On December 3, 2019, NanoString Technologies, Inc. (the “Company”) completed a license of intellectual property and a sale of certain assets relating to the Company’s nCounter FLEX platform for use in clinical diagnostic applications, including distribution rights to the Company’s proprietary Prosigna breast cancer assay (“Prosigna”), to Veracyte Inc. (“Veracyte”) pursuant to a License and Asset Purchase Agreement (the “LAPA”). Pursuant to the LAPA, the Company provided Veracyte a worldwide exclusive license to market and sell clinical diagnostic tests developed for the Company’s nCounter FLEX platform, including the worldwide rights to Prosigna. Veracyte also acquired certain intellectual property rights from the Company relating to Prosigna and the Company’s proprietary LymphMark assay (“LymphMark”).
    Pursuant to the LAPA, Veracyte has agreed to pay the Company total consideration of up to $60.0 million, consisting of (i) $40.0 million in cash upon consummation of the LAPA; (ii) $10.0 million in Veracyte common stock upon consummation of the LAPA; and (iii) potential milestone payments of up to $10.0 million in the aggregate, to be paid upon the launch of additional clinical diagnostic tests by Veracyte for the Company’s nCounter FLEX platform. In addition, Veracyte has agreed to assume the obligation to pay specified royalties under the Company’s existing agreements with Bioclassifier, LLC. Pursuant to the LAPA, Veracyte will offer certain employees of the Company employment with Veracyte.
The Company on December 3, 2019 also entered into two Service and Supply Agreements (the “SSAs”) with Veracyte, one whereby the Company agreed to supply to Veracyte nCounter FLEX instruments, and one whereby the Company agreed to manufacture and supply Prosigna kits, LymphMark kits and any additional clinical diagnostic tests that Veracyte may develop in the future for nCounter, for a period of at least 4 years subsequent to the transaction date. Pursuant to the SSAs, Veracyte will pay the Company designated transfer prices for nCounter FLEX instruments, Prosigna kits, LymphMark kits and any other nCounter-based diagnostic tests developed by Veracyte.



NanoString Technologies, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2019
(in thousands)

 
Historical
 
Pro Forma Adjustments
 
Notes
 
Pro Forma
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
23,442

 
$
40,000

 
(a)
 
$
63,442

Short-term investments
105,423

 
10,000

 
(a)
 
115,423

Accounts receivable, net
19,542

 
—

 
 
 
19,542

Inventory, net
19,040

 
—

 
 
 
19,040

Prepaid expenses and other
10,877

 
—

 
 
 
10,877

Total current assets
178,324

 
50,000

 
 
 
228,324

Property and equipment, net
14,863

 
—

 
 
 
14,863

Operating lease right-of-use assets
25,344

 
—

 
 
 
25,344

Other assets
2,228

 
—

 
 
 
2,228

Total assets
$
220,759

 
$
50,000

 
 
 
$
270,759

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
6,724

 
$
—

 
 
 
$
6,724

Accrued liabilities
5,632

 
3,000

 
(a)
 
8,632

Accrued compensation and other employee benefits
10,774

 
—

 
 
 
10,774

Customer deposits
6,462

 
—

 
 
 
6,462

Deferred revenue, current portion
4,389

 
—

 
 
 
4,389

Operating lease liabilities, current portion
3,690

 
—

 
 
 
3,690

Total current liabilities
37,671

 
3,000

 
 
 
40,671

Deferred revenue, net of current portion
876

 
—

 
 
 
876

Deferred rent and other long-term liabilities, net of current portion
246

 
—

 
 
 
246

Long-term debt, net of discounts
79,194

 
—

 
 
 
79,194

Operating lease liabilities, net of current portion
30,183

 
—

 
 
 
30,183

Total liabilities
148,170

 
3,000

 
 
 
151,170

Total stockholders’ equity
72,589

 
47,000

 
(a)
 
119,589

Total liabilities and stockholders’ equity
$
220,759

 
$
50,000

 
 
 
$
270,759

See the accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.



NanoString Technologies, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 2019
(in thousands, except per share amounts)
 
Historical
 
Pro Forma Adjustments
 
Notes
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Product and service
$
70,069

 
$
(4,805
)
 
(b)
 
$
65,264

Collaboration
18,568

 
—

 
 
 
18,568

Total revenue
88,637

 
(4,805
)
 
 
 
83,832

Costs and expenses:

 
 
 
 
 

Cost of product and service revenue
29,239

 
(692
)
 
(c)
 
28,547

Research and development
50,063

 
(5,871
)
 
(d)
 
44,192

Selling, general and administrative
69,317

 
(7,174
)
 
(e)
 
62,143

Total costs and expenses
148,619

 
(13,737
)
 
 
 
134,882

Loss from operations
(59,982
)
 
8,932

 
 
 
(51,050
)
Other income (expense):

 
 
 
 
 

Interest income
2,114

 
—

 
 
 
2,114

Interest expense
(6,052
)
 
—

 
 
 
(6,052
)
Other expense, net
(552
)
 
—

 
 
 
(552
)
Total other expense, net
(4,490
)
 
—

 
 
 
(4,490
)
Net loss before provision for income tax
(64,472
)
 
8,932

 
 
 
(55,540
)
Provision for income tax
(211
)
 
—

 
 
 
(211
)
Net loss
$
(64,683
)
 
$
8,932

 
 
 
$
(55,751
)
Net loss per share - basic and diluted
$
(1.90
)
 


 
 
 
$
(1.63
)
Weighted average shares used in computing basic and diluted net loss per share
34,121

 
 
 
 
 
34,121

See the accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.



NanoString Technologies, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2018
(in thousands, except per share amounts)
 
Historical
 
Pro Forma Adjustments
 
Notes
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Product and service
$
83,523

 
$
(6,307
)
 
(b)
 
$
77,216

Collaboration
23,209

 
—

 
 
 
23,209

Total revenue
106,732

 
(6,307
)
 
 
 
100,425

Costs and expenses:
 
 
 
 
 
 
 
Cost of product and service revenue
36,331

 
(797
)
 
(c)
 
35,534

Research and development
61,599

 
(9,727
)
 
(d)
 
51,872

Selling, general and administrative
78,195

 
(9,524
)
 
(e)
 
68,671

Total costs and expenses
176,125

 
(20,048
)
 
 
 
156,077

Loss from operations
(69,393
)
 
13,741

 
 
 
(55,652
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
1,331

 
—

 
 
 
1,331

Interest expense
(7,431
)
 
—

 
 
 
(7,431
)
Other expense, net
(1,658
)
 
—

 
 
 
(1,658
)
Total other expense, net
(7,758
)
 
—

 
 
 
(7,758
)
Net loss before provision for income tax
(77,151
)
 
13,741

 
 
 
(63,410
)
Provision for income tax
(249
)
 
—

 
 
 
(249
)
Net loss
$
(77,400
)
 
$
13,741

 
 
 
$
(63,659
)
Net loss per share - basic and diluted
$
(2.78
)
 
 
 
 
 
$
(2.28
)
Weighted average shares used in computing basic and diluted net loss per share
27,883

 
 
 
 
 
27,883

See the accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.



NanoString Technologies, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. Basis of Pro Forma Presentation
The unaudited pro forma condensed consolidated financial statements included herein were prepared in accordance with Article 11 of Regulation S-X and are based on the historical financial information of the Company. The historical condensed consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the LAPA and the SSAs and (2) factually supportable. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from this report, as is permitted by such rules and regulations.
The accompanying unaudited pro forma condensed consolidated financial statements are based on historical consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 11, 2019, and the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019 filed with the SEC on November 5, 2019. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2019 gives effect to the pro forma events as if they had occurred on September 30, 2019. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 give effect to the pro forma events as if they had occurred on January 1, 2018, the beginning of the earliest period presented. The pro forma adjustments do not include payments of up to $10.0 million which could be earned pursuant to the achievement of milestones because such events are not considered to be sufficiently probable of occurring. As a result of the Company’s history of net losses and full valuation allowance on its deferred income taxes, the income tax effect of the pro forma adjustments assumes an effective tax rate of 0%, and accordingly, the pro forma adjustments do not include any amounts for income taxes.
2. Assets Disposed of in Connection with the LAPA
As of the September 30, 2019 balance sheet date, the assets disposed represented an immaterial component of the Company’s total assets.
3. Pro Forma Adjustments
The following pro forma adjustments have been reflected in these unaudited pro forma condensed consolidated financial statements:
(a)
License and sale of nCounter clinical diagnostic rights, including rights to Prosigna and LymphMark: includes the following adjustments: (i) $40.0 million increase in cash and cash equivalents for proceeds received from Veracyte; (ii) $10.0 million increase in short-term investments for the value of common shares received from Veracyte; and (iii) $3.0 million increase in accrued liabilities for certain transaction, restructuring and other expenses that are reasonably known or estimable as at December 3, 2019. As the rights licensed and sold in connection with the LAPA have no significant carrying value, the preceding result in a net adjustment that reduces our accumulated deficit by $47.0 million. The components comprising the net adjustment have not been reflected in the pro forma condensed consolidated statements of operations as they are considered non-recurring in nature.
(b)
Product and service revenue, net: adjustment to revenue from the sales of Prosigna kits to third parties, as if such sales were made to Veracyte at the transfer prices established by the SSAs. The impact of the SSAs on revenue received from the Company’s sales of nCounter FLEX systems during the periods presented would have been immaterial, and, as such, no pro forma adjustments were made. The Company had no sales of LymphMark kits during the periods presented.
(c)
Cost of product and service revenue: adjustment to eliminate royalty expenses related to sales of Prosigna kits pursuant to intellectual property licenses that were acquired or assumed by Veracyte under the LAPA.
(d)
Research and development expense: adjustment reflecting the elimination of research and development department expenses directly attributable to diagnostic product development for nCounter, including dedicated personnel and other direct expenses.
(e)
Selling, general and administrative expense: adjustment reflecting the elimination of sales and marketing expenses directly attributable to the sale of Prosigna kits, including dedicated sales and marketing personnel solely responsible for Prosigna sales and other direct expenses.