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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File: Number 001-35980
nstg-20220331_g1.jpg
NANOSTRING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-0094687
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
530 Fairview Avenue North
Seattle, Washington 98109
(Address of principal executive offices)
(206) 378-6266
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareNSTGThe Nasdaq Stock Market LLC
(The NASDAQ Global Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerýAccelerated filer
Non-accelerated filer¨Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act).   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
As of May 3, 2022 there were 46,415,841 shares of registrant’s common stock outstanding.


NANOSTRING TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 2022
TABLE OF CONTENTS
  PAGE
Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations — Three months ended March 31, 2022 and 2021
Condensed Consolidated Statements of Comprehensive Loss — Three months ended March 31, 2022 and 2021
Condensed Consolidated Statements of Changes in Stockholders’ Equity — Three months ended March 31, 2022 and 2021
Condensed Consolidated Statements of Cash Flows — three months ended March 31, 2022 and 2021
1

Risk Factor Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report titled “Risk Factors.” The following is a summary of the principal risks we face:
We face risks related to health epidemics and other outbreaks, such as COVID-19, which could significantly disrupt our operations and could have a material adverse impact on us.
We have incurred losses since we were formed and expect to incur losses in the future. We cannot be certain that we will achieve or sustain profitability.
Our financial results may vary significantly from quarter to quarter which may adversely affect our stock price.
If we do not achieve, sustain or successfully manage our anticipated growth, our business and growth prospects will be harmed.
Our future success is dependent upon our ability to expand our customer base and introduce new applications and products.
New market opportunities may not develop as quickly as we expect, limiting our ability to successfully market and sell our products.
Our business depends on levels of research and development spending by academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results.
Our sales cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.
Our reliance on distributors for sales of our products outside of the United States could limit or prevent us from selling our products and impact our revenue.
Our future capital needs are uncertain and we may need to raise additional funds in the future.
We may not be able to develop new products, enhance the capabilities of our systems to keep pace with rapidly changing technology and customer requirements or successfully manage the transition to new product offerings, any of which could have a material adverse effect on our business and operating results.
We are dependent on single source suppliers for some of the components and materials used in our products, and the loss of any of these suppliers could harm our business.
We may experience manufacturing problems or delays that could limit our growth or adversely affect our operating results.
We expect to generate a substantial portion of our product and service revenue internationally and are subject to various risks relating to our international activities, which could adversely affect our operating results.
Undetected errors or defects in our products could harm our reputation, decrease market acceptance of our products or expose us to product liability claims.
If we experience a significant disruption in our information technology systems or breaches of data security, our business could be adversely affected.
New product development involves a lengthy and complex process, and we may be unable to commercialize on a timely basis, or at all, any of the products we develop individually or with our collaborators.
The life sciences research market is highly competitive. If we fail to compete effectively, our business and operating results will suffer.
We are subject to ongoing and extensive regulatory requirements, and our failure to comply with these requirements could substantially harm our business.
Healthcare policy changes, including legislation reforming the United States healthcare system, may have a material adverse effect on our financial condition and results of operations.
If we are unable to protect our intellectual property effectively, our business would be harmed.
Involvement in lawsuits to protect or enforce our patents and proprietary rights, to determine the scope, coverage and validity of others’ proprietary rights, or to defend against third-party claims of intellectual property infringement, could be time-intensive and costly and may adversely impact our business or stock price.
The price of our common stock may be volatile, and you could lose all or part of your investment.
Complying with the laws and regulations affecting public companies increases our costs and the demands on management and could harm our operating results.
2

PART 1. FINANCIAL INFORMATION 
Item 1.    Condensed Consolidated Financial Statements
NanoString Technologies, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par value)
March 31, 2022December 31, 2021
Assets(Unaudited)
Current assets:
Cash and cash equivalents$98,457 $107,068 
Short-term investments213,618 241,821 
Accounts receivable, net30,381 40,130 
Inventory, net34,590 31,486 
Prepaid expenses and other10,084 7,115 
Total current assets387,130 427,620 
Property and equipment, net32,704 27,043 
Operating lease right-of-use assets18,562 19,226 
Other assets6,324 5,592 
Total assets$444,720 $479,481 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$18,426 $14,283 
Accrued liabilities4,541 6,765 
Accrued compensation and other employee benefits12,188 17,466 
Customer deposits1,262 1,278 
Deferred revenue, current portion8,053 7,474 
Operating lease liabilities, current portion5,116 4,889 
Total current liabilities49,586 52,155 
Deferred revenue, net of current portion3,820 3,527 
Long-term debt, net225,511 225,144 
Operating lease liabilities, net of current portion20,498 21,693 
Total liabilities299,415 302,519 
Commitment and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 15,000 shares authorized; none issued
  
Common stock, $0.0001 par value, 150,000 shares authorized; 46,402 and 45,729 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
5 5 
Additional paid-in capital835,845 827,028 
Accumulated other comprehensive loss(1,292)(318)
Accumulated deficit(689,253)(649,753)
Total stockholders’ equity145,305 176,962 
Total liabilities and stockholders’ equity$444,720 $479,481 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

NanoString Technologies, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
 20222021
Revenue:
Product $26,571 $27,708 
Service 4,270 3,686 
Total product and service revenue30,841 31,394 
Collaboration239 223 
Total revenue31,080 31,617 
Costs and expenses:
Cost of product revenue11,472 12,046 
Cost of service revenue3,306 3,577 
Total cost of product and service revenue14,778 15,623 
Research and development17,417 15,063 
Selling, general and administrative36,355 26,799 
Total costs and expenses68,550 57,485 
Loss from operations(37,470)(25,868)
Other income (expense):
Interest income151 118 
Interest expense(1,883)(1,870)
Other income (expense), net(217)(32)
Total other expense, net(1,949)(1,784)
Net loss before provision for income tax(39,419)(27,652)
Provision for income tax(81)(60)
Net loss$(39,500)$(27,712)
Net loss per share — basic and diluted$(0.86)$(0.62)
Weighted average shares used in computing basic and diluted net loss per share45,998 44,669 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

NanoString Technologies, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
 
 Three Months Ended
March 31,
 20222021
Net loss$(39,500)$(27,712)
Other comprehensive loss:
Change in unrealized loss on available-for-sale debt securities(974)(74)
Comprehensive loss$(40,474)$(27,786)
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

NanoString Technologies, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
 SharesAmount
Balance at January 1, 202144,441 $4 $848,891 $83 $(542,030)$306,948 
Cumulative effect of a change in accounting policy(1)
— — (58,543)— 7,531 (51,012)
Common stock issued for stock options and restricted stock units726 1 2,249 — — 2,250 
Common stock issued for employee stock purchase plan38 — 1,192 — — 1,192 
Tax withholdings related to net share settlements of restricted stock units— — (2,585)— — (2,585)
Stock-based compensation— — 7,385 — — 7,385 
Net loss— — — — (27,712)(27,712)
Other comprehensive loss— — — (74)— (74)
Balance at March 31, 202145,205 $5 $798,589 $9 $(562,211)$236,392 
Balance at January 1, 202245,729 $5 $827,028 $(318)$(649,753)$176,962 
Common stock issued for stock options and restricted stock units624  1,035 — — 1,035 
Common stock issued for employee stock purchase plan49 — 1,502 — — 1,502 
Tax withholdings related to net share settlements of restricted stock units— — (1,505)— — (1,505)
Stock-based compensation— — 7,785 — — 7,785 
Net loss— — — — (39,500)(39,500)
Other comprehensive loss— — — (974)— (974)
Balance at March 31, 202246,402 $5 $835,845 $(1,292)$(689,253)$145,305 
(1) Effective January 1, 2021, the Company adopted Accounting Standard Update No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 9. Long-term Debt, Net for more information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

NanoString Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Three Months Ended March 31,
 20222021
Operating activities
Net loss$(39,500)$(27,712)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense7,667 7,416 
Depreciation and amortization1,543 1,441 
Amortization of deferred financing costs367 355 
Amortization of premium and accretion of discount on short-term investments, net606 31 
Non-cash operating lease cost950 838 
Allowance for inventory obsolescence and accounts receivable credit loss610 951 
Changes in operating assets and liabilities:
Accounts receivable9,425 (2,462)
Inventory(4,054)(2,159)
Prepaid expenses and other assets(3,050)(3,559)
Accounts payable3,924 943 
Accrued liabilities(3,372)(1,060)
Accrued compensation and other employee benefits(5,130)(3,774)
Customer deposits(16)(299)
Deferred revenue and other liabilities945 1,244 
Operating lease liabilities(1,168)(1,050)
Net cash used in operating activities(30,253)(28,856)
Investing activities
Purchases of property and equipment(3,002)(2,672)
Purchase of internal-use software assets(2,167) 
Purchase of intellectual property(750) 
Proceeds from maturity of short-term investments37,424 15,362 
Purchases of short-term investments(10,800) 
Net cash provided by investing activities20,705 12,690 
Financing activities
Tax withholdings related to net share settlements of restricted stock units(1,504)(2,585)
Proceeds from issuance of common stock for employee stock purchase plan1,502 1,192 
Proceeds from exercise of stock options1,035 2,249 
Repayment of finance lease obligations(73) 
Net cash provided by financing activities960 856 
Effect of exchange rate changes on cash and cash equivalents(23)(36)
Net decrease in cash and cash equivalents(8,611)(15,346)
Cash and cash equivalents
Beginning of period107,068 411,848 
End of period$98,457 $396,502 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

NanoString Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 
1. Description of the Business
NanoString Technologies, Inc. (the “Company”) was incorporated in the state of Delaware on June 20, 2003. The Company’s headquarters is located in Seattle, Washington. The Company’s proprietary chemistries enable the direct detection, identification, and quantification of individual target molecules in biological samples by attaching unique molecular reporters to each target molecule of interest. The Company currently markets and sells two platforms based on its proprietary technologies, its nCounter Analysis System, and its GeoMx Digital Spatial Profiler, or GeoMx DSP System. The platforms are comprised of the instrument and related consumables and services. The Company sells its instruments primarily to academic, government, biopharmaceutical, and clinical laboratory customers.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements reflect the accounts of the Company and its wholly-owned subsidiaries. The unaudited condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all information and disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for annual financial statements. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and U.S. GAAP for unaudited condensed consolidated financial information. Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and results of its operations as of and for the periods presented.
Unless indicated otherwise, all amounts presented in financial tables are presented in thousands, except for per share and par value amounts.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, certain estimates are becoming more challenging, and actual results could differ materially from those estimates. The results of the Company’s operations for the three month period ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year or for any other period.
Revenue Recognition
The Company recognizes revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration expected to be received in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. Performance obligations are considered satisfied once the Company has transferred control of a product or service to the customer, meaning the customer has the ability to use and obtain the benefit of the product or service. The Company recognizes revenue for satisfied performance obligations only when there are no uncertainties regarding payment terms or transfer of control.
The Company generates the majority of its revenue from sales of its proprietary GeoMx DSP and nCounter Analysis systems, and related consumables. Services consist of instrument service contracts for maintenance, repair and other support related to customer owned instruments, and also certain service fees for assay processing and data analysis and reporting.
Leases
The Company determines if an arrangement is a lease at inception of a contract. The Company’s leasing portfolio is comprised of operating leases primarily for general office, manufacturing, and research and development purposes, and
8

financing leases for equipment. Operating and financing lease liabilities and the corresponding right-of-use assets are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Operating lease right-of-use assets are reduced by lease incentives included in the agreement. As the existing leases do not contain an implicit interest rate, the Company estimates its incremental borrowing rate based on information available at commencement date in determining the present value of future payments. The Company includes options to extend the lease in the lease liability and right-of-use asset when it is reasonably certain that the option will be exercised. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Finance lease assets are amortized within operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or, in the instance where title does not transfer at the end of the lease term, the lease term. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term. For our short-term leases, we recognize lease payments as an expense on a straight-line basis over the lease term.
Capitalized Internal-Use Software Costs
The Company capitalizes certain development costs incurred in connection with software development for internal-use software platforms used in operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once software has reached the development stage, internal and external costs, if direct, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized internal-use software development costs are included in property and equipment and are amortized on a straight-line basis over the estimated useful life and are included in depreciation and amortization within operating expenses in our consolidated statements of operations. Capitalized internal-use software development costs were $7.0 million and $4.0 million as of March 31, 2022 and December 31, 2021, respectively.
Capitalized costs associated with the implementation of hosted third-party cloud computing arrangements are recorded as part of current and long-term other assets. Maintenance and training costs are expensed as incurred and are expensed on a straight-line basis over the term of the related hosting arrangement. Costs are recorded within the consolidated statements of operations based on the functional use of the software. Unamortized capitalized software implementation costs were $3.1 million and $3.2 million as of March 31, 2022 and December 31, 2021, respectively.
3. Revenue from Contracts with Customers
The Company operates as a single reportable segment. The Company has one sales force that sells the Company’s nCounter Analysis systems, its GeoMx DSP system, its CosMx SMI system, and the consumables and services related to these platforms.
Disaggregated Revenues
The following table of total revenue is based on the geographic location of end users or distributors who purchase products and services, and of our collaborators. For sales to distributors, their geographic location may be different from the geographic location of the ultimate end customer. For collaboration agreements, revenues are derived from partners located primarily in the United States. Americas consists of the United States, Canada, Mexico, and South America; and Asia Pacific includes Japan, China, South Korea, Singapore, Malaysia, India, and Australia.
The following table provides information about disaggregated revenue by major product line and primary geographic market (in thousands):
Three Months Ended March 31, 2022
AmericasEurope and Middle EastAsia PacificTotal
Product revenue:
Instruments$5,698 $1,746 $1,659 $9,103 
Consumables12,275 4,006 1,187 17,468 
Total product revenue17,973 5,752 2,846 26,571 
Service revenue3,049 998 223 4,270 
Total product and service revenue21,022 6,750 3,069 30,841 
Collaboration revenue239   239 
Total revenues$21,261 $6,750 $3,069 $31,080 
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Three Months Ended March 31, 2021
AmericasEurope and Middle EastAsia PacificTotal
Product revenue:
Instruments$5,473 $3,634 $2,638 $11,745 
Consumables11,342 3,344 1,277 15,963 
Total product revenue16,815 6,978 3,915 27,708 
Service revenue2,682 772 232 3,686 
Total product and service revenue19,497 7,750 4,147 31,394 
Collaboration revenue223   223 
Total revenues$19,720 $7,750 $4,147 $31,617 
Total revenue in the United States was $20.4 million and $18.8 million for the three month periods ended March 31, 2022 and 2021, respectively. The Company’s assets are primarily located in the United States and therefore are not allocated to any specific geographic region.
Contract balances and remaining performance obligations
Contract liabilities are comprised of the current and long-term portions of deferred revenue of $11.3 million and $10.3 million as of March 31, 2022 and December 31, 2021, respectively, and customer deposits of $1.3 million as of both March 31, 2022 and December 31, 2021, included within the condensed consolidated balance sheets. Total contract liabilities increased by $0.9 million as of March 31, 2022 as a result of additional deferred revenue of $3.9 million associated primarily with new or extended service contracts, partially offset by the recognition of previously deferred revenue and customer deposits of $2.9 million for the completion of certain performance obligations during the period. The Company recorded contract assets of $0.7 million as of both March 31, 2022 and December 31, 2021, related to revenues recognized, but not yet invoiced to customers. The Company’s contractual payment terms for its contracts with customers approximates 45 days on average.
As of March 31, 2022, unsatisfied or partially unsatisfied performance obligations related to undelivered products and service contracts were $12.5 million and are expected to be completed over the term of the related contract or as products are delivered.
4. Net Loss Per Share
Net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding. Convertible notes, outstanding options to purchase common stock, restricted stock units and common stock warrants have not been included in the calculation of diluted net loss per share because to do so would be anti-dilutive. Accordingly, the numerator and the denominator used in computing both basic and diluted net loss per share for each period are the same.
The following shares were excluded from the computation of basic and diluted net loss per share for the periods presented (in thousands):
Three Months Ended
March 31,
 20222021
Convertible notes 4,811 
Options to purchase common stock1,945 2,560 
Restricted stock units1,232 1,407 
Common stock warrants471 471 
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5. Concentration of Risks
Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and accounts receivable. Cash is invested in accordance with the Company’s investment policy, which includes guidelines intended to minimize and diversify credit risk. Most of the Company’s investments are not federally insured. The Company has credit risk related to the collectability of its accounts receivable. The Company performs initial and ongoing evaluations of its customers’ credit history or financial position and generally extends credit on account without collateral. Additionally, the Company evaluates collectability risk over the life of its receivables in order to establish an appropriate reserve for certain receivables that may become uncollectible in future periods. The Company has not experienced significant credit losses to date. During the three months ended March 31, 2022 and 2021, the Company had no customers that individually represented more than 10% of total revenue. The Company had one customer/distributor, Cold Spring Biotech Corporation, that represented 11% of total accounts receivable as of March 31, 2022. The Company had no customers that represented more than 10% of total accounts receivable as of December 31, 2021.
The Company is also subject to supply chain risks related to the outsourcing of the manufacturing and production of its instruments to sole suppliers. Although there are a limited number of manufacturers for instruments of this type, the Company believes that other suppliers could provide similar products on comparable terms. Similarly, the Company sources certain raw materials used in the manufacture of consumables from sole suppliers. The impact of the COVID-19 global pandemic has not had a significant impact on the Company’s ability to source raw materials or its instruments to date. However, a change in or loss of suppliers could cause a delay in manufacturing and a possible loss of sales, which would adversely affect operating results. Should COVID-19 (or a variant thereof) continue to impact the global economy at the same or heightened levels during future periods, or if certain geographies where the Company’s key suppliers or manufacturing facilities are located are more severely impacted than others, this could negatively impact the Company’s ability to manufacture new products, fulfill customer orders, and collect from customers, which could adversely affect future operating results.
6. Short-term Investments
Short-term investments consisted of available-for-sale and equity securities as follows (in thousands):
Type of securities as of March 31, 2022Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate debt securities$142,862 $ $(873)$141,989 
Government-related debt securities40,574  (345)40,229 
Asset-backed securities31,475  (75)31,400 
Total available-for-sale debt securities$214,911 $ $(1,293)$213,618 
Type of securities as of December 31, 2021Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate debt securities$177,375 $3 $(195)$177,183 
Government-related debt securities33,134 2 (97)33,039 
Asset-backed securities31,631  (32)31,599 
Total available-for-sale debt securities$242,140 $5 $(324)$241,821 
The fair values of available-for-sale debt securities by contractual maturity were as follows (in thousands):
March 31, 2022December 31, 2021
Maturing in one year or less$187,712 $174,534 
Maturing in one to three years25,906 67,287 
Total available-for-sale debt securities$213,618 $241,821 
The Company has both the intent and ability to sell its available-for-sale debt securities maturing greater than one year within 12 months from the balance sheet date and, accordingly, has classified these securities as current in the condensed consolidated balance sheets.
The following table summarizes investments that have been in a continuous unrealized loss position as of March 31, 2022 (in thousands).
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Less than 12 months12 months or greaterTotal
Fair ValueGross unrealized lossesFair ValueGross unrealized lossesFair ValueGross unrealized losses
Corporate debt securities$75,500 $(873)$ $ $75,500 $(873)
Government-related debt securities40,229 (345)  40,229 (345)
Asset Backed Securities 31,399 (75)  31,399 (75)
Total$147,128 $(1,293)$ $ $147,128 $(1,293)
The Company invests in securities that are rated investment grade or better. The unrealized losses on available-for-sale debt securities as of March 31, 2022 were caused primarily by interest rate increases.
The Company reviews the individual securities in its portfolio for impairment when events indicate the fair value of the investments may be below the carrying value. The Company reviews the individual securities in its portfolio for indications that unrealized losses are credit related and require an allowance to be recorded at the present value of the future expected cash flows. The Company determined unrealized losses were not for credit losses and therefore did not record an allowance related to its available-for-sale debt investments for the three month period ended March 31, 2022. The Company did not record any impairment charges related to its available-for-sale debt investments for the three month period ended March 31, 2022.
7. Fair Value Measurements
The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to measure fair value. The three levels of the fair value hierarchy are as follows:
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.
The recorded amounts of certain financial instruments, including cash, accounts receivable, prepaid expenses and other, accounts payable and accrued liabilities, approximate fair value due to their relatively short-term maturities. The recorded amount of the Company’s long-term debt can be determined based on the estimated or actual bid prices of the Convertible Senior Notes in an over-the-counter market, which are classified as a Level 2 financial instrument.

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The Company’s investments by level within the fair value hierarchy were as follows (in thousands):
Fair value measurement using:
Type of securities as of March 31, 2022Level 1Level 2Level 3Total
Cash equivalents:
Money market fund$77,984 $ $ $77,984 
Short-term investments:
Corporate debt securities 141,989  141,989 
Government-related debt securities 40,229  40,229 
Asset-backed securities 31,400  31,400 
Total$77,984 $213,618 $ $291,602 
Fair value measurement using:
Type of securities as of December 31, 2021Level 1Level 2Level 3Total
Cash equivalents:
Money market fund$98,247 $ $ $98,247 
Short-term investments:
Corporate debt securities 177,183  177,183 
Government-related debt securities 33,039  33,039 
Asset-backed securities 31,599  31,599 
Total$98,247 $241,821 $ $340,068 
In March 2020, the Company issued $230.0 million of Convertible Notes as described in more detail in Note 9. Long-term Debt, Net. As of March 31, 2022, the fair value of the Convertible Notes was $233.3 million.
8. Inventory
Inventory, net of related allowances, consisted of the following as of the date indicated (in thousands):
March 31, 2022December 31, 2021
Raw materials$4,958 $5,135 
Work in process11,492 9,916 
Finished goods18,140 16,435 
Total inventory, net$34,590 $31,486 
9. Long-term Debt, Net
In March 2020, the Company issued $230.0 million in aggregate principal amount of its Convertible Notes in a private offering. The Convertible Notes are governed by an indenture dated March 9, 2020 between the Company and U.S. Bank, National Association, as trustee. The Company received net proceeds from the offering of $222.6 million.
The Convertible Notes bear interest at a rate of 2.625% per year, payable semi-annually in arrears on March 1st and September 1st. The Convertible Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under, or if the Convertible Notes are not freely tradeable as required by, the indenture governing the Convertible Notes. Upon conversion, the Convertible Notes will be convertible into cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.
The Convertible Notes are general unsecured senior obligations and will mature on March 1, 2025, unless earlier repurchased, redeemed or converted, subject to satisfaction of certain conditions and during the periods described below. The initial conversion rate for the Convertible Notes is 20.9161 shares of common stock, par value $0.0001 per share, per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $47.81 per share). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that may occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or in connection with such redemption, as the case may be, in certain circumstances.
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The Company incurred approximately $7.4 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees directly associated with the issuance. The debt issuance costs are amortized to interest expense using the effective interest method over five years, the contractual term of the Convertible Notes, with an effective interest rate of 3.3%.
The Company monitors the provision of the Convertible Notes that allow for certain conversion rights at each quarterly reporting date in order to determine whether the Convertible Notes are convertible or subject to an event triggering potential redemption during the prescribed measurement periods. As of the date of this report, none of the outstanding convertible notes had been redeemed by the Company. Based on the closing price of our common stock of $34.75 on the last trading day of the quarter, the if-converted values of the Convertible Notes did not exceed the remaining principal balance as of March 31, 2022.
All future principal payments related to the Convertible Notes are due in March 2025. The outstanding balances of the Company’s Convertible Notes and previously outstanding term loan consisted of the following (in thousands):
March 31, 2022December 31, 2021
Outstanding principal of Convertible Note$230,000 $230,000 
Less: unamortized issuance costs(4,489)(4,856)
Long-term debt, net$225,511 $225,144 
The following table sets forth total interest expense recognized related to the Convertible Notes (in thousands):
Three Months Ended March 31,
20222021
Contractual interest expense$1,509 $1,509 
Amortization of issuance costs367 355 
Total interest expense$1,876 $1,864 
10. Commitments and Contingencies
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
10x Genomics
On May 6, 2021, 10x Genomics, Inc. and Prognosys Biosciences, Inc. (“Prognosys”) filed a complaint, on May 19, 2021, an amended complaint, and on May 4, 2022, a second amended complaint, against the Company in the U.S. District Court for the District of Delaware. The amended complaint alleges that certain of the Company’s products, services and components, including those sold by the Company for use in connection with its GeoMx DSP system (the “Identified GeoMx Products”), infringe seven patents owned by Prognosys: (a) U.S. Patent No. 10,472,669,“Spatially encoded biological assays,” (b) U.S. Patent No. 10,961,566,“Spatially encoded biological assays,” (c) U.S. Patent No. 10,983,133,“Spatially encoded biological assays,” (d) U.S. Patent No. 10,966,219,“Spatially encoded biological assays,” (e) U.S. Patent No. 11,001,878, “Spatially encoded biological assays,” (f) U.S. Patent No. 11,008,607, “Spatially encoded biological assays,” and (g) U.S. Patent No. 11,293,917, “Systems for analyzing target biological molecules via sample imaging and delivery of probes to substrate wells” (the “Asserted Prognosys Patents”). The amended complaint seeks, among other relief, injunctive relief and unspecified damages (including treble damages and attorneys’ fees) in relation to the Company’s making, using, selling, offering to sell, exporting and/or importing in the United States the Identified GeoMx Products, as well as the alleged infringement by others of the Asserted Prognosys Patents through their use of the Identified GeoMx Products. The Company has evaluated the plaintiffs’ claims and does not believe that its activities infringe any patent rights held by the plaintiffs. On November 17, 2021, the Court granted the Company’s motion to dismiss the plaintiffs’ claims of pre-suit indirect infringement and willful infringement with leave to amend the complaint. Discovery is in progress. A trial is scheduled for August 2023. The Company intends to vigorously defend itself in this ongoing litigation. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this case.
On February 28, 2022, 10x Genomics, Inc. and President and Fellows of Harvard College (“Harvard”) filed a complaint against the Company in the U.S. District Court for the District of Delaware. The complaint alleges that certain of the Company’s products, services and components, including those sold by the Company for use in connection with its CosMx SMI system (the “Identified CosMx Products”), infringe two patents owned by Harvard: (a) U.S. Patent No. 10,227,639,
14


“Compositions and Methods for Analyte Detection,” and (b) U.S. Patent No. 11,021,737, “Compositions and Methods for Analyte Detection” (the “Asserted Harvard Patents”). The complaint seeks, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to the Company’s making, using, selling, offering to sell, exporting and/or importing in the United States the Identified CosMx Products. The Company has evaluated the plaintiffs’ claims and does not believe that its activities infringe any patent rights held by the plaintiffs. The Company intends to vigorously defend itself in this ongoing litigation. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this case.
In May 2022, the Company was notified of a complaint, dated March 4, 2022, naming the Company and its wholly-owned subsidiary, NanoString Technologies Germany GmbH, which 10x Genomics, Inc. filed in the Munich Regional Court in Germany, alleging that certain of the Company's products and services, including those for use in connection with the Company’s CosMx SMI system, infringe European Patent No. 2794928B1. The Company has evaluated the claims and does not believe that its activities infringe any patent rights held by the plaintiff. The Company intends to vigorously defend itself in this litigation. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this case.
Contingencies
Other than the pending litigations with 10x Genomics and its co-plaintiffs, the Company is not engaged in any material legal proceedings. The Company is involved in other legal proceedings from time to time arising in the normal course of business. Additionally, the Company operates in various states and local jurisdictions for which sales, occupation, or franchise taxes may be payable to certain taxing authorities. Management believes that the outcome of these proceedings and any amounts that may become payable to certain taxing authorities will not have a material impact on the Company’s financial condition, results of operations, or liquidity.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available. This section should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements can be identified by words such as “believe,” “anticipate,” “could,” “continue,” “depends,” “expect,” “expand,” “forecast,” “intend,” “predict,” “plan,” “rely,” “should,” “will,” “may,” “seek,” or the negative of these terms and other similar expressions, although not all forward-looking statements contain these words. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:
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 expectations regarding the impact of the COVID-19 global pandemic as it relates to our ongoing operations, including our customer order activity levels and key supplier requirements;
our ability to successfully commercialize our GeoMx DSP platform;
our ability to successfully develop and commercialize our CosMx Spatial Molecular Imager platform and related cloud storage and computing capabilities;
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 strategic relationships, including with patent holders of our technologies, manufacturers and distributors of our products, and collaboration partners;
our intellectual property position and the risk or results of litigation alleging that our products infringe upon the intellectual property rights of third parties;
our ability to attract and retain key scientific or management personnel;
our expectations that our existing cash, cash equivalents, and short-term investments will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months;
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.
All forward-looking statements are based on information available to us on the date of this Quarterly Report on Form 10-Q and we will not update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law. Our actual results could differ materially from those discussed in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q, and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements, and you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factors that might cause such a difference include, but are not limited to, those discussed in the following discussion and within Part II, Item 1A — “Risk Factors,” and elsewhere in this report. In this report, “we,” “our,” “us,” “NanoString,” and “the Company” refer to NanoString Technologies, Inc. and its subsidiaries.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
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Overview
We develop, manufacture and market technologies that unlock scientifically valuable and clinically actionable information from minute amounts of biological material, primarily for life science researchers in the fields of genomics and proteomics. Our mission is to provide a portfolio of solutions that allow our customers to map the universe of biology, enabling scientific exploration that may lead to new therapies that can improve the human condition.
Our technologies include proprietary chemistries that enable the labeling and counting of single molecules. Our product platforms are used for scientific discovery and clinical research applications, often in connection with pharmaceutical product development and human clinical trials of potential new therapies. Our proprietary chemistries may reduce the number of steps required to conduct certain types of scientific experiments and allow for multiple experiments to be conducted at once. Our product platforms are also able to extract information from multiple types of biological samples, including those that are often challenging to work with using other scientific methods or platforms. As a result, we are able to develop tools that are easier for researchers to use and that may generate faster and more consistent scientific results.
We currently offer two commercially available product platforms: our nCounter Analysis System, or nCounter, and our GeoMx Digital Spatial Profiler, or GeoMx DSP, system. We have one additional product platform under development, our CosMx Spatial Molecular Imager, or CosMx SMI, system. All NanoString product platforms include instruments, related consumables, software and services, and all NanoString product platforms have the versatility to detect both RNA and protein expression and are able to generate reliable and reproduceable data in a variety of biological sample types, including FFPE. Our product platforms allow our customers to progress their research in areas such as oncology, immunology and neurology. We market and sell our instruments and related consumables to researchers in academic, government and biopharmaceutical laboratories for research use, both through our direct sales force and through selected distributors in certain markets.
Our nCounter platform, which was commercially launched in 2008, is used to conduct what is known as bulk gene expression analysis, whereby biological samples are first reduced, and then gene expression, specifically quantities of selected RNA or proteins, are measured at their average levels throughout the totality of the sample. nCounter can be used to analyze the activity of up to 800 genes in a single experiment. As of March 31, 2022, we had an installed base of approximately 1,070 nCounter systems, which our customers have used to publish more than 5,250 peer-reviewed scientific papers.
GeoMx DSP, which was commercially launched in 2019, is a pioneering product platform in the emerging field of spatial biology. While nCounter and other common gene expression analysis technologies use bulk analysis approaches, GeoMx DSP is used to analyze selected regions of an intact biological sample without the need to reduce or destroy the sample, enabling researchers to see how gene expression might vary across those regions. After a researcher selects regions of interest, GeoMx DSP arranges the biological information extracted from these regions to be subsequently quantified and analyzed, or “read out,” by a platform such as nCounter, whereby researchers can obtain information on up to 96 biological targets per selected region of interest, or by a next generation sequencer, or NGS, system, such as systems manufactured by Illumina, Inc., whereby researchers can obtain information on up to 18,000 biological targets, or the whole possible universe of potential RNA targets, per selected region of interest. As of March 31, 2022, we had installed approximately 295 GeoMx DSP systems, which our customers have used to publish approximately 110 peer-reviewed scientific papers.
We have discovered other novel applications that utilize our core technologies. CosMx SMI, which is expected to become commercially available in the second half of 2022, is a new product platform under development in the field of spatial biology. CosMx SMI is being developed to compliment GeoMx DSP. While GeoMx DSP offers researchers the ability to profile gene expression activity in a selected region of interest that may contain multiple cells or cell types, CosMx SMI is designed to enable multiplexed spatial profiling of RNA and protein targets at a single and sub-cellular resolution level. While GeoMx allows for more rapid, higher throughput analysis of gene expression activity in selected regions of interest, CosMx is designed to allow researchers to “drill down” into a specific single cell or sub-cellular area in a region of interest to gather more information as desired or required. At the time of commercial launch, CosMx SMI is expected to enable the analysis of up to 1,000 RNA targets, or up to 100 protein targets, at a single or sub-cellular level of resolution within morphologically intact tissue samples.
To support the commercialization of GeoMx DSP and the expected commercial launch of CosMx SMI, we provide selected customers in-house sample testing services whereby customers send biological samples to our Seattle facilities to be analyzed using our product platforms and selected consumables under our technology access program, or TAP. Upon completion of each project, the raw data and analysis report is provided to the customer. As of March 31, 2022, we have conducted over 840 TAP projects for approximately 370 customers.
We derive a substantial majority of our revenue from the sale of our products, which consist of our nCounter and GeoMx DSP instruments and related proprietary consumables. Our instruments are designed to work only with our consumable products. Accordingly, as the installed base of instruments grows, we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results. Our consumables include our standardized nCounter and GeoMx DSP panel products, nCounter custom codeset products that contain a specific set of targets for scientific analysis as
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requested by a customer, and the Prosigna breast cancer assay which is manufactured for our partner Veracyte Inc, or Veracyte. We also derive revenue from processing fees related to proof-of-principle studies, including from our GeoMx DSP TAP and our CosMx TAP. For nCounter, GeoMx DSP, and in future periods, for our CosMx SMI, we offer extended service contracts and generate service revenue.
Our product and service revenue decreased $0.6 million to $30.8 million for the three months ended March 31, 2022, compared to $31.4 million for the first three months of 2021. Our total revenue was $31.1 million for the three months ended March 31, 2022, compared to $31.6 million for the first three months of 2021.
We use third-party contract manufacturers to produce our instruments and certain raw materials for our consumables. We build our consumables, including our panels, custom code sets and reagent packages, at our greater Seattle, Washington area facilities.
We focus a substantial portion of our resources on developing new technologies, products, and solutions. Research and development expense totaled $17.4 million and $15.1 million for the three months ended March 31, 2022 and 2021, respectively. We intend to continue to make significant investments in research and development to support our existing instrument platforms and related consumable offerings, as well as research and development of new technologies.
We have never been profitable and had net losses of $39.5 million and $27.7 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, our accumulated deficit was $689.3 million.
Results of Operations
Revenue
Our product revenue consists of sales of nCounter and GeoMx DSP, including instruments and related consumables. Service revenue consists of fees associated with service contracts and conducting various forms of data analysis studies, such as providing services under our Technology Access Programs, or TAP, and programs in which we offer customers early access to technologies under development for which we generate data and perform analysis services on their behalf. Our customer base is primarily comprised of academic institutions, government laboratories, biopharmaceutical companies and clinical laboratories that perform analyses or testing using nCounter or GeoMx DSP.
The following table reflects total revenue by geography based on the geographic location of our customers, distributors, and collaborators. For sales to distributors, their geographic location may be different from the geographic locations of the ultimate end customer.
 Three Months Ended
March 31,
 20222021%
Change
  
Americas$21,261 68 %$19,720 62 %%
Europe & Middle East6,750 22 %7,750 25 %(13)%
Asia Pacific3,069 10 %4,147 13 %(26)%
Total revenue$31,080 100 %$31,617 100 %(2)%
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The following table reflects the breakdown of our revenue into the primary components of product, service and collaboration.
 Three Months Ended March 31,
 20222021%
Change
 (Dollars in thousands) 
Product revenue:
Instruments$9,103 $11,745 (22)%
Consumables17,468 15,963 %
Total product revenue26,571 27,708 (4)%
Service revenue4,270 3,686 16 %
Total product and service revenue30,841 31,394 (2)%
Collaboration revenue239 223 %
Total revenue$31,080 $31,617 (2)%
Instrument revenue during the three month period ended March 31, 2022 decreased as compared to the same periods in 2021, primarily as a result of fewer commercial shipments of our GeoMx DSP system. During the first quarter of 2022, we experienced an approximately 30% decrease in the number of GeoMx DSP systems shipped as compared to the same period in 2021. We believe the lower revenue, and particularly the lower number of GeoMx systems shipped, were the result of sales execution issues that arose in the first quarter, including an imbalance between capturing fourth quarter revenue and developing our sales funnel of opportunities for the first quarter of 2022 and changes made to re-align our expanded commercial team early in the year that led to lower than typical instrument sale close rates as compared to previous quarterly periods.
Consumables revenue includes sales of consumables for both nCounter and GeoMx DSP, and also includes sales of Prosigna in vitro diagnostic kits to our partner Veracyte. Consumables revenue increased for the three month period ended March 31, 2022 as compared to the same period in 2021. The increase in our consumables revenue was due primarily to our increased installed base of GeoMx DSP systems as compared to the same periods of 2021 and also to the introduction of new consumables content for GeoMx DSP such as our Cancer Transcriptome and Whole Transcriptome Atlas products. These increases were partially offset by lower revenue from our nCounter consumables, sales of which were impacted by the first quarter sales execution issues, lower than expected pull-through on GeoMx DSP systems sold in the second half of 2021, as well as by the continued impact of pandemic related lab closures and clinical trial delays.
Service revenue increased for the three month period ended March 31, 2022 as compared to the same period of 2021, due primarily to growth in the installed bases and the corresponding service contracts as compared to the same periods of 2021, as well as increased revenue generated from our GeoMx DSP TAP and CosMx SMI TAP as compared to the same period of 2021.
During 2020 and 2021, the COVID-19 pandemic impacted our ability to solicit and fulfill customer orders, and record related product and service revenue. While all revenue categories were impacted due to lab closures and lower customer activity, nCounter-related consumables revenue were impacted most substantively, given our higher installed base of nCounter systems. A resurgence of COVID-19 or a variant thereof could recur at any time, with a resulting impact on our business. To the extent there is a resurgence in cases of COVID-19 (or a variant thereof), we expect any such resurgence to have a negative impact on our customers’ ability to conduct research and our ability to actively engage with our customers and receive and fulfill customer orders. As in the past, we would expect our revenue to be negatively impacted overall, and our consumables revenue to be more severely impacted as consumables revenue more closely correlates with day-to-day customer research activity. However, we cannot predict with any certainty the extent to which any resurgence in COVID-19 or a variant thereof would impact our business, and it is possible that the effects of such a resurgence would have different or more severe impacts on our business than we have experienced in the past.
With consideration to these potential negative impacts on our business related to COVID-19, we expect our product and service revenue may continue to increase in future periods, as a result of the growth in sales of GeoMx DSP instruments and consumables, the launch of our CosMx SMI instrument platform and related consumables, and the introduction of new GeoMx DSP, CosMx SMI and nCounter consumables, services, software, or other products. We also currently expect the sales execution issues that negatively impacted our revenue during the current period to improve over the balance of 2022, which we believe will lead to a recovery in close rates of our instrument and consumables sales and improved sales growth in future periods.
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Cost of Product and Service Revenue; Gross Profit; and Gross Margin
Cost of product and service revenue consists primarily of costs incurred in the production process including costs of purchasing instruments from third-party contract manufacturers, consumable component materials and assembly labor and overhead, installation, warranty, service and packaging, and delivery costs. In addition, cost of product and service revenue includes royalty costs for licensed technologies included in our products, provisions for slow-moving and obsolete inventory, and stock-based compensation expense. We provide a one-year warranty for both nCounter and GeoMx DSP and establish a reserve for warranty repairs based on historical warranty repair costs incurred.
 Three Months Ended March 31,
 20222021%
Change
 (Dollars in thousands) 
Cost of product and service revenue$14,778 $15,623 (5)%
Product and service gross profit$16,063 $15,771 %
Product and service gross margin52%50%
For the three month period ended March 31, 2022, cost of product and service revenue decreased as compared to the same period of 2021, due primarily to the decreased volume of shipments of our GeoMx DSP and nCounter instruments. This was partially offset by increased investments made to support growth of our consumable manufacturing capabilities for GeoMx DSP and nCounter, costs associated with providing service for our growing installed base of systems and additional costs incurred to support our TAP service for GeoMx DSP and CosMx SMI.
Our gross margins on product and service revenue for the three month period ended March 31, 2022 increased slightly from the same period of 2021 due primarily to the favorable gross margin impact of increased GeoMx DSP consumables revenue in the respective current year period and the resulting shift in mix of our total revenue towards our consumables, which generally have higher gross margins than our instrument platforms, as well as by initiatives we have undertaken to improve our manufacturing efficiency.
With consideration to the potential negative impact any future resurgence of COVID-19 (or a variant thereof) may have on our business, or any continued impact of sales execution issues and the timing of any recovery therefrom, which may impact our product and service revenue growth and the related costs incurred, we expect our cost of product and service revenue to increase in future periods. These potential increases would coincide with anticipated growth in sales of GeoMx DSP systems, nCounter and GeoMx DSP consumables and our TAP services, as well as the expected launch of our CosMx SMI system and related consumables. We also expect to continue making investments in our operations to support the growth of our business.
We expect our gross margin on product and service revenue may fluctuate in future periods. Variability will depend in part on the level of our consumables revenue, for which we operate the manufacturing process directly, as well on as our mix of instrument sales, for which typically have lower gross margins, as compared to our sales of consumable products or services. Our gross margins may also vary depending on potential expenses we may incur for regulatory compliance, quality assurance or activities related to the expansion of our manufacturing capacity. In addition, as business activity has recovered through the pandemic, the cost and global availability of certain raw materials and other supplies have been impacted. While to date our operations, supply chain or costs have not been materially impacted, our gross margins could be affected in the future by changes in the cost or availability of certain raw materials or supplies. Notwithstanding the foregoing, we expect our gross margins may increase in the longer term as consumable sales become a larger percentage of our total revenue, which may lead to greater absorption of our investment in fixed manufacturing costs.
Research and Development Expense
Research and development expenses consist primarily of salaries and benefits, occupancy, laboratory supplies, engineering services, consulting fees, costs associated with licensing molecular diagnostics rights, and certain expenses related to research activities with customers and collaborators for which we have undertaken joint research projects. We have made substantial investments in research and development since our inception. Our research and development efforts have focused primarily on the tasks required to enhance our technologies and to support development and commercialization of new and existing products and applications.
Given the size of our research and development staff and the number of active projects at any given time, we believe it is most effective to manage our research and development activities on a departmental basis. Accordingly, other than for collaborations and certain major technology development programs, we have neither required employees to report their time by project nor allocated our research and development costs to individual projects. Research and development expense by functional area was as follows:
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 Three Months Ended March 31,
 20222021
Change
 (In thousands) 
Research and discovery$4,263 $8,102 (47)%
Manufacturing, support and service1,627 1,782 (9)%
Product and process engineering8,244 2,131 287 %
Regulatory and medical affairs 368 295 25 %
Facilities and overhead2,915 2,753 %
Total research and development expense$17,417 $15,063 16 %
Research and development expenses for the three month period ended March 31, 2022 increased as compared to the same period in 2021, due primarily to higher consulting and personnel-related costs for product development activities associated with our CosMx SMI system, related software and services for both CosMx SMI and GeoMx DSP, and to a lesser extent continued development of new features and improvements for our nCounter and GeoMx instrument platforms, including software and technology that will support data storage and analysis.
We expect research and development expense may increase in future periods, reflecting the impact of increasing investments in GeoMx DSP, CosMx SMI and other future projects and technologies.
Selling, General and Administrative Expense
Selling, general and administrative expense consists primarily of costs for our sales and marketing, finance, human resources, information technology, business development, legal, and general management functions, as well as professional fees for legal, insurance, consulting, and accounting services.
Selling, general, and administrative expense was as follows:
Three Months Ended March 31,
 20222021%
Change
 (In thousands) 
Selling, general and administrative expense$36,355 $26,799 36 %
The increase in selling, general, and administrative expense for the three month period ended March 31, 2022 as compared to the same period in 2021 is due primarily to increased investments made to expand our commercial sales team to support our spatial biology related commercial initiatives, as well as increases in travel and trade show related activities as our selling and other commercial activities recovered from the impacts of the global pandemic. Additionally, we have made increased investments in information technology systems and software supporting our commercial team, operations, and finance functions, and we have incurred increased professional fees related to the investments in those systems and related to ongoing legal proceedings.
With consideration to the potential negative impact any future resurgence of COVID-19 (or a variant thereof) may have on our business, or any continued impact of sales execution issues and the timing of any recovery therefrom, which may impact our product and service revenue growth and the related costs incurred, we expect selling, general and administrative expenses to increase in future periods as the number of sales, technical support, marketing, and administrative personnel grows to support the expected growth in our business and the introduction of new products and product platforms.
Other Income (Expense)
 Three Months Ended March 31,
 20222021%
Change
 (In thousands)
Interest income$151 $118 28 %
Interest expense(1,883)(1,870)%
Other income (expense), net(217)(32)578 %
Total other expense, net$(1,949)$(1,784)%
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Other income and expense items are comprised primarily of interest income earned on our cash equivalents and short term investments and interest paid on our outstanding convertible debt. Our total other income (expense), net for the three month period ended March 31, 2022 was materially consistent with the same period in the prior year. We continue to maintain a cash preservation investment strategy and, as a result, held the majority of our cash and cash equivalents in money market or other short duration fixed income positions for which yields were very low. In general, investment yields have been constrained by the COVID-19 pandemic and other broader macroeconomic conditions. While we are beginning to see improvement in interest rates available in the markets resulting from the federal reserve responding to increasing inflation and other macroeconomic factors, we do not expect to see significant increases in our interest income and we could continue to see fluctuations in interest rates until there are more clear signs of general economic recovery and stability.
Liquidity and Capital Resources
 March 31, 2022December 31, 2021Change
 (In thousands)
Cash and cash equivalents$98,457 $107,068 $(8,611)
Short-term investments213,618 241,821 (28,203)
Total cash and cash equivalents and short-term investments$312,075 $348,889 $(36,814)
 Three Months Ended March 31,
 20222021Change
 (In thousands)
Cash used in operating activities$(30,253)$(28,856)$(1,397)
Cash provided by investing activities20,705 12,690 8,015 
Cash provided by financing activities960 856 104 
Effect of foreign exchange on cash and cash equivalents(23)(36)13 
Net decrease in cash and cash equivalents$(8,611)$(15,346)$6,735 
Changes in Cash Flow
Operating Activities
For the three months ended March 31, 2022, net cash used in operating activities consisted of our net loss of $39.5 million partially offset by approximately $11.7 million of net non-cash income and expense items, such stock-based compensation, depreciation and amortization, increased provisions for inventory obsolescence and bad debts and amortization of right-of-use assets.
For the three months ended March 31, 2021, net cash used in operating activities consisted of our net loss of $27.7 million, and net increases in our operating assets and liabilities of $12.2 million, partially offset by $11.0 million of net non-cash income and expense items, such as stock-based compensation, depreciation and amortization, increased provisions for inventory obsolescence and bad debts and amortization of our right-of-use assets.
Investing Activities
Our most significant investing activities for the three months ended March 31, 2022 and March 31, 2021, respectively, were related to the purchase, maturity and sale of short-term investments. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term investments, we do not consider cash flows related to management of our short-term investments to be important to an understanding of our liquidity and capital resources.
For the three months ended March 31, 2022 and March 31, 2021, we purchased property and equipment totaling $3.0 million and $2.7 million, respectively, which we believe will be required to support the growth and expansion of our operations. In addition, for the three months ended March 31, 2022, we have invested $2.2 million related to the development of software and cloud-based technology to support data storage and analysis across our spatial biology platforms.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2022 and March 31, 2021 consisted primarily of $2.5 million and $3.4 million, respectively, of net proceeds from the exercise of stock options and other equity awards and our Employee Stock Purchase Plan. These proceeds were partially offset by tax withholdings related to the net
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settlement of restricted stock units of $1.5 million and $2.6 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
Short-term Investments
Our cash, cash equivalents, and investments are held in a variety of non-interest bearing bank accounts and interest-bearing instruments subject to investment guidelines allowing for holdings in U.S. government and agency securities, corporate securities, taxable municipal bonds, commercial paper and money market accounts. Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs. However, if our liquidity needs should be accelerated for any reason in the near term, or investments do not pay at maturity, we may be required to sell investment securities in our portfolio prior to their scheduled maturities, which may result in a loss.
Financial Condition
Since inception, we have financed our operations primarily through the sale of equity securities, borrowings under term loan agreements and convertible notes, licensing of intellectual property and, to a lesser extent, sales of certain assets. As of March 31, 2022, we had cash, cash equivalents and short-term investments of $312.1 million, compared to $348.9 million as of December 31, 2021.
We believe our existing cash, cash equivalents and short-term investments, and cash generated from operations will be sufficient to meet these material cash requirements and fund our operating requirements for the next 12 months and beyond, including working capital requirements, capital expenditures and other operational investments.
During 2020 and 2021, the COVID-19 pandemic has impacted our ability to solicit and fulfill customer orders and recognize related product and service revenue at levels comparable to historical periods. We believe the impacts of the COVID-19 pandemic continue to subside, however, to the extent the COVID-19 pandemic continues to have a negative impact on our customers’ ability to conduct research or our ability to actively engage with our customers and take or fulfill customer orders, we expect our revenues, and consequently our liquidity and capital resources, in the near term may be negatively impacted. We cannot predict with any certainty if, or how quickly, our customers will return to previous levels of activity or product order levels, or our ability to resume our activities and operations at levels consistent with past performance. Until the effects of the COVID-19 pandemic more fully subside, we expect our near term revenues, as well as our use of our liquidity and capital resources, to be negatively impacted.
Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Any future funding requirements will depend on many factors, including: any new developments relating to the COVID-19 or related pandemic and the impact on our customer and operational activity; any continued impact of sales execution issues and the timing of any recovery therefrom; market acceptance and the level of sales of our existing products and new product candidates; the nature and timing of any additional research, product development or other partnerships or collaborations we may establish; the cost and timing of establishing additional sales, marketing, and distribution capabilities; 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 acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. We may require additional funds in the future and we may not be able to obtain such funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through partnership, collaboration or licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds we may have to liquidate some or all of our assets; delay, reduce the scope or eliminate some or all of our research and development programs, launch activities, or commercialization of our products; license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize; or reduce marketing, customer support, or other resources devoted to our products; or cease operations.
Material Cash Requirements
Our principal uses of cash are funding our operations, capital expenditures, working capital requirements and satisfaction of any outstanding obligations under our debt agreements. Over the past several years, our product and service revenue has increased significantly from year to year and, as a result, our cash flows from customer collections have increased. Our operating expenses have also increased as we have invested in our sales and marketing activities and in research and development of new product platforms and technologies that we believe have the potential to drive the long-term growth of our business.
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Our material cash requirements for the remainder of fiscal 2022 include non-cancelable purchase commitments for long-lead time inventory, research and development items, software development for internal-use projects and property and equipment; lease payments for office, laboratory and manufacturing space; and interest payments related to our convertible notes. We expect capital expenditures to increase in fiscal year 2022, as compared to fiscal 2021, due primarily to planned investments in manufacturing capacity, and in software development for internal-use projects. As of March 31, 2022, we had future long-term interest payment obligations of $17.6 million, of which $6.0 million is payable within 12 months and total operating and financing lease obligations of $30.2 million, of which $6.7 million is payable within 12 months. See Note 9. Long-term Debt of the Notes to the Consolidated Financial Statements of this report. In addition, our purchase commitments as of March 31, 2022 are $55.2 million, of which $47.4 million is payable within 12 months.
Our material cash requirements may increase in the future as we invest in research and development related to existing or new product platforms, as well as in manufacturing capacity, sales and marketing and administrative activities. We cannot be certain our revenue will grow sufficiently to offset our operating expense increases. As a result, we may need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Critical accounting policies and significant estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include those related to: 
revenue recognition;
stock-based compensation;
inventory valuation;
fair value measurements; and
income taxes.
For additional information, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022 and Note 2 of the Notes to the Condensed Consolidated Financial Statements under Item 1 of this report.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 of the Notes to the Condensed Consolidated Financial Statements under Item 1 of this report.
Item 3.    Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to various market risks, including changes in commodity prices and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices. Prices for our products are largely denominated in U.S. dollars and, as a result, we do not face significant risk with respect to foreign currency exchange rates.
Interest Rate Risk
Generally, our exposure to market risk has been primarily limited to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term debt securities. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. To minimize risk, we maintain our portfolio of cash, cash equivalents and short-term investments in a variety of interest-bearing instruments, which have included U.S. government and agency securities, high-grade U.S. corporate bonds, asset-backed securities, and money market funds. Declines in interest rates, however, would reduce future investment income. A 10% decline in interest rates, occurring on April 1, 2022 and sustained throughout the period ended March 31, 2023, would not be material.
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Our Convertible Notes are based on a fixed rate; accordingly, we do not have economic interest rate exposure on the Convertible Notes. However, changes in interest rates could impact the fair market value of the Convertible Notes. Generally, the fair market value of the fixed interest rate of the Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the Convertible Notes fluctuates when the market price of our common stock fluctuates. As of March 31, 2022, the fair market value of the Convertible Notes was $233.3 million and was determined based on the estimated or actual bid prices of the Convertible Notes in an over-the-counter market.
Foreign Currency Exchange Risk
As we continue to expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Historically, a majority of our revenue has been denominated in U.S. dollars, although we sell our products and services directly in certain markets outside of the United States denominated in local currency, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States. The effect of a 10% adverse change in exchange rates on foreign denominated cash, receivables and payables would not have been material for the periods presented. As our operations in countries outside of the United States grow, our results of operations and cash flows are and will be subject to potentially greater fluctuations due to foreign currency exchange rate fluctuations, including the impact of the COVID-19 pandemic. To date, we have not entered into any material foreign currency hedging contracts although we may do so in the future.
Inflation Risk
While we have experienced increased operating costs in recent periods, which we believe are due in part to the recent growth in inflation, we do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
Item 4.    Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this quarterly report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this quarterly report, our disclosure controls and procedures were, in design and operation, effective.
(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent limitation on the effectiveness of internal control over financial reporting.
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgement in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1.    Legal Proceedings.
On May 6, 2021, 10x Genomics, Inc. and Prognosys Biosciences, Inc. (“Prognosys”) filed a complaint, on May 19, 2021, an amended complaint, and on May 4, 2022, a second amended complaint, against us in the U.S. District Court for the District of Delaware. The amended complaint alleges that certain of our products, services and components, including those sold by us for use in connection with our GeoMx DSP system (the “Identified GeoMx Products”), infringe seven patents owned by Prognosys: (a) U.S. Patent No. 10,472,669, “Spatially encoded biological assays”, (b) U.S. Patent No. 10,961,566, “Spatially encoded biological assays,”(c) U.S. Patent No. 10,983,133,“Spatially encoded biological assays,” (d) U.S. Patent No. 10,966,219, “Spatially encoded biological assays,” (e) U.S. Patent No. 11,001,878, “Spatially encoded biological assays,” (f) U.S. Patent No. 11,008,607, “Spatially encoded biological assays,” and (g) U.S. Patent No. 11,293,917, “Systems for analyzing target biological molecules via sample imaging and delivery of probes to substrate well” (the “Asserted Prognosys Patents”). The amended complaint seeks, among other relief, injunctive relief and unspecified damages (including treble damages and attorneys’ fees) in relation to our making, using, selling, offering to sell, exporting and/or importing in the United States the Identified GeoMx Products, as well as the alleged infringement by others of the Asserted Prognosys Patents through their use of the Identified GeoMx Products. We have evaluated the plaintiffs’ claims and do not believe that our activities infringe any patent rights held by the plaintiffs. On November 17, 2021, the Court granted our motion to dismiss the plaintiffs’ claims of pre-suit indirect infringement and willful infringement with leave to amend the complaint. Discovery is in progress. A trial is scheduled for August 2023. We intend to continue to vigorously defend ourselves in this ongoing litigation.
On February 28, 2022, 10x Genomics, Inc. and President and Fellows of Harvard College (“Harvard”) filed a complaint against us in the U.S. District Court for the District of Delaware. The complaint alleges that certain of our products, services and components, including those sold by us for use in connection with our CosMx SMI system (the “Identified CosMx Products”), infringe two patents owned by Harvard: (a) U.S. Patent No. 10,227,639, “Compositions and Methods for Analyte Detection,” and (b) U.S. Patent No. 11,021,737, “Compositions and Methods for Analyte Detection” (the “Asserted Harvard Patents”). The complaint seeks, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to our making, using, selling, offering to sell, exporting and/or importing in the United States the Identified CosMx Products. We have evaluated the plaintiffs’ claims and do not believe that our activities infringe any patent rights held by the plaintiffs. We intend to continue to vigorously defend ourselves in this ongoing litigation.
In May 2022, we were notified of a complaint, dated March 4, 2022, naming us and our wholly-owned subsidiary, NanoString Technologies Germany GmbH, which 10x Genomics, Inc. filed in the Munich Regional Court in Germany, alleging that certain of our products and services, including those for use in connection with our CosMx SMI system, infringe European Patent No. 2794928B1. We have evaluated the claims and do not believe that our activities infringe any patent rights held by the plaintiff. We intend to vigorously defend ourselves in this litigation.
Other than the pending litigations with 10x Genomics and its co-plaintiffs, we are not engaged in any material legal proceedings. From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Other than the pending litigations with 10x Genomics and its co-plaintiffs, we believe that there are no claims or actions pending against us currently, the ultimate disposition of which would have a material adverse effect on our consolidated results of operations, financial condition or cash flows.

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Item 1A.    Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this report, including the sections of this report captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. Our risk factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
Risks Related to Our Business and Strategy
We face risks related to health epidemics and other outbreaks, such as COVID-19, which could significantly disrupt our operations and could have a material adverse impact on us.
Our business could be adversely impacted by the effects of health epidemics and other outbreaks. For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, the causative agent of coronavirus disease 2019, or COVID-19, was first reported. Since then, COVID-19 has spread across the globe and is affecting worldwide economic activity, including in the United States and European and Asia-Pacific countries. Quarantines, shelter-in-place and similar government orders have been imposed in many of the regions in which we have material operations or sales, including the greater Seattle, Washington area. As a result, our business activities originating from affected areas, including research and development, sales, manufacturing and supply chain related activities, have been, and could continue to be, adversely affected. Although restrictions related to the COVID-19 pandemic have been eased in many locations in which we do business, a resurgence in cases of COVID‑19, such as with the Delta and Omicron variants, could occur at any time, resulting in new disruptions to our business. Disruptions have included:
the temporary closure of our manufacturing facilities and/or those used in our supply chain processes;
restrictions on the export or shipment of our products;
unavailability of components and materials used in our products;
significant cutback of ocean container delivery;
business closures in impacted areas;
reduced demand, research grants, and business activities of our customers due to the impact of COVID-19;
limitations in employee resources, including because of stay-at-home orders, sickness of employees or their families or the desire of employees to avoid contact with large groups of people; and
restrictions on our employees’ and other service providers’ ability to travel, to meet with customers and install and train customers on our systems.
The global spread of COVID-19 also has created significant macroeconomic uncertainty, volatility and disruption, which may adversely affect our and our customers’ and suppliers’ liquidity, cost of capital and ability to access the capital markets.
COVID-19 materially impacted our 2020 and 2021 results, and we anticipate that COVID-19 will continue to impact our business due to the factors discussed above. The extent to which COVID-19, including any variants that have emerged or may emerge in the future, impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and its variants and the actions to contain it or treat its impact, among others. We cannot at this time quantify or forecast the business impact of COVID-19, and there can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, operating results and financial condition. In addition, the COVID-19 pandemic increases the likelihood and potential severity of other risks described in the “Risk Factors” section. Although national, state and local governments have introduced relief measures intended to alleviate the impact of COVID-19-related disruptions, we may not qualify for or benefit from such measures.
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We have incurred losses since we were formed and expect to incur losses in the future. We cannot be certain that we will achieve or sustain profitability.
We have incurred losses since we were formed and expect to incur losses in the future. We incurred net losses of $39.5 million and $27.7 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated deficit of $689.3 million. We expect that our losses will continue for at least the next several years as we will be required to invest significant additional funds toward ongoing development and commercialization of our technology. We also expect that our operating expenses will continue to increase as we grow our business, and there can be no assurance that our revenue and gross profit will increase sufficiently such that our net losses decline, or we attain profitability, in the future. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control, including the market acceptance of our products, future product development and our market penetration and margins. In addition, inflationary pressure could adversely impact our financial results. Our operating costs have increased, and may continue to increase, due to the recent growth in inflation. We may not fully offset these cost increases by raising prices for our products and services, which could result in downward pressure on our margins. Further, our customers may choose to reduce their business with us if we increase our pricing. We may never be able to generate sufficient revenue to achieve or sustain profitability.
Our financial results may vary significantly from quarter to quarter which may adversely affect our stock price.
Investors should consider our business and prospects in light of the risks and difficulties we expect to encounter in the uncertain and rapidly evolving markets in which we compete. Because these markets are evolving, predicting their future growth and size is difficult. We expect that our visibility into future sales of our products, including volumes, prices and product mix between instruments and consumables will continue to be limited and could result in unexpected fluctuations in our quarterly and annual operating results.
Numerous other factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results, including the ongoing impact of the COVID-19 pandemic on our business operations and financial results. These fluctuations may make financial planning and forecasting difficult. For example, in the first quarter of 2022, product and service revenue did not meet expectations which adversely affected our stock price. In addition, these fluctuations may result in unanticipated changes in our available cash, which could negatively affect our business and prospects. Factors that may contribute to fluctuations in our operating results include many of the risks described in this section. Also, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher or lower relative to the others. Furthermore, our instruments involve a significant capital commitment by our customers and accordingly involve a lengthy sales cycle. We may expend significant effort in attempting to make a particular sale, which may be deferred by the customer or never occur. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful, and investors should not rely on our past results as an indication of our future performance. If such fluctuations occur or if our operating results deviate from our expectations or the expectations of securities analysts, our stock price may be adversely affected.
If we do not achieve, sustain or successfully manage our anticipated growth, our business and growth prospects will be harmed.
We have experienced significant revenue growth in recent periods and we may not achieve similar growth rates in the future. Investors should not rely on our operating results for any prior periods as an indication of our future operating performance. If we are unable to maintain adequate revenue growth, our financial results could suffer and our stock price could decline. Furthermore, growth will place significant strains on our management and our operational and financial systems and processes. For example, the recent commercial launch of our GeoMx DSP system currently for research use only is a key element of our growth strategy and will require us to hire and retain additional sales and marketing personnel and resources. If we do not successfully generate demand for GeoMx DSP or other new product offerings, or manage our anticipated expenses accordingly, our operating results will be harmed. Additionally, the expected commercial launch of our CosMx Spatial Molecular Imager, or CosMx SMI, platform for research use only in the second half of 2022, is also a key element of our growth strategy and may also require us to hire and retain additional sales and marketing personnel and resources. If we do not successfully generate demand for our new CosMx SMI platform or other new product offerings, or manage our anticipated expenses accordingly, our operating results will be harmed.
Our future success is dependent upon our ability to expand our customer base and introduce new applications and products.
Our current customer base is primarily composed of academic and gover