NanoString
Annual Report 2015

Plain-text annual report

NANOSTRING TECHNOLOGIES INC FORM 10-K (Annual Report) Filed 03/11/16 for the Period Ending 12/31/15 Address Telephone CIK 530 FAIRVIEW AVENUE NORTH SEATTLE, WA 98109 206-378-6266 0001401708 Symbol NSTG SIC Code Fiscal Year 2836 - Biological Products, Except Diagnostic Substances 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015Or ¨TRANSITION REPORT PURSUANT TO SECTION 13 Or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 001-35980 NANOSTRING TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter) Delaware 20-0094687(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)530 Fairview Avenue NorthSeattle, Washington 98109(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (206) 378-6266Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which RegisteredCommon Stock, $0.0001 par value per share The NASDAQ Stock Market LLC(The NASDAQ Global Market)Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ¨ No xIndicate 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 1934during 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 requirementsfor the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer xNon-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (Check one): Yes ¨ No xThe aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, based on the closing sale price of the Registrant’scommon stock on the last business day of its most recently completed second fiscal quarter, as reported on The NASDAQ Global Market, was approximately$212.1 million. Shares of common stock held by each executive officer and director and by each other person who may be deemed to be an affiliate of theRegistrant, have been excluded from this computation. The determination of affiliate status for this purpose is not necessarily a conclusive determination for otherpurposes.There were 19,639,075 shares of the Registrant’s common stock, $0.0001 par value per share, outstanding on March 1, 2016. DOCUMENTS INCORPORATED BY REFERENCENone. Table of ContentsNANOSTRING TECHNOLOGIES, INC.ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2015TABLE OF C ONTENTS Page PART I 2 Item 1. Business 2 Item 1A. Risk Factors 25 Item 1B. Unresolved Staff Comments 51 Item 2. Properties 51 Item 3. Legal Proceedings 51 Item 4. Mine Safety Disclosures 52 PART II 53 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 53 Item 6. Selected Financial Data 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Dislosures About Market Risk 75 Item 8. Financial Statements and Supplementary Data 77 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 107 Item 9A. Controls and Procedures 107 Item 9B. Other Information 108 PART III 109 Item 10. Directors, Executive Officers and Corporate Governance 109 Item 11. Executive Compensation 114 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 123 Item 13. Certain Relationships and Related Transactions and Director Independence 126 Item 14. Principal Accountant Fees and Services 128 PART IV 129 Item 15. Exhibits and Financial Statement Schedules 129 -i-Table of ContentsSpecial Note Regarding Forward-Looking InformationThis Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section inItem 7, and other materials accompanying this Annual Report on Form 10-K contain forward-looking statements that are based on our management’s beliefs andassumptions and on information currently available. The statements contained in this Annual Report on Form 10-K 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, asamended.Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other similarexpressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financialcondition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performanceand the assumptions that underlie these statements. These forward-looking statements include, but are not limited to: • our expectations regarding our future operating results, including our expectations regarding instrument, consumable and total revenue,operating expenses and operating and net loss; • the implementation of our business model, strategic plans for our business and future product development plans; • the regulatory regime and our ability to secure regulatory clearance or approval or reimbursement for the clinical use of our products,domestically and internationally; • our ability to successfully commercialize Prosigna, our first in vitro diagnostic product; • our ability to realize the potential payments set forth in our collaboration agreements; • our strategic relationships, including with patent holders of our technologies, manufacturers and distributors of our products,collaboration partners and third parties who conduct our clinical studies; • our intellectual property position; • our expectations regarding the market size and growth potential for our business; and • our ability to sustain and manage growth, including our ability to develop new products and enter new markets.All forward-looking statements are based on information available to us on the date of this Annual Report on Form 10-K and we will not update anyof the forward-looking statements after the date of this Annual Report on Form 10-K, except as required by law. Our actual results could differ materially fromthose discussed in this Annual Report on Form 10-K. The forward-looking statements contained in this Annual Report on Form 10-K, and other written and oralforward-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 thoseanticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the following discussionand within Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K. -1-Table of ContentsPART I Item 1.BusinessOverviewWe develop, manufacture and sell robust, intuitive products that unlock scientifically valuable and clinically actionable biologic information fromminute amounts of tissue. Our nCounter Analysis System directly profiles hundreds of molecules simultaneously using a novel barcoding technology that ispowerful enough for use in research, yet simple enough for use in clinical laboratories worldwide. We market systems and related consumables to researchers inacademic, government, and biopharmaceutical laboratories for use in understanding fundamental biology and the molecular basis of diseases, such as cancer, and toclinical laboratories and medical centers for diagnostic use. As of December 31, 2015, we have an installed base of over 350 systems, which our customers haveused to publish more than 1,000 peer-reviewed papers. As researchers using our systems discover new biologic insights to improve clinical decision-making, thesediscoveries can be translated and validated as diagnostic tests, either using our nCounter Elements reagents or, in certain situations, by developing in vitrodiagnostic assays. For example, our first molecular diagnostic product is the Prosigna Breast Cancer Assay, or Prosigna, which provides an assessment of apatient’s risk of recurrence for breast cancer. In addition, we are collaborating with several biopharmaceutical companies to develop companion diagnostics, invitro diagnostic tests, to be used to identify which patients are most likely to respond to a particular drug therapy.Our nCounter Analysis System enables biologic analysis on a scale appropriate for pathway-based biology, the examination of networks of tens orhundreds of genes and proteins that act in concert to produce biologic functions or trigger certain diseases, by digitally quantifying the activity of up to 800 genesor proteins simultaneously in a single minute tissue sample. We offer a range of instruments to appeal to an array of potential customer types. Our nCounterSPRINT Profiler is designed to appeal to individual researchers running relatively smaller experiments. Our nCounter MAX is a higher throughput instrument withfeatures appealing to larger core laboratories serving multiple researchers. Our nCounter Dx FLEX instrument has been FDA 510(k) cleared together with Prosignaand is targeted toward clinical laboratories. All three instruments are capable of running all of our research consumable products and provide comparable, high-quality data. This includes our revolutionary new 3D Biology products, which enable researchers to measure combinations of gene expression, protein expressionand gene mutations simultaneously from a single minute tissue sample.Our technology and products address a fundamental challenge in cancer research. With more cancers being detected earlier, tumor samples arebecoming smaller and smaller, while researchers and clinicians have a much greater appetite for information regarding the activity of genes and proteins. Thesensitivity and precision of our novel barcoding chemistry allows the measurement of subtle changes in genomic and proteomic activity efficiently from minutesamples of tissue. Furthermore, tumor samples are often stored in a format known as formalin-fixed paraffin embedded, or FFPE, which complicates subsequentanalysis of genetic material. Our chemistry is particularly compatible with FFPE, increasing its popularity among cancer researchers. The nCounter AnalysisSystem is an easy-to-use and flexible solution that allows researchers to efficiently test hypotheses in a high throughput manner across thousands of differentsamples. As a result, the nCounter Analysis System is particularly useful for validating networks of genes and proteins that characterize and help predict diseasestates, such as cancer. Using the FLEX configuration of our nCounter Dx Analysis System, researchers also have the potential to translate their discoveries to theclinic as diagnostics on a single instrument system after receiving any necessary regulatory authorizations.Prosigna, our first molecular diagnostic test, is based on a collection of 50 genes known as the PAM50 gene signature, which was discovered byseveral of our research customers. Prosigna can provide a breast cancer patient and her physician with a subtype classification based on the fundamental biology ofthe patient’s tumor, as well as a prognostic score that predicts the probability of cancer recurrence over 10 years. Physicians use Prosigna to help guide therapeuticdecisions so that patients receive a therapeutic intervention only if it is clinically -2-Table of Contentswarranted. Prosigna is regulated as an in vitro diagnostic test and we distribute it as a kit for use on our nCounter Dx FLEX Analysis System in clinicallaboratories. We expect that our future in vitro diagnostic products will be regulated and distributed in a similar manner. This is in contrast to most complexgenomic tests, which are currently regulated as services and are usually offered only by a limited number of specialized laboratories. The current centralizedlaboratory model for complex genomic testing can result in complicated logistics for the treating physician, including slower test result turnaround times andlimited international access to tests as compared to local testing. In addition, most clinical laboratories cannot currently share in the revenue associated withoffering patients complex genomic tests. We believe that our decentralized model will transform the current paradigm of complex genomic testing by allowingphysicians worldwide to provide more comprehensive personalized diagnoses, broadening patient access, and increasing the degree to which clinical laboratoriescan profit by providing molecular diagnostic testing services.In 2014, we initiated our first companion diagnostic collaboration with Celgene Corporation, or Celgene, under which we are developing an in vitrodiagnostic test to identify a subset of patients with diffuse large B-cell lymphoma, or DLBCL, who are believed to be the most likely to benefit from treatment withCelgene’s drug REVLIMID which is FDA approved for other indications. In May 2015, we entered into a collaboration with Merck Sharp & Dohme Corp., asubsidiary of Merck & Co., Inc., or Merck, to develop an assay intended to optimize immune-related gene expression signatures and evaluate its potential to predictbenefit to Merck’s anti-PD-1 therapy, KEYTRUDA, in multiple tumor types. In January 2016, we entered into a collaboration with Medivation, Inc. and AstellasPharma Inc. to develop an in vitro diagnostic test to identify a subset of patients with triple negative breast cancer who are most likely to benefit from treatmentwith XTANDI, a drug currently marketed by Medivation and Astellas as a treatment for prostate cancer. In February 2016, we expanded our collaboration withMerck to develop and commercialize a novel diagnostic test to predict response to KEYTRUDA in multiple tumor types. We believe there are many other similaropportunities to collaborate with companies developing cancer drugs and we intend to pursue more of these collaborations.We generated revenue of $62.7 million, $47.6 million and $31.4 million in 2015, 2014 and 2013, respectively, while incurring net losses of $45.6million, $50.0 million and $29.3 million in 2015, 2014 and 2013, respectively.We were incorporated in Delaware in June 2003. Our principal executive offices are located at 530 Fairview Avenue, N., Seattle, Washington 98109and our telephone number is (206) 378-6266. Our common stock trades on The NASDAQ Global Market under the symbol “NSTG.”This Annual Report on Form 10-K includes our trademarks and registered trademarks, including “NanoString ® ,” “NanoString Technologies ® ,”“nCounter ® ,” “Prosigna ® ,” “nCounter Elements TM ,” “nCounter SPRINT TM ,” “3D Biology TM ,” and “Hyb & Seq TM .” Each other trademark, trade name orservice mark appearing in this Annual Report on Form 10-K belongs to its holder.Our Market OpportunityEvery living organism has a genome that contains the full set of biological instructions required to build and maintain life. By analyzing the variationsin genomes, genes, gene activity, and proteins in and between organisms, researchers can determine their functions and roles in health and disease. An improvedunderstanding of the genome and its functions allows researchers to drive advancements in scientific discovery. As they make scientific discoveries, researchershave been able to translate some of these findings into clinical applications that improve patient care.A gene is a specific set of instructions embedded in the DNA of a cell. For a gene to be “turned on,” or “expressed,” the cell must first transcribe acopy of its DNA sequence into molecules of messenger RNA. Then, the cell translates the expressed information contained in the RNA into proteins that controlmost biological processes. In addition to the translated RNAs, there are many types of non-coding RNAs that are involved in many cellular processes and thecontrol of gene expression, including microRNA, or miRNA. -3-Table of ContentsBiological pathways are the networks of tens or hundreds of genes that work in concert to produce a biological function. Understanding the activationstate of pathways and disruptions in individual elements of these pathways provides significant insight into the fundamental basis of disease and facilitates datadriven treatment decisions. Therapeutic interventions, such as drugs, can be used to treat disease by activating or inactivating biological pathways that are relevantto disease. As a result, pathway-based biology has become a widely adopted paradigm that researchers use to understand biological processes and has assisted themin the development of diagnostics and drugs to treat disease. This is particularly important in cancer research and treatment.Over the last decade, methods of measuring genomic information have advanced substantially. However pathway-based research and the developmentof diagnostic tests require analysis of multiple genes and sensitivity to small changes in expression, which can be challenging for traditional genomic tools. In bothlife sciences research and clinical medicine, there is a growing need for improved technologies that can precisely and rapidly measure the activation state ofhundreds of genes simultaneously across a large number of precious samples. Furthermore, there is an untapped opportunity for technologies capable ofsimultaneously profiling the activity of genes and related proteins, which ultimately dictate biological activity.Life Sciences ResearchAcademic, government, and biopharmaceutical researchers engaged in gene expression or protein analysis typically focus on making biologicaldiscoveries that may lead to the development of relevant medical products and better informed treatment decisions for physicians and patients. They havetraditionally performed gene expression experiments using microarrays or quantitative PCR, and protein expression experiments using flow cytometry, massspectrometry, immunohistochemistry or enzyme-linked immunosorbent assay, or ELISA, assays. Recently, RNA sequencing, or RNA-Seq, has dramaticallyenhanced researchers’ ability to discover patterns of gene expression that have biological meaning. However, related workflows and data analysis can becumbersome and time consuming, and simultaneous analysis of proteins is not possible. Researchers are increasingly performing analyses on a larger number ofgenes and samples and are seeking new methods of interrogation that would allow them to: • increase the number of molecular targets that can be analyzed simultaneously in order to understand the complete biological pathwayinvolving multiple genes; • improve the overall efficiency of their laboratories by simplifying workflow and accelerating the rate of successfully completing theirresearch; • provide more reliable, precise and reproducible data about targeted genes and biological pathways; • maximize the amount of biologic information extracted from precious tissue samples; • minimize the computational intensity of complex genomic and proteomic analysis; • process difficult-to-work-with specimens, such as tumor biopsies stored in FFPE format; and • create more systematic and reliable ways to help transition their research discoveries into future clinical products.We believe that the above items create an opportunity for technologies like ours that are optimized for pathway-based biology with the capability toanalyze both genomic and proteomic information.Molecular DiagnosticsGrowth in the molecular diagnostics market is being driven by technological innovations that have enabled unprecedented biological insights that maybe used to inform treatment decisions. New and improved technologies have also led to increased test sensitivity, decreased turnaround times, simplified workflow,and lowered costs when compared to previous techniques. In addition, the medical community has seen a trend in favor of decentralized diagnostic testing as aresult of the convenience of local testing, hospitals and medical -4-Table of Contentscenters increasingly viewing their laboratories as profit centers and a need to increase access to tests for patients outside of the United States. We believe that thereis an opportunity to improve the quality of diagnosis and treatment of diseases by developing and commercializing comprehensive, simple and widely availablediagnostic products based initially on gene expression analysis, and ultimately based on our 3D Biology capability.Cancer is a disease generally caused by genetic mutations in cells. The behavior of cancer cells is extremely complex, depending on the activity ofmany different genes and proteins. It is often impossible for researchers to identify a single gene or protein that adequately predicts a more aggressive or lessaggressive type of cancer. In some cases, researchers have been able to identify more aggressive or less aggressive types of cancer through gene expression analysisof biological pathways, enabling oncologists to determine which specific treatments are most likely to be effective for an individual patient, monitor a patient’sresponse to those treatments, and determine the likelihood of recurrence.Recently, researchers in the field of oncology have begun to demonstrate the potential of harnessing a patient’s immune system to fight cancer. A newclass of compounds, referred to generally as immuno-oncology drugs, have begun to come to market with the promise of long-term remissions, or even cures, incertain types of cancer. Unlike cancer therapeutics of the past, these compounds do not target genetic abnormalities and there are to date no reliable geneticbiomarkers for determining which patients are likely to respond to treatment. The development of diagnostics to inform decisions regarding treatment withimmuno-oncology drugs is likely to require analysis of both RNA and proteins.In addition, the medical community has favored a trend toward decentralized diagnostic testing. Tests for HIV, Hepatitis C, Influenza and MRSA,which were once centralized, are now often conducted in hospital laboratories or at the point of care. We believe that this trend of decentralized testing willcontinue as a result of many factors, including: • Convenience . We believe that physicians would prefer that molecular diagnostic tests be performed at a local level and in the same laboratorythat performs other tests that the physicians may order. Local molecular diagnostic testing could provide physicians the same rapid turnaroundof test results that they have learned to expect for other types of tests. • Economic Advantages . We believe that hospitals and medical centers desire to make their clinical laboratories profit centers by performingtests and billing third-party payors. As diagnostic technologies become less complicated to administer, hospitals and medical centers tend tofavor in-sourcing tests. • International Availability . There is a critical need to increase access to molecular diagnostic tests for patients that live outside the UnitedStates. Currently, patients living outside the United States may be challenged to gain access to tests that are provided only by specializedlaboratories located within the United States. We believe advanced molecular diagnostic testing will become more available to patientsthroughout the world when it can be provided by their local clinical laboratories.We believe that these factors create an opportunity for technologies like ours that can facilitate the development and use of complex moleculardiagnostics, potentially targeting gene mutations, gene expression and protein expression, with a high level of precision on a decentralized basis.Our SolutionOur nCounter Analysis System is an automated, multi-application, digital detection and counting system which directly profiles hundreds of moleculessimultaneously using a novel barcoding technology that is powerful enough for use in research, yet simple enough for use in clinical laboratories worldwide. OurnCounter Analysis System is based on automated instruments that prepare and analyze tissue samples using proprietary reagents, which can only be obtained fromus. Our research customers purchase instruments from us and then purchase our reagents and related consumables for the specific experiment or assay they wish toconduct. Our clinical laboratory customers either purchase or lease instruments from us and also purchase our reagents and related consumables, including ourProsigna diagnostic kits, for tests that they intend to run. -5-Table of ContentsOur nCounter Analysis System offers a number of compelling advantages, including: • Optimized for Pathway-Based Biology . The nCounter Analysis System can profile up to 800 molecules in a single test tube, which allowscustomers to analyze interactions among hundreds of genes or proteins that mediate biological pathways. • Digital Precision . Our molecular barcodes hybridize directly to the target molecules in a sample allowing them to be counted. This generatesdigital data (1 molecule = 1 count) of excellent quality over a wide dynamic range of measurements and provides excellent reproducibility. • Simple Workflow . The nCounter Analysis System’s minimal sample preparation and automated workflow enable the simultaneous analysis ofhundreds of genes and proteins in approximately 24 hours between the time a sample is loaded into the system and results are obtained. OurnCounter Analysis System generates data that customers can evaluate without the use of complex bioinformatics. • Flexible Sample Requirements . The nCounter Analysis System is able to unlock biologic information from minute amounts of a variety ofchallenging tissue samples, including FFPE samples, cell lysates and single cells. • Versatility . The FLEX configuration of the nCounter Dx Analysis System provides clinical laboratories a single platform with the flexibilityto support both clinical testing, by running Prosigna or Laboratory Developed Tests based on nCounter Elements reagents, and research, byprocessing translational research experiments and multiplexed assays using our research reagents.Life Sciences ResearchOur nCounter Analysis System is capable of supporting a number of research applications based upon the measurement of the concentration or amountof a target molecule. Additionally, in September 2015, we launched the first of our 3D Biology applications, which enable the simultaneous analysis of DNA, RNAand proteins in a single sample. Key applications currently supported include: • Gene Expression . Researchers use the nCounter Analysis System to measure the degree to which individual genes in pathways are turned“on” or “off” by simultaneously quantifying the amount of messenger RNA, or mRNA, associated with each of up to 800 genes. • Protein Expression . Today, researchers can use the nCounter Analysis System to measure up to 30 proteins of importance in immuno-oncology. In 2016 and beyond, we expect to expand this capability to additional proteins and may have the potential to simultaneouslymeasure hundreds of proteins, limited only by the number of antibodies that can be sourced and combined without cross-reaction. • miRNA Expression . Researchers can use the nCounter Analysis System to measure the simultaneous expression levels of up to 800 differentmiRNAs. The nCounter Analysis System is capable of highly multiplexed, direct digital detection and counting of miRNAs in a singlereaction without amplification, thereby delivering high levels of sensitivity, specificity, precision, and linearity. • Copy Number Variation . Researchers can use the nCounter Analysis System to probe for structural variations that result in cells having anabnormal number of copies of one or more sections of the DNA. Researchers are able to conduct large-scale, statistically-powered studies ofthese copy number variations, or CNVs, by leveraging the nCounter Analysis System’s multiplexing capacity to assay up to 800 DNA regionsin a single tube, with as little as 300 ng of DNA. • Gene Fusions . Researchers can use the nCounter Analysis System to detect gene fusion events that occur when one gene fuses to anothergene. A number of design options are available for developing assays for these complex structural variants which have been shown to beimportant in a number of cancers. -6-Table of Contents • Single Cell Gene Expression . Historically, most gene-expression profiling has been performed on populations of cells where observedexpression levels represent an average of the unique expression states of each cell within the population. The nCounter Analysis System iscapable of measuring gene expression of 20 to 800 genes from a single cell, thereby elucidating previously hidden relationships betweenindividual cells within a population.In 2016, as part of our suite of 3D Biology applications, we intend to introduce a new capability for the measurement of single nucleotide variants,also known as DNA or gene mutations. We expect this added capability to further distinguish our nCounter Analysis System, holding a unique distinction of havingcapabilities for the simultaneous measurement of gene mutations, gene expression and protein expression.Molecular DiagnosticsWe believe that the attributes that make the nCounter Analysis System attractive to researchers also make the system attractive to hospitals andclinical laboratories that desire to conduct molecular diagnostic tests. The precision, ease of use and flexibility of the nCounter Analysis System will allow medicaltechnicians in pathology labs to conduct complex molecular diagnostic tests with minimal training. We expect these tests to encompass both Laboratory DevelopedTests based on our nCounter Elements reagents and in vitro diagnostic kits, initially Prosigna.Our Products and TechnologyInstruments and SoftwareThe nCounter Analysis System is an automated, multi-application, digital detection and counting system. In 2008, we began marketing a research useonly version of the system, and since that time we have expanded our product line to include three instruments, each targeted at a distinct user segment of our targetmarket. nCounter SPRINT nCounter MAX nCounter FLEX Target customer Individual researchers Core research labs Clinical labs Throughput (samples per day) 24 48 48 Expandable with additional prep station (1) No Yes Yes Diagnostic menu No No Yes U.S. list price $149,000 $235,000 $265,000 (1) nCounter MAX and FLEX throughput increased to up to 96 samples per day by adding a second prep station.The nCounter MAX and FLEX systems comprise a Prep Station and a Digital Analyzer. The Prep Station is the automated liquid handling componentof the nCounter Analysis System that processes samples after they are hybridized and prepares the samples for data collection on the nCounter Digital Analyzer.The nCounter Digital Analyzer collects data from samples by taking images of the immobilized fluorescent reporters in the sample cartridge and processing thedata into output files, which include the target identifier and related count numbers along with a broad set of internal controls that validate the precision of eachassay. The nCounter SPRINT Profiler is a single instrument targeted to individual researchers that provides both the liquid handling steps and the digital analysisthrough use of a microfluidic cartridge. All of these instruments were designed and are manufactured under ISO 13485:2003, the quality standard for in vitrodiagnostic platforms and medical devices. We also provide our research customers with the nSolver Analysis Software, a data analysis program that offersresearchers the ability to quickly and easily quality check, normalize, and analyze their data without having to use any additional software for data analysis. Thediagnostic version of our instrument, the nCounter Analysis -7-Table of ContentsDx FLEX System, was FDA 510(k) cleared and CE-marked together with Prosigna. The FLEX System can be enabled with the software that runs Prosigna togenerate individualized patient reports, in addition to running any of our research applications.The nCounter MAX and FLEX Systems employ a simple three-step workflow that takes approximately 24 hours and requires approximately 15minutes of hands-on time by the user. When run in research mode, a user can process up to 48 samples per day by installing one Prep Station with a single DigitalAnalyzer. One can increase the number of samples analyzed to 96 samples per day on a single Digital Analyzer if it is coupled with two Prep Stations. Thisthroughput can be quadrupled using sample multiplexing for experiments targeting 200 genes or fewer. For Prosigna, a clinical laboratory can process up to 30samples per day on an nCounter Dx Analysis System. The nCounter SPRINT Profiler employs an even more streamlined two-step workflow that requires only 10minutes of hands-on time by the user and can process up to 24 samples per day.Life Sciences Research ConsumablesFollowing purchase of an nCounter Analysis System, research customers purchase consumables from us to enable their research experiments. Theseinclude custom CodeSets targeted to a specific experiment, panels and nCounter Elements reagents.Custom CodeSetsWe work with our customers to design and develop custom CodeSets to enable them to evaluate specific genes that are the subject of their study. Ourcustomers provide us a list of targets for which we subsequently build a unique CodeSet. Our design process leverages full length sequences for the DNA or RNAmolecules that our customers are interested in detecting and prevents cross hybridization to non-target molecules in the sample. The custom CodeSet design processoccurs in four distinct steps: (1) the customer selects the genes of interest, (2) we design probes and provide a design report to the customer, (3) the customerreviews and approves the design report, and (4) we manufacture, test and ship the CodeSet to the customer. The manufacturing process typically takes from three tofive weeks, depending on the number of genes targeted and samples to be processed by the customer.PanelsWe offer more than 20 panels that are pre-manufactured CodeSets, which include all of the consumables required to perform a specific type ofexperiment, including the following: • Pan Cancer Pathways Gene Expression Panel. A novel set of 770 essential genes representing all known major cancer pathways, includingkey driver genes, selected using a data-driven approach to identifying the genes most relevant to cancer biology. • PanCancer Immune Profiling Gene Expression Panel. A novel set of 770 genes designed in collaboration with cancer immunologists aroundthe globe, combining markers for 24 different immune cell types and populations, 30 common cancer antigens and genes that represent allknown categories of immune response including key checkpoint blockade genes, also available in a mouse version. • PanCancer RNA: Protein Immune Profiling Panel. A panel that combines gene expression analysis of the 770 genes contained in thePanCancer Immune Profiling Gene Expression Panel with the analysis of 30 proteins of interest in measuring the immune system’s responseto cancer. • PanCancer Progression Panel. A novel set of 770 genes addressing the key questions of what happens when cancer metastasizes, includinggenes for the study of angiogenesis, epithelial mesenchymal transition, extracellular matrix formation, and metastasis. -8-Table of Contents • PanCancer Profiles. A series of seven 192-gene expression panels each designed to interrogate a focused area of cancer biology: AdaptiveImmunity, Cancer Metabolism, Intracellular Signaling, Cellular Profiling, Wnt Pathway, Innate Immunity, and DNA Damage & Repair, anyof which may be combined with nCounter 3D Biology protein expression modules. • Other Gene Expression Panels . A series of panels that allow researchers to conduct a wide variety of gene expression analysis, includinganalysis of both human and mouse immunology-related genes and inflammation-related genes. • miRNA Expression Panels . A family of panels that provide a cost-effective profiling solution capable of highly multiplexed, direct digitaldetection and counting of up to 800 miRNAs in a single reaction without amplification. Separate panels are available for use with samplesfrom humans, mice, rats, and fruit flies. • Cancer Copy Number Variation Panel . Enables copy number quantification for 87 genes commonly amplified or deleted in cancer.nCounter Elements ReagentsnCounter Elements are our digital molecular barcoding reagents that allow users to design their own customized assays using standard sets of barcodesprovided by us with the laboratories’ choice of oligonucleotide probes that they can purchase independently from an oligonucleotide manufacturer. The highlyflexible architecture of nCounter Elements enables a broad range of basic research studies where iterative design and refinement of assays are important.Master KitsOur nCounter Master Kit includes all of the ancillary reagents and plasticware required for our customers to be able to setup and process samples inthe nCounter Prep Station and nCounter Digital Analyzer. The components of the Master Kit include the sample cartridge, strip tubes, tips, buffers, and reagentplates.Molecular DiagnosticsOur nCounter Dx Analysis System FLEX Configuration has the ability to simultaneously quantify gene expression on tens or hundreds of genes fromminimal amounts of FFPE tissue, which makes it well suited for profiling pathway activation in tumor samples. In addition, it has the precision, reproducibility, andsimple workflow required of technologies used in clinical laboratories. Our clinical laboratory customers use the nCounter Dx Analysis System, nCounter Elementsreagents and in vitro diagnostic kits to provide clinical diagnostic services. Currently, Prosigna is the only in vitro diagnostic kit available for use on our nCounterDx Analysis System. Over time, we intend to develop, obtain regulatory authorization for, and sell additional in vitro diagnostic kits, each of which will enable aunique diagnostic test.Laboratory Developed TestsClinical laboratories can use nCounter Elements reagents to create Laboratory Developed Tests, or LDTs, which are diagnostic tests that aredeveloped, validated and performed by a single laboratory and include genetic tests and other tests for rare conditions. nCounter Elements reagents enable assaysfor gene expression, copy number variation and gene fusions. Many clinical laboratories are currently exploring the use of nCounter Elements reagents to developassays to replace tests currently performed using fluorescence-based in situ hybridization, or FISH. The first commercial use of an nCounter Elements based LDToccurred in 2014. -9-Table of ContentsProsignaProsigna, our first molecular diagnostic test, is based on a collection of 50 genes known as the PAM50 gene signature, which was discovered byseveral of our research customers. Prosigna can provide a breast cancer patient and her physician with a subtype classification based on the fundamental biology ofthe patient’s tumor, as well as a prognostic score that indicates the probability of cancer recurrence over 10 years. Physicians use Prosigna to help guide therapeuticdecisions so that patients receive a therapeutic intervention only if clinically warranted. Prosigna is regulated as an in vitro diagnostic test and we distribute it as akit for use on our nCounter Dx Analysis System in clinical laboratories.Prosigna in the United States. In September 2013, we received 510(k) clearance from the FDA to market in the United States a version of Prosignaproviding a prognostic indicator for distant recurrence-free survival at 10 years, which is indicated for postmenopausal women with Stage I/II lymph node-negativeor Stage II lymph node-positive (one to three positive nodes) hormone receptor-positive breast cancer who have undergone surgery in conjunction withlocoregional treatment consistent with standard of care. For each patient, the Prosigna report includes the Prosigna Score, which is referred to as the ROR Score inthe scientific literature and outside the United States, and a risk category based on both the Prosigna Score and nodal status. Node-negative patients are classified aslow, intermediate or high risk, while node-positive patients are classified as low or high risk. Prosigna is not intended for diagnosis, to predict or detect response totherapy, or to help select the optimal therapy for patients. Prosigna competes with other tests that are currently available as services from specialized centrallaboratories.We sell Prosigna kits to our lab customers on a fixed dollars-per-kit basis. These customers are responsible for providing the testing service andcontracting and billing payors. Accordingly, we are not directly exposed to third-party payor reimbursement risk.Prosigna in the European Union and Other Countries that Recognize the CE Mark. In September 2012, we obtained CE mark designation forProsigna for use as a semi-quantitative in vitro diagnostic assay using the gene expression profile of cells found in FFPE breast tumor tissue to assess the 10 yearrisk of distant recurrence in postmenopausal women with HR+ early stage breast cancer treated with endocrine therapy alone. This CE-marked product is indicatedfor use in patients with either node-negative or node-positive disease, and provides physicians and their patients with the intrinsic subtype of a patient’s breastcancer tumor, ROR score, and risk category (high/intermediate/low). In early 2013, we began marketing this test in Europe and Israel.Intellectual PropertyWe must develop and maintain protection on the proprietary aspects of our technologies in order to remain competitive. We rely on a combination ofpatents, copyrights, trademarks, trade secret and other intellectual property laws and confidentiality, material transfer agreements, licenses, invention assignmentagreements and other contracts to protect our intellectual property rights.As of December 31, 2015, we owned or exclusively licensed twelve issued U.S. patents and approximately 38 pending U.S. patent applications,including provisional and non-provisional filings. We also owned or licensed approximately 154 pending and granted counterpart applications worldwide,including 60 country-specific validations of five European patents. The issued U.S. patents that we own or exclusively license are expected to expire betweenJuly 3, 2021 and February 6, 2033. We have either sole or joint ownership positions in all of our pending U.S. patent applications. Where we jointly own cases, wehave negotiated license or assignment provisions for exclusive rights. For our material nCounter Analysis System and Prosigna product rights, we are the exclusivelicensee. We also generally protect our newly developed intellectual property by entering into confidentiality agreements that include intellectual propertyassignment clauses with our employees, consultants and collaborators.Our patent applications relate to the following three main areas: • our nCounter Analysis System biology, chemistry, software and hardware; -10-Table of Contents • specific applications for our nCounter Analysis System technology; and • our gene expression markers, methods and algorithms for recurrence and drug response in certain forms of cancer.We intend to file additional patent applications in the United States and abroad to strengthen our intellectual property rights; however, our patentapplications may not result in issued patents, and we cannot assure investors that any patents that have issued or might issue will protect our technology. We havereceived notices of claims of potential infringement from third parties and may receive additional notices in the future. When appropriate, we have taken a licenseto the intellectual property rights from such third parties. For additional information, see the section of this report captioned “Risk Factors — Risks Related toIntellectual Property.”We own a number of trademarks and develop names for our new products and as appropriate secure trademark protection for them, including domainname registration, in relevant jurisdictions.CollaborationsCelgene CorporationIn March 2014, we entered into a collaboration with Celgene Corporation, or Celgene, to develop, seek regulatory approval for, and commercialize acompanion diagnostic assay using the nCounter Analysis System to identify a subset of patients with DLBCL, who are believed to be the most likely to benefitfrom treatment with Celgene’s drug REVLIMID. Under the terms of the collaboration agreement, we will develop, seek regulatory approval for, and commercializethe diagnostic test, and we retain the flexibility to independently develop and commercialize additional indications for the test. We are eligible to receive paymentstotaling up to $45.0 million, of which $5.8 million was received as an upfront payment, $17.0 million is for potential success-based developmental and regulatorymilestones, and the remainder is for potential commercial payments in the event sales of the test do not exceed certain pre-specified minimum annual revenuesduring the first three years following regulatory approval. In October 2015, the collaboration agreement was amended to include additional countries to conductclinical trials and in return we received an upfront payment of $1.6 million in December 2015.DLBCL is a heterogeneous group of cancers that represents the most common form of Non-Hodgkin Lymphoma. According to the National CancerInstitute, there were approximately 70,000 new cases of Non-Hodgkin Lymphoma in the United States in 2015. DLBCL is the most common type of Non-HodgkinLymphoma, representing approximately 1 out of every 3 cases. The subtypes of DLBCL have long been known to have varying prognoses. In January 2014, certainof our research customers published a paper in the journal Blood describing the development and validation of a biomarker assay based on a 20-gene expressionDLBCL subtype classifier using our nCounter Analysis System. We have secured a license to the relevant intellectual property to enable the collaboration.Under the collaboration agreement with Celgene, we have delivered an in vitro companion diagnostic test that will be used to subtype and screenpatients who are being enrolled in a pivotal study of REVLIMID for the treatment of DLBCL. The upfront payment, a portion of the success-based milestonepayments and the payment related to the 2015 amendment, totaling $13.3 million, have been received from Celgene to date, and we intend to use to cover our costsfor clinical development of the test.Merck & Co., Inc.In May 2015, we entered into a clinical research collaboration agreement with Merck, to develop an assay intended to optimize immune-related geneexpression signatures and evaluate the potential to predict benefit from Merck’s anti-PD-1 therapy, KEYTRUDA, in multiple tumor types. Under the terms of thecollaboration -11-Table of Contentsagreement, we are eligible to receive up to $4.0 million in payments, of which we received an upfront payment of $2.0 million in July 2015 and developmentpayments totaling $1.9 million during 2015.In February 2016, we expanded our collaboration with Merck by entering into a new development collaboration agreement to clinically develop andcommercialize a novel diagnostic test, based on an optimized gene expression signature, to predict response to KEYTRUDA in multiple tumor types. In connectionwith the execution of the development collaboration agreement, we and Merck terminated our May 2015 clinical research collaboration and moved all remainingactivities under such clinical research collaboration work plan to the new development collaboration agreement. Under the terms of the new developmentcollaboration agreement, we will receive $12.0 million as an upfront technology access payment and are eligible to receive up to an additional $12.0 million forpotential preclinical regulatory milestone payments. We are also eligible to receive additional milestone payments upon achievement of certain regulatorymilestones. Merck is responsible for its own costs under the development collaboration agreement and will reimburse us for allowable development costs, includingpersonnel related and overhead costs for our employees assigned to the project, nCounter systems and clinical study reagents, and reimbursement of other out-of-pocket costs. For the first two quarters of the development term, our personnel related and overhead costs for employees assigned to the project are estimated to beup to $1.25 million. Following completion of the first two quarters of the development term, our allowable development costs for a given calendar quarter must beagreed to in advance by a joint steering committee composed of our and Merck’s representatives which will oversee and coordinate the parties’ activities under thedevelopment collaboration agreement. Development funding under the agreement also includes up to approximately $3.7 million related to work under anextension of our previous clinical research collaboration.KEYTRUDA is among a class of promising immuno-oncology drugs called “checkpoint inhibitors” that target the interaction between theprogrammed cell death-1 (PD-1) immune “checkpoint” receptor, which inhibits the T-cell response and plays a key role in modulating T-cell function. Certaintumor cells expressing PD-1 are able to bind to the programmed cell death ligand-1 (PDL-1) expressed on the surface of certain T-cells and neutralize a patient’simmune response to the cancer cells. It has been shown that by administering a checkpoint inhibitor to block this interaction, a patient’s immune response can beunleashed to attack and kill the tumor cells, resulting in long-term remissions or cures in a meaningful percentage of patients treated.Medivation, Inc. and Astellas Pharma, Inc.In January 2016, we entered into a collaboration with Medivation, Inc. and Astellas Pharma Inc. to pursue the translation of a novel gene expressionsignature algorithm discovered by Medivation into a companion diagnostic assay using the nCounter Analysis System. Under the terms of the collaborationagreement, we will modify our PAM50-based Prosigna Breast Cancer Assay for potential use as a companion diagnostic test for XTANDI (enzalutamide) for triplenegative breast cancer. We will be responsible for developing and validating the diagnostic test and, if the parties thereafter determine to proceed, we will also beresponsible for seeking regulatory approval for and commercializing the test. We have received a $6.0 million upfront payment for technology access, and areeligible to receive up to $10.0 million in development funding, in addition to other potential downstream milestone payments.Triple negative breast cancer is a form of breast cancer for which the three most common types of receptors known to fuel breast cancer growth–estrogen, progesterone, and the HER-2/neu gene– are not present in the cancer tumor. Receptor-targeting therapies have fueled tremendous recent advances in thefight against breast cancer. However, since triple negative breast tumor cells lack the necessary receptors, all such targeted therapies are ineffective. Triple negativebreast cancer represents a significant unmet need, as it tends to be more aggressive, more likely to recur, and more difficult to treat due to the lack of targetedtreatments. XTANDI is currently approved for the treatment of metastatic castration-resistant prostate cancer. The modified Prosigna test will be based upon datafrom a Phase 2 trial conducted by Medivation and Astellas that evaluated enzalutamide in patients with triple negative breast cancer.License AgreementsWe have relied, and expect to continue to rely, on strategic collaborations and licensing agreements with third parties. For example, our basemolecular barcoding technology is in-licensed from the Institute for Systems Biology and the intellectual property that forms the basis of Prosigna is in-licensedfrom Bioclassifier, LLC. In addition to the licenses with the Institute for Systems Biology and Bioclassifier, we have licensed technology related to the DLBCLassay from the National Institutes of Health, and we rely on other license and supply arrangements for proprietary components which require us to pay royalties onthe sale of our products. Other research customers are using our nCounter Analysis System to discover gene expression signatures that we believe could form thebasis of future diagnostic products. In the future, we may consider these gene signatures for in-licensing. Our licensing arrangements with the Institute for SystemsBiology and Bioclassifier are discussed below in greater detail. -12-Table of ContentsInstitute for Systems BiologyIn 2004, we entered into an agreement with the Institute for Systems Biology pursuant to which the Institute granted to us an exclusive, subject tocertain government rights, worldwide license, including the right to sublicense, to the digital molecular barcoding technology on which our nCounter AnalysisSystem is based, including 13 patents and patent applications. Pursuant to the terms of the amended license agreement, we are required to pay the Institute forSystems Biology royalties on net sales of products sold by us, or our sublicensees, at a low single digit percentage rate. Through December 31, 2015, we have paidaggregate royalties of $3.5 million under the license agreement. Unless terminated earlier in accordance with the terms of the amended license agreement, theagreement will terminate upon the expiration of the last to expire patent licensed to us. The Institute for Systems Biology has the right to terminate the agreementunder certain situations, including our failure to meet certain diligence requirements or our uncured material breach of the agreement.Bioclassifier, LLCIn July 2010, we entered into an exclusive license agreement with Bioclassifier, LLC, pursuant to which Bioclassifier granted to us an exclusive,subject to certain government rights, worldwide license, with the right to sublicense, to certain intellectual property rights and technology, including eight non-provisional patent applications, related to the PAM50 gene signature in the field of research products and prognostic and/or diagnostic tests for cancer, includingProsigna. Bioclassifier has licensed these rights from the academic institutions that employed the cancer researchers that discovered or were involved in the initialdevelopment of PAM50. Pursuant to the agreement, we are required to pay Bioclassifier the greater of certain minimum royalty amounts and mid-single digit tolow double digit percentage royalties on net sales of products and/or methods sold by us that are covered by patent rights or include, use or are technology licensedto us. Our obligation to pay royalties to Bioclassifier expires on a country-by-country basis upon the expiration of the last patent licensed or, if a product or methodincludes, uses or is technology licensed to us but is not covered by a patent licensed to us, ten years after the first commercial sale of the product or method in suchcountry. We are also required to pay Bioclassifier low to mid double digit percentage of any income received by us from the grant of a sublicense by use to thepatents or technology licensed us under the agreement. The agreement specifies that we will control and be responsible for the costs of prosecuting and enforcingthe intellectual property licensed in certain major market countries. The agreement also includes customary rights of termination for Bioclassifier, including for ouruncured material breach or our bankruptcy. Through December 31, 2015, we have paid Bioclassifier $468,000 of which $26,000 will be credited against futureroyalties owed.Research and DevelopmentWe have committed, and expect to continue to commit, significant resources to developing new technologies and products, improving productperformance and reliability and reducing costs. We have assembled experienced research and development teams at our Seattle, Washington location with thescientific, engineering, software and process talent that we believe is required to successfully grow our business. As of December 31, 2015, including clinical,medical and regulatory affairs, we had 87 employees in research and development, of which 27 hold a Ph.D. degree and 2 hold an M.D. degree. Our research anddevelopment expenses for the years ended December 31, 2015, 2014 and 2013 were $24.6 million, $21.4 million and $15.0 million, respectively.nCounter TechnologyWe are continuously seeking to improve the nCounter Analysis System, including improvements to the technology and accessibility, or to extend itscapabilities. As we make improvements or add new capabilities, we anticipate that we will make available new and improved generations of the nCounter AnalysisSystem. -13-Table of ContentsOur current technology development efforts are focused on: • Applications. We are developing additional application areas to enable researchers to apply the nCounter Analysis System to newexperimental paradigms. For example, as part of our new suite of applications for 3D Biology, we added protein expression capability in 2015and we plan to introduce a new capability for measurement of DNA mutations in 2016. With 3D Biology, research customers will be able tomeasure combinations of DNA, RNA and proteins in a single experiment. Consistent with our 3D Biology initiative, we are also continuing toupdate our panel product line. • Instruments. In July 2015, we launched the nCounter SPRINT Profiler, a new generation of the nCounter Analysis System that increases ouraddressable market by appealing to individual researchers. In early 2016, we announced our intention to develop a novel DNA sequencingchemistry called Hyb & Seq and a novel approach to digital, multiplexed measurement of protein expression with spatial resolution, both ofwhich are based on our optical barcoding technology and will require development of new instruments.Companion Diagnostic DevelopmentIn 2014, we entered into our first companion diagnostic collaboration with Celgene Corporation. Pursuant to the collaboration, we have developed anin vitro diagnostic test that is being used to test DLBCL patients to determine the subtype of their cancer (the Lymphoma Subtyping Test, or LST) and whether theywill be enrolled in a Phase 3 clinical trial of REVLIMID for the DLBCL indication. We will monitor the testing process during that Phase 3 study and, if the studyresults are positive, we will submit appropriate filings for regulatory approval of the LST. We will own the commercial rights to the test and would make itcommercially available in territories in which REVLIMID is approved for the DLBCL indication and for which we have any necessary regulatory authorizations toapprove the test. Celgene has paid us $13.3 million to date, and may be obligated to pay us up to $45.0 million in total over the course of the collaboration.In May 2015, we entered into a clinical research collaboration agreement with Merck, to develop an assay intended to optimize immune-related geneexpression signatures and evaluate the potential to predict benefit from Merck’s anti-PD-1 therapy, KEYTRUDA, in multiple tumor types. Under the terms of thecollaboration agreement, we are eligible to receive up to $4.0 million in payments, of which we received an upfront payment of $2.0 million in July 2015 anddevelopment payments totaling $1.9 million during 2015. In February 2016, we expanded our collaboration with Merck by entering into a new developmentcollaboration agreement to clinically develop and commercialize a novel diagnostic test, based on an optimized gene expression signature, to predict response toKEYTRUDA in multiple tumor types. For additional information regarding the development collaboration agreement, see the section of this report captioned “—Collaborations—Merck & Co., Inc.”In January 2016, we entered into a collaboration with Medivation, Inc. and Astellas Pharma Inc. to pursue the translation of a novel gene expressionsignature algorithm discovered by Medivation into a companion diagnostic assay using the nCounter Analysis System. Under the terms of the collaborationagreement, we will modify our PAM50-based Prosigna Breast Cancer Assay for potential use as a companion diagnostic test for XTANDI for triple negative breastcancer. XTANDI is currently approved for the treatment of metastatic castration-resistant prostate cancer. We will be responsible for developing and validating thediagnostic test and, if the parties thereafter determine to proceed, we will also be responsible for seeking regulatory approval for and commercializing the test. Wereceived $6.0 million upfront for technology access, and are eligible to receive up to $6.0 million in preclinical stage milestones and up to $10.0 million indevelopment funding, in addition to other potential downstream milestone payments.We believe that there are likely to be many similar opportunities to collaborate with drug developers in the future and we intend to secure additionalcollaborations as the primary means to expanding our menu of diagnostic tests. These collaborations may be based on Prosigna, the LST, or other tests discoveredby our research customers, either in academia or within biopharmaceutical companies themselves. -14-Table of ContentsProsigna Breast Cancer AssayWe plan to conduct clinical studies of Prosigna to generate more data regarding utilization of Prosigna in the clinical setting.Our Prosigna clinical studies to date have employed a retrospective / prospective design, which means that we use samples that were previouslycollected from patients and for which the treatment regimen and ultimate outcome of each patient are known. Such studies are capital efficient as they do notrequire recruiting new patients and running prospective trials and they can be completed much more quickly than typical prospective clinical trials. We intend touse a similar approach whenever possible for any additional clinical studies we may conduct for Prosigna.In the future, we may participate in prospective clinical studies that require recruiting new patients. For example, we have been selected to participatein the OPTIMA trial, which is being organized and sponsored by a cooperative group in the United Kingdom. We are not financially responsible for conducting thetrial; however, we intend to provide in-kind support through the sale of Prosigna in vitro diagnostic kits at a discounted price.Future Molecular DiagnosticsWe are continuously monitoring molecular signatures which have the potential to become additional diagnostic products or enable LaboratoryDeveloped Tests based on nCounter Elements. We may in-license rights to molecular diagnostic intellectual property as part of our strategy to develop additionaldiagnostic products and enable Laboratory Developed Tests, with a particular focus on licensing rights from our research customers who are seeking to translatetheir research into clinical products or services after the necessary regulatory authorizations are secured.Sales and MarketingWe began selling nCounter Analysis Systems to researchers in 2008 and began sales efforts in the clinical laboratory market in Europe and Israel inearly 2013, and in the United States in November 2013. We sell our instruments and related products primarily through our own sales force in North America andthrough a combination of direct and distributor channels in Europe, the Middle East, Asia Pacific and South America. We have agreements with 22 distributors,each of which is exclusive within a certain territory. In the event the distributor does not meet minimum performance requirements, we may terminate thedistribution agreement or convert from an exclusive to non-exclusive arrangement within the territory, allowing us to enter into arrangements with otherdistributors for the territory. None of our customers represented more than 10% of our revenue for the years ended December 31, 2015, 2014 or 2013.Instrumentation and ResearchOur sales and marketing efforts for instrumentation and in the life sciences research market are targeted at department heads, research or clinicallaboratory directors, principal investigators, core facility directors, and research scientists and pathologists at leading academic institutions, biopharmaceuticalcompanies, publicly and privately-funded research institutions and contract research organizations. We seek to increase awareness of our products among our targetcustomers through direct sales calls, trade shows, seminars, academic conferences, web presence and other forms of internet marketing.Our nCounter Analysis Systems are relatively new to the research and clinical laboratory market place and our instruments require a significant capitalinvestment or commitment to a lease or reagent rental agreement. Our sales process involves numerous interactions with multiple people within an organization,and often includes -15-Table of Contentsin-depth analysis by potential customers of our products, proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As aresult of these factors, the large capital investment required in purchasing our instruments and the budget cycles of our customers, the time from initial contact witha customer to our receipt of a purchase order can vary significantly and be up to 12 months or longer. Given the length and uncertainty of our sales cycle, we havein the past experienced, and likely will in the future experience, fluctuations in our instrument sales on a period-to-period basis.Molecular DiagnosticsThe commercialization of Prosigna kits involves a three-pronged effort. First, we seek to establish third-party reimbursement and patient access forclinical testing services that our clinical laboratory customers will provide based upon our products by educating third-party payors regarding the clinical utility andhealth economic value of the clinical tests enabled by our technology. Second, we seek to establish an installed base of nCounter Analysis Systems by selling orleasing instruments to select clinical laboratories, with initial sales efforts directed at laboratories, hospitals, networks or practices that test or treat a high volume ofbreast cancer patients. As of December 31, 2015, there were approximately 50 laboratories worldwide that had purchased or rented nCounter Analysis Systemswith the intent to market and sell Prosigna testing services. In the United States, this includes national diagnostic laboratories ARUP Laboratories, LaboratoryCorporation of America Holdings, Quest Diagnostics and Genoptix. Third, we intend to drive physician demand for clinical testing services enabled by ourdiagnostic products, and direct test orders toward those laboratories which have adopted our technology. Where appropriate, we intend to coordinate commercialefforts with the sales and marketing personnel of the clinical laboratories offering clinical testing services based on our diagnostic products.Manufacturing and SuppliersWe use third-party contract manufacturers to produce our instruments and raw materials for our consumables, and we build the CodeSets and reagentpackages at our Seattle, Washington facility.InstrumentsWe outsource manufacturing of our nCounter Analysis System instruments. Precision System Science, Co., Ltd. of Chiba, Japan, or PSS, is our solesource supplier for the nCounter Prep Station. Korvis Automation Inc., or Korvis, is our sole source supplier for our nCounter Digital Analyzers at its facility inCorvallis, Oregon. Paramit Corporation, or Paramit, is our sole source supplier for our nCounter SPRINT Profiler at its facility in Morgan Hill, California.The facilities at which our instruments are built have been certified to ISO 13485:2003 standards. Our contracts with these instrument suppliers do notcommit them to carry inventory or make available any particular quantities. Under the terms of the three instrument supply agreements, we are required to placebinding purchase orders for instruments that will be delivered to us by the supplier three to six months from the date of placement of the purchase order. Althoughqualifying alternative third-party manufacturers could be time consuming and expensive, our instruments’ design is similar to other instruments and we believe thatalternatives would be available if necessary. However, if our instrument suppliers terminate our relationship with them or if they give other customers’ needs higherpriority than ours, then we may not be able to obtain adequate supplies in a timely manner or on commercially reasonable terms.ConsumablesWe manufacture our consumables in our Seattle, Washington facility which has been certified to ISO 13485:2003 standards. We expanded ourmanufacturing capacity in 2015 by relocating certain research and development functions and converting the space to incremental manufacturing labs and offices.In the future, should additional space become necessary, we believe that there will be space available near our existing facility that we believe we can secure;however, we cannot predict that this space will be available if and when it is needed. -16-Table of ContentsWe rely on a limited number of suppliers for certain components and materials used in the manufacture of our consumables. Some of thesecomponents are sourced from a single supplier. For example, Cidra Precision Services, LLC, of Wallingford, Connecticut, is the sole supplier of the microfluidiccartridge for our nCounter SPRINT Profiler. For some components, we have qualified second sources for several of our critical reagents, includingoligonucleotides, adhesives and dyes. We believe that having dual sources for our components helps reduce the risk of a production delay caused by a disruption inthe supply of a critical component. We continue to pursue qualifying additional suppliers, but cannot predict how expensive, time-consuming or successful theseefforts will be. If we were to lose one or more of our suppliers, it may take significant time and effort to qualify alternative suppliers.CompetitionIn the life sciences research market, we compete with companies such as Affymetrix, Agilent Technologies, Becton-Dickinson, Bio-Rad, Bio-Techne,Exiqon, Fluidigm, HTG Molecular Diagnostics, Illumina, Luminex, Merck Millipore, O-Link, Perkin Elmer, Qiagen, RainDance Technologies, Roche AppliedScience, Thermo Fisher Scientific, and WaferGen Biosystems, some of which also offer diagnostic applications of their technologies. These competitors and othershave products for gene and protein expression analysis that compete in certain segments of the market in which we sell our products. In addition, there are anumber of new market entrants in the process of developing novel technologies for the life sciences market.In the breast cancer diagnostics market, we compete with Genomic Health’s Onco type Dx, a service for gene expression analysis performed in itscentral laboratory in Redwood City, California. We also face competition from companies such as Agendia, bioTheranostics, and NeoGenomics, which also offercentralized laboratories that profile gene or protein expression in breast cancer. Outside the United States, we also face regional competition from Myriad Genetics,which is marketing a product from Sividon Diagnostics called EndoPredict, a distributed test for breast cancer recurrence, and other independent laboratories.We believe that we have multiple competitive advantages in the research market, including the automated nature of our nCounter Analysis Systemwith its simple, rapid and efficient workflow that requires very limited human intervention or labor; the multiplexing capability of our technology to analyzesignificantly more target molecules in a single tube without amplification, representing multiple biological pathways; the ability to analyze combinations of DNA,RNA and proteins simultaneously in a single experiment; compatibility with many sample types, including difficult samples such as FFPE; and the ability toanalyze small sample inputs, in some cases down to a single cell, from a wide variety of sample types. In the diagnostics market, we believe our competitiveadvantages include the compelling evidence of Prosigna’s ability to inform major medical treatment decisions, including results from our studies; the quality of ournCounter Analysis System, which enables consistent and reproducible results in decentralized laboratories; and the improved convenience for physicians andpatients, including more rapid test result turnaround time.While we believe that we compete favorably based on the factors described above, many of our competitors enjoy other competitive advantages overus, including: • greater name and brand recognition, financial and human resources; • broader product lines; • larger sales forces and more established distributor networks; • substantial intellectual property portfolios; -17-Table of Contents • larger and more established customer bases and relationships; and • better established, larger scale and lower cost manufacturing capabilities.For additional information, see the section of this report captioned “Risk Factors — The life sciences research and diagnostics markets are highlycompetitive. If we fail to compete effectively, our business and operating results will suffer.”Government RegulationMedical Device RegulationUnited StatesIn the United States, medical devices, including in vitro diagnostics, are subject to extensive regulation by the U.S. Food and Drug Administration, orFDA, under the Federal Food, Drug, and Cosmetic Act, or FDC Act, and its implementing regulations, and other federal and state statutes and regulations. The lawsand regulations govern, among other things, medical device development, testing, labeling, storage, premarket clearance or approval, advertising and promotionand product sales and distribution.A medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, includingany component part or accessory which is (1) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention ofdisease, in man or other animals, or (2) intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of itsprimary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for theachievement of any of its primary intended purposes. In vitro diagnostics are a type of medical device and are tests that can be used in the diagnosis and/ordetection of diseases, conditions or infections, including, without limitation, the presence of certain chemicals, genetic or other biomarkers. Some tests are used inlaboratories or other health professional settings and other tests are for consumers to use at home.Medical devices to be commercially distributed in the United States must receive from the FDA either clearance of a premarket notification, or 510(k),or premarket approval of a premarket approval application, or PMA, pursuant to the FDC Act prior to marketing, unless subject to an exemption. Devices deemedto pose relatively low risk are placed in either Class I or II. Placement of a device into Class II generally requires the manufacturer to submit to the FDA a 510(k)seeking clearance for commercial distribution; this is known as the 510(k) clearance process. Most Class I devices are exempted from this premarket requirement.Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices and some diagnostic tests, or devices deemednot substantially equivalent to a previously 510(k) cleared device or a preamendment Class III device for which PMA applications have not been called, are placedin Class III requiring PMA approval. A clinical trial is almost always required to support a PMA application and in many cases required for a 510(k) application.All clinical studies of investigational devices must be conducted in compliance with applicable FDA or Institutional Review Board, or IRB, regulations.510(k) Clearance Pathway . To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating to the FDA’s satisfactionthat the proposed device is substantially equivalent in intended use and in technological characteristics to a previously 510(k) cleared device or a device that was in -18-Table of Contentscommercial distribution before May 28, 1976, for which the FDA has not yet called for submission of PMA applications. The previously cleared device is knownas a predicate. The FDA’s 510(k) clearance pathway usually takes from four to 12 months, but it can last significantly longer, particularly for a novel type ofproduct.After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a majorchange in its intended use, requires a new 510(k) clearance or could require a PMA approval. The FDA requires each manufacturer to make this determination inthe first instance, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agencymay require the manufacturer to seek 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modifieddevice until 510(k) clearance or PMA approval is obtained.PMA Approval Pathway . The PMA approval pathway requires reasonable scientific evidence of the safety and effectiveness of the device to theFDA’s satisfaction. The PMA approval pathway is costly, lengthy and uncertain.A PMA application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding,among other things, device design, manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities forcompliance with Quality System Regulation, or QSR, requirements, which impose elaborate testing, control, documentation and other quality assuranceprocedures.Upon submission, the FDA determines if the PMA application is sufficiently complete to permit a substantive review, and, if so, the application isaccepted for filing. The FDA then commences an in-depth review of the PMA application. The PMA approval process typically takes one to three years, but maylast longer. The review time is often significantly extended as a result of the FDA asking for more information or clarification of information already provided. TheFDA also may respond with a “not approvable” determination based on deficiencies in the application and require additional clinical studies that are oftenexpensive and time consuming and can delay approval for months or even years. During the review period for a new type of device, an FDA advisory committee, apanel of external experts, likely will be convened to review the application and recommend to the FDA whether, or upon what conditions, the device should beapproved. Although the FDA is not bound by the advisory panel decision, the panel’s recommendation is important to the FDA’s overall decision making process.If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an “approvable letter” requiring the applicant’s agreement tospecific conditions, such as changes in labeling, or specific additional information such as submission of final labeling, in order to secure final approval of the PMAapplication. Once the approvable letter is satisfied, the FDA will issue a PMA for the approved indications, which can be more limited than those originally soughtby the manufacturer. The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including,among other things, post-approval studies and restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can resultin material adverse enforcement action, including the loss or withdrawal of the approval or placement of restrictions on the sale of the device until the conditionsare satisfied.Even after approval of a PMA, a new PMA or PMA supplement may be required in the event of a modification to the device, its labeling or itsmanufacturing process. Supplements to a PMA may require the submission of the same type of information required for an original PMA, except that thesupplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA.De Novo Pathway . If no predicate can be identified, the product is automatically classified as Class III, requiring a PMA. However, the FDA canreclassify, or use “de novo classification” for, a device for which there was no predicate device if the device is low or moderate risk. The FDA will establish specialcontrols that other applicants for the same device type must implement, which often includes labeling restrictions and data requirements. Subsequent applicants canrely upon the de novo product as a predicate for a 510(k) clearance. The -19-Table of Contentsde novo route is less burdensome than the PMA process; it is similar in many respects to a 510(k), but generally takes much longer for clearance than the 510(k)process. A device company can ask the FDA at the outset if the de novo route is available for its particular product. The de novo route has been used for many invitro diagnostic products.Postmarket . After a device is placed on the market, numerous regulatory requirements apply. These include: the QSR, labeling regulations, the FDA’sgeneral prohibition against promoting products for unapproved or “off label” uses, registration and listing, the Medical Device Reporting, or MDR, regulation(which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way thatwould likely cause or contribute to a death or serious injury if it were to recur), and the Reports of Corrections and Removals regulation (which requiresmanufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDC Act).The FDA enforces these requirements by inspection, market surveillance, and other means. If the FDA finds a violation, it can institute a wide varietyof enforcement actions, ranging from an untitled letter or a public warning letter to more severe sanctions such as fines, injunctions, and civil penalties; recall orseizure of products; operating restrictions, partial suspension or total shutdown of production; refusing requests for 510(k) clearance or PMA approval of newproducts; withdrawing 510(k) clearance or PMA approvals already granted; and criminal prosecution. For additional information, see the section of this reportcaptioned “ Risk Factors — Risks Related to Government Regulation and Diagnostic Product Reimbursement. ”Research Use Only . Research Use Only, or RUO, products belong to a separate regulatory classification under a long-standing FDA regulation. Inessence, RUO products are not regulated as medical devices and are therefore not subject to the regulatory requirements discussed above. The products must bearthe statement: “For Research Use Only. Not for Use in Diagnostic Procedures.” RUO products cannot make any claims related to safety, effectiveness or diagnosticutility, and they cannot be intended for human clinical diagnostic use. In November 2013, the FDA issued a final guidance on RUO products, which, among otherthings, reaffirmed that a company may not make any clinical or diagnostic claims about an RUO product. The FDA will also evaluate the totality of the evidence todetermine if the product is intended for diagnostic purposes, including how a customer uses the product. We cannot assure you that the FDA will not determine,based on the totality of circumstances, that our products marketed for RUO are not medical devices that will require clearance or approval.Dual-Use Instruments . Dual-use instruments are subject to FDA regulation since they are intended, at least in part, for use by customers performingclinical diagnostic testing. In November 2014, FDA issued a guidance that described FDA’s approach to regulating molecular diagnostic instruments that combinein a single molecular instrument both approved/cleared device functions and device functions for which approval/clearance is not required.Laboratory Developed Tests . Laboratory Developed Tests, or LDTs, are developed, validated and used within a single lab. In the past, the FDAgenerally exercised its enforcement discretion for LDTs and did not require clearance or approval prior to marketing. However, on October 3, 2014, FDA issuedtwo draft guidances that propose to actively regulate LDTs using a risk-based approach. If the draft guidances go into effect in their current format, all laboratoriesoffering LDTs, except for those offering only LDTs for forensic use and certain transplantation tests, will be subject to certain general device requirements such asMDR reporting. In addition, “high” and “moderate” risk devices not subject to an exemption will need to submit a PMA or 510(k) to FDA in a phased-in manner.The draft guidances have been the subject of considerable controversy and it is unclear whether the draft guidances will be finalized, and if so, what they willcontain. Congress has also been considering legislation to regulate LDTs. It is unclear that any LDT-related legislation will be enacted.Companion Diagnostics . In August 2014, FDA issued a companion diagnostics final guidance stating that if the device is essential to the safety orefficacy of the drug, FDA will generally require approval or clearance for the device at the time when FDA approves the drug. Most companion diagnostics willrequire PMA approval. -20-Table of ContentsInternationalInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The EuropeanCommission is the legislative body responsible for directives under which manufacturers selling medical products in the EU, and the European Economic Area, orEEA, must comply. The EU includes most of the major countries in Europe, while other countries, such as Switzerland, are part of the EEA and have voluntarilyadopted laws and regulations that mirror those of the EU with respect to medical devices. The EU has adopted directives that address regulation of the design,manufacture, labeling, clinical studies and post-market vigilance for medical devices. Devices that comply with the requirements of a relevant directive will beentitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can bemarketed throughout the EU and EEA.In September 2012, Prosigna was CE-marked for compliance with IVDD 98/79/EC for use in conjunction with a diagnostic version of our nCounterAnalysis System in the EU to assess a patients risk and or distant recurrence.Outside of the EU, regulatory approval needs to be sought on a country-by-country basis in order to market medical devices. Although there is a trendtowards harmonization of quality system standards, regulations in each country may vary substantially, which can affect timelines of introduction.ReimbursementOur nCounter Dx Analysis Systems are purchased or leased by clinical laboratories, which use our diagnostic products as the basis for testing patients’samples. These customers can use our products to enable commercial testing services, and generate revenue for their laboratories for this service. In order to collectpayment for testing services based upon our diagnostic products, our clinical laboratory customers may bill third parties, including public and private payors. Thedemand for our diagnostic products will depend indirectly upon the ability for our customers to successfully bill for and receive reimbursement from third-partypayors for the clinical testing services based on our products. Therefore, we intend to work with third-party payors in markets where we intend to sell ourdiagnostic products to ensure that testing services based on our products are covered and paid.The decision of payors to cover and pay for a specific testing service is driven by many factors, including: • strong clinical validation data; • acceptance into major clinical guidelines, including the National Comprehensive Cancer Network, or NCCN, the American Society of ClinicalOncologists, or ASCO, and the St. Gallen Consensus guidelines; • health economic studies that may indicate that the test improves quality-adjusted survival and leads to reduced costs; and • decision impact studies that show the test leads to better treatment decisions.We are generating dossiers to be submitted to payors in support of reimbursement for testing services based upon our diagnostic products, beginningwith Prosigna. The dossiers typically contain data from studies supporting the analytical and clinical validity of Prosigna, as well as health economic analyses thatexamine whether the clinical information supplied by Prosigna changes medical practice in a way that leads to benefit for both the patients and the payors. In somecases, these health economic analyses may be supported by the results of clinical studies of Prosigna’s impact on adjuvant treatment decisions in early stage breastcancer called decision impact studies. We developed a clinical protocol for Prosigna decision impact studies in collaboration with two European cooperativegroups, and based on this protocol we have completed one decision impact study to date, and have two other such studies currently underway. -21-Table of ContentsUnited StatesIn the United States, clinical laboratory revenue is derived from various third-party payors, including insurance companies, health maintenanceorganizations, or HMOs, and government healthcare programs, such as Medicare and Medicaid. Clinical laboratory testing services are paid through variousmethodologies when covered by third-party payors, such as prospective payment systems and fee schedules. For any new clinical test, payment for the clinicallaboratory service requires a decision by the third-party payor to cover the particular test, the establishment of a reimbursement rate for the test and theidentification of one or more Current Procedural Terminology, or CPT, codes that accurately describes the test methodology and the analyte to be used in claimsprocessing.The American Medical Association, or AMA, has issued a new set of CPT codes for billing and reimbursement of complex genomic tests that arebased on information from multiple analytes or genes. These new MAAA, or Multianalyte Assays with Algorithmic Analyses, codes are intended to capture testssuch as Prosigna and are divided into two categories of unique codes. Category 1 MAAA codes are intended for tests that AMA’s CPT Editorial Panel has vettedand found to meet a certain set of criteria, such as demonstrated clinical validity and utility, as well as current national utilization thresholds. MAAAs issued tocomplex genomic tests that have not met all Category 1 coding criteria are referred to as administrative MAAA codes. Assignment of either unique reimbursementcode to a particular test may facilitate claims processing by payors; however, assignment of a unique reimbursement code alone does not guarantee favorablereimbursement decisions by payors. A genomic test with an assigned MAAA code must still be vetted and approved by individual payors for coverage and paymentbefore reimbursement is achieved. Given the more stringent requirements for receipt of a Category 1 MAAA, including demonstrated clinical validity and utilityand satisfaction of national utilization thresholds, we believe that certain payors may more readily render favorable reimbursement decisions for genomic tests witha Category 1 MAAA rather than an administrative MAAA.In April 2014, we received an administrative MAAA code (0008M) for use in reimbursement of testing services based on Prosigna. Given the recentcommercial launch of Prosigna in the United States, and the lack of utilization data, we expected the issuance of an administrative MAAA initially. We intend toreapply for a Category 1 MAAA at a later date when additional Prosigna utilization data are available.Centers for Medicare & Medicaid Services, or CMS, administers the Medicare and Medicaid programs, which provide health care to almost one inevery three Americans. For any particular geographic region, Medicare claims are processed on behalf of CMS by private companies called MedicareAdministrative Contractors, or MACs. New diagnostic tests typically follow one of three routes to coverage via CMS: National Coverage Determinations, orNCDs, Local Coverage Determinations, or LCDs, or simply payment of claims by a MAC. The NCD applies to Medicare beneficiaries living throughout theUnited States. Due to cost and CMS bandwidth limitations there are generally few NCDs. The LCD process applies to only beneficiaries in the coverage area of asingle MAC, requiring multiple LCDs to cover the testing throughout the United States. Due to the cost of developing an LCD, contractors tend to develop arelatively small number and prefer to tacitly cover services by paying claims. There is also a subset of NCDs known as Coverage with Evidence Development, orCED, that allow a technology (service or procedure) to be covered while evidence is collected through a registry or a study to answer outstanding questions onoutcomes. Some MACs have developed CED policies, but these are outside the statute that established CED.We are pursuing Medicare coverage for Prosigna and where necessary working with MACs to obtain a favorable LCD. There are two distinct LCDprocesses for molecular diagnostic tests: the individual MAC LCD process and the Molecular Diagnostics Program, or MolDx program for Palmetto, a MAC.Pursuing a series of LCDs will require us to engage with each of the seven MACs not currently under the MolDx program for -22-Table of Contentsjurisdictions in which Prosigna testing services are provided. MACs have the option of paying for Prosigna claims without an LCD, and where possible we willpursue this less burdensome option. The MolDx program is the technology assessment and medical policy review process currently employed by Palmetto forNorth Carolina, South Carolina, Virginia, and West Virginia and by Noridian for California, Nevada, and Hawaii (Noridian has not published a MolDx decision forthe other states under their Medicare contract: Washington, Oregon, Idaho, Utah, Arizona, Montana, Wyoming, North Dakota, and South Dakota). Determinationof the Medicare contractor responsible for a laboratory claim is based on the location of the laboratory (not patient location). Prosigna was successfully covered andassigned a payment amount by the MolDx program in 2015. In late 2015 Prosigna was also covered by First Coast, the Florida MAC, and priced in early January2016. Noridian has issued a draft LCD, which is expected to become final in 2016.The MolDx program has contracted with McKesson to create unique identifiers or codes for unique lab tests. A McKesson Z-Code Identifier is aunique code associated with a specific advanced diagnostic test. Z-codes are reported to the payor along with the appropriate CPT codes, which potentiallyimproves the efficiencies in the reimbursement process. Z-code identifiers are currently only required by the MACs associated with the MolDx program, Palmettoand Noridian. Laboratories under the MolDx program cannot submit claims for Prosigna until a Z-code is available and a Medicare LCD has been published. A Z-code Identifier was issued for Prosigna in February 2014. For Medicare, the reimbursement rates for individual tests are established under the Clinical LaboratoryFee Schedule (local fee schedules for outpatient clinical laboratory services) or the Physician Fee Schedule, depending on the amount of physician work involvedin the test. Molecular diagnostic tests that require little physician work are generally paid under the Clinical Laboratory Fee Schedule. As with other tests that haveMAAA CPT codes, we believe that CMS will reimburse Prosigna testing services under the Clinical Laboratory Fee Schedule.With respect to private insurance coverage, there is significant uncertainty surrounding third-party reimbursement for the use of tests that incorporatenew technology, such as Prosigna. For example, in the third quarter of 2014, the Blue Cross and Blue Shield, or BCBS, Association Technology Evaluation Centeraffirmed their position that Prosigna should be considered investigational. Subsequently, several BCBS entities updated their coverage policies based on thisevaluation. In February 2015, Cigna decided that it would not reimburse for Prosigna. However, in August 2014, UnitedHealthcare, the largest private healthinsurer in the United States, agreed with Laboratory Corporation of America, one of our commercial laboratory customers, to begin paying for Prosigna testing.Outside the United StatesIn Europe, governments are primarily responsible for reimbursing diagnostic testing services. A relatively small portion of the market is made up ofprivate payors and cash-pay patients.The primary barrier of adoption of a new in vitro diagnostic test is often reimbursement, and public reimbursement can take several years to achieve,depending on the country. Public reimbursement for genomic testing for breast cancer is available in Canada, Ireland, Greece and the United Kingdom. Selectedprivate coverage for testing is available in the United Kingdom, Germany, Spain, France, the UAE and Hungary. The public reimbursement pathway may be morefavorable in Germany and France given their willingness to accept additional costs in return for improved outcomes, their centralized review process, and the roleof key opinion leaders. Reimbursement approval in some countries, such as Spain and Italy, is managed at the regional level. Israel is a market in which genomictesting for breast cancer is widely reimbursed by all four major Sick Funds, the third-party payors that cover a substantial majority of the population.Our market preparation in Europe will be similar to that in the United States and involve data driving clinical and economic publications to supportguideline inclusion. Initially, we will target the private and cash pay market in Europe. In parallel, we will seek to establish public reimbursement of Prosigna bynational and regional governments in Europe. -23-Table of ContentsOther RegulationsOur operations in the United States are subject to various federal and state fraud and abuse laws, including, without limitation, the federal anti-kickback statute and state and federal marketing compliance laws. These laws may impact our operations directly, or indirectly through our customers, and mayimpact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federalgovernment and the states in which we conduct our business. The laws that may affect our ability to operate include the following federal laws and theircounterparts at the state level: • the Federal Anti-kickback Law and state anti-kickback prohibitions; • the Federal physician self-referral prohibition, commonly known as the Stark Law, and state equivalents; • the Federal Health Insurance Portability and Accountability Act of 1996, as amended; • the Medicare civil money penalty and exclusion requirements; • the Federal False Claims Act civil and criminal penalties and state equivalents; • the Foreign Corrupt Practices Act, which applies to our international activities; and • the Physician Payment Sunshine Act.EmployeesAs of December 31, 2015, we had 307 employees, of which 87 work in manufacturing, 92 in sales, marketing and business development, 72 inresearch and development, 15 in clinical, medical and regulatory affairs, and 41 in general and administrative. None of our U.S. employees are represented by alabor union or is the subject of a collective bargaining agreement. As of December 31, 2015, of our 307 employees, 280 were employed in the United States and 27were employed outside the United States.Environmental MattersOur operations require the use of hazardous materials (including biological materials) which subject us to a variety of federal, state and localenvironmental and safety laws and regulations. Some of the regulations under the current regulatory structure provide for strict liability, holding a party potentiallyliable without regard to fault or negligence. We could be held liable for damages and fines as a result of our, or others’, business operations should contaminationof the environment or individual exposure to hazardous substances occur. We cannot predict how changes in laws or development of new regulations will affect ourbusiness operations or the cost of compliance.Where You Can Find Additional InformationWe make available free of charge through our investor relations website, www.nanostring.com, our annual reports, quarterly reports, current reports,proxy statements and all amendments to those reports as soon as reasonably practicable after such material is electronically filed or furnished with the SEC. Thesereports may also be obtained without charge by contacting Investor Relations, NanoString Technologies, Inc., 530 Fairview Avenue, N., Seattle, Washington98109, e-mail: investorrelations@nanostring.com. Our Internet website and the information contained therein or incorporated therein are not intended to beincorporated into this Annual Report on Form 10-K. In addition, the public may read and copy any materials we file or furnish with the SEC at the SEC’s PublicReference Room at 100 F Street, N.E., Washington, D.C. 20549 or may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Moreover, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding reports thatwe file or furnish electronically with them at www.sec.gov. -24-Table of ContentsItem 1A.Risk FactorsYou should carefully consider the following risk factors, in addition to the other information contained in this report, including the section of thisreport captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. Ifany of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financialcondition could be seriously harmed. This report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual resultscould 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 StrategyWe 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 $45.6 million and $50.0 million for theyears ended December 31, 2015 and 2014, respectively. As of December 31, 2015, we had an accumulated deficit of $222.5 million. We expect that our losses willcontinue for at least the next several years as we will be required to invest significant additional funds toward development and commercialization of ourtechnology. We also expect that our operating expenses will continue to increase as we grow our business, but there can be no assurance that our revenues andgross 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 basedon numerous factors, many of which are beyond our control, including the market acceptance of our products, future product development and our marketpenetration and margins. 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 new, uncertain and rapidly evolvingmarkets in which we compete. Because these markets are new and evolving, predicting their future growth and size is difficult. We expect that our visibility intofuture sales of our products, including volumes, prices and product mix between instruments and consumables, and revenue from licensing agreements, includingthe amount and timing of payments pursuant to collaboration agreements, such as our agreement with Celgene Corporation, will continue to be limited and couldresult 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 operatingresults. These fluctuations may make financial planning and forecasting difficult. In addition, these fluctuations may result in unanticipated changes in our availablecash, which could negatively affect our business and prospects. Factors that may contribute to fluctuations in our operating results include many of the risksdescribed in this section. In addition, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher orlower relative to the others. Our products involve a significant capital commitment by our customers and accordingly involve a lengthy sales cycle. We may expendsignificant effort in attempting to make a particular sale, which may be deferred by the customer or never occur. Accordingly, comparing our operating results on aperiod-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 fluctuationsoccur or if our operating results deviate from our expectations or the expectations of securities analysts, our stock price may be adversely affected. -25-Table of ContentsIf 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 a short period of time. We may not achieve similar growth rates in future periods. Investors should notrely 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, ourfinancial results could suffer and our stock price could decline. Furthermore, growth will place significant strains on our management and our operational andfinancial systems and processes. For example, development and commercialization of the Prosigna Breast Cancer Assay, or Prosigna, and other future diagnosticproducts worldwide are key elements of our growth strategy and have required us to hire and retain additional sales and marketing, regulatory, manufacturing andquality assurance personnel. If we do not successfully generate demand for our diagnostic products or manage our anticipated expenses accordingly, our operatingresults will be harmed.Our future success is dependent upon our ability to expand our customer base and introduce new applications.Our current customer base is primarily composed of academic and government research laboratories, biopharmaceutical companies and clinical laboratoriesthat perform analyses using our nCounter Analysis Systems. Our success will depend, in part, upon our ability to increase our market penetration among all of thesecustomers and to expand our market by developing and marketing new research applications, new instruments, and new diagnostic products. Furthermore, weexpect that increasing the installed base of our nCounter Analysis Systems will drive demand for our relatively high margin consumable products. If we are notable to successfully increase our installed base of nCounter Analysis Systems, sales of our consumable products and our margins may not meet expectations.Moreover, we must convince physicians and third-party payors that our diagnostic products, such as Prosigna, are cost effective in obtaining prognostic informationthat can help inform treatment decisions and that our nCounter Analysis Systems could enable an equivalent or superior approach that lessens reliance oncentralized laboratories. Attracting new customers and introducing new applications requires substantial time and expense. Any failure to expand our existingcustomer base, or launch new applications, would adversely affect our ability to improve our operating results.Our research business depends on levels of research and development spending by academic and governmental research institutions and biopharmaceuticalcompanies, a reduction in which could limit demand for our products and adversely affect our business and operating results.In the near term, we expect that a large portion of our revenue will be derived from sales of our nCounter Analysis Systems to academic and governmentresearch laboratories and biopharmaceutical companies worldwide for research and development applications. The demand for our products will depend in partupon the research and development budgets of these customers, which are impacted by factors beyond our control, such as: • changes in government programs (such as the National Institutes of Health) that provide funding to research institutions and companies; • macroeconomic conditions and the political climate; • changes in the regulatory environment; • differences in budgetary cycles; • market-driven pressures to consolidate operations and reduce costs; and • market acceptance of relatively new technologies, such as ours.In addition, academic, governmental and other research institutions that fund research and development activities may be subject to stringent budgetaryconstraints that could result in spending reductions, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers to purchase ourproducts. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. Anydecrease in our customers’ budgets or expenditures, or in the size, scope or frequency of capital or operating expenditures, could materially and adversely affect ourbusiness, operating results and financial condition. -26-Table of ContentsOur sales cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.Our sales process involves numerous interactions with multiple individuals within an organization, and often includes in-depth analysis by potentialcustomers of our products, performance of proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As a result of thesefactors, the large capital investment required in purchasing our instruments and the budget cycles of our customers, the time from initial contact with a customer toour receipt of a purchase order can vary significantly and be up to 12 months or longer. Given the length and uncertainty of our sales cycle, we have in the pastexperienced, and likely will in the future experience, fluctuations in our instrument sales on a period-to-period basis. Furthermore, from time-to-time, we may leaseinstruments or place instruments under reagent rental agreements, wherein a customer does not purchase an instrument upfront but instead pays a rental feeassociated with each purchase of reagents. An increase in instruments placed under these lease or reagent rental agreements may reduce the number of instrumentswe would otherwise sell in any period. In addition, any failure to meet customer expectations could result in customers choosing to continue to use their existingsystems or to purchase systems other than ours.Our reliance on distributors for sales of our products outside of the United States, and on clinical laboratories for delivery of Prosigna testing services, couldlimit or prevent us from selling our products and impact our revenue.We have established exclusive distribution agreements for our nCounter Analysis Systems and related consumable products within parts of Europe, theMiddle East, Africa, Asia Pacific and South America. We intend to continue to grow our business internationally, and to do so we must attract additionaldistributors and retain existing distributors to maximize the commercial opportunity for our products. There is no guarantee that we will be successful in attractingor retaining desirable sales and distribution partners or that we will be able to enter into such arrangements on favorable terms. Distributors may not commit thenecessary resources to market and sell our products to the level of our expectations or may choose to favor marketing the products of our competitors. If current orfuture distributors do not perform adequately, or we are unable to enter into effective arrangements with distributors in particular geographic areas, we may notrealize long-term international revenue growth.Similarly, we or our distributors have entered into agreements with clinical laboratories globally to provide Prosigna testing services. We do not providetesting services directly and, thus, we are reliant on these clinical laboratories to actively promote and sell Prosigna testing services. These clinical laboratories maytake longer than anticipated to begin offering Prosigna testing services and may not commit the necessary resources to market and sell Prosigna testing services tothe level of our expectations. Furthermore, we intend to contract with additional clinical laboratories to offer Prosigna testing services and we may be unsuccessfulin attracting and contracting with new clinical laboratory providers. If current or future Prosigna testing service providers do not perform adequately, or we areunable to enter into contracts with additional clinical laboratories to provide Prosigna testing services, we may not be successful selling Prosigna and our futurerevenue prospects may be adversely affected.If Prosigna fails to achieve and sustain sufficient market acceptance, we will not generate expected revenue, and our prospects may be harmed.Commercialization of Prosigna in Europe, the United States and the other jurisdictions in which we intend to pursue regulatory approval or clearance is a keyelement of our strategy. Currently, most oncologists seeking sophisticated gene expression analysis for diagnosing and profiling breast cancer in their patients shiptissue samples to a limited number of centralized laboratories typically located in the United States. We may experience reluctance, or refusal, on the part ofphysicians to order, and third-party payors to pay for, Prosigna if the results of our research and clinical studies, and our sales and marketing activities relating tocommunication of these results, do not convey to physicians, third-party payors, and patients that Prosigna provides equivalent or better prognostic informationthan those centralized laboratories. In addition, our diagnostic tests are performed by pathologists in local laboratories, rather than by a vendor in a remotecentralized laboratory, which requires us to educate pathologists regarding the benefits of this business model and oncologists regarding the reliability andconsistency of results generated locally. Also, we intend to offer Prosigna in other countries outside of the United -27-Table of ContentsStates, where genomic testing for breast cancer is not widely available and the market for such tests is new. The future growth of the market for genomic breastcancer testing will depend on physicians’ acceptance of such testing and the availability of reimbursement for such tests.These hurdles may make it difficult to convince health care providers that tests using our technologies are appropriate options for cancer diagnostics, may beequivalent or superior to available tests, and may be at least as cost effective as alternative technologies. If we fail to successfully commercialize Prosigna, we maynever receive a return on the significant investments in sales and marketing, regulatory, manufacturing and quality assurance personnel we have made, and furtherinvestments we intend to make, which would adversely affect our growth prospects, operating results and financial condition.Our strategy to seek to enter into strategic collaborations and licensing arrangements with third parties to develop diagnostic tests may not be successful.We have relied, and expect to continue to rely, on strategic collaborations and licensing agreements with third parties for discoveries based on which wedevelop diagnostic tests. For example, we licensed the rights to intellectual property that forms the basis of Prosigna from Bioclassifier, LLC, which was foundedby several of our research customers engaged in translational research. Similarly, in connection with our collaboration with Celgene Corporation, we licensed therights to intellectual property relating to a gene signature for lymphoma subtyping, which was discovered by a consortium of researchers including several of ourresearch customers, from the National Institutes of Health. We intend to enter into more such arrangements with our research customers and other researchers,including biopharmaceutical companies, for development of future diagnostic products. However, there is no assurance that we will be successful in doing so. Inparticular, our customers are not obligated to collaborate with us or license technology to us, and they may choose to develop diagnostic products themselves orcollaborate with our competitors. Establishing collaborations and licensing arrangements is difficult and time-consuming. Discussions may not lead tocollaborations or licenses on favorable terms, if at all. To the extent we agree to work exclusively with a party in a given area, our opportunities to collaborate withothers could be limited. Potential collaborators or licensors may elect not to work with us based upon their assessment of our financial, regulatory or intellectualproperty position. Even if we establish new relationships, they may never result in the successful development or commercialization of future tests.New diagnostic product development involves a lengthy and complex process, and we may be unable to commercialize on a timely basis, or at all, any of thetests we develop.Few research and development projects result in successful commercial products, and success in early clinical studies often is not replicated in later studies.For example, even though the results of our clinical studies of Prosigna were favorable, there is no guarantee that any future studies will be successful. At anypoint, we may abandon development of a product candidate or we may be required to expend considerable resources repeating clinical studies, which wouldadversely impact potential revenue and our expenses. In addition, any delay in product development would provide others with additional time to commercializecompeting products before we do, which in turn may adversely affect our growth prospects and operating results.In March 2014, we entered into our first companion diagnostic collaboration with Celgene Corporation to develop an in vitro diagnostic assay to be used forsubtyping certain lymphoma patients and we intend to enter into additional similar collaborations over time. In May 2015, we entered into a clinical researchcollaboration agreement with Merck to develop an assay that could become the subject of an additional companion diagnostic collaboration. In February 2016, weexpanded our collaboration with Merck by entering into a new development collaboration agreement to clinically develop and commercialize a novel diagnostictest, based on an optimized gene expression signature, to predict response to KEYTRUDA in multiple tumor types. In January 2016, we announced a companiondiagnostic collaboration with Medivation Inc. and Astellas Pharma Inc. to modify our Prosigna Breast Cancer Assay for potential use as a companion diagnostictest for enzalutamide for triple negative breast cancer. The success of the development programs for such assays will be dependent on the success of the relateddrug trials conducted by our collaborators. There is no guarantee that those clinical trials will be successful and, as a result, we may expend considerable time andresources developing in vitro diagnostic assays -28-Table of Contentsthat cannot gain regulatory approval. Although we expect such collaborations to provide funding to cover our costs of development, failure of these clinical trialswould reduce our prospects for introducing new diagnostic products and would adversely impact our growth prospects and future operating results.Our future capital needs are uncertain and we may need to raise additional funds in the future.We believe that our existing cash and cash equivalents, together with funds available under our term loan agreement, will be sufficient to meet ouranticipated cash requirements for at least the next 12 months. However, we may need to raise substantial additional capital to: • expand the commercialization of our products; • fund our operations; and • further our research and development.Our future funding requirements will depend on many factors, including: • market acceptance of our products; • the cost and timing of establishing additional sales, marketing and distribution capabilities; • revenue and cash flow derived from existing or future collaborations; • the cost of our research and development activities; • the cost and timing of regulatory clearances or approvals; • the effect of competing technological and market developments; and • the extent to which we acquire or invest in businesses, products and technologies, including new licensing arrangements for newproducts.We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. For example, as of December 31, 2015, we have issued an aggregate of 960,400 shares of our commonstock under a sales agreement with Cowen and Company, LLC, or Cowen, for total gross proceeds of $13.0 million. We have a sales agreement in place withCowen to sell up to $40.0 million worth of shares of our common stock, from time to time, through an “at the market” equity offering program under which Cowenwill act as sales agent. As of December 31, 2015, approximately $27.0 million worth of shares of our common stock remained available for sale under the “at themarket” equity offering program. Additional debt financing, if available, may involve additional covenants restricting our operations or our ability to incuradditional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional fundsthrough collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grantlicenses on terms that are not favorable to us. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercializationof our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have toreduce marketing, customer support or other resources devoted to our products or cease operations. Any of these factors could harm our operating results.Our research and development efforts will be hindered if we are not able to contract with third parties for access to archival tissue samples.Under standard clinical practice, tumor biopsies removed from patients are preserved and stored in formalin-fixed paraffin embedded, or FFPE, format. Werely on our ability to secure access to these archived FFPE tumor biopsy samples, as well as information pertaining to the clinical outcomes of the patients fromwhich they were derived for our clinical development activities. Others compete with us for access to these samples. Additionally, the process of negotiating accessto archived samples is lengthy because it typically involves numerous parties and approval levels to resolve complex issues such as usage rights, institutionalreview board -29-Table of Contentsapproval, privacy rights, publication rights, intellectual property ownership and research parameters. On September 8, 2015, the Department of Health and HumanServices, or HHS, issued a proposed rule that would modify informed consent requirements. This proposed rule, if finalized as drafted, could make it moreexpensive and difficult to obtain banked specimens. If we are not able to negotiate access to archived tumor tissue samples with hospitals, clinical partners,pharmaceutical companies, or companies developing therapeutics on a timely basis or on commercially reasonable terms, or at all, or if other laboratories or ourcompetitors secure access to these samples before us, our ability to research, develop and commercialize future products will be limited or delayed.The life sciences research and diagnostic markets are highly competitive. If we fail to compete effectively, our business and operating results will suffer.We face significant competition in the life sciences research and diagnostics markets. We currently compete with both established and early stage lifesciences research companies that design, manufacture and market instruments and consumables for gene expression analysis, single-cell analysis, polymerase chainreaction, or PCR, digital PCR, other nucleic acid detection and additional applications. These companies use well-established laboratory techniques such asmicroarrays or quantitative PCR, or qPCR, as well as newer technologies such as next generation sequencing. We believe our principal competitors in the lifesciences research market are Affymetrix, Agilent Technologies, Becton-Dickinson, Bio-Rad, Bio-Techne, Exiqon, Fluidigm, HTG Molecular Diagnostics,Illumina, Luminex, Merck Millipore, O-Link, Perkin Elmer, Qiagen, RainDance Technologies, Roche Applied Science, Thermo Fisher Scientific, and WaferGenBiosystems. In addition, there are a number of new market entrants in the process of developing novel technologies for the life sciences market.We also compete with commercial diagnostics companies. We believe our principal competitor in the breast cancer diagnostics market is Genomic Health,which provides gene expression analysis at its central laboratory in Redwood City, California and currently commands a substantial majority of the market. Wealso face competition from companies such as Agendia, bioTheranostics, and NeoGenomics, which also offer services by means of centralized laboratories thatprofile gene or protein expression in breast cancer. In Europe, we also face regional competition from Myriad Genetics, which is marketing a product from SividonDiagnostics called EndoPredict, a distributed test for breast cancer recurrence, as well as from other independent laboratories.Many of our current competitors are large publicly-traded companies, or are divisions of large publicly-traded companies, and may enjoy a number ofcompetitive advantages over us, including: • greater name and brand recognition, financial and human resources; • broader product lines; • larger sales forces and more established distributor networks; • substantial intellectual property portfolios; • larger and more established customer bases and relationships; and • better established, larger scale, and lower cost manufacturing capabilities.We believe that the principal competitive factors in all of our target markets include: • cost of capital equipment; • cost of consumables and supplies; • reputation among customers; • innovation in product offerings; • flexibility and ease-of-use; • accuracy and reproducibility of results; and • compatibility with existing laboratory processes, tools and methods. -30-Table of ContentsWe believe that additional competitive factors specific to the diagnostics market include: • availability of reimbursement for testing services; • breadth of clinical decisions that can be influenced by information generated by tests; • volume, quality, and strength of clinical and analytical validation data; • inclusion in treatment guidelines; and • economic benefit accrued to customers based on testing services enabled by products.We cannot assure investors that our products will compete favorably or that we will be successful in the face of increasing competition from new productsand technologies introduced by our existing competitors or new companies entering our markets. In addition, we cannot assure investors that our competitors do nothave or will not develop products or technologies that currently or in the future will enable them to produce competitive products with greater capabilities or atlower costs than ours. Any failure to compete effectively could materially and adversely affect our business, financial condition and operating results.We have limited experience in marketing and selling our diagnostic products to clinical laboratories, and if we are unable to successfully commercialize ourproducts, our business may be adversely affected.We have limited experience marketing and selling our diagnostic products to clinical laboratories. Our sales of Prosigna will depend in large part on ourability to successfully market to oncologists and other healthcare providers. Because we have limited experience in marketing and selling our products in thediagnostics market, our ability to forecast demand, the infrastructure required to support such demand and the sales cycle to diagnostics customers is unproven. InFebruary 2015, we combined our two separate sales teams into a single organization selling our entire suite of products, targeted primarily toward major academicmedical centers and biopharmaceutical companies. If we are not able to maintain an efficient and effective sales organization targeting these markets, our businessand operating results will be adversely affected. If we are unable to market and sell our products effectively to clinical laboratories, our ability to sell diagnosticproducts, including Prosigna, will be adversely affected.We may not be able to develop new products, enhance the capabilities of our systems to keep pace with rapidly changing technology and customer requirementsor successfully manage the transition to new product offerings, any of which could have a material adverse effect on our business and operating results.Our success depends on our ability to develop new products and applications for our technology in existing and new markets, while improving theperformance and cost-effectiveness of our systems. New technologies, techniques or products could emerge that might offer better combinations of price andperformance than our current or future products and systems. Existing markets for our products, including gene expression analysis, gene fusions and copy numbervariation, as well as new markets, such as protein expression and gene mutations, and potential markets for our research and diagnostic product candidates, arecharacterized by rapid technological change and innovation. Competitors may be able to respond more quickly and effectively than we can to new or changingopportunities, technologies, standards or customer requirements. We anticipate that we will face increased competition in the future as existing companies andcompetitors develop new or improved products and as new companies enter the market with new technologies. It is critical to our success that we anticipatechanges in technology and customer requirements and to successfully introduce new, enhanced and competitive technologies to meet our customers’ andprospective customers’ needs on a timely and cost-effective basis. If we do not successfully innovate and introduce new technology into our product lines, ourbusiness and operating results will be adversely impacted.The development of new products typically requires new scientific discoveries or advancements and complex technology and engineering. Suchdevelopments may involve external suppliers and service providers, -31-Table of Contentsmaking the management of development projects complex and subject to risks and uncertainties regarding timing, timely delivery of required components orservices and satisfactory technical performance of such components or assembled products. If we do not achieve the required technical specifications, successfullymanage new product development processes, or development work is not performed according to schedule, then such new technologies or products may beadversely impacted and our business and operating results may be harmed.Additionally, we must carefully manage the introduction of new products. If customers believe that such products will offer enhanced features or be sold fora more attractive price, they may delay purchases until such products are available. In July 2015 we commercially launched a new version of our nCounter AnalysisSystem, the nCounter SPRINT Profiler, that is smaller and less expensive than the previous version. If customers conclude that such new products offer better valueas compared to our existing products, we may suffer from reduced sales of our existing products and our overall revenues may decline. We may also have excess orobsolete inventory of older products as we transition to new products and our experience in managing product transitions is very limited. If we do not effectivelymanage the transitions to new product offerings, our revenues, results of operations and business will be adversely affected.New market opportunities may not develop as quickly as we expect, limiting our ability to successfully market and sell our products.The market for our products is new and evolving. Accordingly, we expect the application of our technologies to emerging opportunities will take severalyears to develop and mature and we cannot be certain that these market opportunities will develop as we expect. For example, in September 2015, we launched ourfirst 3D Biology application, a new product that allows users to simultaneously measure gene and protein expression from a single sample. We plan to launchadditional 3D Biology applications in the future that will also include measurement of DNA mutations. The future growth of the market for these new productsdepends on many factors beyond our control, including recognition and acceptance of our applications by the scientific community and the growth, prevalence andcosts of competing methods of genomic analysis. Also, in 2015, we commercially launched a new version of our nCounter Analysis system for research, thenCounter SPRINT Profiler. If the markets for our new products do not develop as we expect, our business may be adversely affected. If we are not able tosuccessfully market and sell our products or to achieve the revenue or margins we expect, our operating results may be harmed.If we are unable to obtain additional regulatory clearances or approvals to market Prosigna in additional countries or if regulatory limitations are placed onour diagnostic products, our business and growth will be harmed. In addition, if we do not obtain additional regulatory clearances or approvals necessary tomarket products other than Prosigna for diagnostic purposes, we will be limited to marketing such products for research use only.We have received regulatory clearance in the United States under a 510(k) for a version of our first diagnostic product, Prosigna, providing an assessment ofa patient’s risk of recurrence for breast cancer, and we have obtained a CE mark for Prosigna which permits us to market that assay for diagnostic purposes in theEuropean Union. We do not have regulatory clearance or approval to market in any additional markets, other than Israel, Canada, Turkey, South Africa, NewZealand, Hong Kong and Australia or to promote Prosigna in the United States for additional indications. Other than with respect to Prosigna in such jurisdictions,we are limited to marketing our products for research use only, which means that we cannot make diagnostic or clinical claims. We intend to seek regulatoryauthorizations to market Prosigna in other jurisdictions, as well as for other indications. In addition, pursuant to our collaborations with pharmaceutical companiesfor the development of companion diagnostic tests for use with their drugs, we are responsible for obtaining regulatory authorizations needed to use the companiondiagnostic tests in clinical trials as well as the regulatory approvals to sell the companion diagnostic tests following completion of such trials.We cannot assure investors that we will be successful in obtaining these regulatory clearances or approvals. If we do not obtain additional regulatoryclearances or approvals to market future products or future indications for diagnostic purposes, if additional regulatory limitations are placed on our products or ifwe fail to successfully commercialize such products, the market potential for our diagnostic products would be constrained, and our business and growth prospectswould be adversely affected. -32-Table of ContentsWe 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 harmour business.We rely on Precision System Science, Co., Ltd of Chiba, Japan, to build our nCounter Prep Station, Korvis LLC of Corvallis, Oregon, to build our nCounterDigital Analyzer, Paramit Corporation of Morgan Hill, California, to build our new nCounter SPRINT Profiler and Cidra Precision Services, LLC, of Wallingford,Connecticut, to build the fluidics cartridge, a key component of our new nCounter SPRINT Profiler. Each of these contract manufacturers are sole suppliers. Sinceour contracts with these instrument suppliers do not commit them to carry inventory or make available any particular quantities, they may give other customers’needs higher priority than ours, and we may not be able to obtain adequate supplies in a timely manner or on commercially reasonable terms. We also rely on solesuppliers for various components we use to manufacture our consumable products. We periodically forecast our needs for such components and enter into standardpurchase orders with them. If we were to lose such suppliers, there can be no assurance that we will be able to identify or enter into agreements with alternativesuppliers on a timely basis on acceptable terms, if at all. If we should encounter delays or difficulties in securing the quality and quantity of materials we require forour products, our supply chain would be interrupted which would adversely affect sales. If any of these events occur, our business and operating results could beharmed.We may experience manufacturing problems or delays that could limit our growth or adversely affect our operating resultsOur consumable products are manufactured at our Seattle, Washington facility using complex processes, sophisticated equipment and strict adherence tospecifications and quality systems procedures. Any unforeseen manufacturing problems, such as contamination of our facility, equipment malfunction, or failure tostrictly follow procedures or meet specifications, could result in delays or shortfalls in production of our consumable products. Identifying and resolving the causeof any such manufacturing issues could require substantial time and resources. If we are unable to keep up with demand for our products by successfullymanufacturing and shipping our products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected andour customers might instead purchase our competitors’ products.In addition, the introduction of new products may require the development of new manufacturing processes and procedures. For example, our new 3DBiology applications for the simultaneous measurement of gene and protein expression involve a new process for attaching antibodies to our molecular barcodes.While all of our codesets are produced using the same basic processes, significant variations may be required to meet product specifications. Developing newprocesses can be very time consuming, and any unexpected difficulty in doing so could delay the introduction of a product.If our Seattle facilities become unavailable or inoperable, we will be unable to continue our research and development, manufacturing our consumables orprocessing sales orders, and our business will be harmed.We manufacture our consumable products in our headquarters facilities in Seattle, Washington. In addition, Seattle is the center for research anddevelopment, order processing, receipt of our instruments manufactured by third-party contract manufacturers and shipping products to customers. Our facilitiesand the equipment we use to manufacture our consumable products would be costly, and would require substantial lead time, to repair or replace. Seattle is situatednear active earthquake fault lines. These facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes and poweroutages, which may render it difficult or impossible for us to produce our products for some period of time. The inability to manufacture consumables or to shipproducts to customers for even a short period of time may result in the loss of customers or harm our reputation, and we may be unable to regain those customers inthe future. Although we possess insurance for damage to our property and the disruption of our business, this insurance, and in particular earthquake insurance,which is limited, may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all. -33-Table of ContentsWe expect to generate a substantial portion of our revenue internationally and are subject to various risks relating to our international activities, which couldadversely affect our operating results.For the year ended December 31, 2015 and 2014, approximately 34% and 32%, respectively, of our revenue was generated from sales to customers locatedoutside of North America. We believe that a significant percentage of our future revenue will come from international sources as we expand our overseasoperations and develop opportunities in additional areas. Engaging in international business involves a number of difficulties and risks, including: • required compliance with existing and changing foreign regulatory requirements and laws; • required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data privacy requirements,labor laws and anti-competition regulations; • export or import restrictions; • various reimbursement and insurance regimes; • laws and business practices favoring local companies; • longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; • political and economic instability; • potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers; • difficulties and costs of staffing and managing foreign operations; and • difficulties protecting or procuring intellectual property rights.As we expand internationally, our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currencyexchange rates. Historically, most of our revenue has been denominated in U.S. dollars, although we have sold our products and services in local currency outsideof the United States, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in theUnited States. As our operations in countries outside of the United States grow, our results of operations and cash flows will be subject to fluctuations due tochanges in foreign currency exchange rates, which could harm our business in the future. For example, if the value of the U.S. dollar increases relative to foreigncurrencies, as it did in 2014, in the absence of a corresponding change in local currency prices, our revenue could be adversely affected as we convert revenue fromlocal currencies to U.S. dollars. Similarly, a strong U.S. dollar relative to the local currencies of our international customers can potentially reduce demand for ourproducts, which may compound the adverse effect of foreign exchange translation on our revenue. If we dedicate significant resources to our internationaloperations and are unable to manage these risks effectively, our business, operating results and prospects will suffer.Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.As of December 31, 2015, we had federal net operating loss carryforwards, or NOLs, to offset future taxable income of approximately $165.4 million, whichexpire in various years beginning in 2025, if not utilized. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition,under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs tooffset future taxable income. We may have already experienced one or more ownership changes. Depending on the timing of any future utilization of ourcarryforwards, we may be limited as to the amount that can be utilized each year as a result of such previous ownership changes. However, we do not believe suchlimitations will cause our NOL and credit carryforwards to expire unutilized. In addition, future changes in our stock ownership as well as other changes that maybe outside of our control, could result in -34-Table of Contentsadditional ownership changes under Section 382 of the Internal Revenue Code. Our NOLs may also be impaired under similar provisions of state law. We haverecorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of thoseassets.Provisions of our debt instruments may restrict our ability to pursue our business strategies.Our term loan agreement requires us, and any debt instruments we may enter into in the future may require us, to comply with various covenants that limitour ability to, among other things: • dispose of assets; • complete mergers or acquisitions; • incur indebtedness; • encumber assets; • pay dividends or make other distributions to holders of our capital stock; • make specified investments; • engage in any new line of business; and • engage in certain transactions with our affiliates.These restrictions could inhibit our ability to pursue our business strategies. In addition, we are subject to financial covenants based on total revenue andminimum cash balances. If we default under our term loan agreement, and such event of default is not cured or waived, the lenders could terminate commitments tolend and cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result in cross defaults under other debtinstruments. Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of theseinstruments are accelerated upon a default. We may incur additional indebtedness in the future. The debt instruments governing such indebtedness could containprovisions that are as, or more, restrictive than our existing debt instruments. If we are unable to repay, refinance or restructure our indebtedness when payment isdue, the lenders could proceed against the collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation.Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business.We may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments incomplementary businesses. We have not made any acquisitions to date, and our ability to do so successfully is unproven. Any of these transactions could bematerial to our financial condition and operating results and expose us to many risks, including: • disruption in our relationships with customers, distributors or suppliers as a result of such a transaction; • unanticipated liabilities related to acquired companies; • difficulties integrating acquired personnel, technologies and operations into our existing business; • diversion of management time and focus from operating our business to acquisition integration challenges; • increases in our expenses and reductions in our cash available for operations and other uses; and • possible write-offs or impairment charges relating to acquired businesses.Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different culturesand languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. -35-Table of ContentsAlso, the anticipated benefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of ourequity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.If we are unable to recruit, train and retain key personnel, we may not achieve our goals.Our future success depends on our ability to recruit, train, retain and motivate key personnel, including our senior management, research and development,manufacturing and sales and marketing personnel. Competition for qualified personnel is intense, particularly in the Seattle, Washington area. Our growth depends,in particular, on attracting, retaining and motivating highly-trained sales personnel with the necessary scientific background and ability to understand our systems ata technical level to effectively identify and sell to potential new customers. We do not maintain fixed term employment contracts or key man life insurance withany of our employees. Because of the complex and technical nature of our products and the dynamic market in which we compete, any failure to attract, train,retain and motivate qualified personnel could materially harm our operating results and growth prospects.Undetected errors or defects in our products could harm our reputation, decrease market acceptance of our products or expose us to product liability claims.Our products may contain undetected errors or defects when first introduced or as new versions are released. Disruptions or other performance problems withour products may damage our customers’ businesses and could harm our reputation. If that occurs, we may incur significant costs, the attention of our keypersonnel could be diverted, or other significant customer relations problems may arise. We may also be subject to warranty and liability claims for damagesrelated to errors or defects in our products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our productscould adversely impact our business and operating results.The sale and use of products or services based on our technologies, or activities related to our research and clinical studies, could lead to the filing of productliability claims if someone were to allege that one of our products contained a design or manufacturing defect which resulted in the failure to adequately performthe analysis for which it was designed. A product liability claim could result in substantial damages and be costly and time consuming to defend, either of whichcould materially harm our business or financial condition. We cannot assure investors that our product liability insurance would adequately protect our assets fromthe financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liabilityinsurance rates or prevent us from securing insurance coverage in the future.We face risks related to handling of hazardous materials and other regulations governing environmental safety.Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials andprivate individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous materials and thegeneration, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance with these regulations. Existinglaws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, thatmay have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmentalcontamination or injury to individuals. In such an event, we could be liable for any damages that result, which could adversely affect our business. -36-Table of ContentsRisks Related to Government Regulation and Diagnostic Product ReimbursementOur “research use only” products for the research market could become subject to regulation as medical devices by the FDA or other regulatory agencies inthe future which could increase our costs and delay our commercialization efforts, thereby materially and adversely affecting our business and results ofoperations.In the United States, most of our products are currently labeled and sold for research use only, or RUO, and not for the diagnosis or treatment of disease, andare sold to pharmaceutical and biotechnology companies, academic and government institutions and research laboratories. Because such products are not intendedfor use in clinical practice in diagnostics, and the products cannot include clinical or diagnostic claims or directions or support to use as diagnostic products, theyare not subject to regulation by the Food and Drug Administration, or FDA, as medical devices. In particular, while the FDA regulations require that RUO productsbe labeled, “For Research Use Only. Not for use in diagnostic procedures,” the regulations do not subject such products to the FDA’s pre- and post- market controlsfor medical devices. In November 2013, the FDA issued final guidance on RUO products, which, among other things, reaffirmed that a company may not makeclinical or diagnostic claims about an RUO product or provide directions or support services to customers who are using RUO products for diagnostic purposes. Ifthe FDA were to modify its approach to regulating our products labeled for research use only, it could reduce our revenue or increase our costs and adversely affectour business, prospects, results of operations or financial condition. In the event that the FDA requires marketing authorization of our RUO products in the future,there can be no assurance that the FDA will ultimately grant any clearance or approval requested by us in a timely manner, or at all.In addition, we sell dual-use instruments with software that has both FDA-cleared functions and research functions, for which FDA approval or clearance isnot required. Dual-use instruments are subject to FDA regulation since they are intended, at least in part, for use by customers performing clinical diagnostictesting. In November 2014, FDA issued a guidance that described FDA’s approach to regulating molecular diagnostic instruments that combine bothapproved/cleared device functions and device functions for which approval/clearance is not required. There is a risk that the FDA could take enforcement actionagainst a manufacturer for distributing dual-use instruments if the company does not follow the restrictions discussed in the guidance. For example, there could beenforcement action if the FDA determines that approval or clearance was required for those functions for which FDA approval or clearance has not been obtained,and the instruments are being promoted off-label. There is also a risk that the FDA could broaden its current regulatory enforcement of dual-use instrumentsthrough additional FDA oversight of such products or impose additional requirements upon such products.If Medicare and other third-party payors in the United States and foreign countries do not approve reimbursement for diagnostic tests enabled by ourtechnology, the commercial success of our diagnostic products would be compromised.Successful commercialization of our diagnostic products depends, in large part, on the availability of adequate reimbursement for testing services that ourdiagnostic products enable from government insurance plans, managed care organizations and private insurance plans. There is significant uncertainty surroundingthird-party reimbursement for the use of tests that incorporate new technology, such as Prosigna. For example, in June 2014, the Blue Cross and Blue Shield, orBCBS, Association Technology Evaluation Center affirmed their position that Prosigna should be considered investigational. Subsequently, several BCBS entitiesupdated their coverage policies based on this evaluation. In February 2015, Cigna decided that it would not reimburse for Prosigna, and other private payers haveadopted similar policies. By contrast, in August 2014, UnitedHealthcare, the largest private health insurer in the United States, agreed with Laboratory Corporationof America, one of our commercial laboratory customers, to begin paying for Prosigna testing. In addition, we have received confirmations of coverage forProsigna from California’s Medicaid group, MediCal, and from Providence Health Plan and several other private payers, although they have not issued Prosigna-specific policies.In May 2015, Palmetto GBA, a Medicare Administrative Contractor that assesses molecular diagnostic technologies through its Molecular DiagnosticServices Program, or MolDX, issued a favorable local coverage determination for Prosigna which became effective on October 1, 2015. The coverage policyapplies to the -37-Table of ContentsPalmetto jurisdiction, comprising North Carolina, South Carolina, Virginia and West Virginia, but other Medicare jurisdictions participating in the MolDX programmay choose to adopt the same policy and other MACs have confirmed coverage but have not issued Prosigna-specific policies. For example, CGS, another MACwhose jurisdiction covers Kentucky and Ohio, issued a local coverage determination identical to Palmetto’s which also became effective October 1 and CAHABA,the MAC that covers Alabama, Georgia and Tennessee, has confirmed coverage through its news bulletins. In late 2015 Prosigna was also covered by First Coast,the Florida MAC, and priced in early January 2016. Despite such positive developments, other Medicare contractors covering other jurisdictions (such as Novitas)have initially declined to cover Prosigna.If we are unable to obtain positive policy decisions from third-party payors approving reimbursement for our tests at adequate levels, the commercial successof our products would be compromised and our revenue would be significantly limited. Even if we do obtain reimbursement for our tests, Medicare, Medicaid andprivate and other payors may withdraw their coverage policies, cancel their contracts with us at any time, review and adjust the rate of reimbursement, require co-payments from patients or stop paying for our tests, which would reduce revenue for testing services based on our technology, and indirectly, demand fordiagnostic products. In addition, insurers, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased theirefforts to control the cost, utilization and delivery of healthcare services, which may include decreased coverage or reduced reimbursement. From time to time,Congress has considered and implemented changes to the Medicare fee schedules in conjunction with budgetary legislation, and pricing and payment terms,including the possible requirement of a patient co-payment for Medicare beneficiaries for tests covered by Medicare, and are subject to change at any time. Mostrecently the Protecting Access to Medicare Act (PAMA) of 2014 revises the Medicare Clinical Laboratory Fee Schedule (CLFS) to base prices on commercialpayer rates that are reported to the Centers for Medicare and Medicaid Services (CMS). In September 2015, CMS released the much anticipated Clinical DiagnosticTests Laboratory Payment System regulations, in response to PAMA. The statute applies different reporting and payment requirements to Advanced DiagnosticLaboratory Tests (ADLTs) and to Clinical Diagnostic Laboratory Tests (CDLTs). Under the definitions in the proposed rules, Prosigna would be defined as aCDLT and would be repriced every three years based on a weighted median of commercial payments submitted by labs. As a result, if commercial paymentamounts decline, there is a risk that Medicare prices will fall as well. Reductions in the reimbursement rate of third-party payors have also occurred and may occurin the future. Reductions in the prices at which testing services based on our technology are reimbursed could have a negative impact on our revenue.In many countries outside of the United States, various coverage, pricing and reimbursement approvals are required. Recently, positive reimbursementdecisions for Prosigna have occurred in certain regions of Spain and Israel. Despite these positive developments, we continue to expect that it will take severalyears to establish broad coverage and reimbursement for testing services based on our products with most payors in countries outside of the United States, and ourefforts may not be successful.We continue to pursue positive reimbursement coverage decisions from government insurance plans, managed care organizations and private insuranceplans. From time to time, if positive reimbursement coverage decisions are obtained, we intend to publicly announce such decisions. In most cases where coverageis denied by a third-party payor, there will be subsequent opportunities to submit additional information or clinical evidence and have such decision reconsidered.We intend to evaluate the benefit of continued pursuit of a positive reimbursement determination on a case by case basis and in most cases expect to continue topursue a positive coverage decision with those payors based on additional information or subsequent clinical developments; as a result, we do not intend to publiclyannounce any denials of coverage or the absence of a coverage determination on a regular basis. -38-Table of ContentsOur nCounter Elements reagents may be used by clinical laboratories to create Laboratory-Developed Tests, which could in the future be the subject ofadditional FDA regulation as medical devices, which could materially and adversely affect our business and results of operations.In February 2014, we launched nCounter Elements reagents, a new digital molecular barcoding chemistry that allows users to design their own customizedassays using standard sets of barcodes provided by us with the laboratories’ choice of oligonucleotide probes. nCounter Elements reagents may be used bylaboratories in conjunction with appropriate analyte specific reagents and general purpose reagents to create diagnostic test procedures or test systems.A clinical laboratory can use nCounter Elements reagents to create what is called a Laboratory-Developed Test, or LDT. LDTs, according to the FDA, arediagnostic tests that are developed, validated and performed by a single laboratory and include genetic tests. Historically, LDTs generally have not been subject toFDA regulation. In October 2014, the FDA issued its draft guidance documents for LDTs proposing the use of a risk-based approach to regulating LDTs. Anyrestrictions on LDTs by the FDA could restrict the demand for our products, including nCounter Elements reagents. Additionally, compliance with additionalregulatory burdens could be time consuming and costly for our customers. If the FDA issues final guidance documents for LDTs, such regulation could adverselyaffect our prospects, results of operations and financial condition. Similarly, there have been proposals that Congress enact legislation that could result in FDAregulation of some LDTs. If legislation were enacted, it could adversely affect demand for our products, including nCounter Elements reagents.Approval and/or clearance by the FDA and foreign regulatory authorities for our diagnostic tests will take significant time and require significant research,development and clinical study expenditures and ultimately may not succeed.Before we begin to label and market our products for use as clinical diagnostics in the United States, thereby subjecting them to FDA regulation as medicaldevices, unless an exemption applies, we are required to obtain either prior 510(k) clearance or prior pre-market approval, or PMA, from the FDA. In September2013, we received FDA 510(k) clearance for Prosigna as a prognostic indicator for distant recurrence-free survival at 10 years in post-menopausal women withStage I/II lymph node-negative or Stage II lymph node-positive (1–3 positive nodes) hormone receptor-positive breast cancer who have undergone surgery inconjunction with locoregional treatment and consistent with the standard of care. We intend to pursue additional intended uses for Prosigna that may require a PMAapproval, which is a more burdensome regulatory process than the 510(k) clearance process. In addition, we are currently collaborating with Celgene, Merck andMedivation and Astellas on companion diagnostics. In August 2014, the FDA issued a companion diagnostics final guidance stating that if the device is essential tothe safety or efficacy of the drug, the FDA generally will require approval or clearance for the device at the time when the FDA approves the drug. The FDA statedin the companion diagnostics final guidance that while in some instances a companion diagnostic could come to market through a 510(k), the Agency expects thatcompanion diagnostics usually will require a PMA.Any 510(k) clearance or PMA approval we obtain for any future product would likely place substantial restrictions on how our device is marketed or sold.The FDA will continue to place considerable restrictions on our products, including, but not limited to, the Quality System Regulation, or QSR, registeringmanufacturing facilities, listing the products with the FDA, and complying with labeling, marketing, complaint handling, medical device reporting requirements,and reporting certain corrections and removals. Obtaining FDA clearance or approval for diagnostics can be expensive and uncertain, and generally takes fromseveral months to several years, and generally requires detailed and comprehensive scientific and clinical data. Notwithstanding the expense, these efforts maynever result in FDA approval or clearance. Even if we were to obtain regulatory approval or clearance, it may not be for the uses we believe are important orcommercially attractive, in which case we would not market our product for those uses.Sales of our diagnostic products outside the United States are subject to foreign regulatory requirements governing clinical studies, vigilance reporting,marketing approval, manufacturing, regulatory inspections, product licensing, pricing and reimbursement. These regulatory requirements vary greatly from countryto country. As a result, the time required to obtain approvals outside the United States may differ from that required -39-Table of Contentsto obtain FDA approval or clearance, and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. Approval or clearance by the FDAdoes not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval or clearance byregulatory authorities in other countries or by the FDA, and foreign regulatory authorities could require additional testing beyond what the FDA requires. Inaddition, FDA regulates exports of medical devices. Failure to comply with these regulatory requirements or to obtain required approvals or clearances couldimpair our ability to commercialize our diagnostic products outside of the United States.We expect to rely on third parties in conducting any future studies of our diagnostic products that may be required by the FDA or other regulatory authorities,and those third parties may not perform satisfactorily.We do not have the ability to independently conduct the clinical studies or other studies that may be required to obtain FDA and other regulatory clearance orapproval for our diagnostic products, including additional indications for Prosigna. Accordingly, we expect to rely on third parties, such as medical institutions,clinical investigators, consultants, and collaborators to conduct such studies. Our reliance on these third parties for clinical development activities will reduce ourcontrol over these activities. These third-party contractors may not complete activities on schedule or conduct studies in accordance with regulatory requirements orour study design. Our reliance on third parties that we do not control will not relieve us of any applicable requirement to develop, and ensure compliance with,various procedures required under good clinical practices. If these third parties do not successfully carry out their contractual duties or regulatory obligations ormeet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere toour clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able toobtain regulatory approval for our diagnostic products.We are subject to ongoing and extensive regulatory requirements, and our failure to comply with these requirements could substantially harm our business.Certain of our products are regulated as medical devices, including Prosigna, the nCounter Dx Analysis System and nCounter Elements reagents.Accordingly, we and certain of our contract manufacturers are subject to ongoing International Organization for Standardization, or ISO, and FDA obligations andcontinued regulatory oversight and review. These include routine inspections by EU Notified Bodies and by the FDA of our manufacturing facilities and ourrecords for compliance with requirements such as ISO 13485 and the QSR, which establish extensive requirements for quality assurance and control as well asmanufacturing and change control procedures. We are also subject to other regulatory obligations, such as requirements pertaining to the registration of ourmanufacturing facilities and the listing of our devices with the FDA; continued complaint, adverse event and malfunction reporting; corrections and removalsreporting; and labeling and promotional requirements. Other agencies may also issue guidelines and regulations that could impact the development of our products,including companion diagnostic tests. For example, the European Medicines Agency, a European Union agency which is responsible for the scientific evaluation ofmedicines used in the EU, recently launched an initiative to determine guidelines for the use of genomic biomarkers in the development and life-cycle of drugs. It isexpected that in 2016 the European Union will adopt the IVD Directive Regulation, currently in draft form, which would increase the regulatory requirementsapplicable to some in vitro diagnostics in the EU and may require that we re-classify and obtain pre-approval for our existing CE-marked IVD products after a 5-year grace period. We may also be subject to additional FDA or global regulatory authority post-marketing obligations or requirements by the FDA or globalregulatory authority to change our current product classifications which would impose additional regulatory obligations on us. The promotional claims we canmake for Prosigna are limited to the cleared (or equivalent) indication. If we are not able to maintain regulatory compliance, we may not be permitted to market ourmedical device products and/or may be subject to enforcement by EU Competent Authorities and the FDA and other global regulatory authority such as theissuance of warning or untitled letters, fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions; and criminal prosecution. Inaddition, we may be subject to similar regulatory regimes of foreign jurisdictions as we continue to commercialize our products in new markets outside of the U.S.and Europe. Adverse Notified Body, EU Competent Authority or FDA or global regulatory authority action in any of these areas could significantly increase ourexpenses and limit our revenue and profitability. -40-Table of ContentsWe may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and other federal and state laws applicable to our marketingpractices. If we are unable to comply, or have not complied, with such laws, we could face substantial penalties.Our operations are directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, thefederal and state anti-kickback statutes and state and federal marketing compliance laws and gift bans. These laws may impact, among other things, our proposedsales and marketing and education programs and require us to implement additional internal systems for tracking certain marketing expenditures and reporting themto government authorities. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct ourbusiness. The laws that may affect our ability to operate include: • the federal Anti-kickback Law and state anti-kickback prohibitions; • the federal physician self-referral prohibition, commonly known as the Stark Law, and the state equivalents; • the federal Health Insurance Portability and Accountability Act of 1996, as amended; • the Medicare civil money penalty and exclusion requirements; • the federal False Claims Act civil and criminal penalties and state equivalents; and • state physician gift bans and state and federal marketing expenditure disclosure laws.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject topenalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations, any of which could adversely affect ourability to operate our business and our results of operations.Healthcare policy changes, including legislation reforming the United States healthcare system, may have a material adverse effect on our financial conditionand results of operations.The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, collectively, the ACA,enacted in March 2010, made changes that significantly impact the pharmaceutical and medical device industries and clinical laboratories. For example, beginningin 2013, each medical device manufacturer must pay a sales tax in an amount equal to 2.3% of the price for which such manufacturer sells its medical devices. InDecember 2015, Congress passed a two-year suspension of the medical device tax from January 1, 2016 to December 31, 2017. Absent further legislative action,the medical device tax would be reinstated January 1, 2018. The tax applies to our listed medical device products, which include the nCounter Dx Analysis System,Prosigna in vitro diagnostic kits and nCounter Elements reagents. The ACA also mandates a reduction in payments for clinical laboratory services paid under theMedicare Clinical Laboratory Fee Schedule of 1.75% for the years 2011 through 2015 and a productivity adjustment to the Clinical Laboratory Fee Schedule.These or any future proposed or mandated reductions in payments may apply to some or all of the clinical laboratory tests that our customers use our technology todeliver to Medicare beneficiaries, and may indirectly reduce demand for our products.Other significant measures contained in the ACA include coordination and promotion of research on comparative clinical effectiveness of differenttechnologies and procedures, initiatives to revise Medicare payment methodologies, such as bundling of payments across the continuum of care by providers andphysicians, and initiatives to promote quality indicators in payment methodologies. The ACA also includes significant new fraud and abuse measures, includingrequired disclosures of financial arrangements with physician customers, lower thresholds for violations and increasing potential penalties for such violations. Inaddition, the ACA establishes an Independent Payment Advisory Board, or IPAB, to reduce the per capita rate of growth in Medicare spending. The IPAB hasbroad discretion to propose policies to reduce health care expenditures, which may have -41-Table of Contentsa negative impact on payment rates for services, including our tests. The IPAB proposals may impact payments for clinical laboratory services that our customersuse our technology to deliver beginning in 2016 and for hospital services beginning in 2020, and may indirectly reduce demand for our products.In addition to the ACA, the effect of which cannot presently be quantified, various healthcare reform proposals have also emerged from federal and stategovernments. Changes in healthcare policy, such as the creation of broad test utilization limits for diagnostic products in general or requirements that Medicarepatients pay for portions of clinical laboratory tests or services received, could substantially impact the sales of our tests, increase costs and divert management’sattention from our business. Such co-payments by Medicare beneficiaries for laboratory services were discussed as possible cost savings for the Medicare programas part of the debt ceiling budget discussions in mid-2011 and may be enacted in the future. In addition, sales of our tests outside of the United States will subjectus to foreign regulatory requirements, which may also change over time.We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the United States in whichwe may do business, or the effect any future legislation or regulation will have on us. The expansion in government’s effect on the United States healthcareindustry may result in decreased profits to us, lower reimbursements by payors for our products or reduced medical procedure volumes, all of which may adverselyaffect our business, financial condition and results of operations.Risks Related to Intellectual PropertyIf we are unable to protect our intellectual property effectively, our business would be harmed.We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictions toprotect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitiveadvantage. As of December 31, 2015, we owned or exclusively licensed twelve issued U.S. patents and approximately 38 pending U.S. patent applications,including provisional and non-provisional filings. We also owned or licensed approximately 154 pending and granted counterpart applications worldwide,including 60 country-specific validations of five European patents. If we fail to protect our intellectual property, third parties may be able to compete moreeffectively against us and we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property.We cannot assure investors that any of our currently pending or future patent applications will result in issued patents, and we cannot predict how long it willtake for such patents to be issued. Further, we cannot assure investors that other parties will not challenge any patents issued to us or that courts or regulatoryagencies will hold our patents to be valid or enforceable. We cannot guarantee investors that we will be successful in defending challenges made against our patentsand patent applications. Any successful third-party challenge to our patents could result in the third party or the unenforceability or invalidity of such patents.The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principlesremain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. Furthermore,in the biotechnology field, courts frequently render opinions that may affect the patentability of certain inventions or discoveries, including opinions that may affectthe patentability of methods for analyzing or comparing DNA.In particular, the patent positions of companies engaged in development and commercialization of genomic diagnostic tests, like Prosigna, are particularlyuncertain. Various courts, including the U.S. Supreme Court, have recently rendered decisions that impact the scope of patentability of certain inventions ordiscoveries relating to genomic diagnostics. Specifically these decisions stand for the proposition that patent claims that recite laws of nature (for example, therelationships between gene expression levels and the likelihood of risk of recurrence of cancer) are not themselves patentable unless those patent claims havesufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting effortsdesigned to monopolize the law of nature itself. What constitutes a “sufficient” additional feature is uncertain. Accordingly, this evolving case law in the UnitedStates may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and licensed patents. One of our mainareas of intellectual property, namely patents we license directed to the use of gene expression markers as part of genomic diagnostic tests, may be affected bythese decisions. -42-Table of ContentsThe laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies haveencountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certaindeveloping countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which couldmake it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost anddivert our efforts and attention from other aspects of our business.Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectualproperty. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example: • We might not have been the first to make the inventions covered by each of our pending patent applications. • We might not have been the first to file patent applications for these inventions. • Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies. • It is possible that our pending patent applications will not result in issued patents, and even if they issue as patents, they may not provide abasis for commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by thirdparties. • We may not develop additional proprietary products and technologies that are patentable. • The patents of others may have an adverse effect on our business. • We apply for patents covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply forpatents on important products and technologies in a timely fashion or at all.In addition to pursuing patents on our technology, we take steps to protect our intellectual property and proprietary technology by entering intoconfidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, when needed, our advisors.Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event ofunauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorizeddisclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that athird party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. In addition,courts outside the United States may be less willing to protect trade secrets.In addition, competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our developmentefforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside ofour intellectual property rights. If our intellectual property is not adequately protected so as to protect our market against competitors’ products and methods, ourcompetitive position could be adversely affected, as could our business.We have not yet registered certain of our trademarks in all of our potential markets. If we apply to register these trademarks, our applications may not beallowed for registration, and our registered trademarks may not be maintained or enforced. In addition, opposition or cancellation proceedings may be filed againstour trademark applications and registrations, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we mayencounter more difficulty in enforcing them against third parties than we otherwise would. -43-Table of ContentsTo the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, wewould be exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors’ products, ourcompetitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can betime consuming and expensive.We depend on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to them could prevent us from sellingour products.We rely on licenses in order to be able to use various proprietary technologies that are material to our business, including our core digital molecularbarcoding technology licensed from the Institute for Systems Biology, technology relating to Prosigna licensed from Bioclassifier, LLC and the intellectualproperty relating to a gene signature for lymphoma subtyping from the National Institutes of Health for use in our collaboration with Celgene Corporation. We donot own the patents that underlie these licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to thecontinuation of and compliance with the terms of those licenses.In some cases, we do not control the prosecution, maintenance, or filing of the patents to which we hold licenses, or the enforcement of these patents againstthird parties. Some of our patents and patent applications were either acquired from another company who acquired those patents and patent applications from yetanother company, or are licensed from a third party. Thus, these patents and patent applications are not written by us or our attorneys, and we did not have controlover the drafting and prosecution. The former patent owners and our licensors might not have given the same attention to the drafting and prosecution of thesepatents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting and prosecution. We cannotbe certain that drafting or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicablelaws and regulations or will result in valid and enforceable patents and other intellectual property rights.Enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents is often subject to the control or cooperation of ourlicensors. Certain of our licenses contain provisions that allow the licensor to terminate the license upon specific conditions. Our rights under the licenses aresubject to our continued compliance with the terms of the license, including the payment of royalties due under the license. Because of the complexity of ourproducts and the patents we have licensed, determining the scope of the license and related royalty obligation can be difficult and can lead to disputes between usand the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license or termination of the license.If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor mightattempt to revoke the license. If such an attempt were successful, we might be barred from producing and selling some or all of our products.In addition, certain of the patents we have licensed relate to technology that was developed with U.S. government grants. Federal regulations impose certaindomestic manufacturing requirements with respect to some of our products embodying these patents.We may be involved in lawsuits to protect or enforce our patents and proprietary rights, to determine the scope, coverage and validity of others’ proprietaryrights, or to defend against third-party claims of intellectual property infringement, any of which could be time-intensive and costly and may adversely impactour business or stock price.We have received notices of claims of infringement and misappropriation or misuse of other parties’ proprietary rights in the past and may from time to timereceive additional notices. Some of these claims may lead to litigation. We cannot assure investors that we will prevail in such actions, or that other actions allegingmisappropriation or misuse by us of third-party trade secrets, infringement by us of third-party patents and trademarks or other rights, or the validity of our patents,trademarks or other rights, will not be asserted or prosecuted against us. -44-Table of ContentsLitigation may be necessary for us to enforce our patent and proprietary rights or to determine the scope, coverage and validity of the proprietary rights ofothers. Litigation could result in substantial legal fees and could adversely affect the scope of our patent protection. The outcome of any litigation or otherproceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require. Even if such licensesare obtainable, they may not be available at a reasonable cost. We could therefore incur substantial costs related to royalty payments for licenses obtained fromthird parties, which could negatively affect our gross margins. Further, we could encounter delays in product introductions, or interruptions in product sales, as wedevelop alternative methods or products. In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity, scopeand coverage of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. Anylitigation that may be necessary in the future could result in substantial costs and diversion of resources and could have a material adverse effect on our business,operating results or financial condition.As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rightsagainst us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us. Our competitors and othersmay now and in the future have significantly larger and more mature patent portfolios than we currently have. In addition, future litigation may involve patentholding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may provide little or no deterrence orprotection. Therefore, our commercial success may depend in part on our non-infringement of the patents or proprietary rights of third parties. We are aware of athird party, Genomic Health, Inc., that has issued patents and pending patent applications in the United States, Europe and other jurisdictions that claim methods ofusing certain genes that are included in Prosigna. We believe that Prosigna does not infringe any valid issued claim. Numerous significant intellectual propertyissues have been litigated, and will likely continue to be litigated, between existing and new participants in our existing and targeted markets and competitors mayassert that our products infringe their intellectual property rights as part of a business strategy to impede our successful entry into those markets. Third parties mayassert that we are employing their proprietary technology without authorization. In addition, our competitors and others may have patents or may in the futureobtain patents and claim that use of our products infringes these patents. We could incur substantial costs and divert the attention of our management and technicalpersonnel in defending against any of these claims. Parties making claims against us may be able to obtain injunctive or other relief, which could block our abilityto develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringementagainst us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from selling certain products. We may not beable to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from thirdparties, which could negatively affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to develop alternativemethods or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenses on favorable termscould prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and gain marketacceptance for our products.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of ourconfidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could bepublic announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results tobe negative, it could have a substantial adverse effect on the price of our common stock.In addition, our agreements with some of our suppliers, distributors, customers, collaborators and other entities with whom we do business require us todefend or indemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We could alsovoluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our businessrelationships. If we are required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incur significantcosts and expenses that could adversely affect our business, operating results, or financial condition. -45-Table of ContentsWe may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ formeremployers.Many of our employees were previously employed at universities or other life sciences companies, including our competitors or potential competitors.Although no claims against us are currently pending, we or our employees may be subject to claims that these employees or we have inadvertently or otherwiseused or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail indefending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. A loss of key research personnel work productcould hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defendingagainst these claims, litigation could result in substantial costs and be a distraction to management.Our products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses couldrestrict our ability to sell our products.Our products contain software tools licensed by third-party authors under “open source” licenses. Use and distribution of open source software may entailgreater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regardinginfringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code for modifications or derivativeworks we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, wecould, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors tocreate similar products with less development effort and time and ultimately could result in a loss of product sales.Although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open sourcelicenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions orrestrictions on our ability to commercialize our products. Moreover, we cannot assure investors that our processes for controlling our use of open source software inour products will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third partiesto continue offering our products on terms that are not economically feasible, to re-engineer our products, to discontinue the sale of our products if re-engineeringcould not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect ourbusiness, operating results, and financial condition.We use third-party software that may be difficult to replace or cause errors or failures of our products that could lead to lost customers or harm to ourreputation.We use software licensed from third parties in our products. In the future, this software may not be available to us on commercially reasonable terms, or atall. Any loss of the right to use any of this software could result in delays in the production of our products until equivalent technology is either developed by us, or,if available, is identified, obtained and integrated, which could harm our business. In addition, any errors or defects in third-party software, or other third-partysoftware failures could result in errors, defects or cause our products to fail, which could harm our business and be costly to correct. Many of these providersattempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to our customers or third-party providers that could harm our reputation and increase our operating costs.We will need to maintain our relationships with third-party software providers and to obtain software from such providers that does not contain any errors ordefects. Any failure to do so could adversely impact our ability to deliver reliable products to our customers and could harm our results of operations. -46-Table of ContentsRisks Related to Our Common StockThe price of our common stock may be volatile, and you could lose all or part of your investment.The trading price of our common stock has fluctuated and may continue to fluctuate substantially. The trading price of our common stock depends on anumber of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operatingperformance. These fluctuations could cause stockholders to lose all or part of their investment in our common stock. Factors that could cause fluctuations in thetrading price of our common stock include the following: • actual or anticipated quarterly variation in our results of operations or the results of our competitors; • announcements by us or our competitors of new products, significant contracts, commercial relationships or capital commitments; • failure to obtain or delays in obtaining product approvals or clearances from the FDA or foreign regulators; • adverse regulatory or reimbursement announcements; • issuance of new or changed securities analysts’ reports or recommendations for our stock; • developments or disputes concerning our intellectual property or other proprietary rights; • commencement of, or our involvement in, litigation; • market conditions in the research and diagnostics markets; • manufacturing disruptions; • any future sales of our common stock or other securities; • any change to the composition of the board of directors or key personnel; • announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; • general economic conditions and slow or negative growth of our markets; and • the other factors described in this “Risk Factors” section.The stock market in general, and market prices for the securities of life sciences and diagnostic companies like ours in particular, have from time to timeexperienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations mayadversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the market price of a stock hasbeen volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were tobring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operatingresults. -47-Table of ContentsAn active trading market for our common stock may not be sustained.Although our common stock is listed on The NASDAQ Global Market, the market for our shares has demonstrated varying levels of trading activity and thecurrent level of trading may not be sustained in the future. Purchases or sales of large blocks of our shares relative to the trading volume on a given day can have adisproportionate effect on the price of our common stock. The lack of an active market for our common stock or significant and rapid changes in the price of ourcommon stock may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fairmarket value of their shares and may impair our ability to raise capital.If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, our stock price andtrading volume could decline.The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.If one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more of these analystsceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price ortrading volume to decline.Future sales of our common stock in the public market could cause our stock price to fall.Our stock price could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. These sales,or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deemappropriate.Holders of approximately 5.0 million shares (including shares underlying outstanding warrants), or approximately 25%, of our outstanding shares, haverights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statementsthat we may file for ourselves or other stockholders. We also register the offer and sale of all shares of common stock that we may issue under our equitycompensation plans.In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connectionwith a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such future issuance, including any issuances pursuant to our “at themarket” equity offering program under our sales agreement with Cowen, could result in substantial dilution to our existing stockholders and could cause our stockprice to decline.We will have broad discretion over the use of the proceeds to us from our “at the market” equity offering program and may apply the proceeds to uses that donot improve our operating results or the value of your securities.We will have broad discretion to use the net proceeds to us from our “at the market” equity offering program, and investors will be relying solely on thejudgment of our board of directors and management regarding the application of these proceeds. Although we expect to use the net proceeds from our “at themarket” equity offering program for general corporate purposes, we have not allocated these net proceeds for specific purposes. Investors will not have theopportunity, as part of their investment decision, to assess whether the proceeds are being used appropriately. Our use of the proceeds may not improve ouroperating results or increase the value of the securities offered pursuant to the “at the market” equity offering program.Our officers and directors, and their respective affiliates, own a significant percentage of our stock and will be able to exercise significant influence overmatters subject to stockholder approval.Our executive officers and directors together with their respective affiliates, own approximately 29% of our outstanding common stock as of December 31,2015. Accordingly, our executive officers and directors together with their respective affiliates, will be able to exert significant influence over matters submitted toour stockholders for approval, as well as our management and affairs. This concentration of ownership could have the -48-Table of Contentseffect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn couldhave a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors or management.Anti-takeover provisions in our charter documents and under Delaware or Washington law could make an acquisition of us difficult, limit attempts by ourstockholders to replace or remove our current management and limit our stock price.Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control orchange in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholdersmight otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our stock. Among other things, the certificate ofincorporation and bylaws: • permit the board of directors to issue up to 15,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate; • provide that the authorized number of directors may be changed only by resolution of the board of directors; • provide that all vacancies, including newly-created directorships, may, except as otherwise required by law, be filled by the affirmative vote of amajority of directors then in office, even if less than a quorum; • divide the board of directors into three classes; • provide that a director may only be removed from the board of directors by the stockholders for cause; • require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not betaken by written consent; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meetingof stockholders must provide notice in writing in a timely manner, and meet specific requirements as to the form and content of a stockholder’s notice; • prevent cumulative voting rights (therefore allowing the holders of a plurality of the shares of common stock entitled to vote in any election ofdirectors to elect all of the directors standing for election, if they should so choose); • provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or by the board ofdirectors; and • provide that stockholders are permitted to amend the bylaws only upon receiving at least two-thirds of the total votes entitled to be cast by holders ofall outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, whichgenerally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of threeyears following the date on which the stockholder became an “interested” stockholder. Likewise, because our principal executive offices are located in Washington,the anti-takeover provisions of the Washington Business Corporation Act may apply to us under certain circumstances now or in the future. These provisionsprohibit a “target corporation” from engaging in any of a broad range of business combinations with any stockholder constituting an “acquiring person” for a periodof five years following the date on which the stockholder became an “acquiring person.” -49-Table of ContentsWe are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable toemerging growth companies could make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012, and, for as long aswe continue to be an “emerging growth company,” we have chosen to take advantage of exemptions from various reporting requirements applicable to other publiccompanies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firmaudit our internal control over financial reporting under Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports andproxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any goldenparachute payments not previously approved. We could be an “emerging growth company” until December 31, 2018, although, if we have more than $1.0 billion inannual revenue, if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year, or we issue more than$1.0 billion of non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging growth company” as of thefollowing December 31. If some investors find our common stock less attractive as a result of these exemptions, there may be a less active trading market for ourcommon stock and our stock price may be lower and be more volatile.As an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companiesuntil such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, ourfinancial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accountingstandards that are applicable to public companies, which may make our common stock less attractive to investors.Complying with the laws and regulations affecting public companies increases our costs and the demands on management and could harm our operatingresults.As a public company, and particularly after we cease to be an “emerging growth company,” we incur and will continue to incur significant legal, accountingand other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and TheNASDAQ Global Market impose numerous requirements on public companies, including requiring changes in corporate governance practices. Also, the ExchangeAct requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Our management and otherpersonnel must devote a substantial amount of time to compliance with these laws and regulations. These burdens may increase as new legislation is passed andimplemented, including any new requirements that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may impose on public companies.These requirements have increased and will likely continue to increase our legal, accounting, and financial compliance costs and have made and will continue tomake some activities more time consuming and costly. For example, as a public company it is more difficult and more expensive for us to obtain director andofficer liability insurance, and in the future we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same orsimilar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or ourboard committees or as executive officers.The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and theeffectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to performsystem and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered publicaccounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. As an “emerging growth company,” we are availingourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control overfinancial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an “emerging growth company.” Whenour independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance -50-Table of Contentswith Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expenseand expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reportingrequirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independentregistered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market priceof our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additionalfinancial and management resources.Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock.Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operatingresults and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, orfinancial results and could result in an adverse opinion on our internal control over financial reporting from our independent registered public accounting firm.The SEC adopted its final rule implementing Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning conflict mineralsin August 2012. The rule requires us to submit forms and reports to the SEC annually to disclose our determinations and due diligence measures. We have filedForm SD for the two years ended December 31, 2014 and included a Conflict Minerals Report as an exhibit to this form. We do not directly purchase any conflictminerals. However, tracing these materials back to their country of origin is a complex task that required us to, among other things, survey suppliers in our supplychain to understand what programs they have in place for tracing the source of minerals supplied to us or used in products supplied to us and to ensure thatreasonable due diligence has been performed. However, we have not determined how many, or if any, of our supply chain partners use conflict minerals. Moreover,we may face a limited pool of suppliers who can provide us “conflict-free” components, parts and manufactured products, and we may not be able to obtainconflict-free products or supplies in sufficient quantities or at competitive prices for our operations, and may be required to disclose that our products are not“conflict free.” This could adversely affect our reputation and may harm relationships with business partners and customers, and our stock price could suffer as aresult. Item 1B.Unresolved Staff CommentsNone. Item 2.PropertiesWe currently have three long-term operating lease agreements for 86,877 square feet of space used for general office, laboratory, manufacturing,operations, and research and development purposes in Seattle, Washington. This includes an amendment to one of our lease agreements entered into February 2016,which added an additional 6,604 square feet and extended the original lease term for an additional year. The long-term operating leases, including the amendedlease agreement, expire in 2026 and include options to renew at the then fair market rental for each of the facilities. The lease agreements contain rent abatementperiods, scheduled rent increases and provide for tenant improvement allowances.Our landlords hold security deposits of approximately $359,000. We believe that our existing facilities are adequate to meet our business requirementsfor the near-term and that additional space will be available on commercially reasonable terms, if required. Item 3.Legal ProceedingsWe are not engaged in any material legal proceedings. From time to time, we may become involved in litigation relating to claims arising from theordinary course of business. We believe that there are no claims or actions pending against us currently, the ultimate disposition of which would have a materialadverse effect on our consolidated results of operation, financial condition or cash flows. -51-Table of ContentsItem 4.Mine Safety DisclosuresNot applicable. -52-Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock is traded on The NASDAQ Global Market under the symbol “NSTG.” Trading of our common stock commenced on June 26, 2013in connection with our initial public offering. The following table sets forth, for the periods indicated, the high and low sales prices for our common stock asreported on The NASDAQ Global Market. Year ended December 31, 2014 High Low First quarter $22.44 $16.28 Second quarter $21.87 $12.03 Third quarter $15.45 $10.81 Fourth quarter $15.28 $7.80 Year ended December 31, 2015 First quarter $14.74 $9.95 Second quarter $16.40 $10.21 Third quarter $19.81 $13.16 Fourth quarter $16.23 $12.94 HoldersAs of March 1, 2016, there were approximately 51 holders of record of our common stock. The actual number of stockholders is greater than thisnumber of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.DividendsWe have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available fundsand any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition, our termloan agreement materially restricts, and future debt instruments we issue may materially restrict, our ability to pay dividends on our common stock. Payment offuture cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operatingresults, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant. -53-Table of ContentsSecurities Authorized for Issuance under Equity Compensation PlansSee Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-Kfor more information regarding securities authorized for issuance.Performance GraphThis performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), or incorporated by reference into any filing of NanoString Technologies, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except asshall be expressly set forth by specific reference in such filing.The following graph compares the performance of our common stock for the periods indicated with the performance of the NASDAQ CompositeIndex and the NASDAQ Medical Equipment Index. This graph assumes an investment of $100 on June 26, 2013 in each of our common stock, the NASDAQComposite Index and the NASDAQ Medical Equipment Index, and assumes reinvestment of dividends, if any. The stock price performance shown on the graphbelow is not necessarily indicative of future stock price performance. Recent Sales of Unregistered SecuritiesIn August 2015, we issued 250 shares of our common stock upon the exercise of warrants at a price of $8.45 and received gross proceeds of $2,112.These issuances were exempt from registration under the Securities Act of 1933, as amended, under Section 4(a)(2) thereof as a transaction by an issuer notinvolving a public offering. The recipients acquired the securities for investment only and not with a view to or for sale in connection with any distribution of thesecurities and appropriate legends were affixed thereto. -54-Table of ContentsItem 6.Selected Financial DataThe following selected financial data is derived from our audited financial statements and should be read in conjunction with, and is qualified in itsentirety by, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements andSupplementary Data.” contained elsewhere in this Annual Report on Form 10-K. The selected Consolidated Statements of Operations data for the years endedDecember 31, 2015, 2014 and 2013 and Consolidated Balance Sheet data as of December 31, 2015 and 2014 have been derived from our audited consolidatedfinancial statements appearing elsewhere in this Annual Report on Form 10-K. The selected Consolidated Statements of Operations data for the years endedDecember 31, 2012 and 2011 and Consolidated Balance Sheet data as of December 31, 2013, 2012 and 2011 have been derived from our audited consolidatedfinancial statements that are not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of future results. Year Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share amounts) Consolidated Statements of Operations: Revenue $62,667 $47,593 $31,403 $22,973 $17,800 Costs and expenses: Cost of revenue 26,126 21,149 15,009 12,361 9,777 Research and development 24,597 21,404 14,979 11,635 8,990 Selling, general and administrative 53,186 51,063 29,912 15,486 9,529 Total costs and expenses 103,909 93,616 59,900 39,482 28,296 Loss from operations (41,242) (46,023) (28,497) (16,509) (10,496) Other income (expense): Interest income 233 272 68 21 10 Interest expense (4,017) (4,140) (1,942) (804) (599) Other income (expense) (389) (147) (66) (29) 80 Revaluation of preferred stock warrant liability — — 1,156 (387) 73 Total other income (expense) (4,173) (4,015) (784) (1,199) (436) Net loss before provision for income taxes (45,415) (50,038) (29,281) (17,708) (10,932) Provision for income taxes (166) — — — — Net loss $(45,581) $(50,038) $(29,281) $(17,708) $(10,932) Accretion of mandatorily redeemable convertible preferred stock — — (4,653) (7,533) (5,251) Net loss attributable to common stockholders $(45,581) $(50,038) $(33,934) $(25,241) $(16,183) Net loss per share—basic and diluted $(2.40) $(2.80) $(4.44) $(71.10) $(50.10) Weighted-average shares used in computing basic and diluted net loss per share 19,027 17,839 7,643 355 323 As of December 31, 2015 2014 2013 2012 2011 Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments $49,044 $72,225 $42,656 $21,692 $10,868 Working capital 61,882 76,411 42,106(1) 19,937(1) 12,236(1) Total assets 92,869 102,068 64,372(1) 37,406(1) 24,584(1) Total long-term debt and lease financing obligations, net of unamortized debt issue costs(includes current portion) 41,226 30,246 18,293(1) 12,759(1) 1,887(1) Mandatorily redeemable convertible preferred stock — — — 103,622 80,957 Total stockholders’ equity (deficit) $20,215 $44,813 $31,469 $(93,760) $(69,451) (1) Amounts have not been retrospectively modified to reflect the adoption of Accounting Standard Update No. 2015-03. Interest-Imputation of Interest:Simplifying the Presentation of Debt Issuance Costs. -55-Table of ContentsItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis together with the financial statements and the related notes to those statements includedelsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those setforth in the section of this report captioned “Risk Factors” and elsewhere in this report, our actual results may differ materially from those anticipated in theseforward-looking statements. Throughout this discussion, unless the context specifies or implies otherwise, the terms “NanoString”, “we”, “us” and “our” refer toNanoString Technologies, Inc. and its subsidiaries.OverviewWe develop, manufacture and sell robust, intuitive products that unlock scientifically valuable and clinically actionable biologic information fromminute amounts of tissue. Our nCounter Analysis System directly profiles hundreds of molecules simultaneously using a novel barcoding technology that ispowerful enough for use in research, yet simple enough for use in clinical laboratories worldwide. We market systems and related consumables to researchers inacademic, government, and biopharmaceutical laboratories for use in understanding fundamental biology and the molecular basis of diseases, such as cancer, and toclinical laboratories and medical centers for diagnostic use. As of December 31, 2015, we have an installed base of over 350 systems, which our customers haveused to publish more than 1,000 peer-reviewed papers. As researchers using our systems discover new biologic insights to improve clinical decision-making, thesediscoveries can be translated and validated as diagnostic tests, either using our nCounter Elements reagents or, in certain situations, by developing in vitrodiagnostic assays. For example, our first molecular diagnostic product is the Prosigna Breast Cancer Assay, or Prosigna, which provides an assessment of apatient’s risk of recurrence for breast cancer. In addition, we are collaborating with several biopharmaceutical companies to develop companion diagnostics, invitro diagnostic tests to be used to identify which patients are most likely to respond to a particular drug therapy.We derive a substantial majority of our revenue from the sale of our products to life science researchers, which consist of our nCounter instrumentsand related proprietary consumables, which we call CodeSets, nCounter Elements reagents and Master Kits. After buying an nCounter Analysis System, researchcustomers purchase consumables from us for use in their experiments. Our instruments are designed to work only with our consumable products. Accordingly, asthe installed base of our instruments grows, we expect recurring revenue from consumable sales to become an increasingly important driver of our operatingresults. We also derive revenue from processing fees related to proof-of-principle studies we conduct for potential customers and extended service contracts for ournCounter Analysis Systems.In 2013, we began offering instruments and consumables for use in diagnostic testing. In September 2013, we received 510(k) clearance from the FDAto market in the United States a version of Prosigna providing an assessment of a patient’s risk of recurrence for breast cancer. In November 2013, we beganoffering a version of the nCounter Dx Analysis System to high-complexity, CLIA-certified laboratories for research and diagnostics purposes. This FLEXconfiguration of the nCounter Dx Analysis System provides clinical laboratories a single platform with the flexibility to support both clinical testing, by runningProsigna, and research, by processing translational research experiments using our research consumables. The nCounter Elements reagents provide furtherflexibility by allowing laboratories to develop their own Laboratory Developed Tests for gene expression, copy number variation and gene fusion signatures, whichcan be performed by a laboratory and may include genetic tests and other tests for rare conditions.In December 2013, we commercially launched Prosigna in the United States. National diagnostic laboratories, including Laboratory Corporation ofAmerica Holdings and Quest Diagnostics, as well as laboratories at numerous cancer centers and major hospitals have chosen to add Prosigna to their suites ofbreast cancer diagnostic tests. These laboratories collectively serve the pathology testing needs of a substantial portion of breast cancer patients throughout theUnited States. In September 2012, we obtained a CE mark for Prosigna, -56-Table of Contentsour first diagnostic product, and, in early 2013 we commercially launched Prosigna in Europe and Israel. To support the commercial launch of Prosigna, we addeda team of experienced oncology sales, marketing, market access and medical affairs professionals, resulting in increased operating expenses. In February 2015, wecombined our two separate sales teams into a single organization selling our entire suite of products, targeted primarily toward major academic medical centers andbiopharmaceutical companies. We expect Prosigna sales growth to be dependent on the installation of more systems, inclusion of Prosigna in important breastcancer treatment guidelines and reimbursement by third-party payors becoming more broadly available.We use third-party contract manufacturers to produce the instruments comprising the nCounter Analysis System. We manufacture consumables at ourSeattle, Washington facility. This operating model is designed to be capital efficient and to scale efficiently as our product volumes grow. We focus a substantialportion of our resources on developing new technologies, products and solutions. We invested $24.6 million, $21.4 million and $15.0 million in 2015, 2014 and2013, respectively, in research and development and intend to continue to make significant investments in research and development.In March 2014, we entered into a collaboration agreement with Celgene Corporation pursuant to which we are working collaboratively with Celgeneto develop, seek regulatory approval for, and commercialize a companion diagnostic assay for use in screening patients with Diffuse Large B-Cell Lymphoma. Wereceived an upfront payment of $5.8 million in June 2014 upon our delivery of certain information to Celgene. We also achieved and were paid for certaindevelopment-related milestones totaling $6.0 million during 2014 and recognized the related revenue according to the proportional performance model. We areeligible to receive up to $11.0 million in additional success-based payments related to regulatory milestones. In October 2015, we amended the collaborationagreement to include additional countries to conduct clinical trials and in return we received an upfront payment of $1.6 million in December 2015. We will retainall commercial rights to the diagnostic test developed under this collaboration and, assuming success in the clinical trial process, and subject to regulatory approval,expect to generate revenues from the sale of the resulting in vitro diagnostic kits.In May 2015, we entered into a clinical research collaboration agreement with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc. orMerck, to develop an assay intended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from Merck’s anti-PD-1therapy, KEYTRUDA, in multiple tumor types. We received an upfront payment of $2.0 million in July 2015 and development payments totaling $1.9 millionduring 2015. In February 2016, we expanded our collaboration with Merck by entering into a new development collaboration agreement to clinically develop andcommercialize a novel diagnostic test, based on an optimized gene expression signature, to predict response to KEYTRUDA in multiple tumor types. In May 2015,we entered into a clinical research collaboration agreement with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc. or Merck, to develop an assayintended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from Merck’s anti-PD-1 therapy, KEYTRUDA, inmultiple tumor types. We received an upfront payment of $2.0 million in July 2015 and development payments totaling $1.9 million during 2015. In February2016, we expanded our collaboration with Merck by entering into a new development collaboration agreement to clinically develop and commercialize a noveldiagnostic test, based on an optimized gene expression signature, to predict response to KEYTRUDA in multiple tumor types. Under the terms of the newdevelopment collaboration agreement, we will receive a $12.0 million upfront technology access fee and are eligible to receive up to $12.0 million for potentialpreclinical regulatory milestone payments. We are also eligible to receive development funding and other potential downstream regulatory milestone payments. Foradditional information regarding the development collaboration agreement, see the section of this report captioned “Business—Collaborations—Merck & Co., Inc.”Our total revenue increased to $62.7 million in 2015 from $47.6 million in 2014 and $31.4 million in 2013, which was driven primarily by the sale ofadditional nCounter Analysis Systems and consumables for use on our growing installed base of instruments. Historically, we have generated a substantial majorityof our revenue from sales to customers in North America; however, recently, sales revenue has been growing more rapidly outside North America and we believethis trend may continue. We have never been profitable and had net losses of $45.6 million, $50.0 million, and $29.3 million in 2015, 2014 and 2013, respectively.As of December 31, 2015, our accumulated deficit was $222.5 million.Key Financial MetricsWe are organized as, and operate in, one reportable segment, which is the development, manufacture and commercialization of instruments,consumables and services for efficiently profiling the activity of hundreds of genes and proteins simultaneously from a single tissue sample. -57-Table of ContentsOur chief operating decision maker is the chief executive officer, who manages our operations and evaluates our financial performance on a totalcompany basis. Our principal operations and decision-making functions are located at our corporate headquarters in the United States.Until the fourth quarter of 2013, we operated in two reportable segments, our life sciences business and our diagnostics business. In November 2013,our nCounter Dx Analysis System with FLEX Configuration was launched, enabling customers to perform both research and diagnostic testing on the sameinstrument. We have one sales force that now sells these systems to both research and clinical testing labs, and we launched our first product that can be used forboth research and diagnostic testing, nCounter Elements reagents. As a result of these fundamental changes to our business, we began operating the Company as asingle reportable segment during the fourth quarter of 2013.RevenueWe generate revenue from the sale of our products and related services. For a description of our revenue recognition policies, see the section of thisreport captioned “—Critical Accounting Policies and Significant Estimates—Revenue Recognition.”Product RevenueOur products consist of our nCounter Analysis System and related consumables, including Prosigna in vitro diagnostic kits. Our nCounter MAXAnalysis System typically consists of one nCounter Digital Analyzer and one nCounter Prep Station, having a U.S. list price of $235,000. The U.S. list price of thesimilarly configured nCounter Dx FLEX Analysis System is $265,000, or $285,000 if fully enabled to run Prosigna. Our newly developed nCounter SPRINTProfiler has a reduced footprint and combines the function of the prep station with the digital analyzer in a single instrument. It has a U.S. list price of $149,000.Outside the United States, depending on the country, the list price is generally higher. Systems are sold to distributors at a discount to list price. Our customer baseis primarily composed of academic institutions, government laboratories, biopharmaceutical companies and clinical laboratories that perform analyses or testingusing our nCounter Analysis System and purchase related consumables, potentially including Prosigna kits.For our research customers, related consumables include (1) custom CodeSets, which we manufacture to the specific requirements of an individualresearcher, (2) panels, which are standard pre-manufactured CodeSets, (3) nCounter Elements reagents, and (4) Master Kits, which are ancillary reagents,cartridges, tips and reagent plates required to setup and process samples in our instruments. Product revenue also includes payments for instrument installation.Since 2010, our average consumables revenue per installed system has exceeded $100,000 per year.For our clinical laboratory customers, related consumables include Prosigna in vitro diagnostic kits and nCounter Elements reagents. We sell ournCounter Dx Analysis Systems to clinical laboratory customers or offer to lease them under “reagent rental” arrangements where an instrument is placed at acustomer location at minimal direct cost and the customer commits to purchase a minimum volume of consumable products over a period of time. To date, themajority of our clinical laboratory customers have elected to purchase instruments.The list price of a Prosigna test in the United States and Europe is $2,080 and €1,550 per patient, respectively. Although the price of Prosigna and ouradditional future diagnostic products will depend on many factors, including whether and how much third-party payors will reimburse laboratories for conductingsuch tests, we expect that the gross margin for our diagnostic kits will be higher than for our research consumables. We sell Prosigna kits to our lab customers, whowill be responsible for providing the testing service and contracting and billing payors. Prosigna kits are sold to clinical laboratories on a fixed dollars-per-kit basis,which does not expose us to direct third-party payor reimbursement risk. However, we provide customary volume discounts, and in some cases, introductorypricing during the period in which third-party payor reimbursement is being established. As a result, the average selling price per Prosigna test is lower than listprice. -58-Table of ContentsService RevenueService revenue consists of fees associated with extended service contracts and conducting proof-of-principle studies. We include a one-year warrantywith the sale of our instruments and offer extended service contracts, which are purchased by a majority of our customers. We selectively provide proof-of-principle studies to prospective customers in order to help them better understand the benefits of the nCounter Analysis System.Collaboration RevenueCollaboration revenue is primarily derived from our collaborations with Celgene and Merck. As of December 31, 2015, we had received a total of$17.2 million from collaboration these agreements, of which $2.9 million and $5.9 million had been recorded as collaboration revenue in 2014 and 2015,respectively, with the remainder recorded as deferred revenue, which will be recognized as collaboration revenue over our remaining development performanceperiod for each of the agreements. Collaboration revenue also includes revenue recognized under a smaller evaluation study being performed for a differentbiopharmaceutical company.Revenue by GeographyWe sell our products through our own sales forces in the United States, Canada, Singapore, Israel and certain European countries. We sell throughdistributors in other parts of the world. As we have expanded our European direct sales force and entered into agreements with distributors of our products inEurope, the Middle East, Asia Pacific and South America, the amount of revenue generated outside of North America has generally increased, although there havebeen significant quarter-to-quarter fluctuations. In the future, we intend to expand our sales force and establish additional distributor relationships outside theUnited States to better access international markets.The following table reflects total revenue by geography based on the geographic location of our customers, distributors and collaborators. Americasconsists of the United States, Canada, Mexico and South America; and Asia Pacific includes Japan, China, South Korea, Singapore, Malaysia, Australia and NewZealand. Year Ended December 31, 2015 2014 2013 (Dollars in thousands) Americas $41,265 66% $32,244 68% $21,855 70% Europe & Middle East 14,807 24 9,174 19 5,775 18 Asia Pacific 6,595 10 6,175 13 3,773 12 Total $62,667 100% $47,593 100% $31,403 100% Most of our revenue is denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located,which is primarily in the United States. Changes in foreign currency exchange rates have not materially affected us to date; however, they may become material tous in the future as our operations outside of the United States expand.Cost of Product and Service RevenueCost of product and service revenue consists primarily of costs incurred in the production process, including costs of purchasing instruments fromthird-party contract manufacturers, consumable component materials and assembly labor and overhead, installation, warranty, service and packaging and deliverycosts. In addition, cost of product and service revenue includes royalty costs for licensed technologies included in our products, provisions for slow-moving andobsolete inventory and stock-based compensation expense. We provide a one-year warranty on each nCounter Analysis System sold and establish a reserve forwarranty repairs based on historical warranty repair costs incurred. -59-Table of ContentsThe average unit costs of our instruments has declined in the current year as compared to prior years as a result of introducing our lower-cost nCounterSPRINT Profiler in July 2015. We expect the average unit costs of our instruments to continue to decline as we expand our market opportunity among smallerresearch laboratories and sell a higher proportion of SPRINT systems. We expect the unit costs of consumable products to decline as a result of our ongoing effortsto improve our manufacturing processes and expected increases in production volume and yields. Although the unit costs of our custom CodeSets vary, they aregenerally higher as a percentage of the related revenue than our panels, in vitro diagnostic kits and nCounter Elements reagents.Operating ExpensesResearch and DevelopmentResearch and development expenses consist primarily of salaries and benefits, occupancy, laboratory supplies, engineering services, consulting fees,costs associated with licensing molecular diagnostics rights and clinical study expenses (including the cost of tissue samples) to support the regulatory approval orclearance of diagnostic products. We have made substantial investments in research and development since our inception. Our research and development effortshave focused primarily on the tasks required to enhance our technologies and to support development and commercialization of new and existing products andapplications. We believe that our continued investment in research and development is essential to our long-term competitive position and expect these expenses toincrease in future periods.Given the relatively small size of our research and development staff and the limited number of active projects at any given time, we have found that,to date, it has been effective for us to manage our research and development activities on a departmental basis. Accordingly, other than for collaborations, we donot require employees to report their time by project nor do we allocate our research and development costs to individual projects. Research and developmentexpense by functional area was as follows: Year Ended December 31, 2015 2014 2013 (In thousands) Core nCounter platform technology $6,749 $6,975 $4,330 Manufacturing process development 1,802 2,124 1,588 Life sciences research products and applications 4,982 3,834 2,914 Diagnostic product development 3,727 3,292 1,617 Clinical, regulatory and medical affairs 4,939 3,740 2,988 Facility allocation 2,398 1,439 1,542 Total $24,597 $21,404 $14,979 Our Prosigna clinical studies have generally employed a retrospective / prospective design, which means that we use samples that were previouslycollected from patients and for which the treatment regimen and ultimate patient outcome is known. Such studies are capital efficient as they do not requirerecruiting new patients and they can be completed much more quickly than typical prospective clinical trials. We intend to use a similar approach wheneverpossible for additional Prosigna clinical studies, however the clinical studies for companion diagnostic products will be prospective in nature, and while the costs ofthese studies are being funded by our collaborators, they will generally require several years to complete.We expect to license additional rights to technology and potential molecular diagnostics as part of our strategy to capitalize on the discoveries of ourcustomers. For example, in January 2014 we secured an option from a research customer to acquire an exclusive worldwide license for technology used for proteinanalysis on our nCounter Analysis System. The related option fee was expensed in the first quarter of 2014. Similarly, in May 2014 we licensed rights to the genesignature being developed to subtype DLBCL patients that is the subject of our collaboration with Celgene. The related license fee was expensed in the secondquarter of 2014. Such arrangements may include upfront, milestone or annual cash payments and revenue-based royalties. -60-Table of ContentsSelling, General and AdministrativeSelling, general and administrative expenses consist primarily of costs for our sales and marketing, finance, human resources, information technology,business development, legal and general management functions, as well as professional services, such as legal, consulting and accounting services. We expectselling, general and administrative expenses to increase in future periods as the number of sales, technical support and marketing and administrative personnelgrows and we continue to introduce new products, broaden our customer base and grow our business. In particular, during 2014, we established a dedicatedoncology focused team to support the commercialization of Prosigna, which has contributed to a 90% increase in selling and marketing expenses over 2013. InFebruary 2015, we combined our two separate sales teams into a single organization selling our entire suite of products, targeted primarily toward major academicmedical centers and biopharmaceutical companies. Legal, accounting and compliance costs have also increased as a result of our being a public company, and weexpect them to continue to increase as our business grows.Factors Affecting Our PerformanceInstrument Installed BaseOur future financial performance will be driven in large part by the rate of sales of our nCounter Analysis Systems. In July 2015, we introduced ournew generation of the nCounter Analysis System, the nCounter SPRINT Profiler, which we believe increases our addressable market substantially by making thetechnology more appealing to individual researchers. The new system is a single instrument with a reduced footprint that combines the prep station and the digitalanalyzer and is offered at a more affordable price.We plan to grow our system sales in the coming years through other strategies, including expanding our sales channel in both direct and distributorterritories and continuing to enhance the underlying technology and applications for both research and clinical diagnostics use. As part of this strategy, werestructured our sales and marketing organization in early 2015 and plan to add incremental sales territories and augment our field sales team with greater insidesales support in 2016. Similarly, as of December 2015, we have contracted with a total of 22 distributors. As our installed base of instruments grows, we solicitfeedback from our customers and focus our research and development efforts on enabling the nCounter Analysis System for additional applications, which in turnhelps to drive additional sales of our instruments and consumables.Our sales process involves numerous interactions with multiple individuals within an organization, and often includes in-depth analysis by potentialcustomers of our products, performance of proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As a result of thesefactors, the large capital investment required in purchasing our instruments and the budget cycles of our customers, the time from initial contact with a customer toour receipt of a purchase order can vary significantly and be up to 12 months or longer. Given the length and uncertainty of our sales cycle, we have in the pastexperienced, and likely will in the future experience, fluctuations in our instrument sales on a period-to-period basis.As of December 31, 2015 we had an installed base of more than 350 nCounter Analysis Systems, which we count based on the number of nCounterDigital Analyzers sold given that a system may couple an analyzer with multiple nCounter Prep Stations. Management focuses on instrument unit sales as aprimary indicator of current business success and a leading indicator of likely future sales of consumables.Recurring Consumables RevenueOur instruments are designed to be used only with our consumables. This closed system model generates recurring revenue from each instrument wesell. Management focuses on recurring consumable revenue per -61-Table of Contentssystem as an indicator of the continuing value generated by each system. We calculate recurring consumable revenue per system quarterly by dividing consumablerevenue recognized in a particular quarter (other than consumable revenue related to proof-of-principle studies) by the total number of nCounter Analysis Systemsinstalled as of the last day in the immediately preceding quarter. Historically, a large majority of our systems and related consumables have been sold to researchcustomers. Since 2010, our average consumables revenue per system has exceeded $100,000 per year.As the installed base of the nCounter Analysis Systems expands, consumables revenue is expected to increase and over time should continue to be anincreasingly important contributor to our total revenue. Additionally, we expect Prosigna in vitro diagnostic kit revenue to contribute an increasing amount ofrecurring revenue as we install more diagnostic systems, Prosigna is included in important breast cancer treatment guidelines and reimbursement by third-partypayors becomes more broadly available. Furthermore, we intend to launch entirely new applications, such as multi-omics, which will enable researchers to measuregene expression and protein expression in a single experiment. The introduction of new applications has the potential to further increase our consumables revenuestream. Over time, we believe that consumables revenue should be subject to less period-to-period fluctuation than our instrument sales revenue.Revenue Mix and Gross MarginOur product revenue is derived from sales of the nCounter Analysis System and related consumables, including Prosigna in vitro diagnostic kits.Generally, our consumables have higher gross margins than our instruments. There will be fluctuations in mix between instruments and consumables from periodto period. Although results may vary period to period, over time, as our installed base of systems grows, consumables should constitute a larger percentage of totalrevenue, which would tend to increase our gross margins. In addition, we expect both the average selling price and the manufacturing cost of our instruments todecrease with the introduction of the nCounter SPRINT Profiler and, potentially, future generations of our nCounter Analysis System. Future instrument sellingprices and gross margins may fluctuate as we introduce new products and reduce our product costs and from variability in the timing of new product introductions.We derive service revenue from extended service contracts, which are purchased by a majority of our customers. Additionally, we selectively provideproof-of-principle studies in connection with prospective sales to customers to demonstrate the performance of our nCounter Analysis System. Collaborationrevenue is a relatively new source of revenue primarily from our diagnostic collaborations with Celgene and Merck, which is expected to increase over time if weare successful in entering into other similar collaborations.The following table reflects the breakdown of revenue in absolute dollars and as percentage of total revenue. Year Ended December 31, 2015 2014 2013 (Dollars in thousands) Product revenue: Instruments $20,974 33% $18,078 38% $12,995 41% Consumables 30,597 49 23,819 50 16,642 53 In vitro diagnostic kits 2,457 4 668 1 181 1 Total product revenue 54,028 86 42,565 89 29,818 95 Service revenue 2,611 4 1,932 4 1,585 5 Total product and service revenue 56,639 90 44,497 93 31,403 100 Collaboration revenue 6,028 10 3,096 7 — — Total revenue $62,667 100% $47,593 100% $31,403 100% -62-Table of ContentsDiagnostic Product DevelopmentDuring 2013, we commercially launched the nCounter Dx Analysis System and Prosigna. Over time, we intend to build a menu of additionaldiagnostic tests that can be run on our nCounter Analysis System. As researchers discover how genomic information can be used to improve clinical decision-making, these discoveries can be translated and validated as diagnostic tests based on our nCounter Elements reagents or, in certain situations, developed as in vitrodiagnostic assays. Our first example of this is Prosigna, for which we in-licensed the rights to intellectual property from Bioclassifier, LLC, a company founded byseveral of our research customers. More recently, we in-licensed the rights to the gene signature being developed as an in vitro diagnostic assay to subtype DLBCLpatients that is the subject of our collaboration with Celgene. We intend to enter into similar arrangements with our research customers and other researchers forfuture diagnostic gene signatures, which may be developed independently as an in vitro diagnostic, or become the subject of future companion diagnosticcollaborations.We believe that there is significant potential to enter into more companion diagnostic collaborations of a similar nature to our collaboration withCelgene and Merck. Such collaborations are attractive in that they can provide upfront technology access fees, near-term funding of development costs, potentialmilestone revenues and potential additions to the menu of tests that we can market and sell for use on the nCounter Dx Analysis System. We believe we are wellpositioned as a desirable development partner to drug developers due to a number of factors, including unique technological capabilities in multiplexed geneexpression analysis; prior FDA clearance of our instrument system for use with Prosigna; an expanding installed base of systems in clinical laboratories; andestablished clinical and regulatory capabilities.Results of OperationsComparison of Years Ended December 31, 2015 and 2014Revenue Year Ended December 31, Change 2015 v. 2014 2015 2014 Dollars Percentage (Dollars in thousands) Product revenue: Instruments $20,974 $18,078 $2,896 16% Consumables 30,597 23,819 6,778 28 In vitro diagnostic kits 2,457 668 1,789 268 Total product revenue 54,028 42,565 11,463 27 Service revenue 2,611 1,932 679 35 Total product and service revenue 56,639 44,497 12,142 27 Collaboration revenue 6,028 3,096 2,932 95 Total revenue $62,667 $47,593 $15,074 32% Instruments, consumables and service revenue increased significantly for the year ended December 31, 2015 due to the increased volume ofinstruments sold. The total growth in the installed base of our instruments in 2015 was 34%. The increase in consumables revenue was primarily driven by growthin our installed base of instrument systems as the average amount of consumable revenue sold was over $100,000 per installed system in 2015 and 2014. In vitrodiagnostic kit revenue represents sales of Prosigna assays, which increased as more providers came online, and testing volumes increased. The increase in servicerevenue was primarily related to an increase in the number of instruments covered by service contracts. Collaboration revenue increased largely due to thecollaboration with Merck, which was initiated in May 2015. -63-Table of ContentsCost of Product and Service Revenue; Gross Profit; and Gross Margin Year Ended December 31, Change 2015 2014 Dollars Percentage (Dollars in thousands) Cost of product and service revenue $26,126 $21,149 $4,977 24% Product and service gross profit $30,513 $23,348 $7,165 31 Product and service gross margin 54% 52% The increase in cost of product and service revenue for 2015 was related to the increased volume of instruments, consumables, in vitro diagnostic kitsand services sold. The increase in gross margin on product and service revenues is primarily due to a product mix shift towards consumables and other factors,including improved margins on consumable revenues and service revenue as a result of increasing scale.Research and Development Expense Year Ended December 31, Change 2015 2014 Dollars Percentage (Dollars in thousands) Research and development expense $24,597 $21,404 $3,193 15% The increases in research and development expense in 2015 reflected a $3.6 million increase in personnel-related expenses and a $0.9 million increasein supply costs to support primarily the advancement of our diagnostic and product development activities, including activities to support our collaborationagreements. In addition, facility costs increased $0.9 million due to expansion of our leased space for research and development activities. These increases werepartially offset by decreases of $2.1 million in engineering and consulting costs primarily for the development of our nCounter technologies in 2015.Selling, General and Administrative Expense Year Ended December 31, Change 2015 2014 Dollars Percentage (Dollars in thousands) Selling, general and administrative expense $53,186 $51,063 $2,123 4% The increases in selling, general and administration expense in 2015 were primarily attributable to a $3.7 million increase in staffing and personnel-relatedcosts to support sales and marketing and administration; and increased facilities costs of $1.3 million as a result of our expanded leased space for operational andadministrative activities. Partially offsetting the increase was a reduction of $2.8 million in marketing program costs in 2015.Other Income (Expense) Year Ended December 31, Change 2015 2014 Dollars Percentage (Dollars in thousands) Interest income $233 $272 $(39) (14)% Interest expense (4,017) (4,140) 123 (3) Other expense (389) (147) (242) 165 Total other income (expense) $(4,173) $(4,015) $(158) 4 The $0.1 million decrease in interest expense in 2015 was related to the costs incurred to pay off our former credit facility in April 2014, offset by anoverall increase in borrowing in 2015. In 2014, we incurred and recorded $1.4 million of interest expense related to the repayment of our former credit facility,including a loss on extinguishment of debt of $0.6 million. The impact of these expenses not recurring in 2015 was partially offset by a $1.3 million increase ininterest expense attributable to our increase in borrowings outstanding for the respective periods. Long-term debt and lease financing obligations outstandingincreased to $41.2 million as of December 31, 2015 as compared to $30.2 million as of December 31, 2014. The average balance of long-term debt and leasefinancing obligations outstanding was $31.4 million in 2015 compared to $22.5 million in 2014. -64-Table of ContentsComparison of Years Ended December 31, 2014 and 2013Revenue Year Ended December 31, Change 2014 v. 2013 2014 2013 Dollars Percentage (Dollars in thousands) Product revenue: Instruments $18,078 $12,995 $5,083 39% Consumables 23,819 16,642 7,177 43 In vitro diagnostic kits 668 181 487 269 Total product revenue 42,565 29,818 12,747 43 Service revenue 1,932 1,585 347 22 Total product and service revenue 44,497 31,403 13,094 42 Collaboration revenue 3,096 — 3,096 — Total revenue $47,593 $31,403 $16,190 52 Instruments, consumables and service revenue increased significantly for the year ended December 31, 2014 due to the increased volume ofinstruments sold. The total growth in the annual installed base in 2014 was 43%. Distributor sales represented 32% and 19% of systems installed in 2014 and 2013,respectively. The average 2014 sales price for direct sales was approximately 6% greater than the average sales price to distributors in the same period. Theincrease in consumables revenue was primarily driven by growth in our installed base of instruments as the annualized pull-through remained over $100,000 perinstalled system in 2014 and 2013. The increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts.Cost of Product and Service Revenue; Gross Profit; and Gross Margin Year Ended December 31, Change 2014 v. 2013 2014 2013 Dollars Percentage (Dollars in thousands) Cost of product and service revenue $21,149 $15,009 $6,140 41% Product and service gross profit $23,348 $16,394 $6,954 42 Product and service gross margin 52% 52% The increase in cost of product and service revenue for 2014 was related to the increased volume of instruments, consumables, in vitro diagnostic kitsand services sold. Product and service gross margin was approximately the same for both periods. Although gross margin for instrument revenues in 2014improved slightly by 1.7 percentage points over 2013, this was largely offset by a 1.0 percentage point reduction in gross margin for consumables, in vitrodiagnostic kits and service.Research and Development Expense Year Ended December 31, Change 2014 v. 2013 2014 2013 Dollars Percentage (Dollars in thousands) Research and development expense $21,404 $14,979 $6,425 43% The increases in research and development expense in 2014 reflected a $4.1 million increase in personnel-related expenses primarily to support theadvancement of our nCounter technology. In addition, there was a $1.5 million increase in engineering costs for development of the next generation of ournCounter system and an -65-Table of Contentsincrease in costs to support the Celgene collaboration agreement. Partially offsetting the increase was a reduction of $0.4 million in clinical study costs. Theremaining $1.2 million change was due to various other operating expense fluctuations that were individually immaterial.Selling, General and Administrative Expense Year Ended December 31, Change 2014 v. 2013 2014 2013 Dollars Percentage (Dollars in thousands) Selling, general and administrative expense $51,063 $29,912 $21,151 71% The increases in selling, general and administration expense in 2014 were primarily attributable to a $17.3 million increase in staffing and personnel-relatedcosts to support sales and marketing and administration; and increased external marketing and other consulting costs of $3.2 million. Partially offsetting theincrease was a reduction of $1.8 million in external legal costs. The remaining $3.0 million change was due to various other operating expense fluctuations thatwere individually immaterial.Other Income (Expense) Year Ended December 31, Change 2014 v. 2013 2014 2013 Dollars Percentage (Dollars in thousands) Interest income $272 $68 $204 300% Interest expense (4,140) (1,942) (2,198) 113 Other expense (147) (66) (81) 123 Revaluation of preferred stock warrant liability — 1,156 (1,156) (100) Total other income (expense) $(4,015) $(784) $(3,231) 412 The increase in interest expense in 2014 was related to the costs incurred to pay off our former credit facility in April 2014 and an overall increase inborrowing. In 2014, we incurred and recorded $1.4 million of interest expense related to the repayment of our former credit facility, including a loss onextinguishment of debt of $0.6 million. Long-term debt outstanding increased to $30.2 million as of December 31, 2014 as compared to $18.3 million as ofDecember 31, 2013. The average net debt balance was $22.5 million in 2014 compared to $16.7 million in 2013.The revaluation of the preferred stock warrant liability in 2013 resulted from a re-measurement of the fair value of preferred stock warrants using theBlack-Scholes option pricing model, which was primarily impacted by a decrease in the valuation of the underlying stock. Upon closing of our initial publicoffering in July 2013, all outstanding warrants to purchase preferred stock converted into warrants to purchase common stock. As a result, the preferred stockwarrant liability was reclassified to stockholders’ equity.Liquidity and Capital ResourcesAs of December 31, 2015, we had cash, cash equivalents and short-term investments of $49.0 million, compared to $72.2 million as of December 31,2014. We believe our existing cash, cash equivalents and short-term investments, together with the additional borrowing capacity under our term loan agreement,will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, we may need to raise additional capital toexpand the commercialization of our products, fund our operations and further our research and development activities. Our future funding requirements willdepend on many factors, including: market acceptance of our products; 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 marketdevelopments; the nature and timing of any additional companion diagnostic development collaborations we may establish; and the extent to which we acquire orinvest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. -66-Table of ContentsIf we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all. If we raise additional funds byissuing equity or equity-linked securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operationsor our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders. If weraise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or ourproducts, 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, ordelay, reduce the scope of or eliminate some or all of our development programs. If we do not have, or are not able to obtain, sufficient funds, we may have todelay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwiseseek to commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations.Sources of FundsOur cash used in operations for the year ended December 31, 2015 was $43.4 million and we expect to continue to require cash to fund our operationsfor at least the next several years.In May 2015, we entered into a sales agreement with a sales agent to sell shares of our common stock through an “at the market” equity offeringprogram for up to $40 million in total sales proceeds. Under the sales agreement, we sold 960,400 shares during 2015 for net proceeds of $12.5 million. The saleagreement allows for us to set the parameter for the sale of shares, including the number of shares to be issued, the time period during which sales are requested tobe made, limits the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. As of December 31,2015, approximately $27.0 million of common stock is available to be sold under the “at the market” equity offering program. We cannot guarantee that we will beable to sell the remaining available shares under the sales agreement under favorable market conditions.In April 2014, we entered into a term loan agreement under which we may borrow up to $45.0 million, including an option to defer payment of aportion of the interest that would accrue on the borrowing under the term loan agreement. Upon initial closing, we borrowed $20.0 million, the proceeds of whichwere primarily used to repay the outstanding balance under our former credit facility plus a related $1.0 million end of term payment, a $0.3 million make-wholepremium, and deferred interest. We incurred and recorded a total charge to interest expense of $1.4 million related to the repayment of our former credit facility,including a loss on extinguishment of debt of $0.6 million. In October 2014, we borrowed an additional $10.0 million under the term loan agreement.In October 2015, we amended our term loan agreement to, among other provisions, increase the maximum borrowing capacity to $60 million(excluding accrued interest), reduce the applicable interest rate from 12.5% to 12.0%, extend the interest-only period through March 2021, and extend the finalmaturity to March 2022. Under the amended agreement, borrowings accrue interest at 12.0% annually, payable quarterly, of which 3.0% can be deferred during thefirst six years of the term at our option and paid together with the principal at maturity. We have elected to exercise the option to defer a portion of the interest andwe have recorded $1.5 million of deferred interest through December 31, 2015. In December 2015, we borrowed an additional $10 million under the terms of theamended agreement and we are required to borrow an additional $5 million no later than June 30, 2016. At our option, we may borrow up to an additional $15million through December 31, 2016. Total borrowings under the amended term loan agreement were $41.5 million as of December 31, 2015.Under the amended term loan agreement, we may pay interest-only for the first seven years of the term and principal payments are due in four equalinstallments during the eighth year of the term. We have the option to -67-Table of Contentsprepay the term loan, in whole or part, at any time subject to payment of a redemption fee of up to 4%, which declines 1% annually thereafter, with no redemptionfee payable if prepayment occurs after the fourth year of the loan. In addition, a facility fee equal to 2.0% of the amount borrowed plus any deferred interest ispayable at the end of the term or when the loan is repaid in full. A long-term liability of $1.1 million is being accreted using the effective interest method for thefacility fee over the term of the loan agreement. Obligations under the term loan agreement are collateralized by substantially all of our assets.The term loan agreement contains customary conditions to borrowings, events of default and negative covenants, including covenants that could limitour ability to, among other things, incur additional indebtedness, liens or other encumbrances, make dividends or other distributions; buy, sell or transfer assets;engage in any new line of business; and enter into certain transactions with affiliates. The term loan agreement also includes a $2.0 million minimum liquiditycovenant and revenue-based financial covenants, which was $55.0 million for 2015 with annual increases of $15.0 million for each subsequent fiscal yearthereafter. If our actual revenues are below the minimum annual revenue requirement for any given year, we may avoid a related default by generating proceedsfrom an equity or subordinated debt issuance equal to the shortfall between our actual revenues and the minimum revenue requirement. We were in compliancewith our covenants as of December 31, 2015.In January 2014, we completed an underwritten public offering of common stock for total gross proceeds of $55.0 million. In February 2014, theunderwriters partially exercised an overallotment option, purchasing additional shares from us for additional gross proceeds of $6.4 million. After underwriters’fees and commissions and other expenses of the offering, our aggregate net proceeds were approximately $57.0 million.In July 2013, we raised $54.0 million, before offering expenses, in our initial public offering. Net of offering expenses, our initial public offeringgenerated approximately $46.8 million. In April 2013, we incurred $5.0 million of the remaining term loan borrowings under our previous credit facility.Use of FundsOur principal uses of cash are funding our operations, satisfaction of our obligations under our debt instruments, and other working capitalrequirements. Over the past several years, our revenue has increased significantly from year to year and, as a result, our cash flows from customer collections haveincreased. However, our operating expenses have also increased as we have invested in growing our existing research business, developing and commercializingProsigna, and supporting our companion diagnostic collaborations with Celgene and Merck. As a result, our cash used in operating activities has increased. Ouroperating cash requirements may increase in the future as we (1) increase sales and marketing activities to expand the installed base of our nCounter AnalysisSystems among research customers and clinical laboratories and continue to promote consumable usage, including Prosigna, (2) commercialize, and conductstudies to expand the clinical utility of Prosigna and develop new diagnostic tests, such as LST for DLBCL, and (3) develop new applications, chemistry andinstruments for our nCounter platform, as we cannot be certain our revenues will grow sufficiently to offset our operating expense increases.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 areunable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raiseadditional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness wouldhave rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may bedilutive to our stockholders. -68-Table of ContentsHistorical Cash Flow TrendsThe following table shows a summary of our cash flows for the periods indicated: Year Ended December 31, 2015 2014 2013 (In thousands) Cash used in operating activities $(43,362) $(38,061) $(31,346) Cash provided by (used in) investing activities 23,769 (24,275) (32,955) Cash provided by financing activities 24,268 69,566 52,550 Operating Cash FlowsWe derive operating cash flows from cash collected from the sale of our products and services and, beginning in 2014, from collaborations. Thesecash flows received are outweighed by our use of cash for operating expenses to support the growth of our business. As a result, we have historically experiencednegative cash flows from operating activities and this will likely continue for the foreseeable future.Net cash used in operating activities for 2015 consisted of our net loss of $45.6 million and $7.8 million of changes in our operating assets andliabilities. These uses were partially offset by $10.0 million of net non-cash income and expense items, such as stock-based compensation, depreciation andamortization, deferred interest converted to principal for the term loan, and amortization of premium on short-term investments.Net cash used in operating activities for 2014 consisted of our net loss of $50.0 million partially offset by $4.7 million of changes in our operatingassets and liabilities, including $8.8 million of deferred revenue from the Celgene collaboration, and $7.3 million of net non-cash income and expense items, suchas depreciation and amortization, amortization of premium on short-term investments, loss on extinguishment of debt, deferred interest converted to principal forthe term loan and stock-based compensation.Net cash used in operating activities for 2013 consisted of our net loss of $29.3 million and $3.8 million of changes in our operating assets andliabilities. These uses were partially offset by $1.8 million of net non-cash income and expense items, such as depreciation and amortization, stock-basedcompensation and the change in the fair value of preferred stock warrants.Investing Cash FlowsOur most significant investing activities for the years ended December 31, 2015, 2014 and 2013 were related to the purchase and sale of short-terminvestments. Because we manage our cash usage with respect to our total cash, cash equivalents and short-term investments, we do not consider these cash flows tobe important to an understanding of our liquidity and capital resources.In the years ended December 31, 2015, 2014 and 2013, we purchased $3.8 million, $1.9 million, and $0.8 million respectively, of property andequipment required to support the growth and expansion of our operations.Financing Cash FlowsHistorically, we have funded our operations through the issuance of equity securities and debt borrowings.Net cash provided by financing activities for 2015 consisted of net proceeds of $12.5 million from the sale of shares through an “at the market” equityoffering program, proceeds of $10.0 million from our amended term loan agreement, Employee Stock Purchase Plan proceeds of $1.3 million, and $0.9 million ofproceeds from the exercise of stock options. These proceeds were partially offset by payment of lease financing obligations of $0.3 million and payment of deferredoffering costs related to the equity offering program of $0.2 million.Net cash provided by financing activities for 2014 consisted of net proceeds of $57.0 million from our public offering of common stock, proceeds of$30.0 million from our term loan agreement, Employee Stock -69-Table of ContentsPurchase Plan proceeds of $1.0 million, $0.4 million of proceeds from the exercise of stock options, and net proceeds of $0.2 million from the exercise of commonstock warrants. These proceeds were partially offset by the repayment of the outstanding balance under our former credit facility in the amount of $18.2 million,payment of deferred costs related to our term loan agreement in the amount of $0.8 million, and the repurchase of shares related to common stock warrant exercisesof $0.1 million.Net cash provided by financing activities for 2013 consisted of net proceeds of $47.4 million from our initial public offering, proceeds from term loanborrowings of $5.0 million and proceeds from exercise of stock options of $0.4 million. These proceeds were partially offset by repayments of borrowings of $0.2million.Contractual ObligationsThe following table reflects a summary of our contractual obligations as of December 31, 2015. Payments due by period Contractual Obligations (1) Total Less than 1Year 1-3 Years 3-5 Years More than 5Years (In thousands) Lease obligations (2) $41,494 $3,282 $7,660 $8,099 $22,453 Long-term debt obligations (3) 41,771 226 58 — 41,487 Inventory purchase obligations (4) 9,230 9,230 — — — Total $92,495 $12,738 $7,718 $8,099 $63,940 (1) Excludes royalty obligations based on net sales of products, including royalties payable to the Institute for Systems Biology, as any such amounts are notcurrently determinable.(2) Lease costs are primarily for office, laboratory and manufacturing space and exclude the additional costs related to the February 2016 lease amendment.(3) Includes principal and deferred interest on long-term debt obligations.(4) Purchase obligations consist of contractual and legally binding commitments under outstanding purchase orders to purchase long lead time inventory items.Critical Accounting Policies and Significant EstimatesOur discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared inaccordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of thefinancial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to bereasonable under the circumstances. Actual results may differ from these estimates.Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results ofoperations 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 thatare 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. -70-Table of ContentsRevenue RecognitionWe generate the majority of our revenue from sales of products and services. Our products consist of our proprietary nCounter Analysis Systems and relatedconsumables. Services consist of extended service contracts and service fees for assay processing.Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services havebeen rendered; (3) the price to the customer is fixed or determinable; and (4) collectability is reasonably assured. The evaluation of these revenue recognitioncriteria requires significant management judgment. For instance, we use judgment to assess collectability based on factors such as the customer’s creditworthinessand past collection history, if applicable. If we determine that collection of a payment is not reasonably assured, revenue recognition is deferred until receipt ofpayment. We also use judgment to assess whether a price is fixed or determinable including but not limited to, reviewing contractual terms and conditions related topayment terms.Instruments, consumables and in vitro diagnostic kits are considered to be separate units of accounting as they are sold separately and revenue is recognizedupon transfer of ownership, which is generally upon shipment. Instrument revenue related to installation and calibration services is recognized when services arerendered. For instruments sold for use primarily to run Prosigna assays, training must be provided prior to instrument revenue recognition. Instrument revenue fromleased instruments is recognized ratably over the lease term.Some of our sales arrangements involve the delivery or performance of multiple products or services. Significant interpretation is sometimes required todetermine the appropriate accounting, including whether the deliverables specified in a multiple element arrangement should be treated as separate units ofaccounting for revenue recognition purposes, and, if so, how the related sales price should be allocated among the elements, when to recognize revenue for eachelement, and the period over which revenue should be recognized. Revenue recognition for arrangements with multiple deliverables is based on the individual unitsof accounting determined to exist in the arrangement. A delivered element is considered a separate unit of accounting when the delivered element has value to thecustomer on a stand-alone basis. Elements are considered to have stand-alone value when they are sold separately or when the customer could resell the element ona stand-alone basis.For multiple-element arrangements, we allocate arrangement consideration at the inception of the arrangement to the deliverables based on the relativeselling price method. The selling price used for each deliverable is based on vendor-specific objective evidence, or VSOE, if available, third-party evidence, orTPE, if VSOE is not available, or best estimated selling price, or BESP, if neither VSOE nor TPE is available. BESP is determined in a manner consistent with thatused to establish the price to sell the deliverable on a stand-alone basis. To date, selling prices have been established by reference to VSOE based on stand-alonesales transactions for each deliverable. VSOE is considered to have been established when a substantial majority of individual sales transactions within the previous12-month period fall within a reasonably narrow range, which we have defined to be plus or minus 15% of the median sales price of actual stand-alone salestransactions. Allocated revenue is only recognized for each deliverable when the revenue recognition criteria have been met.Revenue from the sales of our products that are not part of multiple element arrangements is recognized when no significant obligations remain undeliveredand collection of the receivables is reasonably assured, which is generally when delivery has occurred.Accruals for estimated warranty expenses are made at the time that the associated revenue is recognized. We use judgment to estimate these accruals and, ifwe were to experience an increase in warranty claims or if costs of servicing our products under warranty were greater than our estimates, our cost of revenue couldbe adversely affected in future periods.Revenue from the sales of our services is recognized when no significant obligations remain undelivered and collection of the receivables is reasonablyassured, which is generally when delivery has occurred. We offer extended service contracts on our nCounter Analysis Systems for periods ranging from 12 to 36months after the end of the standard 12-month warranty period. Revenue from extended service contracts is deferred and recognized in income on a straight-linebasis over the contract period. -71-Table of ContentsWe enter into collaborative agreements that may generate upfront fees with subsequent milestone payments that may be earned upon the completion ofdevelopment-related milestones. We are able to estimate the total cost of services to be provided under the arrangement and recognize collaboration revenue usinga proportional performance model. Costs incurred to date compared to total expected costs are used to determine proportional performance, as this is considered tobe representative of the delivery of outputs under the arrangements. Revenue recognized at any point in time is limited to cash received and amounts contractuallydue. Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. From period to period, collaboration revenue canfluctuate substantially based on the achievement of development-related milestones.Stock-based CompensationWe account for stock-based compensation at fair value. Stock-based compensation costs are recognized based on their grant date fair value estimatedusing the Black-Scholes option pricing model. Stock-based compensation expense recognized in the consolidated statements of operations is based on optionsultimately expected to vest and has been reduced by an estimated forfeiture rate based on our historical and expected forfeiture patterns. We use the straight-linemethod of allocating compensation cost over the requisite service period of the related award.Determining the fair value of stock-based awards at the grant date under the Black-Scholes option pricing model requires judgment, includingestimating the value per share of our common stock, risk-free interest rate, expected term and dividend yield and volatility. The assumptions used in calculating thefair value of stock-based awards represent our best estimates based on management judgment and subjective future expectations. These estimates involve inherentuncertainties. If any of the assumptions used in the Black-Scholes option pricing model significantly change, stock-based compensation for future awards maydiffer materially from the awards granted previously.The expected term of options granted is based on historical experience of similar awards and expectations of future employee behavior. The risk-freeinterest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. We have not paid and do not anticipatepaying cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero. We based our estimate of volatility on the estimatedvolatility of similar companies whose share prices are publicly available.Prior to the closing of our initial public offering, we granted stock options at exercise prices believed to be equal to the fair value of the common stockunderlying such options as determined by the board of directors, with input from management, on the date of grant. Because such grants occurred prior to thepublic trading of our common stock, the board of directors exercised significant judgment in determining the fair market value of our common stock. Thevaluations were consistent with the guidance and methods outlined in the AICPA Practice Aid Valuation of Privately-Held-Company Equity Securities Issued asCompensation, or AICPA Practice Aid, for all option grant dates. After the closing of the initial public offering, we granted stock options with exercise prices basedon market prices.Inventory ValuationInventory consists of raw materials, certain component parts to be used in manufacturing our products and finished goods. Inventory is stated at thelower of cost or market. Cost is determined using a standard cost system, whereby the standard costs are updated periodically to reflect current costs and marketrepresents the lower of replacement cost or estimated net realizable value. We record adjustments to inventory for potentially excess, obsolete, slow-moving orimpaired items. The business environment in which we operate is subject to rapid changes in technology and customer demand. We regularly review inventory forexcess and obsolete products and components, taking into account product life cycle and development plans, product expiration and quality issues, historicalexperience and our current inventory levels. If actual market conditions are less favorable than anticipated, additional inventory adjustments could be required. -72-Table of ContentsFair Value MeasurementsWe establish the fair value of our assets and liabilities using the price that would be received to sell an asset or paid to transfer a financial liability inan 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 valuehierarchy 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; andmodel-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.Prior to the closing of our initial public offering, we recorded preferred stock warrant liability at fair value. Preferred stock warrant liability wascategorized as Level 3 because it was valued based on unobservable inputs and our judgment due to the absence of quoted market prices, inherent lack of liquidityand the long-term nature of such financial instruments. We performed a fair value assessment of the preferred stock warrant inputs on a quarterly basis using theBlack-Scholes option pricing model. The assumptions used in the Black-Scholes option pricing model are inherently subjective and involve significant judgment.Changes in our judgments could have had a material impact on our results of operations and financial position. Any change in fair value was recognized as acomponent of other income (expense) on the consolidated statements of operations.Income TaxesWe use the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assetsand liabilities are measured using enacted tax rates expected to be in effect when such assets and liabilities are recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in the year that includes the enactment date. We determine deferred tax assets including net operatinglosses and liabilities, based on temporary differences between the book and tax bases of assets and liabilities. We believe that it is currently more likely than notthat our deferred tax assets will not be realized, and as such, a full valuation allowance is required.We utilize a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires us to determine if the weight of availableevidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. If a taxposition is not considered “more likely than not” to be sustained, no benefits of the position are recognized. If we determine that a position is “more likely than not”to be sustained, then we proceed to step two, measurement, which is based on the largest amount of benefit which is more likely than not to be realized on effectivesettlement. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessingtemporary differences resulting from the different treatment of items for tax and financial reporting purposes. If actual results differ from our estimates, our netoperating loss and credit carryforwards could be materially impacted.At December 31, 2015, we had federal net operating loss carryforwards, or NOLs, of approximately $165.4 million and federal research andexperimentation credit carryforwards of approximately $4.2 million, which may be used to reduce future taxable income or offset income taxes due. These NOLsand credit carryforwards expire beginning in 2025 through 2036. -73-Table of ContentsOur realization of the benefits of the NOLs and credit carryforwards is dependent on sufficient taxable income in future fiscal years. We haveestablished a valuation allowance against the carrying value of our deferred tax assets, as it is not currently more likely than not that we will be able to realize thesedeferred tax assets. In addition, utilization of NOLs and credits to offset future income subject to taxes may be subject to substantial annual limitations due to the“change in ownership” provisions of the Internal Revenue Code of 1986, or the Code, and similar state provisions. We may have already experienced one or moreownership changes. Depending on the timing of any future utilization of our carryforwards, we may be limited as to the amount that can be utilized each year as aresult of such previous ownership changes. However, we do not believe such limitations will cause our NOL and credit carryforwards to expire unutilized. Futurechanges in our stock ownership as well as other changes that may be outside our control could potentially result in further limitations on our ability to utilize ournet operating loss and tax credit carryforwards.We do not anticipate that the amount of our existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Dueto the presence of NOLs in most jurisdictions, our tax years remain open for examination by taxing authorities back to 2004.Recent Accounting PronouncementsAs an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companiesuntil such pronouncements are made applicable to private companies. As a result, our financial statements may not be comparable to the financial statements ofissuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.In May 2014, the Financial Accounting Standards Board, or FASB issued an accounting standards update entitled “ASU 2014-09, Revenue from Contractswith Customers.” The standard requires entities to recognize revenue through the application of a five step model, which includes identification of the contract,identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, andrecognition of revenue as the entity satisfies the performance obligations. The standard will become effective for us beginning January 1, 2018. We are currentlyassessing the impact adoption of this standard will have on our consolidated results of operations, financial condition, cash flows, and financial statementdisclosures.In June 2014, FASB issued an accounting standards update entitled “ASU 2014-12, Compensation – Stock Compensation.” The standard requires entitiesthat grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting and that could be achievedafter the requisite service period be treated as a performance condition. The standard will become effective for us beginning January 1, 2016. We do not anticipatethe adoption will have a material impact on our consolidated results of operations, financial condition, cash flows, and financial statement disclosures.In August 2014, FASB issued an accounting standards update entitled “ASU 2014-15, Presentation of Financial Statements – Going Concern.” The standardrequires entities to evaluate for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantialdoubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the datethat the financial statements are available to be issued when applicable). The standard will become effective for us beginning January 1, 2017. We do not anticipatethe adoption will have a material impact on our consolidated results of operations, financial condition, cash flows, and financial statement disclosures. -74-Table of ContentsIn July 2015, FASB issued an accounting standards update entitled “ASU 2015-11, Inventory – Simplifying the Measurement of Inventory.” Thestandard requires entities to measure inventory at the lower of cost and net realizable value. The standard will become effective for us beginning January 1, 2017.We do not anticipate the adoption will have a material impact on our consolidated results of operations, financial condition, cash flows, and financial statementdisclosures.In November 2015, FASB issued an accounting standards update entitled “ASU 2015-17 – Balance Sheet Classification of Deferred Taxes.” Thestandard required deferred income tax liabilities and assets be classified as noncurrent in our consolidated balance sheet. The standard is effective for us beginningJanuary 1, 2018. We do not anticipate the adoption will have a material impact on our consolidated results of operations, financial condition, cash flows, andfinancial statement disclosures.In February 2016, FASB issued an accounting standards update entitled “ASU 2016-02, Leases – Recognition and Measurement of Financial Assetsand Financial Liabilities.” The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leaseswill be classified as either finance or operating, with classification affecting the pattern of expense recognition. The standard requires lessors to classify leases aseither sales-type, finance or operating. A sales-type lease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to thelessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards orcontrol, an operating lease results. The standard will become effective for us beginning January 1, 2019. We are currently assessing the impact adoption of thisstandard will have on our consolidated results of operations, financial condition, cash flows, and financial statement disclosures.Off-Balance Sheet ArrangementsWe do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance orspecial purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for any other contractually narrow orlimited purpose.InflationWe do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to becomesubject 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 couldadversely affect our business, financial condition and results of operations. Item 7A.Quantitative and Qualitative Disclosures About Market RiskWe are exposed to various market risks, including changes in commodity prices and interest rates. Market risk is the potential loss arising fromadverse 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 withrespect to foreign currency exchange rates.Interest Rate RiskGenerally, our exposure to market risk has been primarily limited to interest income sensitivity, which is affected by changes in the general level ofU.S. interest rates, particularly because the majority of our investments are in short-term debt securities. The primary objective of our investment activities is topreserve principal while at the same time maximizing the income we receive without significantly increasing risk. To minimize risk, we maintain our portfolio ofcash, 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 January 1, 2016 and sustained throughout the period ending December 31, 2016, would not be material.As of December 31, 2015, the principal and deferred interest outstanding under our term borrowings was $41.5 million. The interest rates on our termborrowings under our credit facility are fixed. If overall interest rates had increased by 10% during the periods presented, our interest expense would not have beenaffected.Foreign Currency Exchange RiskAs we continue to expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreigncurrency exchange rates. Historically, a majority of our revenue has been denominated in U.S. dollars, although we sell our products and services directly in certainmarkets -75-Table of Contentsoutside of the United States denominated in local currency, principally the Euro. Our expenses are generally denominated in the currencies in which our operationsare located, which is primarily in the United States. The effect of a 10% adverse change in exchange rates on foreign denominated cash, receivables and payableswould 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 flowswill be subject to potentially greater fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. To date, we havenot entered into any material foreign currency hedging contracts although we may do so in the future. -76-Table of ContentsItem 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTSNANOSTRING TECHNOLOGIES, INC. Page(s) Financial Statements: Report of Independent Registered Public Accounting Firm 78 Consolidated Balance Sheets 79 Consolidated Statements of Operations 80 Consolidated Statements of Comprehensive Loss 81 Consolidated Statements of Changes in Mandatorily Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 82 Consolidated Statements of Cash Flows 83 Notes to Consolidated Financial Statements 84 -77-Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of NanoString Technologies, Inc.In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive loss, of changes inmandatorily redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial positionof NanoString Technologies, Inc. and its subsidiaries (the “Company”) at December 31, 2015 and 2014, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on ouraudits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis forour opinion./s/ PricewaterhouseCoopers LLPSeattle, WashingtonMarch 11, 2016 -78-Table of ContentsNanoString Technologies, Inc.Consolidated Balance Sheets December 31, 2015 2014 (In thousands, except par value amounts) Assets Current assets: Cash and cash equivalents $21,856 $17,223 Short-term investments 27,188 55,002 Accounts receivable, net 19,725 12,436 Inventory 10,138 5,444 Prepaid expenses and other current assets 3,886 5,114 Total current assets 82,793 95,219 Restricted cash 143 143 Deferred offering costs 181 — Property and equipment, net 9,414 6,366 Other assets 338 340 Total assets $92,869 $102,068 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $3,243 $3,380 Accrued liabilities 12,181 10,403 Deferred revenue, current portion 5,261 4,627 Deferred rent, current portion — 147 Lease financing obligations, current portion 226 251 Total current liabilities 20,911 18,808 Deferred revenue, net of current portion 6,486 7,135 Deferred rent, net of current portion 4,257 1,317 Long-term debt and lease financing obligations, net of current portion and debt issuance costs 41,000 29,995 Total liabilities 72,654 57,255 Commitments and contingencies (Note 15) Stockholders’ equity Preferred stock, $0.0001 par value, 15,000 shares authorized; none issued — — Common stock, $0.0001 par value, 150,000 shares authorized; 19,570 and 18,272 shares issued and outstanding atDecember 31, 2015 and 2014, respectively 2 2 Additional paid-in-capital 242,693 221,724 Other comprehensive loss (29) (43) Accumulated deficit (222,451) (176,870) Total stockholders’ equity 20,215 44,813 Total liabilities and stockholders’ equity $92,869 $102,068 The accompanying notes are an integral part of these consolidated financial statements. -79-Table of ContentsNanoString Technologies, Inc.Consolidated Statements of Operations Years Ended December 31, 2015 2014 2013 (In thousands, except per share amounts) Revenue: Product and service $56,639 $44,497 $31,403 Collaboration 6,028 3,096 — Total revenue 62,667 47,593 31,403 Costs and expenses: Cost of product and service revenue 26,126 21,149 15,009 Research and development 24,597 21,404 14,979 Selling, general and administrative 53,186 51,063 29,912 Total costs and expenses 103,909 93,616 59,900 Loss from operations (41,242) (46,023) (28,497) Other income (expense): Interest income 233 272 68 Interest expense (4,017) (4,140) (1,942) Other expense (389) (147) (66) Revaluation of preferred stock warrant liability — — 1,156 Total other income (expense) (4,173) (4,015) (784) Net loss before provision for income taxes (45,415) (50,038) (29,281) Provision for income taxes (166) — — Net loss (45,581) (50,038) (29,281) Accretion of mandatorily redeemable convertible preferred stock — — (4,653) Net loss attributable to common stockholders $(45,581) $(50,038) $(33,934) Net loss per share—basic and diluted $(2.40) $(2.80) $(4.44) Weighted average shares used in computing basic and diluted net loss per share 19,027 17,839 7,643 The accompanying notes are an integral part of these consolidated financial statements. -80-Table of ContentsNanoString Technologies, Inc.Consolidated Statements of Comprehensive Loss Years Ended December 31, 2015 2014 2013 (In thousands) Net loss $(45,581) $(50,038) $(29,281) Other comprehensive income (loss): Unrealized gain (loss) on short-term investments 14 (65) 22 Comprehensive loss $(45,567) $(50,103) $(29,259) The accompanying notes are an integral part of these consolidated financial statements. -81-Table of ContentsNanoString Technologies, Inc.Consolidated Statements of Changes in Mandatorily Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)Period From December 31, 2012 Through December 31, 2015 Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Series E Preferred Stock Common Stock AdditionalPaid-in Other Comprehensive Accumulated Total Stockholders’Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Loss Deficit (Deficit) (In thousands, except share amounts) Balances atDecember 31,2012 557,339 $15,605 515,836 $13,865 3,551,060 $38,592 2,430,054 $20,323 1,063,951 $15,237 411,226 $— $— $— $(93,760) $(93,760) Accretion ofpreferred stock — 683 — 577 — 1,604 — 1,140 — 649 — — (862) — (3,791) (4,653) Issuance ofcommon stockfrom initialpublic offeringnet of issuancecosts of $7,180 — — — — — — — — — — 5,400,000 — 46,820 — — 46,820 Conversion ofpreferred stockinto commonstock at initialpublic offering (557,339) (16,288) (515,836) (14,442) (3,551,060) (40,196) (2,430,054) (21,463) (1,063,951) (15,886) 8,631,427 1 108,274 — — 108,275 Conversion ofwarrants fromwarrants forpreferred stockto warrants forcommon stock — — — — — — — — — — — — 2,514 — — 2,514 Exercise of stockoptions — — — — — — — — — — 177,165 — 387 — — 387 Stock-basedcompensation — — — — — — — — — — — — 1,145 — — 1,145 Net loss — — — — — — — — — — — — — — (29,281) (29,281) Othercomprehensiveincome — — — — — — — — — — — — — 22 — 22 Balances atDecember 31,2013 — — — — — — — — — — 14,619,818 1 158,278 22 (126,832) 31,469 Issuance ofcommon stocknet of issuancecosts of $4,413 — — — — — — — — — — 3,318,917 1 56,986 — — 56,987 Issuance ofcommon stockfor employeestock purchaseplan — — — — — — — — — — 141,386 — 987 — — 987 Exercise of stockoptions — — — — — — — — — — 164,394 — 411 — — 411 Exercise ofcommon stockwarrants, net — — — — — — — — — — 27,269 — 136 — — 136 Stock-basedcompensation — — — — — — — — — — — — 4,926 — — 4,926 Net loss — — — — — — — — — — — — — — (50,038) (50,038) Othercomprehensiveloss — — — — — — — — — — — — — (65) — (65) Balances atDecember 31,2014 — — — — — — — — — — 18,271,784 $2 $221,724 $(43) $(176,870) $44,813 Issuance ofcommon stocknet of issuancecosts of $447 — — — — — — — — — — 960,400 — 12,518 12,518 Issuance ofcommon stockfor employeestock purchaseplan — — — — — — — — — — 136,078 — 1,295 1,295 Exercise of stockoptions — — — — — — — — — — 201,622 — 876 876 Exercise ofcommon stockwarrants, net — — — — — — — — — — 250 — 2 — — 2 Stock-basedcompensation — — — — — — — — — — — — 6,278 — — 6,278 Net loss — — — — — — — — — — — — — — (45,581) (45,581) Othercomprehensiveincome — — — — — — — — — — — — — 14 — 14 Balances atDecember 31,2015 — $— — $— — $— — $— — $— 19,570,134 $2 $242,693 $(29) $(222,451) $20,215 The accompanying notes are an integral part of these consolidated financial statements. -82-Table of ContentsNanoString Technologies, Inc.Consolidated Statements of Cash Flows Years Ended December 31, 2015 2014 2013 (In thousands) Operating activities : Net loss $(45,581) $(50,038) $(29,281) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 2,377 1,590 1,990 Stock-based compensation 6,278 4,926 1,145 Revaluation of preferred stock warrant liability — — (1,156) Loss on extinguishment of debt — 581 — Amortization of premium on short-term investments 270 86 (518) Interest accrued on long-term debt 18 (348) 259 Conversion of accrued interest to long-term debt 1,067 420 — Bad debt expense 34 — — Loss on disposal of property and equipment 3 — 1 Gain on sale of investments — (5) — Changes in operating assets and liabilities Accounts receivable, net (7,328) (4,109) (5,009) Inventory (5,354) (1,252) (1,370) Prepaid expenses and other 1,199 (2,132) (1,679) Other assets (7) (70) (268) Accounts payable (166) 21 1,601 Accrued liabilities 1,162 3,379 2,678 Deferred revenue (127) 9,497 1,025 Deferred rent 2,793 (607) (764) Net cash used in operating activities (43,362) (38,061) (31,346) Investing activities : Purchases of property and equipment (3,796) (1,900) (759) Proceeds from sale of short-term investments 3,000 4,500 — Proceeds from maturity of short-term investments 57,309 35,977 — Purchases of short-term investments (32,750) (62,911) (32,175) Proceeds from sale of property and equipment 6 — — Decrease (increase) in restricted cash — 59 (21) Net cash provided by (used in) investing activities 23,769 (24,275) (32,955) Financing activities : Proceeds from long-term debt 10,000 30,000 5,000 Deferred costs related to long-term debt — (770) — Repayment of long-term debt and lease financing obligations (271) (18,214) (211) Net proceeds from public offerings of common stock 12,518 57,015 47,374 Proceeds from exercise of common stock warrants 2 230 — Proceeds from issuance of common stock for employee stock purchase plan 1,295 988 — Repurchase of shares related to common stock warrant exercise — (94) — Deferred offering costs (152) — — Proceeds from exercise of stock options 876 411 387 Net cash provided by financing activities 24,268 69,566 52,550 Net increase (decrease) in cash and cash equivalents 4,675 7,230 (11,751) Effect of exchange rate changes on cash and cash equivalents (42) 52 — Cash and cash equivalents : Beginning of year 17,223 9,941 21,692 End of year $21,856 $17,223 $9,941 Supplemental disclosures : Cash paid for interest $2,844 $3,479 $1,474 Cash paid for taxes 69 — — Accrual of construction costs for leasehold improvements 640 — — Rental instruments reclassified from inventory 772 2,541 — Non-cash inventory exchange for services 112 — — Non-cash capital lease 48 262 410 Accrual of offering costs 29 — 29 Accretion of preferred stock — — 4,653 Issuance of preferred stock warrants with debt — — 138 Conversion of convertible preferred stock to common stock — — 108,275 Conversion of convertible preferred stock warrants to common stock warrants — — 2,514 The accompanying notes are an integral part of these consolidated financial statements. -83-Table of ContentsNanoString Technologies, Inc.Notes to Consolidated Financial Statements 1.Description of the BusinessNanoString Technologies, Inc. (the “Company”) was incorporated in the state of Delaware on June 20, 2003. The Company’s headquarters is locatedin Seattle, Washington. The Company’s technology enables direct detection, identification and quantification of individual target molecules in a biological sampleby attaching a unique color coded fluorescent reporter to each target molecule of interest. The Company markets its proprietary nCounter Analysis System,consisting of instruments and consumables, including its Prosigna Breast Cancer Assay, to academic, government and biopharmaceutical and clinical laboratorycustomers. In addition, the Company is collaborating with multiple biopharma companies to develop companion diagnostic tests for various cancer therapies.The Company has incurred losses to date and expects to incur additional losses in the foreseeable future. The Company continues to devote themajority of its resources to the growth of its business in accordance with its business plan. The Company’s activities have been financed primarily through the saleof equity securities and incurrence of indebtedness, and to a lesser extent, capital leases and other borrowings.Reverse Stock SplitIn June 2013, the Company effected a 1-for-32 reverse stock split of its common stock and preferred stock. All share and per share information hasbeen retroactively adjusted to reflect this reverse stock split.Public OfferingsIn June 2013, the Company’s registration statement on Form S-1 was declared effective. This registration statement related to its initial publicoffering, in which the Company sold 5,400,000 shares of common stock at a price of $10.00 per share. The shares began trading on the NASDAQ Global Marketon June 26, 2013. All outstanding shares of the Company’s mandatorily redeemable convertible preferred stock converted into shares of common stock inconnection with the initial public offering. Following the initial public offering, there were no shares of preferred stock outstanding.In January 2014, the Company completed an underwritten public offering of 2,972,972 shares of common stock for total gross proceeds of $55.0million. In February 2014, the underwriters partially exercised an overallotment option, purchasing 345,945 additional shares from the Company for additionalgross proceeds of $6.4 million. After underwriters’ fees and commissions and other expenses of the offering, the Company’s aggregate net proceeds wereapproximately $57.0 million.In May 2015, the Company entered into a sales agreement with a sales agent to sell shares of the Company’s common stock through an “at themarket” equity offering program for up to $40.0 million in total sales proceeds. Under the sales agreement, the Company sold 960,400 shares during 2015 for netproceeds of $12.5 million. The sales agreement allows the Company to set the parameters for the sale of shares, including the number of shares to be issued, thetime period during which sales are requested to be made, limits on the number of shares that may be sold in any one trading day and any minimum price belowwhich sales may not be made. Under the terms of the Sales Agreement, commission expenses to the sales agent will not exceed 3% of the gross sales price pershare sold through the sales agent. The Sales Agreement shall automatically terminate upon the issuance and sale of placement shares equaling sales proceeds of$40.0 million and may be terminated earlier by either the Company or the sales agent upon five days’ notice. As of December 31, 2015, the Company has sold anaggregate of 960,400 shares of the Company’s common stock for total gross -84-Table of Contentsproceeds of $13.0 million. The net proceeds from the sale of the shares, after deducting the sales agent commission and other expenses of the offering, wereapproximately $12.5 million. As of December 31, 2015, approximately $27.0 million of common stock is available to be sold under the “at the market” equityoffering program. 2.Significant Accounting PoliciesAccounting Principles and Principles of ConsolidationThe consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in theUnited States of America (“U.S. GAAP”). The accompanying consolidated financial statements reflect the accounts of the Company and its wholly-ownedsubsidiaries. Each of the subsidiaries operates as a sales and support office. The functional currency of each subsidiary is the U.S. dollar. All significantintercompany balances and transactions have been eliminated.Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and thataffect the reported amounts of revenue and expenditures during the reporting period. Actual results could differ from those estimates. Significant estimates inherentin the preparation of the accompanying consolidated financial statements include the estimation of the valuation of inventory, the fair value of the Company’sequity securities, the calculation of stock-based compensation and the estimated future cost of ongoing collaboration agreements, for which revenues arerecognized on a proportional performance basis.Cash and Cash EquivalentsThe Company considers all highly-liquid investments with purchased maturities of three months or less to be cash equivalents. The Company’s cashequivalents consist principally of funds maintained in depository accounts. The Company invests its cash and cash equivalents with major financial institutions; attimes these investments exceed federally insured limits.InvestmentsThe Company classifies its securities as available-for-sale, which are reported at estimated fair value with unrealized gains and losses included inaccumulated other comprehensive loss in stockholders’ equity. Realized gains, realized losses and declines in the value of securities judged to be other-than-temporary, are included in other income (expense). The cost of investments for purposes of computing realized and unrealized gains and losses is based on thespecific identification method. Amortization of premiums and accretion of discounts are included in other income (expense). Interest and dividends earned on allsecurities are included in other income (expense). Investments in securities with maturities of less than one year, or where management’s intent is to use theinvestments to fund current operations, or to make them available for current operations, are classified as short-term investments.If the estimated fair value of a security is below its carrying value, the Company evaluates whether it is more likely than not that it will sell the securitybefore its anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of timeoutweighs evidence to the contrary. The Company also evaluates whether or not it intends to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair value. In addition, the Company considers whether credit losses exist for any securities. A -85-Table of Contentscredit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. Other-than-temporary declines inestimated fair value and credit losses are charged against other income (expense).Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are stated at the amount management expects to collect from customers based on their outstanding invoices. Management reviewsaccounts receivable regularly to determine if any receivable will potentially be uncollectible and to estimate the amount of allowance for doubtful accountsnecessary to reduce accounts receivable to its estimated net realizable value by analyzing the status of significant past due receivables. The allowance for doubtfulaccounts was $96,600 and $63,000 as of December 31, 2015 and 2014, respectively. Additions to the allowance were $33,600, $63,000 and $0 for the years endedDecember 31, 2015, 2014 and 2013, respectively. There were no write-offs of uncollectible accounts during the years ended December 31, 2015, 2014 and 2013.Concentration of Credit RisksFinancial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-terminvestments and accounts receivable. Cash is invested in accordance with the Company’s investment policy, which includes guidelines intended to minimize anddiversify credit risk. Most of the Company’s investments are not federally insured. The Company has credit risk related to the collectability of its accountsreceivable. The Company performs initial and ongoing evaluations of its customers’ credit history or financial position and generally extends credit on accountwithout collateral. The Company has not experienced any significant credit losses to date.The Company had no customers that individually represented more than 10% of total revenue during the years ended December 31, 2015, 2014 and2013. The Company had no customers that represented more than 10% of total accounts receivable at December 31, 2015 and one customer represented 21% ofaccounts receivable at December 31, 2014.The Company is also subject to supply chain risks related to the outsourcing of the manufacturing of its instruments to sole suppliers. Although thereare a limited number of manufacturers for instruments of this type, the Company believes that other suppliers could provide similar products on comparable terms.A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect operating results.Fair value of financial instrumentsThe recorded amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other assets,accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Investments that are classified as available-for-sale arerecorded at fair value. The fair value for securities held is determined using quoted market prices, broker or dealer quotations, or alternative pricing sources withreasonable levels of price transparency. The recorded amount of the Company’s long-term debt approximates fair value because the related interest ratesapproximate rates currently available to the Company.InventoryInventory consists of finished goods, work in process, raw materials and certain component parts to be used in manufacturing the Company’sproducts. Inventory is stated at the lower of cost or market. Cost is determined using a standard cost system, whereby the standard costs are updated periodically toreflect current costs and market represents the lower of replacement cost or estimated net realizable value. The Company’s policy is to establish inventory reserveswhen conditions exist that suggest that inventory may be in excess of anticipated demand, obsolete, slow moving or impaired. In the event that the Companyidentifies these conditions exist in its inventory, its carrying value is reduced to its net realizable value. Inventory reserves were $2.2 million, $2.2 million, $2.1million and $3.5 million as of December 31, 2015, 2014, 2013 and 2012, respectively. Additions to the reserves were $0.2 million, $0.2 million and $0.4 million forthe years ended December 31, 2015, 2014 and 2013, respectively. Write-offs of inventory reserves for the years ended December 31, 2015, 2014 and 2013 were$0.3 million, $0.1 million and $1.8 million, respectively. -86-Table of ContentsThe Company outsources the manufacturing of its instruments to third-party contract manufacturers who manufacture them to certain specificationsand source certain raw materials from sole source providers. Major delays in shipments, inferior quality, insufficient quantity or any combination of these or otherfactors may harm the Company’s business and results of operations. In addition, the inability of one or more of these suppliers to provide the Company with anadequate supply of its products or raw materials or the loss of one or more of these suppliers may cause a delay in the Company’s ability to fulfill orders while itobtains a replacement supplier and may harm the Company’s business and results of operations.Property and EquipmentProperty and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using thestraight-line method over the estimated useful lives of the assets. Manufacturing equipment is depreciated over five years, lease and loaner instruments aredepreciated over one to five years, prototype systems are depreciated over two years, computer equipment is generally depreciated over three years, furniture andfixtures are depreciated over five years and leasehold improvements are amortized over the life of the related assets or the term of the lease, whichever is shorter.Expenditures for additions are capitalized and expenditures for maintenance and repairs are expensed as incurred. Gains and losses from the disposal of propertyand equipment are reflected in the consolidated statements of operations in the period of disposition.Leases and Leasehold ImprovementsRent expense for leases that provide for scheduled rent increases during the lease term is recognized on a straight-line basis over the term of the relatedlease. Leasehold improvements that are funded by landlord incentives or allowances are recorded in property and equipment and as a component of deferred rentand are amortized as a reduction of rent expense over the term of the related lease.Impairment of Long-Lived AssetsThe Company recognizes impairment losses on long-lived assets when indicators of impairment are present and the anticipated undiscounted cashflows to be generated by those assets are less than the asset’s carrying values. The Company has not experienced any impairment losses on its long-lived assetsduring the periods presented.Deferred Offering CostsDeferred offering costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through public offerings ofthe Company’s common stock. Costs are deferred until the completion of the applicable offering, at which time they are reclassified to additional paid-in capital asa reduction of the proceeds. The Company recorded deferred offering costs of $181,000 as a non-current asset as of December 31, 2015. The Company had nodeferred offering costs recorded as of December 31, 2014. -87-Table of ContentsSegmentsOperating segments are defined as components of an entity for which separate financial information is available and evaluated regularly by the chiefoperating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executiveofficer, who manages the operations and evaluates the financial performance on a total Company basis. The Company’s principal operations and decision-makingfunctions are located at its corporate headquarters in the United States.Until the fourth quarter of 2013, the Company operated in two reportable segments, its life sciences business and its diagnostics business. InNovember 2013, the Company’s nCounter Dx Analysis System FLEX Configuration was launched, enabling customers to perform both research and diagnostictesting on the same instrument. The Company has one sales force that now sells these systems to both research and clinical testing labs, and has launched its firstproduct, nCounter Elements reagents, that can be used for both research and diagnostic testing. As a result of these fundamental changes to its business, theCompany began operating as a single reportable segment during the fourth quarter of 2013.Revenue RecognitionThe Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered,(3) the price to the customer is fixed or determinable and (4) collectability is reasonably assured. The Company generates revenue from the sale of products andservices. The Company’s products consist of its proprietary nCounter Analysis System and related consumables. Services consist of extended warranties andservice fees for assay processing. A delivered product or service is considered to be a separate unit of accounting when it has value to the customer on a stand-alonebasis. Products or services have value on a stand-alone basis if they are sold separately by any vendor or the customer could resell the delivered product.Instruments, consumables and in vitro diagnostic kits are considered to be separate units of accounting as they are sold separately and revenue isrecognized upon transfer of ownership, which is generally upon shipment. Instrument revenue related to installation and calibration services is recognized whenservices are rendered by the Company. Such services can also be provided by the Company’s distribution partners. For instruments sold for use primarily to runProsigna assays, training must be provided prior to instrument revenue recognition. Instrument revenue from leased instruments is recognized ratably over the leaseterm.Service revenue is recognized when earned, which is generally upon the rendering of the related services. Service agreements and service fees forassay processing are each considered separate units of accounting as they are sold separately. The Company offers service agreements on its nCounter AnalysisSystem for periods ranging from 12 to 36 months after the end of the standard 12-month warranty period. Service agreements are generally separately priced.Revenue from service agreements is deferred and recognized in income on a straight-line basis over the service period.For arrangements with multiple deliverables, the Company allocates the agreement consideration at the inception of the agreement to the deliverablesbased upon their relative selling prices. To date, selling prices have been established by reference to vendor specific objective evidence based on stand-alone salestransactions for each deliverable. Vendor specific objective evidence is considered to have been established when a substantial majority of individual salestransactions within the previous 12 month period fall within a reasonably narrow range, which the Company has defined to be plus or minus 15% of the mediansales price of actual stand-alone sales transactions. The Company uses its best estimate of selling price for individual deliverables when vendor specific objectiveevidence or third-party evidence is unavailable. Allocated revenue is only recognized for each deliverable when the revenue recognition criteria have been met. -88-Table of ContentsThe Company enters into collaborative agreements that may generate upfront fees with subsequent milestone payments that may be earned uponcompletion of development-related milestones. The Company is able to estimate the total cost of services under the arrangements and recognizes collaborationrevenue using a proportional performance model. Costs incurred to date compared to total expected costs are used to determine proportional performance, as this isconsidered to be representative of the delivery of outputs under the arrangements. Revenue recognized at any point in time is limited to cash received and amountscontractually due. Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. From period to period, collaborationrevenue can fluctuate substantially based on the achievement of development-related milestones.Cost of RevenueCost of revenue consists primarily of costs incurred in the production process, including costs of purchasing instruments from third-party contractmanufacturers, consumable component materials and assembly labor and overhead, installation, warranty, service and packaging and delivery costs. In addition,cost of revenue includes royalty costs for licensed technologies included in the Company’s products, provisions for slow-moving and obsolete inventory and stock-based compensation expense. Cost of revenue for instruments and consumables is recognized in the period the related revenue is recognized. Shipping and handlingcosts incurred for product shipments are included in cost of revenue in the consolidated statements of operations.Reserve for Product WarrantiesThe Company generally provides a one-year warranty on its nCounter Analysis Systems and establishes a reserve for future warranty costs based onhistorical product failure rates and actual warranty costs incurred. Warranty expense is recorded as a component of cost of revenue in the consolidated statements ofoperations.Research and DevelopmentResearch and development expenses, consisting primarily of salaries and benefits, occupancy costs, laboratory supplies, clinical study costs,contracted services, consulting fees and related costs, are expensed as incurred.Selling, General and AdministrativeSelling expenses consist primarily of personnel related costs for sales and marketing, contracted services and service fees and are expensed as therelated costs are incurred. Advertising costs are charged to operations as incurred and are included in sales and marketing expenses. Advertising costs totaledapproximately $2.6 million, $5.1 million and $3.3 million during the years ended December 31, 2015, 2014 and 2013, respectively.General and administrative expenses consist primarily of personnel related costs for the Company’s finance, human resources, business development,legal and general management, as well as professional fees for services such as legal and accounting services. General and administrative expenses are expensed asthey are incurred. -89-Table of ContentsIncome TaxesThe Company accounts for income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined basedon the differences between the financial reporting and income tax bases of assets and liabilities and are measured using the tax rates that will be in effect when thedifferences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.The Company determines whether a tax position is more likely than not to be sustained upon examination based on the technical merits of the position.For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has agreater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.Stock-Based CompensationThe Company accounts for stock-based compensation under the fair value method. Stock-based compensation costs are based on option awardsgranted and vested based on their grant-date fair value, estimated using the Black-Scholes option pricing model. The Company uses the straight-line attributionmethod for recognizing compensation expense.The Company recognizes compensation expense for only the portion of options expected to vest. Therefore, management applied an estimatedforfeiture rate that was derived from historical employee termination behavior. If the actual number of forfeitures differs from these estimates, adjustments tocompensation expense may be required in future periods.Guarantees and IndemnificationsIn the normal course of business, the Company guarantees and/or indemnifies other parties, including vendors, lessors and parties to transactions withthe Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising from breach of representations orcovenants, or out of intellectual property infringement or other claims made against certain parties. It is not possible to determine the maximum potential amountthe Company could be required to pay under these indemnification agreements, since the Company has not had any prior indemnification claims, and each claimwould be based upon the unique facts and circumstances of the claim and the particular provisions of each agreement. In the opinion of management, any suchclaims would not be expected to have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows. TheCompany did not have any related liabilities recorded at December 31, 2015 and 2014.Comprehensive LossComprehensive loss includes certain changes in equity that are excluded from net loss. Specifically, unrealized gains and losses on short-term investmentsare included in comprehensive loss.Recently Adopted Accounting PronouncementIn April 2015, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update entitled “ASU 2015-03, Interest-Imputation ofInterest: Simplifying the Presentation of Debt Issuance Costs.” The standard simplifies the presentation of debt issuance costs by requiring that debt issuance costsrelated to a recognized debt liability be presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability, which isconsistent with the treatment of debt discounts. The Company has applied ASU 2015-03 in the fourth quarter of fiscal 2015 and has reclassified debt issuance costsfrom current and other long-term assets to long-term debt for all years presented. Adoption did not otherwise impact the Company’s consolidated results ofoperations and statements of cash flows. -90-Table of ContentsRecent Accounting PronouncementsAs an “emerging growth company,” the Jumpstart Our Business Startups Act allows the Company to delay adoption of new or revised accountingpronouncements applicable to public companies until such pronouncements are made applicable to private companies.In May 2014, FASB issued an accounting standards update entitled “ASU 2014-09, Revenue from Contracts with Customers.” The standard requires entitiesto recognize revenue through the application of a five step model, which includes identification of the contract, identification of the performance obligations,determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the entity satisfies theperformance obligations. The standard will become effective for the Company beginning January 1, 2017. The Company is currently assessing the impact adoptionof this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.In June 2014, FASB issued an accounting standards update entitled “ASU 2014-12, Compensation – Stock Compensation.” The standard requires entitiesthat grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting and that could be achievedafter the requisite service period be treated as a performance condition. The standard will become effective for the Company beginning January 1, 2016. TheCompany does not anticipate adoption of the standard will have a material impact on its consolidated results of operations, financial condition, cash flows, andfinancial statement disclosures.In August 2014, FASB issued an accounting standards update entitled “ASU 2014-15, Presentation of Financial Statements – Going Concern.” The standardrequires entities to evaluate for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantialdoubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the datethat the financial statements are available to be issued when applicable). The standard will become effective for the Company beginning January 1, 2017. TheCompany does not anticipate adoption of the standard will have a material impact on its consolidated results of operations, financial condition, cash flows, andfinancial statement disclosures.In July 2015, FASB issued an accounting standards update entitled “ASU 2015-11, Inventory – Simplifying the Measurement of Inventory.” The standardrequires entities to measure inventory at the lower of cost and net realizable value. The standard will become effective for the Company beginning January 1, 2017.The Company does not anticipate adoption of the standard will have a material impact on its consolidated results of operations, financial condition, cash flows, andfinancial statement disclosures.In November 2015, FASB issued an accounting standards update entitled “ASU 2015-17, Balance Sheet Classification of Deferred Taxes.” The standardrequires deferred income tax liabilities and assets be classified as noncurrent in our consolidated balance sheet. The standard will become effective for theCompany beginning January 1, 2018. The Company does not anticipate adoption of the standard will have a material impact on its consolidated results ofoperations, financial condition, cash flows, and financial statement disclosures.In February 2016, FASB issued an accounting standards update entitled “ASU 2016-02, Leases – Recognition and Measurement of Financial Assets andFinancial Liabilities.” The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases willbe classified as either finance or operating, with classification affecting the pattern of expense recognition. The standard requires lessors to classify leases as eithersales-type, finance or operating. A sales-type lease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control,an operating lease results. The standard will become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoptionof this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures. 3.Short-term InvestmentsShort-term investments consisted of available-for-sale securities as follows (in thousands): Type of security as of December 31, 2015 Amortized cost Gross unrealizedgains Gross unrealizedlosses Fair value Corporate debt securities $26,116 $— $(28) $26,088 U.S. government-related debt securities 1,101 — (1) 1,100 Total available-for-sale securities $27,217 $— $(29) $27,188 -91-Table of ContentsType of security as of December 31, 2014 Amortized cost Gross unrealizedgains Gross unrealizedlosses Fair value Corporate debt securities $47,345 $2 $(40) $47,307 U.S. government-related debt securities 4,502 — (4) 4,498 Asset-backed securities 3,198 — (1) 3,197 Total available-for-sale securities $55,045 $2 $(45) $55,002 The fair values of available-for-sale securities by contractual maturity at December 31 were as follows (in thousands): 2015 2014 Maturing in one year or less $27,188 $51,235 Maturing in one to three years — 3,767 Total available-for-sale securities $27,188 $55,002 The following table summarizes investments that have been in a continuous unrealized loss position as of December 31, 2015 (in thousands): Less Than 12 Months More Than 12 Months Total Fair value Gross unrealizedlosses Fair value Gross unrealizedlosses Fair value Gross unrealizedlosses Corporate debt securities $23,357 $(24) $2,730 $(4) $26,087 $(28) U.S. government-related debt securities 1,100 (1) — — 1,101 (1) Total $24,457 $(25) $2,730 $(4) $27,188 $(29) The Company reviews the individual securities in its portfolio to determine whether a decline in a security’s fair value below the amortized cost basisis other-than-temporary. The Company determined that as of December 31, 2015, there were no investments in its portfolio that were other-than-temporarilyimpaired. 4.Fair Value MeasurementsThe 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 financialliability 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 thefair value hierarchy are as follows:Level 1: Quoted prices in active markets for identical assets and liabilities. -92-Table of ContentsLevel 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; andmodel-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 Company’s available-for-sale securities by level within the fair value hierarchy were as follows (in thousands): As of December 31, 2015 Fair value measurement using: Level 1 Level 2 Level 3 Total Cash equivalents: Money market fund $5,371 $— $— $5,371 Short-term investments: Corporate debt securities — 26,088 — 26,088 U.S. government-related debt securities — 1,100 — 1,100 Total $ 5,371 $27,188 $— $32,559 As of December 31, 2014 Fair value measurement using: Level 1 Level 2 Level 3 Total Cash equivalents: Money market fund $13,426 $— $— $13,426 Short-term investments: Corporate debt securities — 47,307 — 47,307 U.S. government-related debt securities — 4,498 — 4,498 Asset-backed securities — 3,197 — 3,197 Total $13,426 $55,002 $— $68,428 5.InventoryInventory consisted of the following at December 31 (in thousands): 2015 2014 Raw materials $3,575 $1,299 Work in process 2,895 2,157 Finished goods 3,668 1,988 $10,138 $5,444 In 2015 and 2014, $0.8 million and $2.5 million, respectively, of inventory leased, loaned, or assigned for internal use in the Company’s facilitieswere transferred into property, plant, and equipment. 6.Prepaid Expenses and Other Current AssetsPrepaid expenses and other consisted of the following at December 31 (in thousands): 2015 2014 Deposits for inventory $1,664 $2,207 Subsidiary bank trust deposits 539 626 Marketing events 518 525 Insurance 314 309 Software licensing fees 278 220 R&D equipment service agreements 163 220 Dues and subscriptions 96 151 Other 314 856 $3,886 $5,114 -93-Table of Contents7.Property and EquipmentProperty and equipment consisted of the following at December 31 (in thousands): Useful Life(Years) 2015 2014 Manufacturing equipment 5 $4,543 $3,654 Lease and loaner instruments 1 -5 3,318 2,629 Prototype instruments 2 2,956 2,157 Computer equipment 3 1,847 1,430 Furniture and fixtures 5 1,390 831 Leasehold improvements Various 5,874 4,888 Construction in progress 1,921 1,058 21,849 16,647 Less: Accumulated depreciation and amortization (12,435) (10,281) $9,414 $6,366 Prototype instruments consist of nCounter instruments used in internal testing and other development activities.Accumulated depreciation on lease and loaner instruments was $867,000 and $128,000 at December 31, 2015 and 2014, respectively.Depreciation and amortization expense for the years ended December 31, 2015, 2014 and 2013 totaled approximately $2.3 million, $1.5 million and$1.8 million, respectively. 8.Accrued LiabilitiesAccrued liabilities consisted of the following at December 31 (in thousands): 2015 2014 Employee compensation $8,039 $6,838 Royalties payable 828 632 Construction related costs for leasehold improvements 640 50 Clinical study costs 563 572 Sales, use and other taxes 551 543 Warranty reserves 299 503 Accounting and legal 427 297 Other accrued liabilities 834 968 $12,181 $10,403 -94-Table of Contents9.Long-Term Debt2014 Term Loan AgreementIn April 2014, the Company entered into a term loan agreement under which it may borrow up to $45.0 million, including an option to defer paymentof a portion of the interest that would accrue on the borrowing under the term loan agreement. Upon initial closing, the Company borrowed $20.0 million, theproceeds of which were primarily used to repay the outstanding balance under the Company’s former credit facility plus a related $1.0 million end of termpayment, a $0.3 million make-whole premium, and deferred interest. The Company incurred and recorded a total charge to interest expense of $1.4 million relatedto the repayment of the former credit facility, including a loss on extinguishment of debt of $0.6 million. In October 2014, the Company borrowed an additional$10.0 million under the term loan agreement.In October 2015, the Company amended the term loan agreement to, among other provisions, increase the maximum borrowing capacity to $60.0million (excluding deferred interest), reduce the applicable interest rate from 12.5% to 12.0%, extend the interest-only period through March 2021, and extend thefinal maturity to March 2022. Under the amended agreement, borrowings accrue interest at 12.0% annually, payable quarterly, of which 3.0% can be deferredduring the first six years of the term at the Company’s option and paid together with the principal at maturity. The Company has elected to exercise the option todefer payment of interest and has recorded $1.5 million of deferred interest through December 31, 2015. In December 2015, the Company borrowed an additional$10.0 million under the terms of the amended agreement and is required to borrow an additional $5.0 million no later than June 30, 2016. At its option, theCompany may borrow up to an additional $15.0 million through December 31, 2016. Total borrowings and deferred interest under the amended term loanagreement were $41.5 million and $30.4 million as of December 31, 2015 and 2014, respectively.Under the amended term loan agreement, the Company may pay interest-only for the first seven years of the term and principal payments are due infour equal installments during the eighth year of the term. The Company has the option to prepay the term loan, in whole or part, at any time subject to payment ofa redemption fee of up to 4%, which declines 1% annually thereafter, with no redemption fee payable if prepayment occurs after the fourth year of the loan. Inaddition, a facility fee equal to 2.0% of the amount borrowed plus any accrued interest is payable at the end of the term or when the loan is repaid in full. A long-term liability of $1.1 million is being accreted using the effective interest method for the facility fee over the term of loan agreement, with a correspondingreduction to the debt. Obligations under the term loan agreement are collateralized by substantially all of the Company’s assets.The term loan agreement contains customary conditions to borrowings, events of default and negative covenants, including covenants that could limitthe Company’s ability to, among other things, incur additional indebtedness, liens or other encumbrances, make dividends or other distributions; buy, sell ortransfer assets; engage in any new line of business; and enter into certain transactions with affiliates. The term loan agreement also includes a $2.0 millionminimum liquidity covenant and revenue-based financial covenants, which was $55.0 million for 2015 with annual increases of $15.0 million for each subsequentfiscal year thereafter. If the Company’s actual revenues are below the minimum annual revenue requirement for any given year, it may avoid a related default bygenerating proceeds from an equity or subordinated debt issuance equal to the shortfall between its actual revenues and the minimum revenue requirement. TheCompany was in compliance with its financial covenants as of December 31, 2015.The Company incurred $4.0 million, $4.1 million and $1.9 million of interest expense under the term loan agreement for the years endedDecember 31, 2015, 2014 and 2013, respectively. In 2014, the Company incurred $1.4 million of interest expense related to the repayment of the former creditfacility, including a loss on extinguishment of debt of $0.6 million. -95-Table of Contents2012 Credit FacilityIn 2012, the Company entered into a credit facility and incurred $13.0 million and $5.0 million in term loan borrowings during the years endedDecember 31, 2012 and 2013, respectively. In connection with the term loan borrowings during 2012, the Company issued warrants to purchase an aggregate of76,940 shares of Series D and 20,837 shares of Series E preferred stock at exercise prices of $8.45 and $14.40 per share, respectively. In connection with the termloan borrowings during 2013, the Company issued warrants to purchase an aggregate of 10,418 shares of Series E preferred stock. The issued warrants were valuedat the date of issuance using the Black-Scholes option pricing model with the following assumptions: fair value of preferred stock equal to exercise price ofwarrant, volatility of 57.0 to 61.0% and a risk free interest rate of 1.63 to 2.20%. The warrants were treated as a debt discount and were amortized over the term ofthe debt. In connection with the Company’s initial public offering, these warrants became exercisable for shares of the Company’s common stock.Lease Financing ObligationsThe Company has entered into agreements to lease certain hardware, software and capitalized installation costs, the longest of which expires in June2017. Ownership of the leased property transfers to the Company at the end of the lease terms. The fair value at lease inception is recorded in property, plant andequipment and is depreciated over the shorter of the useful life of the assets or the lease term. A total cost of $716,500 and $668,500 and accumulated depreciationof $286,600 and $102,600 for leased property is included in property, plant and equipment at December 31, 2015 and 2014, respectively.Long-term debt and lease financing obligations consisted of the following at December 31 (in thousands): 2015 2014 Term loans payable $41,487 $30,420 Lease financing obligations 284 506 Total long-term debt and lease financing obligations 41,771 30,926 Unamortized debt issuance costs (545) (680) Current portion of lease financing obligations (226) (251) Long-term debt and lease financing obligations, net of debt issuance costs and currentportion $41,000 $29,995 Scheduled future payments of principal for outstanding debt and lease financing obligations were as follows at December 31: 2016 $226 2017 58 2018 — 2019 — 2020 — Thereafter 41,487 $41,771 -96-Table of Contents10.Collaboration AgreementsThe Company uses a proportional performance model to recognize collaboration revenue over the Company’s performance period for the relatedcollaboration agreement. Costs incurred to date compared to total expected costs are used to determine proportional performance, as this is considered to berepresentative of the delivery of outputs under the arrangement. Revenue recognized at any point in time is limited to cash received and amounts contractually due.Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. All amounts received or due are classified as collaborationrevenue as they are earned.Celgene CorporationIn March 2014, the Company entered into a collaboration agreement with Celgene Corporation (“Celgene”) to develop, seek regulatory approval for, andcommercialize a companion diagnostic assay for use in screening patients with Diffuse Large B-Cell Lymphoma. The Company is eligible to receive paymentstotaling up to $45.0 million, of which $5.8 million was received as an upfront payment upon its delivery of certain information to Celgene, $17.0 million is forpotential success-based development and regulatory milestones, and the remainder is for potential commercial payments in the event sales of the test do not exceedcertain pre-specified minimum annual revenues during the first three years following regulatory approval. In October 2015, the parties amended the collaborationagreement to include additional countries to conduct clinical trials and in return the Company received an upfront payment of $1.6 million in December 2015.The Company will retain all commercial rights to the diagnostic test developed under this collaboration, subject to certain backup rights granted to Celgeneto commercialize the diagnostic test in a particular country if the Company elects to cease distribution or elects not to distribute the diagnostic in such country.Assuming success in the clinical trial process, and subject to regulatory approval, the Company will market and sell the diagnostic assay and Celgene has agreed tomake certain potential commercial payments to the Company in the event sales of the assay do not exceed certain pre-specified minimum annual revenues duringthe first three years following regulatory approval.The Company achieved and was paid for milestones totaling $6.0 million during 2014. The process of successfully developing a product candidate, obtainingregulatory approval and ultimately commercializing a product candidate is highly uncertain and the attainment of any additional milestones is therefore uncertainand difficult to predict. In addition, certain milestones are outside the Company’s control and are dependent on the performance of Celgene and the outcome of aclinical trial and related regulatory processes. Accordingly, the Company is not able to reasonably estimate when, if at all, any additional milestone payments maybe payable to the Company by Celgene.For the years ended December 31, 2015 and 2014, the Company recognized collaboration revenue related to the Celgene agreement of $2.2 million and $2.9million, respectively. No such amounts were recognized in 2013. At December 31, 2015, the Company had recorded $8.2 million of deferred revenue related to thecollaboration, of which $2.8 million is estimated to be recognized as revenue within one year.Merck & Co., Inc.In May 2015, the Company entered into a clinical research collaboration agreement with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc.(“Merck”), to develop an assay intended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from Merck’santi-PD-1 therapy, KEYTRUDA, in multiple tumor types. The Company received an upfront payment of $2.0 million in July 2015 and development paymentstotaling $1.9 million during 2015. -97-Table of ContentsFor the year ended December 31, 2015, the Company recognized collaboration revenue related to the Merck agreement of $3.7 million. No suchamounts were recognized in 2014 and 2013. At December 31, 2015, the Company had recorded $147,000 of deferred revenue related to the collaboration which isestimated to be recognized as revenue within one year. 11.Common Stock and Preferred StockPrior to the completion of its initial public offering in July 2013, the Company was authorized to issue common stock and Series A, Series B, Series C, SeriesD and Series E convertible preferred stock. Immediately prior to the completion of the Company’s initial public offering, all of the outstanding shares ofconvertible preferred stock automatically converted into 8,631,427 shares of common stock.Common StockEach share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legallyavailable and when declared by the board of directors, subject to the prior rights of holders of other classes of stock outstanding.Preferred StockPursuant to the amended and restated certificate of incorporation filed by the Company immediately prior to the completion of its initial publicoffering, the Company’s board of directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series and to fix the rights, preferences,privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, redemption rights,liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greaterthan the rights of common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that suchholders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring orpreventing change in the Company’s control or other corporate action. As of December 31, 2015, no shares of preferred stock were issued or outstanding, and theboard of directors has not authorized or designated any rights, preferences, privileges and restrictions for any class of preferred stock.Mandatorily Redeemable Convertible Preferred StockPrior to the completion of the Company’s initial public offering, the Company issued Series A, Series B, Series C, Series D and Series E convertiblepreferred stock (collectively, the “Preferred Stock”).The convertible preferred stock contained a provision that at any time after November 29, 2017 and upon 30 day notice from the holders of 65% of theoutstanding Preferred Stock, such holders could compel the Company to redeem, from any funds legally available, all or part of the Preferred Stock and anyaccumulated or declared but unpaid dividends thereon. The Company accordingly recorded the Preferred Stock as mandatorily redeemable securities.The redemption value of the Preferred Stock was equal to the original issue price with interest compounded from the original issuance date to the firstinstallment redemption date at a rate of 8% compounded quarterly. The Company recorded accretion related to issue costs and dividends of Series A, Series B,Series C, Series D and Series E preferred stock totaling approximately $4.7 million for the year ended December 31, 2013. The Company also accreted any relatedissuance costs or discounts. -98-Table of ContentsImmediately prior to the completion of the Company’s initial public offering, each share of Series A preferred stock was converted into common stockon a 1.403030-for-one basis, each share of Series B preferred stock was converted into common stock on a 1.559429-for-one basis and each share of Series C, Dand E preferred stock was converted into common stock on a one-for-one basis. The aggregate outstanding shares of convertible preferred stock automaticallyconverted into 8,631,427 shares of common stock.WarrantsPrior to the Company’s initial public offering, warrants to purchase preferred stock were issued related to certain financing transactions. Such warrantswere recorded as liabilities and measured at fair value at each reporting date. All preferred stock warrants were converted into warrants to purchase common stockupon the effectiveness of the initial public offering. The preferred stock warrant liability was reclassified to stockholders’ equity and recorded as common stockwarrants upon the closing of the Company’s initial public offering. These warrants are no longer re-measured to fair value at each reporting date. As ofDecember 31, 2015 there were 572,246 common stock warrants outstanding with a weighted average exercise price of $8.77 per common stock warrant andexpiration dates ranging from 2018 to 2023. 12.Stock-based CompensationStock Option PlansThe Company’s 2004 Stock Option Plan and 2013 Equity Incentive Plan (the “Plans”) authorize the grant of options, restricted stock units and otherequity awards to employees, directors and consultants. As of December 31, 2015, there were 5,446,915 shares available under the Plans. All options granted have aten-year term and generally vest and become exercisable over four years of continued employment or service as defined in each option agreement. The Board ofDirectors determines the option exercise price and may designate stock options granted as either incentive or nonstatutory stock options. The Company generallygrants stock options to employees with exercise prices equal to the estimated fair value of the Company’s common stock on the date of grant.A summary of the Company’s stock option activity and related information follows: Shares Weighted-average exercise price per share Weighted- average remaining contractualterm (in years) Aggregate intrinsic value(in thousands) Outstanding at December 31, 2014 3,294,822 $9.98 8.08 $17,985 Granted 1,455,150 12.94 Canceled (45,939) 14.97 Forfeited (335,449) 14.00 Exercised (201,622) 3.58 Outstanding at December 31, 2015 4,166,962 $10.94 7.81 $19,163 December 31, 2015: Options vested and expected to vest 4,117,768 $10.93 7.80 $19,074 Options exercisable 2,108,076 $8.37 6.94 $15,006 -99-Table of ContentsThe following table summarizes information about the Company’s options outstanding at December 31, 2015: Options Outstanding Options Exercisable Exercise Price Number of Shares Weighted- Average Remaining ContractualLife in Years Number of Shares Weighted- Average Remaining ContractualLife in Years $0.00 – 1.92 645,113 6.26 589,799 6.19 2.24 – 3.84 317,814 4.28 317,796 4.28 5.12 – 6.72 371,802 6.98 277,781 6.97 8.96 – 10.94 273,276 8.32 113,223 7.82 11.14 – 12.56 283,315 8.49 87,449 8.09 12.77 – 13.93 972,726 9.11 216,977 9.09 14.04 – 16.22 414,690 9.24 64,635 8.45 $17.24 – 20.65 888,226 8.10 440,416 8.10 4,166,962 2,108,076 The following table summarizes information about the Company’s stock option plan for the years ended December 31: 2015 2014 2013 Fair value of vested stock options (in thousands) $6,468 $3,543 $920 Aggregate intrinsic value for options exercised (in thousands) $2,067 $2,220 $681 Weighted-average grant date fair value per share $7.20 $9.45 $5.30 Options granted during the three years ended December 31, 2015 were granted at exercise prices that the Company’s board of directors believed to beequal to the fair value of the common stock underlying such options on the date of grant. Prior to completion of its initial public offering, the Company assessed itsestimate of fair value of its common stock for financial reporting purposes. Following this assessment, it was determined that for financial reporting purposes thefair value of the Company’s common stock was higher than the board of directors’ fair market value estimate for certain options previously granted. In 2013, theCompany granted options of 101,487 shares that were subsequently determined to be granted at exercise prices that were less than the estimated per share value ofthe underlying common stock on the date of grant. The valuations of these stock options were adjusted to reflect the increase in estimated fair value of theunderlying stock options.Stock-based compensationThe following table sets forth stock-based compensation expense related to stock-based arrangements under the 2004 Stock Option Plan and the 2013Equity Incentive Plan for the years ended December 31 as follows (in thousands): 2015 2014 2013 Cost of revenue $471 $281 $49 Research and development 1,453 1,018 273 Selling, general and administrative 3,919 3,234 823 Total stock-based compensation expense $5,843 $4,533 $1,145 -100-Table of ContentsAs of December 31, 2015, total unrecognized stock-based compensation cost related to unvested options was $14.3 million. This cost will berecognized on a straight-line basis over the weighted-average remaining service period of 2.61 years. The Company utilizes newly issued shares to satisfy optionexercises. No tax benefit was recognized related to stock-based compensation cost since the Company has not reported taxable income to date and has established afull valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets.Valuation assumptionsThe fair value of each employee option grant as of December 31 was estimated on the date of grant using the Black-Scholes option pricing model withthe following weighted-average assumptions: 2015 2014 2013Risk-free interest rates 1.37%–1.97% 1.74%–2.15% 1.05%–1.95%Expected term (years) 6.25 6.25 6.25Expected dividend yield — — — Expected volatility 57.0% 57.0% 57.0%–58.0%The risk-free interest rates are based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. Forpurposes of determining the expected term of the awards in the absence of sufficient historical data relating to stock-option exercises, the Company applies asimplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. TheCompany has not declared or paid any dividends and does not currently expect to do so in the foreseeable future. The Company based its expected volatility on thehistorical volatility of similar companies whose share prices are publicly available.Employee Stock Purchase PlanIn July 2013, the Company’s stockholders approved the Company’s 2013 Employee Stock Purchase Plan (“ESPP”). The ESPP provides eligibleemployees with an opportunity to purchase common stock from the Company and to pay for their purchases through payroll deductions. The Purchase Plan hasoverlapping offering periods of approximately 12 months in length. The offering periods generally start with the first trading day on or after March 1 andSeptember 1 of each year and end on the first trading day on or after March 1 and September 1 of the following year, approximately 12 months later. Within eachoffering period, shares will be purchased each 6 months on an exercise date. The first offering period began in August 2013.An employee electing to participate in the Purchase Plan (a “participant”) will be granted an option at the start of the offering period to purchaseshares with contributions in any whole percentage ranging from 0% to 10% (or greater or lesser percentages or dollar amounts that the administrator determines) ofthe participant’s eligible compensation. The participant’s contributions will be accumulated and then used to purchase the Company’s shares on each exercise date.The purchase price on the exercise date will be 85% of the fair market value of the lessor of the Company’s share price on either the first trading day of the offeringperiod or on the exercise date.During 2015 and 2014, 136,078 and 141,386 shares were issued under the ESPP, respectively. The Company recorded share-based compensationexpense for shares issued from the ESPP of $435,000 and $394,000 for the years ended December 31, 2015 and 2014, respectively. A total of 610,166 shares ofcommon stock have been reserved for issuance under the ESPP, of which 332,704 shares were available for issuance as of December 31, 2015. No shares wereissued under the ESPP during 2013. -101-Table of Contents13.Defined Contribution Retirement PlanThe Company maintains a 401(k) defined contribution retirement plan covering substantially all of its employees. The plan provides for matching anddiscretionary contributions by the Company. Contributions were $0.5 million and $0.4 million for the years ended December 31, 2015 and 2014, respectively.There were no contributions by the Company in 2013. 14.Income TaxesLoss before income taxes for the years ended December 31 consisted of the following (in thousands): 2015 2014 2013 Domestic $(46,065) $(50,455) $(28,746) Foreign 650 417 (535) Loss before income taxes $(45,415) $(50,038) $(29,281) Significant components of our provision for income taxes for the years ended December 31 are as follows (in thousands): 2015 2014 2013 Current: Domestic $— $— $— Foreign 166 — — Total current provision 166 — — Deferred: Domestic — — — Foreign — — — Total deferred provision — — — Total provision for income taxes $166 $— $— Income tax expense (benefit) differed from the amounts computed by applying the statutory federal income tax rate of 34% to pretax loss as a result ofthe following for the years ended December 31 (in thousands): 2015 2014 2013 Income tax provision at statutory rate $(15,662) $(17,013) $(9,955) Nondeductible items 401 456 (32) Change in tax credits (792) (678) (893)Change in valuation allowance 16,706 17,911 10,965 Foreign tax and other (487) (676) (85) $166 $— $— Net operating loss (“NOL”) carryforwards created by excess tax benefits from the exercise of non-qualified stock options are not recorded as deferredincome tax assets. To the extent such NOL carryforwards are utilized, the benefit realized will increase stockholders’ equity. At December 31, 2015, for income taxreturn purposes the Company has gross federal and state NOL carryforwards totaling $165.4 million and tax credit carryforwards of $4.2 million. Thesecarryforwards may be subject to limitations under the Internal Revenue Code and applicable state tax law. If not utilized, a portion of the carryforwards will beginto expire in 2025 through 2036. -102-Table of ContentsThe Company does not expect to utilize any of its net operating loss and tax credit carryforwards in the near term. The Company may have alreadyexperienced one or more ownership changes. Depending on the timing of any future utilization of its carryforwards, the Company may be limited as to the amountthat can be utilized each year as a result of such previous ownership changes. However, the Company does not believe such limitations will cause its carryforwardsto expire unutilized. Future changes in the Company’s stock ownership as well as other changes that may be outside the Company’s control could potentially resultin further limitations on the Company’s ability to utilize its net operating loss and tax credit carryforwards.The effect of temporary differences and carryforwards that give rise to deferred tax assets for the years ended December 31 were as follows (inthousands): 2015 2014 Net operating loss carryforwards $57,158 $47,444 Research and development tax credit carryforwards 3,124 2,332 Stock-based compensation 3,212 1,583 Other 7,135 2,564 Total deferred tax assets 70,629 53,923 Less: Valuation allowance (70,629) (53,923) Net deferred tax assets $— $— The Company has recorded a full valuation allowance related to its deferred tax assets due to the uncertainty of the ultimate realization of the futurebenefits from those assets.The table below summarizes changes in the deferred tax asset valuation allowance (in thousands): Balance at Beginningof Year Charged to Costs and Expenses Write-offs Balance at Endof Year Deferred tax valuation allowance: For year ended December 31, 2013 $25,047 $10,965 $— $36,012 For year ended December 31, 2014 36,012 17,911 — 53,923 For year ended December 31, 2015 53,923 16,706 — 70,629 The total balance of unrecognized gross tax benefits for the years ended December 31, resulting from R&D credits claimed on the Company’s annualtax return was as follows (in thousands): 2015 2014 2013 Unrecognized tax benefits at beginning of year $777 $551 $253 Additions (reductions) based on current year tax positions 264 226 298 Unrecognized tax benefits at end of year $1,041 $777 $551 The Company classifies applicable interest and penalties on amounts due to tax authorities as a component of the provision for income taxes. Theamount of accrued interest and penalties recorded in 2015, 2014 or 2013 was not significant. The Company does not anticipate that the amount of its existingunrecognized tax benefits will significantly increase or decrease within the next 12 months. Due to the presence of net operating loss carryforwards in mostjurisdictions, the Company’s tax years remain open for examination by U.S. taxing authorities back to 2004. -103-Table of Contents15.Commitments and ContingenciesOperating LeasesThe Company is obligated to make future minimum payments under three operating leases for 80,273 square feet of space used for general office,laboratory, manufacturing, operations, and research and development purposes in Seattle. The leases expire in 2026 and include options to renew at the then currentfair market rental for each of the facilities. The lease agreements contain rent abatement periods, scheduled rent increases and provide for tenant improvementallowances. Accordingly, the Company has recorded a deferred rent liability of $4.3 million and $1.5 million as of December 31, 2015 and 2014, respectively. Thisdeferred rent liability is amortized over the term of the related lease.Rent expense totaled approximately $3.2 million, $1.4 million and $1.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.Future minimum lease payments under noncancelable operating leases as of December 31, 2015 were as follows (in thousands): 2016 $3,282 2017 3,776 2018 3,884 2019 3,993 2020 4,106 Thereafter 22,453 $41,494 Purchase CommitmentsThe Company has non-cancellable purchase obligations totaling $9.2 million at December 31, 2015 related to binding commitments to purchaseinventory.ContingenciesFrom time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Managementbelieves that there are no claims or actions pending against the Company currently, the ultimate disposition of which would have a material adverse effect on theCompany’s consolidated results of operation, financial condition or cash flows. 16.Net Loss Per ShareNet loss attributable to common stockholders per share is computed by dividing the net loss allocable to common stockholders by the weightedaverage number of shares of common stock outstanding. Outstanding stock options, warrants and preferred stock, have not been included in the calculation ofdiluted net loss attributable to common stockholders per share because to do so would be anti-dilutive. Accordingly, the numerator and the denominator used incomputing both basic and diluted net loss per share for each period are the same. -104-Table of ContentsThe following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss per share for the yearsended December 31 (in thousands): 2015 2014 2013 Numerator: Net loss $(45,581) $(50,038) $(29,281) Accretion of mandatorily redeemable convertible preferred stock — — (4,653) Net loss attributable to common stockholders $(45,581) $(50,038) $(33,934) Denominator: Weighted-average common shares outstanding-basic and diluted 19,027 17,839 7,643 The following outstanding options, warrants and preferred stock as of December 31 were excluded from the computation of diluted net loss per sharefor the periods presented because their effect would have been anti-dilutive (in thousands): 2015 2014 2013 Options to purchase common stock 4,069 3,295 2,113 Common stock warrants 572 572 618 17.Information about Geographic AreasThe following table is based on the geographic location of distributors or end users who purchased products and services and collaborators. For salesto distributors, their geographic location may be different from the geographic locations of the ultimate end user. Revenue by geography as of December 31 was asfollows (in thousands): 2015 2014 2013 Americas $41,265 $32,244 $21,855 Europe & Middle East 14,807 9,174 5,775 Asia Pacific 6,595 6,175 3,773 Total revenue $62,667 $47,593 $31,403 Total revenue in the United States was $37.9 million, $29.0 million and $19.3 million for the years ended December 31, 2015, 2014 and 2013,respectively.The Company’s assets are primarily located in the United States and not allocated to any specific geographic region. Substantially all of theCompany’s long-lived assets are located in the United States. 18.Condensed Quarterly Financial Data (unaudited)The following table contains selected unaudited financial data for each quarter of 2015 and 2014. The unaudited information should be read inconjunction with the Company’s financial statements and related notes included elsewhere in this report. The Company believes that the following unauditedinformation reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented. The operating results for anyquarter are not necessarily indicative of results for any future period. Three months ended March 31, June 30, September 30, December 31, (in thousands, except per share data) 2015 Total revenue $11,593 $13,066 $15,693 $22,315 Net loss $(14,894) $(12,404) $(9,467) $(8,816) Net loss per share – basic and diluted $(0.81) $(0.66) $(0.49) $(0.44) 2014 Total revenue $8,751 $10,881 $12,343 $15,618 Net loss $(11,422) $(14,088) $(12,148) $(12,380) Net loss per share – basic and diluted $(0.68) $(0.78) $(0.67) $(0.68) -105-Table of Contents19.Subsequent EventsCollaboration with Medivation, Inc. and Astellas Pharma, Inc.In January 2016, the Company entered into a collaboration agreement with Medivation, Inc. and Astellas Pharma Inc. to pursue the translation of anovel gene expression signature algorithm discovered by Medivation into a companion diagnostic assay using the nCounter Analysis System. Under the terms ofthe collaboration agreement, the Company will modify its PAM50-based Prosigna Breast Cancer Assay for potential use as a companion diagnostic test forXTANDI (enzalutamide) for triple negative breast cancer. XTANDI is currently approved for the treatment of metastatic castration-resistant prostate cancer.The modified Prosigna test will be based upon data from a Phase 2 trial conducted by Medivation and Astellas that evaluated enzalutamide in patientswith triple negative breast cancer. Under the terms of the collaboration agreement, the Company will be responsible for developing and validating the diagnostictest and, if the parties thereafter determine to proceed, will also be responsible for seeking regulatory approval for and commercializing the test. In January 2016,the Company received $6.0 million upfront for technology access, and is eligible to earn up to $6.0 million in pre-clinical milestones and $10.0 million indevelopment funding, in addition to other potential downstream milestone payments.Expanded Collaboration with MerckIn February 2016, the Company expanded its collaboration with Merck by entering into a new development collaboration agreement to clinicallydevelop and commercialize a novel diagnostic test, based on an optimized gene expression signature, to predict response to Merck’s anti-PD-1 therapy,KEYTRUDA, in multiple tumor types.Under the terms of the new collaboration agreement, the Company will be responsible for seeking regulatory approval for and commercialization ofthe diagnostic test. The Company will receive a $12.0 million upfront technology access fee and development funding and is eligible to receive up to $12.0 millionof near-term preclinical milestone payments, and other potential downstream regulatory milestone payments. -106-Table of ContentsItem 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone. Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it filesor submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and ExchangeCommission’s, or SEC’s, rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to thecompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluationof our disclosure controls and procedures as of December 31, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, ourdisclosure controls and procedures were effective at the reasonable assurance level.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) andRule 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control overfinancial reporting includes those policies and procedures that:(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could havea material effect on the financial statements.The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise ofjudgment 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes -107-Table of Contentsin conditions or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of NanoString’s internalcontrol over financial reporting as of December 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) Internal Control—Integrated Framework (2013 ). Based on our assessment using those criteria, ourmanagement has concluded that, as of December 31, 2015, NanoString’s internal control over financial reporting was effective.Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect,our internal control over financial reporting. Item 9B.Other InformationNone. -108-Table of ContentsPART III Item 10.Directors, Executive Officers and Corporate GovernanceExecutive Officers and DirectorsThe following table sets forth the names, ages and positions of our executive officers and directors as of February 19, 2016: Name Age PositionExecutive Officers R. Bradley Gray 39 President, Chief Executive Officer and DirectorJoseph M. Beechem, Ph.D. 58 Senior Vice President of Research and DevelopmentWayne D. Burns 59 Senior Vice President, Operations and AdministrationDavid W. Ghesquiere 49 Senior Vice President, Corporate & Business DevelopmentJames A. Johnson 59 Chief Financial OfficerBarney Saunders, Ph.D. 53 Senior Vice President of Sales & MarketingNon-Employee Directors William D. Young (1)(3) 71 Chairman of the BoardNicholas Galakatos, Ph.D. (2)(3) 58 DirectorRobert M. Hershberg, M.D., Ph.D. (3) 54 DirectorGregory Norden (1)(2) 58 DirectorCharles P. Waite (1)(2)(3) 60 Director (1) Member of the Audit Committee.(2) Member of the Compensation Committee.(3) Member of the Nominating and Corporate Governance Committee.There are no family relationships among any of the directors or executive officers.Executive OfficersR. Bradley Gray has served as a member of the board of directors and as President and Chief Executive Officer since June 2010. Prior to joining ourcompany, Mr. Gray held various positions at Genzyme, a biotechnology company acquired by Sanofi in 2011. He served as Vice President of Product & BusinessDevelopment for Genzyme Genetics, the diagnostic services division of Genzyme, from June 2008 to May 2010, leading the development of molecular diagnosticsand partnering activities. From September 2006 to June 2008, he served as Vice President of Business & Strategic Development for Genzyme Genetics, leadinggrowth efforts through partnerships and licensing. Mr. Gray joined Genzyme in October 2004 as Director of Corporate Development, supporting businessdevelopment and leading Genzyme Ventures, the corporate venture capital fund of Genzyme. Prior to joining Genzyme, Mr. Gray was a management consultant inthe healthcare practice of McKinsey & Company, a global management consulting firm, from September 2000 to October 2004, where he worked with seniorhealthcare executives in the United States and Europe on a broad range of issues including pharmaceutical and diagnostic product strategy, post-merger integration,organization design, and operational turnarounds. Mr. Gray received a B.A. in Economics and Management from Oxford University, where he studied as a BritishMarshall Scholar, and an S.B. in Chemical Engineering from the Massachusetts Institute of Technology. We believe that Mr. Gray possesses specific attributes thatqualify him to serve as a director, including the perspective and experience he brings as Chief Executive Officer and his knowledge of molecular diagnosticdevelopment and commercialization. -109-Table of ContentsJoseph M. Beechem, Ph.D . has served as Senior Vice President of Research and Development since April 2012. Prior to joining our company,Dr. Beechem held various positions at Life Technologies, a publicly-traded biotechnology tools company, most recently as Vice President, Head of AdvancedSequencing and Head of Global Sequencing Chemistry, Biochemistry and Biophysics from January 2010 to April 2012. From December 2007 to December 2012,he served as Chief Technology Officer of Life Technologies. During his career at Life Technologies, he led the design and development of multiple geneticanalysis technologies, the latest advanced SOLiD sequencing technology and the single molecule nano-DNA sequencing technology. Prior to joining LifeTechnologies, Dr. Beechem was Chief Scientific Officer at Invitrogen, a publicly-traded biotechnology company that acquired Applied Biosystems in November2008 to form Life Technologies, from August 2003 to December 2007 and Director of Biosciences at Molecular Probes, a biotechnology company acquired byInvitrogen in 2003, from August 2000 to August 2003. Prior to his industry experience, Dr. Beechem led an NIH-funded research laboratory for 11 years as atenured associate professor at Vanderbilt University. He has authored or co-authored more than 100 peer-reviewed papers in diverse fields such as biomathematics,physics, chemistry, physiology, spectroscopy, diagnostics and biology. Dr. Beechem is also named on nearly 30 U.S. patents or patent applications and has servedon a number of editorial and scientific advisory boards. He received a B.S. in Chemistry and Biology from Northern Kentucky University and a Ph.D. inBiophysics from The Johns Hopkins University.Wayne D. Burns has served as Senior Vice President, Operations and Administration since October 2012 and served as Chief Financial Officer fromApril 2007 to September 2012. During the period from March 2009 through June 2010, Mr. Burns served as Acting Chief Executive Officer as well as ChiefFinancial Officer. Prior to joining our company, Mr. Burns served as Chief Operating Officer and Chief Financial Officer at Action Engine, a developer of a mobileapplication platform, from 2001 to 2006. From 2000 to 2001, Mr. Burns was a founder and the Chief Executive Officer of SafariDog, a developer of a searchengine optimization platform. Mr. Burns also served as Vice President Operations and Chief Financial Officer of NetPodium during 1999 prior to its acquisition byInterVU, where from 1999 to 2000 Mr. Burns served as Vice President of Business Development. During the period from 1990 to 1996, Mr. Burns served as ChiefFinancial Officer and Vice President of Finance for three venture-backed companies, all of which were acquired by public companies. Mr. Burns spent five yearswith PricewaterhouseCoopers in the United States and Italy. Mr. Burns received a B.A. in Business Administration with a concentration in Accounting from theUniversity of Washington.David W. Ghesquiere has served as Senior Vice President, Corporate & Business Development since November 2013. Prior to joining our company,Mr. Ghesquiere was the founder and managing director of Adrenaline Venture & Advisory LLC, an international advisory firm, from August 2012 to November2013. Prior to founding Adrenaline Venture & Advisory, Mr. Ghesquiere served as Senior Vice President, Corporate & Business Development at DendreonCorporation, a biotechnology company, from 2011 to 2012. From 2005 to 2010, Mr. Ghesquiere held a variety of executive positions at OSI Pharmaceuticals,acquired by Astellas Pharma in 2010, including Senior Vice-President of Corporate & Business Development and Managing Director of OSI Investment HoldingsGmbH and OSI Investment Management GmbH, OSI’s wholly owned, Switzerland-based subsidiaries, where he played a key role in establishing OSI’s venturecapital arm. Earlier in his career, Mr. Ghesquiere served as Director of Global Business Development for Aventis Pharmaceuticals, which merged with Sanofi in2004, and worked in product marketing at Johnson & Johnson. Mr. Ghesquiere received an M.B.A. from The University of Western Ontario’s Ivey School ofBusiness and a B.A. in economics from The University of Western Ontario.James A. Johnson has served as Chief Financial Officer since October 2012. Prior to joining our company, Mr. Johnson was Chief Financial Officer ofRelypsa, Inc., a clinical-stage biopharmaceutical company, from May 2011 to September 2012. From September 2009 to October 2010, Mr. Johnson served asExecutive Vice President, Chief Financial Officer, Treasurer and Secretary of ZymoGenetics, Inc., a -110-Table of Contentsbiopharmaceutical company acquired by Bristol-Myers Squibb in October 2010. Mr. Johnson served as ZymoGenetics’ Executive Vice President, Chief FinancialOfficer and Treasurer from July 2007 to September 2009 and as ZymoGenetics’ Senior Vice President, Chief Financial Officer and Treasurer from February 2001to July 2007. Mr. Johnson served as Chief Financial Officer, Treasurer and Secretary of Targeted Genetics Corporation, a biotechnology company, from 1994 toFebruary 2001, as its Senior Vice President, Finance and Administration, from January 1999 to February 2001, and as its Vice President, Finance, from 1994 toJanuary 1999. From 1990 to 1994, Mr. Johnson served as Vice President, Finance, and, from 1988 to 1990, as Director of Finance, at Immunex Corporation, abiopharmaceutical company. Mr. Johnson received a B.A. in Business Administration from the University of Washington.Barney Saunders, Ph.D . has served as Senior Vice President of Sales & Marketing since March 2015, and previously served as our Senior VicePresident & General Manager, Life Sciences, from September 2012 to March 2015 and our Chief Commercial Officer from September 2010 to September 2012.Prior to joining our company, Dr. Saunders served as Chief Commercial Officer of Microchip Biotechnologies (now IntegenX), a manufacturer of automationsystems enabling microsample preparation and analysis for the life sciences, from September 2005 to June 2010. Prior to joining Microchip Biotechnologies,Dr. Saunders served as General Manager at Agilent Technologies, a publicly-traded measurement company providing core bio-analytical and electronicmeasurement solutions, from 2000 to 2004, where he led the team that launched the first commercially-available, complete genome arrays for human, rat andmouse and also entered the array CGH (comparative genomic hybridization) market. Dr. Saunders began his career with Amersham International, a pharmaceuticalcompany specializing in Diagnostics and Life Sciences which was acquired by General Electric in 2004, where he held a variety of commercial positions, ofincreasing responsibility, in the United States and Europe from 1988 to 2000. Dr. Saunders received a B.Sc. Hons in Biological Sciences and Ph.D. in RiceResistance Gene Expression from Birmingham University, England.Our DirectorsDirectors Continuing in Office Until the 2016 Annual Meeting of StockholdersWilliam D. Young has served as the chairman of the board of directors since January 2010 and as a member of the audit committee since November2011 and nominating and corporate governance committee since September 2013. Mr. Young is a Venture Partner at Clarus Ventures, a health care and lifesciences venture capital firm, which he joined in March 2010. Prior to joining Clarus Ventures, Mr. Young served from 1999 until June 2009 as Chairman of theboard of directors and Chief Executive Officer of Monogram Biosciences, a biotechnology company acquired by Laboratory Corporation of America in June 2009.From 1980 to 1999 Mr. Young was employed at Genentech, a biotechnology company acquired by Roche in March 2009, most recently as Chief Operating Officerfrom 1997 to 1999, where he was responsible for all Product Development, Manufacturing and Commercial functions. Mr. Young joined Genentech in 1980 asDirector of Manufacturing and Process Sciences and became Vice President in 1983. Prior to joining Genentech, Mr. Young worked at Eli Lilly & Co. for 14 yearsand held various positions in production and process engineering, antibiotic process development and production management. Mr. Young is retired Chairman ofthe board of directors of Biogen and a member of the boards of directors of BioMarin, Theravance and Vertex Pharmaceuticals. Mr. Young received his M.B.A.from Indiana University and his B.S. in chemical engineering from Purdue University, and an honorary doctorate of engineering from Purdue University.Mr. Young was elected to The National Academy of Engineering in 1993 for his contributions to biotechnology. We believe that Mr. Young’s demonstratedleadership in his field, his understanding of the industry and his senior management experience in several companies in our industry qualify him to serve as thechairman of the board of directors. -111-Table of ContentsNicholas Galakatos, Ph.D . has served as a member of the board of directors, as the chairman of the compensation committee and as a member of thenominating and corporate governance committee since June 2009. Dr. Galakatos is a Managing Director of Clarus Ventures, a health care and life sciences venturecapital firm, which he co-founded in 2005. Dr. Galakatos has been a venture capital investor since 1992, initially at Venrock Associates from 1992 to 1997 and thenat MPM Capital since 2000 where he was General Partner of the Bioventures II and Bioventures III funds. From 1997 to 2000, he was Vice President, NewBusiness, and a member of the management team at Millennium Pharmaceuticals, a biopharmaceutical company acquired by Takeda Pharmaceutical in May 2008.He was a founder of Millennium Predictive Medicine and TransForm Pharmaceuticals, where he also was the Chairman and founding Chief Executive Officer.Dr. Galakatos is a Director of Portola Pharmaceuticals, Inc. and Ophthotech Corporation, and has been the Lead Director at Affymax Inc., and a Director of CriticalTherapeutics Inc., and Aveo Pharmaceuticals, Inc. Dr. Galakatos received a B.A. degree in Chemistry from Reed College, a Ph.D. degree in Organic Chemistryfrom the Massachusetts Institute of Technology, and performed postdoctoral studies in molecular biology at Harvard Medical School. We believe thatDr. Galakatos is qualified to serve as a director of NanoString because of his operating experience in the biopharmaceutical industry and his extensive experienceas a venture capital investor and a director of several public companies. Dr. Galakatos’s investment focus on life sciences companies also provides substantialexpertise in our industry.Directors Continuing in Office Until the 2017 Annual Meeting of StockholdersR. Bradley Gray. See “Directors, Executive Officers and Corporate Governance — Executive Officers” included elsewhere in this Annual Report onForm 10-K for Mr. Gray’s biographical information.Robert M. Hershberg, M.D., Ph.D . has served as a member of the board of directors and as a member of a nominating and corporate governancecommittee since March 2015. Since January 2016, Dr. Hershberg has served as Chief Scientific Officer at Celgene, a publicly-traded biopharmaceutical company,where he is responsible for overseeing Celgene’s scientific platforms and discovery capabilities. From July 2014 to January 2016, Dr. Hershberg served as SeniorVice-President of Immuno-Oncology at Celgene, where he led the company’s research and early development efforts across its immuno-oncology portfolio.Dr. Hershberg is also the President and Chief Executive Officer of VentiRx Pharmaceuticals, a clinical stage biopharmaceutical company, which he co-founded in2006. Prior to co-founding VentiRx, Dr. Hershberg served as Senior Vice President and Chief Medical Officer at Dendreon Corporation, a biotechnology company,where he led the clinical, regulatory and biometrics groups, focusing on the development of Provenge® in metastatic prostate cancer. From 2001 to 2003,Dr. Hershberg was the Vice President of Medical Genetics at Corixa, a pharmaceutical company (acquired by GlaxoSmithKline in 2005). Earlier in his career,Dr. Hershberg served as an Assistant Professor at Harvard Medical School and an Associate Physician at the Brigham and Women’s Hospital in Boston,Massachusetts. Dr. Hershberg holds clinical and research faculty positions at the University of Washington School of Medicine and is a member of the board ofdirectors of Adaptive Biotechnologies Corp., a clinical stage diagnostics company. He completed his undergraduate degree in molecular biology and M.D. atUCLA, and his Ph.D. in biology at the Salk Institute. We believe Dr. Hershberg is qualified to serve as a director of NanoString because of his extensive experienceas a senior executive officer at multiple biotechnology companies.Directors Continuing in Office Until the 2018 Annual Meeting of StockholdersGregory Norden has served as a member of the board of directors and as chairman of the audit committee since July 2012 and as a member of thecompensation committee since April 2015. From 1989 to 2010, Mr. Norden held various senior positions with Wyeth/American Home Products, most recently asWyeth’s Senior Vice President and Chief Financial Officer. Prior to this role, Mr. Norden was Executive Vice President and Chief Financial Officer of WyethPharmaceuticals. Prior to his affiliation with Wyeth, -112-Table of ContentsMr. Norden served as Audit Manager at Arthur Andersen & Company. Mr. Norden also serves on the boards of directors of Royalty Pharma, a leader in theacquisition of revenue-producing intellectual property, Univision, the leading media company serving Hispanic America, and Zoetis, a global leader in discovering,developing, manufacturing and commercializing animal health medicines and vaccines. Mr. Norden is a former director of Welch Allyn (acquired by Hill-Rom in2015), Lumara Health (acquired by AMAG Pharmaceuticals in 2014), and Human Genome Sciences (acquired by GlaxoSmithKline in 2012). Mr. Norden receiveda M.S. in Accounting from Long Island University — C.W. Post and a B.S. in Management/Economics from the State University of New York — Plattsburgh. Webelieve that Mr. Norden’s qualifications to serve on the board of directors include his extensive financial and accounting expertise and experience at Wyeth and atArthur Andersen & Company and his significant experience in the biopharmaceutical industry.Charles P. Waite has served as a member of the board of directors since July 2004 and as a member of the audit committee, compensation committeeand nominating and corporate governance committee since June 2009; he currently serves as chairman of the nominating and corporate governance committee. Hehas been a General Partner of OVP Venture Partners II and a Vice President of Northwest Venture Services Corp. since 1987, a General Partner of OVP VenturePartners III since 1994, a General Partner of OVP Venture Partners IV since 1997, a General Partner of OVP Venture Partners V since 2000, a General Partner ofOVP Venture Partners VI since 2001, and a General Partner of OVP Venture Partners VII since 2007, all of which are venture capital firms. Prior to joining OVP,Mr. Waite was a General Partner at Hambrecht & Quist Venture Partners from 1984 to 1988, where he focused on investments in information technology and lifesciences. He is a former director of Complete Genomics, a publicly-traded DNA sequencing platform developer (acquired by BGI-Shenzen in March 2013), andcurrently serves on the board of directors of eight private companies. Mr. Waite received an A.B. in history from Kenyon College and an M.B.A. from HarvardUniversity. We believe that Mr. Waite’s significant operational and leadership experience as a venture capital investor who sits on a number of boards qualify himto serve as a director. Mr. Waite’s investment focus on life sciences companies also provides substantial expertise in our industry.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class ofour equity securities, to file reports of ownership of, and transactions in, our securities with the SEC and NASDAQ. Such directors, executive officers, and tenpercent stockholders are also required to furnish us with copies of all Section 16(a) forms that they file.Based solely on a review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during2015, our directors, executive officers, and 10% stockholders complied with all Section 16(a) filing requirements applicable to them.Code of Business Conduct and EthicsWe have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executiveofficer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted on theinvestor section of our website, www.nanostring.com.Audit CommitteeThe members of our audit committee are Messrs. Norden, Waite and Young, each of whom satisfies the independence standards for audit committeemembers established by applicable SEC and The NASDAQ Global Market rules. Our audit committee chairman, Mr. Norden, is our audit committee financialexpert, as -113-Table of Contentsthat term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, and possesses financial sophistication, as defined under therules of The NASDAQ Global Market. Our audit committee oversees our corporate accounting and financial reporting process and assists the board of directors inmonitoring our financial systems. Our audit committee also: • approves the hiring, discharging and compensation of our independent auditors; • oversees the work of our independent auditors; • approves engagements of the independent auditors to render any audit or permissible non-audit services; • reviews the qualifications, independence and performance of the independent auditors; • reviews financial statements, critical accounting policies and estimates; • reviews the adequacy and effectiveness of our internal controls; and • reviews and discusses with management and the independent auditors the results of our annual audit, our quarterly financial statements and ourpublicly filed reports. Item 11.Executive CompensationSummary Compensation TableThe following table provides information regarding the compensation of our named executive officers during 2015, 2014 and 2013. Name and Principal Position Year Salary ($) Bonus($) Option Awards ($) (1) Non-Equity Incentive PlanCompensation($) (2) All Other Compensation($) (3) Total ($) R. Bradley Gray President and Chief Executive Officer 2015 470,850 — 700,280 332,500 3,000 1,506,630 2014 441,750 — 902,430 243,054 — 1,587,234 2013 384,214 — 252,986 228,000 — 865,200 James A. Johnson Chief Financial Officer 2015 360,333 — 315,126 180,095 3,000 858,554 2014 349,167 — 451,215 130,240 917 931,539 2013 324,167 — 114,996 128,975 — 568,138 David W. Ghesquiere Senior Vice President, Corporate and Business Development 2015 325,000 — 506,676 167,063 3,000 1,001,739 (1) The dollar amounts in this column represent the aggregate grant date fair value of stock option awards granted in 2015, 2014 and 2013, respectively. Theseamounts have been computed in accordance with FASB ASC Topic 718, using the Black-Scholes option pricing model. Pursuant to SEC rules, the amountsshown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of valuation assumptions, see the notes to ourfinancial statements included elsewhere in this report.(2) The amounts in this column represent the amounts earned and payable each year under the bonus plan for such year, all of which were paid in the subsequentyear.(3) The amounts in this column consist of matching contributions made by us pursuant to our 401(k) plan.Non-Equity Incentive Plan Compensation & Bonus2015 Non-Equity Incentive Plan PaymentsFor 2015, the target incentive amounts and the aggregate annual payments earned by our named executive officers were the following: Name Executive Officer Target AwardOpportunity Actual Award R. Bradley Gray $332,500 $332,500 James A. Johnson 181,000 180,095 David W. Ghesquiere 165,000 167,063 -114-Table of ContentsOur 2015 incentive compensation plan provides our named executive officers with an annual incentive compensation payment, subject to ourachievement of our corporate performance goals and individual achievement. For 2015, our corporate-level goals included continued revenue growth, expansion ofour cancer focus and development of related products, enablement and initiation of additional cancer-focused diagnostic collaborations, further establishingProsigna clinical utility, expanded installed base and increased reimbursement, expansion of addressable market through the development and introduction of newproducts, achievement of cash position goals and other financial targets and additional stretch targets. The Actual Award amounts are calculated by weighingcorporate goal attainment and individual goal attainment for each named executive officer as follows: Mr. Gray, 100% corporate goal; Mr. Johnson, 75% corporategoal/25% individual goal and Mr. Ghesquiere, 75% corporate goal/25% individual goal. For 2015, we achieved corporate attainment of our goals at 100%. Thefollowing was our determination of individual goal attainment in 2015: Mr. Gray, not applicable; Mr. Johnson, 98%; and Mr. Ghesquiere, 105%. For 2016, thecompensation committee has approved corporate-level goals, including continued revenue growth, enablement and initiation of additional diagnosticcollaborations, penetrating expanded market opportunity through installed base growth, expanding the 3D Biology™ product suite with a focus on immuno-oncology, extending the Company’s leadership in molecular diagnostic development and commercialization, advancing development of new applications,achievement of cash position goals and other financial targets and additional stretch targets.Executive Employment ArrangementsR. Bradley GrayFor 2016, Mr. Gray’s annual base salary is $545,000, and he is eligible for an annual incentive payment equal to 85% of his base salary, subject toachievement of performance metrics. We entered into an employment agreement in May 2010 with Mr. Gray, our President and Chief Executive Officer. Theemployment agreement has no specific term and constitutes at-will employment.In connection with Mr. Gray’s commencement of employment, we granted him sign-on stock options covering an aggregate of (1) 241,905 sharessubject to time-based vesting and (2) 15,125 shares subject to performance-based vesting. The stock options were granted pursuant to our 2004 Stock Option Planwith an exercise price equal to the per share fair market value of our common stock on the date of grant. All of Mr. Gray’s time-based sign-on stock options havevested. Fifty percent of Mr. Gray’s performance-based sign-on stock options vested upon the FDA’s final approval of Prosigna in September 2013 and theremaining 50% are scheduled to vest upon the “tools” portion of our business achieving profitability, subject to Mr. Gray’s continuing service through such vestingdate. The unvested shares are early-exercisable, subject to our right to repurchase upon termination of employment for any reason at a repurchase price per shareequal to the original purchase price per share.If Mr. Gray’s employment is terminated other than for “cause” (as defined in his employment agreement and summarized below), death or disabilityor he resigns for “good reason” (as defined in his employment agreement and summarized below), in each case, upon or within 12 months following such change incontrol, then 100% of the then-unvested portion of the sign-on stock options will vest. For further information regarding Mr. Gray’s option grants, see the sectionof this report captioned “—Outstanding Equity Awards at Fiscal Year End.” -115-Table of ContentsAlso, if we terminate his employment other than for cause, death or disability or he resigns for good reason, then subject to his execution of a releaseof claims and his continued adherence to certain restrictive covenants, he will receive continuing base salary payments for a period of 12 months.James A. JohnsonFor 2016, Mr. Johnson’s annual base salary is $377,000, and he is eligible for an annual incentive payment equal to 50% of his base salary, subject toachievement of performance metrics. We entered into an employment agreement in September 2012 with Mr. Johnson, our Chief Financial Officer. Theemployment agreement has no specific term and constitutes at-will employment.In connection with Mr. Johnson’s commencement of employment, we granted him stock options, or sign-on stock options, covering an aggregate of82,968 shares. The stock options were granted pursuant to our 2004 Stock Option Plan with an exercise price equal to the per share fair market value of ourcommon stock on the date of grant. All of Mr. Johnson’s sign-on stock options were early-exercisable as to unvested shares, subject to our right to repurchase anyunvested shares upon termination of employment for any reason at a repurchase price per share equal to the original purchase price per share. Twenty-five percentof Mr. Johnson’s sign-on stock options vested in September 2013, and the remaining 75% vest in equal monthly installments, until the option is fully vested inSeptember 2016, the fourth anniversary of the vesting commencement date.In addition and supplementing the vesting schedule described above, in the event that Mr. Johnson’s employment is terminated other than for “cause”(as defined in his employment agreement and summarized below), death or disability or Mr. Johnson resigns for “good reason” (as defined in his employmentagreement and summarized below), in each case, upon or within 12 months following such change in control, then 100% of the then-unvested portion of the sign-on stock options will vest. For further information regarding Mr. Johnson’s option grants, see the section of this report captioned “—Outstanding Equity Awards atFiscal Year End.”Also, if we terminate his employment other than for cause, death or disability or he resigns for good reason, then subject to his execution of a releaseof claims and his continued adherence to certain restrictive covenants, he will receive continuing base salary payments for a period of six months. -116-Table of ContentsDavid W. GhesquiereFor 2016, Mr. Ghesquiere’s annual base salary is $360,000, and he is eligible for an annual incentive payment equal to 50% of his base salary, subjectto achievement of performance metrics. We entered into an employment agreement in November 2013 with Mr. Ghesquiere, our Senior Vice President ofCorporate and Business Development. The employment agreement has no specific term and constitutes at-will employment.In connection with Mr. Ghesquiere’s commencement of employment, we granted him stock options, or sign-on stock options, covering an aggregateof 93,000 shares. The stock options were granted pursuant to our 2013 Equity Incentive Plan with an exercise price equal to the per share fair market value of ourcommon stock on the date of grant. Twenty-five percent of Mr. Ghesquiere’s sign-on stock options vested in December 2014, and the remaining 75% vest in equalmonthly installments, until the option is fully vested in December 2017, the fourth anniversary of the vesting commencement date.In addition and supplementing the vesting schedule described above, in the event that Mr. Ghesquiere’s employment is terminated other than for“cause” (as defined in his employment agreement and summarized below), death or disability or Mr. Ghesquiere resigns for “good reason” (as defined in hisemployment agreement and summarized below), in each case, upon or within 12 months following such change in control, then 100% of the then-unvested portionof the sign-on stock options will vest. For further information regarding Mr. Ghesquiere’s option grants, see the section of this report captioned “—OutstandingEquity Awards at Fiscal Year End.”Also, if we terminate his employment other than for cause, death or disability or he resigns for good reason, then subject to his execution of a releaseof claims and his continued adherence to certain restrictive covenants, he will receive continuing base salary payments for a period of six months.Definition of TermsFor purposes of the 2004 Stock Option Plan, “change in control” means generally a: • sale of all or substantially all of our assets; • our merger, consolidation or other business combination transaction with or into another corporation, entity or person, other than certaintransactions in which a majority of the voting power of our stock continues to hold a majority of the voting power of our stock; or • the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficialownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of ourcapital stock.For purposes of the 2013 Equity Incentive Plan, “change in control” means generally means: • the date that any one person, or more than one person acting as a group, acquires ownership of our capital stock that, together with the stockheld by such person or such group, constitutes more than 50% of the total voting power of our capital stock; • the date that a majority of members of the board is replaced during any 12 month period by directors whose appointment or election is notendorsed by a majority of the members of the board prior to such date; or • the date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12 month period ending on thedate of the most recent acquisition by such person or group) assets from us that have a total gross fair market value equal to or more than 50%of the total gross fair market value of all of our assets immediately prior to such acquisition or acquisitions. -117-Table of ContentsFor purposes of each of the named executive officers’ employment agreements, “cause” means generally: • a violation of one of our material written policies that continues uncured for 30 days; • an act of dishonesty in connection with an executive’s responsibilities as our employee; • such executive’s conviction of, or plea of nolo contendere to, a felony; • such executive’s gross misconduct; • such executive’s failure or refusal to follow the lawful and proper directives of the board of directors which are within his duties; or • such executive’s material breach of his proprietary information agreement or the non-disparagement provision of his employment agreement.For purposes of the named executive officers’ employment agreements, “good reason” means generally any of the following without such executive’swritten consent: • a material and permanent diminution in such executive’s duties, authority or responsibilities; • a reduction in base salary then in effect by more than 5% (or, for Mr. Gray, more than 10%); • our material breach of such executive’s employment agreement; or • a refusal by such executive to relocate to a facility or location more than 40 miles (or, for Mr. Gray, more than 50 miles) from our currentlocation.To qualify as a resignation for good reason, an executive must provide notice to us within 90 days of the initial existence of the condition or eventdescribed above and allow us to cure the condition or event within 30 days following our receipt of the notice.For purposes of Mr. Johnson’s and Mr. Ghesquiere’s sign-on stock option agreement, “cause” means generally: • an executive’s failure to substantially perform his duties or responsibilities (other than a failure resulting from his disability) after receivingnotice of failure and 10 days to cure; • an executive’s commission of any act of fraud, embezzlement, dishonesty or misrepresentation; • an executive’s violation of any federal or state law or regulation applicable to our business; • an executive’s breach of any confidentiality or invention assignment agreement with us; or • an executive being convicted of, or entering a plea of nolo contendere to, a felony or committing any act of moral turpitude, dishonesty orfraud against us, or the misappropriation of our material property.The cause determination is made by the board of directors in good faith.For purposes of Mr. Johnson’s and Mr. Ghesquiere’s sign-on stock option agreement, “good reason” means generally: • the material diminution of an executive’s duties; provided that diminution following a change in control solely by virtue of duties occurring ata subsidiary or division level rather than at the parent will not be deemed good reason; -118-Table of Contents • a material reduction in base salary; • a material change in geographic location of where an executive must perform services; or • our material breach of the option agreement.To qualify as a resignation for good reason, the executive must provide notice to us within 90 days of the initial existence of the condition or eventdescribed above and allow us to cure the condition or event within 30 days following our receipt of notice.Outstanding Equity Awards at Fiscal Year-EndThe following table presents information concerning equity awards held by our named executive officers at the end of 2015. Option Awards Stock Awards Vesting CommencementDate Number of Securities Underlying Option (#) Option ExercisePrice ($) Option Expiration Date Number ofShares or Units of Stock ThatHave Not Vested Market Value of Shares or Units of Stock ThatHave Not Vested ($) Name Exercisable Unexercisable R. Bradley Gray 6/25/2010 130,299(1)(2) — 2.24 6/29/2020 — — 6/25/2010 33,481(2) — 2.24 6/29/2020 — — 6/25/2010 8,370(1)(2) — 2.24 6/29/2020 — — 6/25/2010 15,125(1)( 3 ) — 2.24 6/29/2020 — — 3/01/2012 35,046(1)( 5 ) — 1.92 2/28/2022 — — 3/01/2012 100,541(1)( 5 ) — 1.92 2/28/2022 — — 1/10/2013 68,749(1)( 6 ) — 6.72 1/09/2023 — — 1/31/2014 43,136(6 ) 46,864(6 ) 18.18 1/30/2024 — — 2/09/2015 20,840(6) 79,160(6) 12.77 2/08/2025 — — James A. Johnson 10/01/2012 82,968(1)( 4 ) — 5.12 10/15/2022 — — 1/10/2013 31,249(1)( 6 ) — 6.72 1/09/2023 — — 1/31/2014 21,574(6 ) 23,426(6 ) 18.18 1/30/2024 — — 2/09/2015 9,380(6) 35,620(6) 12.77 2/08/2025 — — David W. Ghesquiere 12/05/2013 46,506(2) 46,494(2) 12.50 12/4/2023 — — 1/31/2014 1,932(6) 2,068(6) 18.18 1/30/2024 — — 2/09/2015 9,380(6) 35,620(6) 12.77 2/08/2025 — — 3/01/2015 — — — — 15,000(7) 220,650(8) (1) The options listed are subject to an early exercise right and may be exercised in full prior to vesting of the shares underlying the option. Vesting of all optionsis subject to continued service on the applicable vesting date.(2) Options vest over four years as follows: 25% of the shares vest one year following the vesting commencement date, with the remaining 75% vesting in equalmonthly installments over the following years. Notwithstanding the foregoing, if the named executive officer’s employment is terminated other than forcause, death or disability or such named executive officer resigns for good reason, in each case, during the period on, and 12 months after, a change incontrol, then 100% of the then-unvested shares vest.(3) The option vested as to 50% upon the FDA’s final approval of Prosigna in September 2013 and the remaining 50% will vest upon the “tools” portion of ourbusiness becoming profitable.(4) Options vest over four years as follows: 25% of the shares vest one year following the vesting commencement date, with the remaining 75% vesting in equalmonthly installments over the following years. Notwithstanding the foregoing, if the named executive officer is terminated without cause or resigns for goodreason, in each case following a change in control, then 100% of the then-unvested shares vest. -119-Table of Contents(5) Options vest over four years as follows: 15% of the shares vest on the vesting commencement date, with the remaining 85% vesting in equal monthlyinstallments over the following four years. Notwithstanding the foregoing, if the named executive officer is terminated without cause or resigns for goodreason, in each case, following a change in control, then 100% of the then-unvested shares vest.(6) Options vest in equal monthly installments from the vesting commencement date over four years. Notwithstanding the foregoing, if the named executiveofficer is terminated without cause or resigns for good reason, in each case, following a change in control, then 100% of the then-unvested shares vest.(7) One third of the restricted stock units vest on the first market trading day following the first anniversary of vesting commencement date and one third of therestricted stock units vest annually on the first market trading day after each of the second and third anniversaries of the vesting commencement date.(8) The market value of unvested shares is calculated by multiplying the number of unvested shares by the closing market price of our common stock on TheNASDAQ Global Market on December 31, 2015, which was $14.71 per share.401(k) PlanWe maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Allparticipants’ interests in their deferrals are 100% vested when contributed. In 2015 and 2014, we contributed $0.6 million and $0.4 million into the 401(k) plan asmatching contributions. In 2013 we made no matching contributions into the 401(k) plan. Pre-tax contributions are allocated to each participant’s individualaccount and are then invested in selected investment alternatives according to the participants’ directions. The 401(k) plan is intended to qualify under Sections401(a) and 501(a) of the Internal Revenue Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are nottaxable to the employees until distributed from the 401(k) plan, and all contributions are deductible by us when made.Director CompensationDirector Compensation PolicyThe compensation committee retained Arnosti Consulting, Inc., a compensation advisory firm, to provide recommendations on director compensationfollowing our initial public offering based on an analysis of market data compiled from certain public technology companies. Based on the recommendation ofArnosti Consulting, Inc., in June 2013, our board of directors approved a director compensation policy for our non-employee directors that became effectivefollowing our initial public offering. For purposes of the policy, or the Post-IPO Director Compensation Policy, the board of directors classified each director intoone of the two following categories: (1) an “employee director,” is a director who is employed by us; and (2) a “non-employee director,” is a director who is not anemployee director. Only non-employee directors will receive compensation under the Post-IPO Director Compensation Policy. All directors will be reimbursed forexpenses in their capacities as directors in accordance with our standard expense reimbursement policy. Non-employee directors will receive compensation in theform of equity and cash under the Post-IPO Director Compensation Policy, as described below. Certain of our non-employee directors are employees, officers,directors, managers, managing members or general partners of a stockholder of our company or an entity that is an affiliate of such stockholder (excluding ourcompany), and as a result of the internal policies of such stockholder or its affiliates, these directors may be required to hold any compensation received for theirservice on our board of directors for the benefit of such stockholder or its affiliates.Equity CompensationUpon joining our board of directors, each non-employee director receives an option to purchase 0.08% of our outstanding shares on the date of grant.The exercise price of the initial grant is the fair market value, as determined in accordance with our 2013 Equity Incentive Plan, on the date of the grant. The shares -120-Table of Contentsunderlying the initial grant vest as to 50% of the total shares subject to such award on the one year anniversary of the date the director commenced services, and theremaining 50% of the total shares vest in 12 equal monthly installments thereafter, in each case, subject to continued service as a director through each vesting date.At the beginning of each fiscal year, each non-employee director is granted an option to purchase 0.04% of our outstanding shares on the date of grant.The exercise price of this annual grant is the fair market value, as determined in accordance with our 2013 Equity Incentive Plan, on the date of the grant. All of theshares underlying the annual grant vest on the one year anniversary of the date of grant, subject to continued service as a director through the vesting date.In addition, on July 10, 2013 (the 10th trading day following our initial public offering on June 25, 2013) each non-employee director then serving onthe board of directors received an option to purchase 0.06% of our outstanding shares on the date of grant. As an exception to the terms of our 2013 EquityIncentive Plan, the exercise price of this grant was the average closing price of our stock for the 10 trading day period following June 25, 2013. The sharesunderlying the post-offering grant vested as to 50% of the total shares subject to such award on June 25, 2014, and the remaining 50% of the total shares vest in 12equal monthly installments thereafter, in each case, subject to continued service as a director through each vesting date.Also, the chairman of the board of directors received, in addition to the grant discussed in the immediately preceding paragraph, an additional optionto purchase 0.05% of our outstanding shares. This additional grant was granted at the same time as and had the same terms and conditions as the post-offeringgrant.The vesting of each grant described above accelerates in full upon a “change in control” as defined in our 2013 Equity Incentive Plan.Cash CompensationFor each fiscal year, each non-employee director receives an annual cash retainer of $35,000 for serving on the board of directors. In addition to theannual retainer, the chairperson of the board of directors is entitled to an additional cash retainer of $40,000 per year, and the chairpersons of the board’s auditcommittee, compensation committee and nominating and corporate governance committee are entitled to an additional cash retainer of $15,000, $12,000 and$10,000 per year, respectively. Non-chairperson members of the audit committee, compensation committee and nominating and corporate governance committeeare entitled to an additional cash retainer of $7,500, $6,000 and $5,000 per year, respectively. Prior to our 2015 annual meeting of stockholders, chairpersons of thethree standing committees were each entitled to a cash retainer of $10,000, and non-chairperson members of the committees did not receive additionalcompensation.All cash payments are payable in four equal installments at the end of each calendar quarter during which such individual served as a director (suchpayments to be prorated for service during a portion of such quarter). -121-Table of ContentsThe following table sets forth information concerning the compensation paid or accrued for services rendered to us by members of the board ofdirectors for the year ended December 31, 2015. Compensation paid or accrued for services rendered to us by Mr. Gray in his role as chief executive officer isincluded in our disclosures related to executive compensation in the section of this report captioned “Executive Compensation.” Mr. Gray did not receive anycompensation related to services rendered as a member of the board of directors. Name Fees Earned or paid in Cash ($) Option Awards($) (1) Total ($) William D. Young (2) 80,854 56,080 136,934 Nicholas Galakatos (3) 48,281 56,080 104,361 Robert M. Hershberg M.D., Ph.D. (4) 31,513 76,497 108,010 Gregory Norden (5) 50,132 56,080 106,212 Charles P. Waite (6) 51,289 56,080 107,369 (1) Represents the aggregate grant date fair value of stock option awards granted in 2015. These amounts have been computed in accordance with FinancialAccounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718, using the Black-Scholes option pricing model withoutregard to estimated forfeitures. For a discussion of valuation assumptions, see the notes to our financial statements included elsewhere in this report.(2) As of December 31, 2015, Mr. Young held options for the purchase of 98,321 shares of common stock, of which 97,214 shares were vested as of such date.(3) As of December 31, 2015, Dr. Galakatos held options for the purchase of 21,922 shares of common stock, all of which were vested as of such date.(4) Dr. Hershberg was appointed to the board of directors in March 2015. As of December 31, 2015 Dr. Hershberg held options for the purchase of 14,688shares of common stock, none of which were vested as of such date.(5) As of December 31, 2015, Mr. Norden held options for the purchase of 32,328 shares of common stock, of which 30,810 shares were vested as of such date.(6) As of December 31, 2015, Mr. Waite held options for the purchase of 21,922 shares of common stock, all of which were vested as of such date.For further information regarding the equity compensation of our non-employee directors, see the section titled “Executive Compensation —Employee Benefit and Stock Plans.”Compensation Committee Interlocks and Insider ParticipationThe members of our compensation committee during 2015 and currently are Dr. Galakatos, Mr. Norden and Mr. Waite. None of the members of ourcompensation committee is or has been an officer or employee of us. None of our executive officers currently serves, or in the past year has served, as a member ofthe board of directors or compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entireboard of directors) of any entity that has one or more executive officers serving on our board of directors or compensation committee. We are a party to certaintransactions with significant stockholders affiliated with Dr. Galakatos and Mr. Waite as described in the section of this report captioned “Certain Relationships andRelated Party Transactions and Director Independence.”Insider Trading PolicyIn connection with our IPO, we established an insider trading policy that prohibits, among other things, short sales, hedging of stock ownershippositions, and transactions involving derivative securities relating to our common stock.Compensation Committee ReportThe compensation committee has reviewed and discussed the section captioned “Executive Compensation,” included in this Annual Report on Form10-K, with management and, based on such review and discussion, the compensation committee has recommended to our board of directors that this “ExecutiveCompensation” section be included in this Annual Report on Form 10-K. -122-Table of ContentsRespectfully submitted by the members of the compensation committee of the board of directors: /s/ Dr. Nicholas Galakatos, Chairman /s/ Greg Norden /s/ Charles P. Waite Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersSecurities Authorized for Issuance Under Equity Compensation PlansThe following table summarizes information about our equity compensation plans as of December 31, 2015. All outstanding awards relate to ourcommon stock. Plan Category (a) Number of Securities to beIssued Upon Exercise of Outstanding Options, Warrants and Rights (b) Weighted Average ExercisePrice of Outstanding Options, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (ExcludingSecurities Reflected in Column (a)) 1 Equity compensation plans approved by security holders: 2004 Stock Option Plan 1,334,729 $3.28 — 2013 Equity Incentive Plan 2,832,233 14.56 1,363,616 2013 Employee Stock Purchase Plan — N.A. 332,704 Equity compensation plans not approved by security holders: — N.A. — Total 4,166,962 N.A. 1,696,320 (1) Our 2013 Equity Incentive Plan includes provisions providing for an annual increase in the number of securities available for future issuance on the first dayof each fiscal year, equal to the least of: (a) 1,406,250 shares; (b) 5% of the outstanding shares of common stock as of the last day of the immediatelypreceding fiscal year; and (c) such other amount as the board of directors may determine. Our 2013 Employee Stock Purchase Plan includes provisionsproviding for an annual increase in the number of securities available for future issuance on the first day of each fiscal year, equal to the least of: (a) 1% ofthe outstanding shares of common stock on the first day of such fiscal year; (b) 281,250 shares; and (c) such other amount as the board of directors, or acommittee appointed by the board of directors, may determine. -123-Table of ContentsPrincipal StockholdersThe following table sets forth certain information with respect to the beneficial ownership of our common stock at February 19, 2016 for: • each person who we know beneficially owns more than 5% of our common stock; • each of our directors; • each of our named executive officers; and • all of our directors and executive officers as a group.The percentage of beneficial ownership shown in the table is based upon 19,636,762 shares outstanding as of February 19, 2016.Information with respect to beneficial ownership has been furnished by each director, executive officer or beneficial owner of more than 5% of ourcommon stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership ofsecurities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules take into account shares ofcommon stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before the 60th day afterFebruary 19, 2016. Certain of the options granted to our named executive officers may be exercised prior to the vesting of the underlying shares. We refer to suchoptions as being “early exercisable.” Shares of common stock issued upon early exercise are subject to our right to repurchase such shares until such shares havevested. These shares are deemed to be outstanding and beneficially owned by the person holding those options or a warrant for the purpose of computing thepercentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unlessotherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned bythem, subject to applicable community property laws.Except as otherwise noted below, the address for each person or entity listed in the table is c/o NanoString Technologies, Inc., 530 Fairview Avenue,N., Seattle, Washington 98109. Common Stock Beneficially Owned Name of Beneficial Owner Shares Percentage 5% Stockholders: Entities affiliated with Clarus Funds (1) 4,143,770 20.9 Entities affiliated with OVP Funds (2) 1,662,806 8.4 Entities affiliated with DFJ Funds ( 3 ) 1,864,010 9.4 Entities affiliated with Redmile Group, LLC (4) 1,357,692 6.9 Cadian Capital Management, LP ( 5 ) 1,323,102 6.7 Entities affiliated with Morgan Stanley ( 6 ) 1,598,178 8.1 Directors and Named Executive Officers: R. Bradley Gray ( 7 ) 564,014 2.8 Joseph M. Beechem, Ph.D. ( 8 ) 144,423 * Wayne D. Burns ( 9 ) 108,307 * David W. Ghesquiere ( 10 ) 76,221 * James A. Johnson ( 11 ) 155,439 * Barney Saunders, Ph.D. ( 12 ) 43,255 * William D. Young ( 1 3 ) 98,321 * Nicholas Galakatos, Ph.D. (1) 4,143,770 20.9 -124-Table of Contents Common Stock Beneficially Owned Name of Beneficial Owner Shares Percentage Gregory Norden ( 1 4 ) 31,460 * Charles P. Waite ( 2 ) 1,662,806 8.4 Robert M. Hershberg (1 5 ) 7,956 * All directors and executive officers as a group (11 persons) ( 1 6 ) 7,028,016 33.5 (*)Less than one percent.(1)Includes 3,959,440 shares held and 162,408 shares that may be acquired pursuant to the exercise of warrants held of record by Clarus Lifesciences II, L.P.(“Clarus”) and options to purchase 21,922 shares that are exercisable within 60 days of February 19, 2016, all of which are vested as of such date, issued toNicholas Galakatos, a member of the board of directors. In accordance with the internal policies of Clarus Ventures, the options received by Dr. Galakatosmust be held for the benefit of Clarus Ventures and its affiliates. Clarus Ventures II GP, L.P. (the “GPLP”), as the sole general partner of Clarus, may bedeemed to beneficially own certain of the shares held of record by Clarus. The GPLP disclaims beneficial ownership of all shares held of record by Clarusin which the GPLP does not have an actual pecuniary interest. Clarus Ventures II, LLC (the “GPLLC”), as the sole general partner of the GPLP, may bedeemed to beneficially own certain of the shares held of record by Clarus. The GPLLC disclaims beneficial ownership of all shares held of record byClarus in which it does not have an actual pecuniary interest. Each of Dr. Galakatos and Messrs. Henner, Liptak, Simon, Steinmetz and Wheeler, asindividual Managing Directors of the GPLLC, may be deemed to beneficially own certain of the shares held of record by Clarus. Each of Dr. Galakatos andMessrs. Henner, Liptak, Simon, Steinmetz and Wheeler disclaims beneficial ownership of all shares held of record by Clarus in which he does not have anactual pecuniary interest. The address of Clarus Lifesciences is 101 Main Street, Suite 1210, Cambridge, Massachusetts 02142.(2)Includes (a) 1,063,775 shares held by OVP Venture Partners VI, L.P. (“OVP VI”), (b) 472,221 shares held of record by OVP Venture Partners VII, L.P.(“OVP VII”), (c) 1,484 shares held by OVP VII Entrepreneurs Fund, L.P. (“OVP VII Entrepreneurs Fund”) and (d) options to purchase 21,922 shares thatare exercisable within 60 days of February 19, 2016, all of which are vested as of such date, issued to Charles P. Waite, a member of the board of directors.In accordance with the internal policies of OVP Venture Partners, the options received by Mr. Waite must be held for the benefit of OVP Venture Partnersand its affiliates. Mr. Waite is a managing member of OVMC VI, LLC, the general partner of OVP VI, and a managing member of OVMC VII, LLC, thegeneral partner of OVP VII and OVP VII Entrepreneurs Fund. Mr. Waite, together with the other managing members of OVMC VI, LLC and OVMC VII,LLC are deemed to have shared voting and dispositive power over the shares held by OVP VI, OVP VII and OVP VII Entrepreneurs Fund. Theseindividuals disclaim beneficial ownership with respect to such shares except to the extent of their pecuniary interest therein. The address of each of theentities affiliated with OVP Venture Partners is 1616 Eastlake Ave E #208, Seattle, WA 98102.(3)Based solely on the most recently available Schedule 13G filed with the SEC on January 28, 2016. Includes (a) 1,703,722 shares held and 85,728 sharesthat may be acquired pursuant to the exercise of warrants held of record by Draper Fisher Jurvetson Fund VII, L.P., (b) 32,154 shares held of record byDraper Associates, L.P., (c) 24,847 shares held and 1,249 shares that may be acquired pursuant to the exercise of warrants held of record by Draper FisherJurvetson Partners VII, LLC, (d) 12,002 shares held and 1,923 shares that may be acquired pursuant to the exercise of warrants held of record by DraperAssociates Riskmasters Fund II, LLC and (e) 1,989 shares held and 396 shares that may be acquired pursuant to the exercise of warrants held of record byDraper Associates Riskmasters Fund, LLC. Timothy C. Draper, John H.N. Fisher and Steven T. Jurvetson are Managing Directors of the general partnerentities of Draper Fisher Jurvetson Fund VII, L.P. (“Fund VII”) that directly hold shares and as such, they may be deemed to have voting and investmentpower with respect to such shares. Draper Fisher Jurvetson Partners VII, LLC (“Partners VII”) invests lockstep alongside Fund VII. The ManagingMembers of Partners VII are Timothy C. Draper, John H.N. Fisher and Steven T. Jurvetson. Draper Associates, L.P. (“DALP”) invests lockstep alongsideFund VII. The General Partners of DALP is Draper Associates, Inc. which is controlled by its President and majority shareholder, Timothy C. Draper.Draper Associates Riskmasters Fund, LLC (“DARF”) and Draper Associates Riskmasters Fund II, LLC (“DARF II”) invest lockstep alongside Fund VII,instead and in place of DALP beginning June 2010. The Managing Member of DARF and DARF II is Timothy C. Draper. These individuals disclaimbeneficial ownership with respect to such shares except to the extent of their pecuniary interest therein. The address of each of the entities affiliated withDraper Fisher Jurvetson is 2882 Sand Hill Road, Suite 150, Menlo Park, California 94025.(4)Based solely on the most recently available Schedule 13G filed with the SEC on February 16, 2016, consists of shares held by certain investment limitedpartnerships, pooled investment vehicles, etc. for which Redmile Group, LLC, (“Redmile”) serves as the general partner and/or investment manager.Redmile, as the general partner and/or investment manager, and Jeremy Green, as the majority managing member and owner of Redmile, may be deemedto beneficially own such shares insofar as they may be deemed to have the power to direct the voting or disposition of the shares. Each of Redmile andJeremy Green disclaims beneficial ownership of such shares, except to the extent of his or its pecuniary interests therein. The address of Redmile is OneLetterman Drive, Building D, Suite D3-300, San Francisco, CA 94111.(5)Based solely on the most recently available Schedule 13G filed with the SEC on February 12, 2016. All securities reported in the Schedule 13G are directlyowned by advisory clients of Cadian Capital Management, LP (“Cadian”). None of the advisory clients individually owns more than 5% of the commonstock of NanoString Technologies, Inc. Eric Bannasch may be deemed to beneficially own the shares held of record by Cadian. The address of each of theforegoing persons and entities is 535 Madison Avenue, 36 th Floor, New York, NY 10022.(6)Based solely on the most recently available Schedule 13G filed with the SEC on February 5, 2016. The securities being reported by Morgan Stanley as aparent holding company are owned, or may be deemed to be beneficially owned, by Morgan Stanley Capital Services LLC, a wholly-owned subsidiary ofMorgan Stanley. The address of each of the foregoing entities is 1585 Broadway, New York, NY 10036.(7)Includes 94,474 shares held and options to purchase 469,540 shares that are exercisable within 60 days of February 19, 2016, of which 456,649 shares arevested as of such date. -125-Table of Contents(8)Includes 4,351 shares held and options to purchase 140,072 shares that are exercisable within 60 days of February 19, 2016, of which 135,384 shares arevested as of such date.(9)Includes 61,178 shares held and options to purchase 47,129 shares that are exercisable within 60 days of February 19, 2016, of which 45,254 shares arevested as of such date.(10)Includes 1,654 shares held, 5,000 shares attributable to restricted stock units that will vest within 60 days of February 19, 2016 and options to purchase69,567 shares that are exercisable within 60 days of February 19, 2016, all of which are vested as of such date.(11)Includes 3,709 shares held and options to purchase 151,730 shares that are exercisable within 60 days of February 19, 2016, of which 135,499 shares arevested as of such date.(12)Includes 4,101 shares held and options to purchase 39,154 shares of that are exercisable within 60 days of February 19, 2016, of which 38,216 shares arevested as of such date.(13)Consists of options to purchase 98,321 shares that are exercisable within 60 days of February 19, 2016, all of which are vested as of such date.(14)Consists of options to purchase 31,460 shares that are exercisable within 60 days of February 19, 2016, all of which are vested as of such date.(15)Consists of options to purchase 7,956 shares that are exercisable within 60 days of February 19, 2016, all of which are vested as of such date.(16)Includes 5,666,387 shares held, 265,812 shares that may be acquired pursuant to the exercise of warrants held of record, 5,000 shares attributable torestricted stock units that will vest within 60 days of February 19, 2016, and options to purchase 1,090,817 shares that are exercisable within 60 days ofFebruary 19, 2016, of which 1,062,150 shares are vested as of such date. Item 13.Certain Relationships and Related Transactions, and Director IndependenceRelated Party Transaction PolicyWe have adopted a formal, written policy that our executive officers, directors (including director nominees), holders of more than 5% of any class ofour voting securities, and any member of the immediate family of or any entities affiliated with any of the foregoing persons, are not permitted to enter into arelated party transaction with us without the prior approval or, in the case of pending or ongoing related party transactions, ratification of our audit committee. Forpurposes of our policy, a related party transaction is a transaction, arrangement or relationship where we were, are or will be involved and in which a related partyhad, has or will have a direct or indirect material interest, other than transactions available to all of our United States employees.Certain transactions with related parties, however, are excluded from the definition of a related party transaction including, but not limited to:(1) transaction with another company at which a related party’s only relationship is as an employee (excluding as an executive officer or a director) or beneficialowner of less than 5% of that company’s shares; (2) transaction where the related party’s interest arises solely from the ownership of our equity securities and allholders of our common stock received the same benefit on a pro rata basis (e.g. dividends); (3) transactions available to all employees generally; (4) transactionsinvolving the purchase or sale of products or services in the ordinary course of business, not exceeding $20,000; and (5) transactions in which the related party’sinterest derives solely from his or her service as a director, trustee or officer (or similar position) of a not-for-profit organization or charity that receives donationsfrom the Company.No member of the audit committee may participate in any review, consideration or approval of any related party transaction where such member orany of his or her immediate family members is the related party. In approving or rejecting the proposed agreement, our audit committee shall consider the relevantfacts and circumstances available and deemed relevant to the audit committee, including, but not limited to: (1) the benefits and perceived benefits, or lack thereof,to our company; (2) the impact on a director’s independence in the event the related party is a director, an immediate family member of a director or an entity inwhich a director is a partner, stockholder or executive officer; (3) the materiality and character of the related party’s direct and indirect interest; (4) the actual orapparent conflict of interest of the related party; (5) the availability of other sources for comparable products or services; (6) the opportunity costs of alternativetransactions; (7) the terms of the transaction; (8) the commercial reasonableness of the terms of the proposed transaction; and (9) terms available to unrelated thirdparties or to employees under the same or similar circumstances. In reviewing proposed related party transactions, the audit committee will only approve or ratifyrelated party transactions that are in, or not inconsistent with, the best interests of our company and stockholders, as the audit committee determines in good faith. -126-Table of ContentsIn addition to the arrangements described below, we have also entered into the arrangements which are described where required in the section of thisreport captioned “Part III — Item 11 — Executive Compensation — Executive Employment Arrangements”.Investors’ Rights AgreementWe have entered into an investors’ rights agreement with certain holders of our common stock and warrants to purchase our common stock, includingentities affiliated with Clarus Ventures, entities affiliated with OVP Venture Partners and entities affiliated with Draper Fisher Jurvetson. As of February 19, 2016,the holders of approximately 5 million shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act.The investors’ rights agreement was consummated prior to our adoption of the formal, written policy described above, and therefore, such policies andprocedures were not followed with respect to the investors’ rights agreement. However, we believe that the terms obtained in connection with the investors’ rightsagreement were comparable to terms available in an arm’s-length transaction.Indebtedness of Directors and OfficersNone of our current or former directors or executive officers is indebted to us, nor are any of these individuals indebted to another entity whichindebtedness is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by us.Other TransactionsWe have entered into separate indemnification agreements with each of our directors and certain of our officers.We have granted stock options and other equity awards pursuant to our 2013 Equity Incentive Plan to our named executive officers, other executiveofficers and certain of our directors.Certain of our executive officers are participants in our 2013 Employee Stock Purchase Plan.Director IndependenceUnder the rules of The NASDAQ Global Market, independent directors must comprise a majority of a listed company’s board of directors. In addition,the rules of The NASDAQ Global Market require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating andcorporate governance committees be independent within 12 months following completion of a listed company’s initial public offering. Audit committee membersmust also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under the rules of The NASDAQGlobal Market, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have arelationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.To be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or hercapacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, orother compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. -127-Table of ContentsOur board of directors has undertaken a review of its composition, the composition of its committees and the independence of directors and consideredwhether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or herresponsibilities. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, includingfamily relationships, the board of directors has determined that none of Messrs. Young, Waite and Norden and Drs. Galakatos and Hershberg, representing five ofour six directors, has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that eachof these directors is an “independent director” as defined under the rules of The NASDAQ Global Market. The board of directors also determined that Messrs.Norden (chairman), Waite and Young, who comprise our audit committee, Dr. Galakatos (chairman), Mr. Norden and Mr. Waite, who comprise our compensationcommittee, and Messrs. Waite (chairman), Young and Drs. Galakatos and Hershberg, who comprise our nominating and corporate governance committee, satisfythe independence standards for those committees established by applicable SEC rules and the rules of The NASDAQ Global Market.In making this determination, the board of directors considered the relationships that each non-employee director has with us and all other facts andcircumstances the board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. Item 14.Principal Accountant Fees and ServicesThe following table summarizes the fees of PricewaterhouseCoopers LLP, our independent registered public accounting firm, for 2015 and 2014. Year Ended December 31, Fee Category 2015 2014 Audit fees (1) $692,130 $610,074 Audit-related fees — — Tax fees — 19,700 All other fees (2) 1,800 6,200 Total fees $693,930 $635,974 (1) Audit fees consist of fees for professional services provided in connection with the audit of our annual consolidated financial statements, review of ourquarterly consolidated financial statements and our public offerings.(2) All other fees include any fees billed that are not audit, audit related, or tax fees. In 2015 and 2014, these fees related to accounting research software.Pre-Approval Policies and ProceduresPursuant to its charter, the audit committee must review and approve, in advance, the scope and plans for the audits and the audit fees and approve inadvance (or, where permitted under the rules and regulations of the SEC, subsequently) all non-audit services to be performed by the independent auditor that arenot otherwise prohibited by law and any associated fees. The audit committee may delegate to one or more members of the committee the authority to pre-approveaudit and permissible non-audit services, as long as this pre-approval is presented to the full committee at scheduled meetings. In accordance with the foregoing,the committee has delegated to the chair of the audit committee the authority to pre-approve services to be performed by our independent registered publicaccounting firm and associated fees, provided that the chair is required to report any decision to pre-approve such audit-related or non-audit services and fees to thefull audit committee for ratification at its next regular meeting. -128-Table of ContentsPART IV Item 15.Exhibits, Financial Statement Schedules(a)(1) Financial Statements - The financial statements filed as part of this Annual Report on Form 10-K are listed on the Index to Consolidated Financial Statementsin Item 8.(a)(2) Financial Statement SchedulesAll schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.(a)(3) ExhibitsThe exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.(b) Exhibits.The exhibits listed on the Exhibit Index (following the Signatures section of this report) are filed herewith or are incorporated by reference to exhibits previouslyfiled with the SEC. -129-Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.Dated: March 11, 2016 NANOSTRING TECHNOLOGIES, INC.By: /s/ R. Bradley Gray R. Bradley Gray President and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints R. Bradley Gray andJames A. Johnson, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawfulattorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacitystated below, and to file, any and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact andagents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact andagents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated. Signature Title Date/s/ R. Bradley Gray President, Chief Executive Officer and Director (Principal ExecutiveOfficer) March 11, 2016R. Bradley Gray /s/ James A. Johnson Chief Financial Officer (Principal Accounting and Financial Officer) March 11, 2016James A. Johnson /s/ William D. Young Chairman of the Board of Directors March 11, 2016William D. Young /s/ Nicholas Galakatos Director March 11, 2016Nicholas Galakatos /s/ Robert M. Hershberg Director March 11, 2016Robert M. Hershberg /s/ Gregory Norden Director March 11, 2016Gregory Norden /s/ Charles P. Waite Director March 11, 2016Charles P. Waite -130-Table of ContentsEXHIBIT INDEX Exhibit Incorporated by ReferenceNumber Description Form File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation of the Registrant 10-Q 001-35980 3.1 August 8, 2013 3.2 Amended and Restated Bylaws of the Registrant 10-Q 001-35980 3.2 August 8, 2013 4.1 Specimen Common Stock Certificate of the Registrant. S-1/A 333-188704 4.1 June 13, 2013 4.2 Amended and Restated Investors’ Rights Agreement, dated November 29, 2012, by and amongthe Registrant and the investors named therein. S-1 333-188704 4.2 May 20, 2013 4.3 Amendment to Amended and Restated Investors’ Rights Agreement, dated December 20, 2012,by and among the Registrant and the investors named therein. S-1 333-188704 4.3 May 20, 2013 4.4 Warrant to purchase Series B Preferred Stock, issued to lender under Registrant’s prior creditfacility on October 1, 2007. S-1 333-188704 4.4 May 20, 2013 4.5 Warrant to purchase Series C Preferred Stock, issued to lender under Registrant’s prior creditfacility on November 8, 2010. S-1 333-188704 4.5 May 20, 2013 4.6 Form of amended and restated warrant to purchase shares of Series D Preferred Stock, issued toinvestors on June 23, 2011 and September 26, 2011 in connection with the Registrant’s 2011bridge financing. S-1 333-188704 4.6 May 20, 2013 4.7 Form of warrant to purchase shares of Series D Preferred Stock, issued to the investors onNovember 1, 2011 and December 28, 2011 in connection with the Registrant’s preferred stockand warrant financing. S-1 333-188704 4.7 May 20, 2013 4.8 Form of warrant to purchase Series D Preferred Stock, issued to lenders on March 30, 2012 andDecember 10, 2012 under Registrant’s March 2012 credit facility. S-1 333-188704 4.8 May 20, 2013 4.9 Form of warrant to purchase Series E Preferred Stock, issued to lenders on December 31, 2012and April 30, 2013 in connection with the amendments of the Registrant’s March 2012 creditfacility. S-1 333-188704 4.9 May 20, 2013 10.1 Form of Director and Executive Officer Indemnification Agreement. S-1/A 333-188704 10.1 June 13, 2013 10.2 2004 Stock Option Plan, as amended. S-1 333-188704 10.2 May 20, 2013 10.3 Form of Notice of Stock Option Grant and Stock Option Agreement under the 2004 StockOption Plan, as amended. S-1 333-188704 10.3 May 20, 2013 10.4 Form of Notice of Stock Option Grant and Stock Option Agreement permitting early exerciseunder the 2004 Stock Option Plan, as amended. S-1 333-188704 10.4 May 20, 2013 10.5 2013 Equity Incentive Plan. S-1/A 333-188704 10.5 June 13, 2013 10.6 Form of Notice of Stock Option Grant and Stock Option Agreement under the 2013 EquityIncentive Plan. S-1/A 333-188704 10.6 June 13, 2013 10.7 Form of Notice of Restricted Stock Grant and Restricted Stock Agreement under the 2013Equity Incentive Plan. S-1/A 333-188704 10.7 June 13, 2013 10.8 Form of Notice of Restricted Stock Unit Grant and Restricted Stock Unit Agreement under the2013 Equity Incentive Plan. S-1/A 333-188704 10.8 June 13, 2013 -1-Table of ContentsExhibit Incorporated by ReferenceNumber Description Form File No. Exhibit Filing Date 10.9 2013 Employee Stock Purchase Plan. S-1/A 333-188704 10.9 June 13, 2013 10.10+ Employment Agreement, dated May 24, 2010, between the Registrant and R. Bradley Gray. S-1 333-188704 10.8 May 20, 2013 10.11+ Employment Agreement, dated September 7, 2012, between the Registrant and Jim Johnson. S-1 333-193322 10.11 January 13, 2014 10.12+* Employment Agreement, dated November 20, 2013, between the Registrant and David W.Ghesquiere. 10.13* Lease between the Registrant and BMR-530 Fairview Avenue LLC, dated October 19, 2007, asamended through February 27, 2015. 10.14 Lease between the Registrant and BMR-500 Fairview Avenue LLC, dated December 22, 2014. 10-K 001-35980 10.15 March 13, 2015 10.15 Lease between the Registrant and Blume Roy Building LLC, dated December 26, 2013, asamended on December 22, 2014. 10-K 001-35980 10.16 March 13, 2015 10.16 Sales Agreement, dated as of May 11, 2015, between NanoString Technologies, Inc. and Cowenand Company, LLC. 10-Q 001-35980 10.1 August 5, 2015 10.17 Term Loan Agreement dated April 1, 2014 among the Registrant and certain of the Registrant’ssubsidiaries and Capital Royalty Partners II L.P., Capital Royalty Partners II – Parallel Fund “A”L.P. and Parallel Investment Opportunities Partners II L.P. and forms of promissory note and PIKloan note to be issued thereunder. 10-Q 001-35980 10.1 August 8, 2014 10.18 Amendment No 1 to Term Loan Agreement dated April 16, 2015, between the Registrant andCapital Royalty Partners II L.P., Capital Royalty Partners II (Cayman) L.P, Capital RoyaltyPartners II – Parallel Fund “B” (Cayman) L.P., and Parallel Investment Opportunities Partners IIL.P. 10-Q 001-35980 10.2 August 5, 2015 10.19* Amendment No 2 to Term Loan Agreement dated October 30, 2015, between the Registrant andCapital Royalty Partners II L.P., Capital Royalty Partners II (Cayman) L.P., Capital RoyaltyPartners II – Parallel Fund “B” (Cayman) L.P. and Parallel Investment Opportunities Partners IIL.P. 10.20 Security Agreement dated April 17, 2014 among the Registrant and certain of the Registrant’ssubsidiaries and Capital Royalty Partners II L.P., Capital Royalty Partners II – Parallel Fund “A”L.P. and Parallel Investment Opportunities Partners II L.P. and form of joinder agreement to beissued thereunder. 10-Q 001-35980 10.2 August 8, 2014 10.21† Exclusive License Agreement, dated February 4, 2004, between the Registrant and The Institute forSystems Biology. S-1 333-188704 10.19 May 20, 2013 10.22† Amendment No. 1 to Exclusive License Agreement, dated February 5, 2007, between theRegistrant and The Institute for Systems Biology. S-1 333-188704 10.20 May 20, 2013 10.23 Amendment No. 2 to Exclusive License Agreement, dated May 17, 2007, between the Registrantand The Institute for Systems Biology. S-1 333-188704 10.21 May 20, 2013 10.24† Amended and Restated Exclusive License Agreement, effective July 7, 2010, between theRegistrant and Bioclassifier, LLC. S-1 333-188704 10.22 May 20, 2013 10.25 First Amendment to Amended and Restated Exclusive License Agreement between the Companyand Bioclassifier, LLC, dated March 31, 2015. 10-Q 001-35980 10.1 May 11, 2015 -2-Table of ContentsExhibit Incorporated by ReferenceNumber Description Form File No. Exhibit Filing Date 21.1 List of subsidiaries of the Registrant. 10-K 001-35980 21.1 March 27, 2014 23.1* Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 24.1* Powers of Attorney (contained on signature page). 31.1* Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, as amended. 31.2* Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, as amended. 32.1* Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the SecuritiesExchange Act of 1934, as amended, and 18 U.S.C. §1350. 32.2* Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the SecuritiesExchange Act of 1934, as amended, and 18 U.S.C. §1350. 101.INS* XBRL Instance Document. 101.SCH* XBRL Taxonomy Extension Schema Document. 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.+Indicates a management contract or compensatory plan.†Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities andExchange Commission. -3-Exhibit 10.12NANOSTRING TECHNOLOGIES, INC.DAVID GHESQUIERE EMPLOYMENT AGREEMENTThis Agreement (the “Agreement”) is entered into as of November 20, 2013 (the “ Start Date ”) by and between NanoString Technologies, Inc., a Delawarecorporation (the “ Company ”), and David Ghesquiere (“ Executive ”).1. Position .(a) Title . Executive will serve as the Sr. Vice President of Corporate and Business Development of the Company. Executive will render such businessand professional services in the performance of his duties, consistent with Executive’s position within the Company, as shall reasonably be assigned to him by theCompany’s Chief Executive Officer (“ CEO ”) and/or Board of Directors (the “ Board ”). The period of Executive’s employment under this Agreement is referredto herein as the “ Employment Term ” and shall commence on November 20, 2013.(b) Obligations . Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the dutiesand obligations required of and from him pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During theEmployment Term, Executive further agrees that he will not engage in any other employment, occupation, consulting, or other business activity directly related tothe business in which the Company is now involved or becomes involved during the Employment Term, nor will he engage in any other activities that conflict withhis obligations to the Company. Nothing in this Agreement will prevent Executive from accepting speaking or presentation engagements in exchange for honorariaor from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whosestock is listed on a national stock exchange. Subject to the discretion and approval of the Company’s Board of Directors confirmed in writing by the CEO,Executive shall be free to serve on the board of directors of one corporation.2. At-Will Employment . The parties agree that, subject to the terms of this Agreement, Executive’s employment with the Company is “at-will” and may beterminated at any time with or without cause or notice. Executive understands and agrees that neither his job performance nor promotions, commendations, bonusesor the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of hisemployment with the Company. The at-will nature of Executive’s employment cannot be modified or amended except by a written agreement signed by Executiveand the Company’s CEO.3. Compensation .(a) Base Salary . During the Employment Term, the Company will pay Executive as compensation for his services a base salary at the annualized rateof three hundred thousand dollars ($300,000) (the “ Base Salary ”). The Base Salary will be paid periodically inaccordance with the Company’s normal payroll practices and be subject to the usual, required withholdings, and change at the Company’s discretion, includingannual review by the Board for any appropriate adjustment.(b) Bonus . Executive shall be eligible to be considered for an annual, performance-based, cash bonus of up to 40% of Executive’s Base Salary foreach calendar year, which bonus shall be awarded in the sole discretion of the Compensation Committee of the Board of Directors based on a recommendationfrom the CEO, which shall be based on Executive’s performance in the prior calendar year against metrics established for such year by the Company. Any bonusawarded shall be paid by no later than March 15 following the calendar year to which the bonus corresponds. If Executive is terminated by or leaves the Companyprior to the end of a given calendar year, then the Company shall have no obligation to pay a bonus to Executive for such year. Executive will be eligible toparticipate in the 2014 bonus plan effective January 1, 2014.(c) Signing Bonus . Executive shall be paid a signing bonus equal to $15,000 via a regularly scheduled payroll that is within 30 days of the Start Date.If Executive terminates his employment with Company for any reason within one year of the Start Date the bonus will be refundable in full and may be set offagainst any other amounts due Executive upon termination.(d) Equity Grant. In connection with the commencement of Executive’s employment, the Company will recommend that the Board of Directors grantExecutive an option to purchase 93,000 shares of common stock of the Company (the “ Stock Option ”), with an exercise price equal to the fair market value on thedate of grant. The Stock Option will vest at the rate of 25% of the shares on the twelve (12) month anniversary of Executive’s Vesting Commencement Date (asdefined in his Stock Option Agreement, which date will be the first day of the Employment Term) and the remaining Stock Option shares will vest monthlythereafter at the rate of 1/48 of the total number of the Option Shares per month. Vesting will, of course, depend on Executive’s continued employment with theCompany. The Stock Option will be subject to the terms of the Company’s 2013 Equity Incentive Plan (the “ Plan ”). In the event that there is a Change in Control(as such term is defined in the Plan), and the Executive is terminated from employment without Cause (as defined below) or resigns for a Good Reason (as definedbelow) on or within twelve (12) months after the effective date of such Change in Control, then one hundred percent (100%) of the unvested portion of the StockOption shall vest and become exercisable at the time of Executive’s termination from employment. The Stock Option will be subject to the terms of the Plan and astock option agreement between Executive and the Company.4. Employee Benefits . During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereaftermaintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company’s medical plans. TheCompany reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. Executive shall also be entitled to take paidvacation consistent with the Company’s vacation policy approved by the Board. The Company shall pay or promptly reimburse Employee for all reasonable, out-of-pocket travel and business expenses incurred in the performance of Employee’s duties on behalf of the Company for which Employee submits the requiredsupporting documentation and otherwise fully complies with the Company’s travel and expense reimbursement policy as in effect from time to time. -2-5. Severance Benefits .(a) Involuntary Termination . If Executive’s employment with the Company terminates as a result of an Involuntary Termination (as defined below),and Executive signs and does not revoke a standard release of claims with the Company within sixty (60) days after the date of his termination (the “ReleaseDeadline), then, subject to Executive’s compliance with Section 8, Executive shall receive severance pay (less applicable withholding taxes) at a rate equal to hisBase Salary rate, as then in effect, for a period of six (6) months from the date such release of claims becomes effective (such payments shall be paid periodically inaccordance with the Company’s normal payroll policies). Severance payments under this Section 5(a) will commence on the first payroll following the ReleaseDeadline, subject to any delay required by Section 13. Any installment payments that would have been made to Executive during the sixty (60) day periodimmediately following Executive’s termination of employment but for the preceding sentence will be paid on the first payroll following the Release Deadline andthe remaining payments shall be made as provided in this Agreement. If Executive becomes entitled to receive severance pay pursuant to this Section 5(a),Executive will not be entitled to any other severance benefits or similar payments in accordance with the Company’s established policies as then in effect.(b) Voluntary Termination; Termination for Cause. If Executive’s employment with the Company is terminated voluntarily by Executive or for Causeby the Company, then (i) all vesting of any unvested stock options or shares of restricted stock held by Executive as of the date of Executive’s termination ofemployment will terminate immediately, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as toamounts already earned) and (iii) Executive will only be eligible for severance benefits in accordance with the Company’s established policies as then in effect.(c) Termination by Reason of Death or Disability . If Executive’s employment with the Company terminates as a result of Executive’s death orDisability (as defined in Section 6 below), Executive or Executive’s estate or representative will receive all salary accrued (plus any other amounts payable asdetermined by the Board in its sole discretion) as of the date of Executive’s death or Disability and any other benefits payable under the Company’s then existingbenefit plans and policies in accordance with such plans and policies in effect on the date of death or Disability and in accordance with applicable law. Suchpayments shall be made by the Company periodically in accordance with the Company’s normal payroll policies with respect to each element of such payments.6. Definitions .(a) Cause . For purposes of this Agreement, “ Cause ” is defined as (i) a violation of a material written Company policy that is communicated by theBoard to Executive and that continues uncured for thirty (30) days, (ii) an act of dishonesty made by Executive in connection with Executive’s responsibilities as anemployee, (iii) Executive’s conviction of, or plea of nolo contendere to, a felony, (iv) Executive’s gross misconduct, (v) the failure or refusal of Executive to followthe lawful and proper directives of the Board that are within the scope of the Executive’s duties set forth in Section 1 above and that is not corrected within thirty(30) days after written notice from the Board to Executive identifying such failure or refusal or (vi) Executive’s material breach of the PIIA (as defined below) orSection 8(b) hereof. -3-(b) Disability . For purposes of this Agreement, “ Disability ” shall mean that Executive has been unable to perform his duties hereunder as the resultof his incapacity due to physical or mental illness, and such inability, which continues for at least 120 consecutive calendar days or 150 calendar days during anyconsecutive twelve-month period, is determined to be total and permanent by a physician selected by the Company and its insurers and acceptable to Executive orto Executive’s legal representative (with such agreement on acceptability not to be unreasonably withheld).(c) Good Reason . For purposes of this Agreement, “ Good Reason ” shall mean if (A) there is (1) a material, adverse and permanent change inExecutive’s position as set forth in Section 1(a) of this Agreement causing such position to be of materially reduced stature or responsibility (other than changesrelated to Executive’s termination as Senior Vice President of Corporate and Business Development (2) a reduction of more than five percent (5%) in Executive’sBase Salary then in effect (other than any such reduction applicable to officers of the Company generally), (3) a material reduction by the company in the kind orlevel of employee benefits (other than Base Salary) to which Executive is entitled immediately prior to such reduction with the result that Executive’s overallbenefits package (other than Base Salary) is substantially reduced (other than any such reduction applicable to officers of the Company generally), (4) any materialbreach by the Company of any material provision of this Agreement which continues uncured for thirty (30) days following notice by Executive thereof, or (5) arefusal by Executive, following a request by the Company, to relocate to a facility or location more than forty (40) miles from the Company’s current location, and(B) Executive provides notice to the Company within thirty (30) days after the initial occurrence of the condition or event described above, the Company fails tocure or remedy any such condition or event within the thirty (30) day period following its receipt of the notice, and Executive thereafter elects to terminate hisemployment voluntarily within thirty (30) days after the expiration of the period for correcting such condition or event; provided, however, that none of theforegoing shall constitute Good Reason to the extent that Executive has agreed in writing to such material change, reduction, breach or refusal, and provided furtherthat any change in Executive’s job function or responsibilities in order to accommodate a disability under the Americans with Disabilities Act, the Family MedicalLeave Act or any analogous statute or law shall not constitute a basis for Executive to involuntarily terminate his employment hereunder.(d) Involuntary Termination . For purposes of this Agreement, an “ Involuntary Termination ” shall be deemed to occur if: (i) Executive’s employmentwith the Company is terminated by the Company for any reason other than Cause (and for a reason other than Executive’s death or Disability); or (ii) Executiveterminates his employment with the Company for Good Reason.7. Proprietary Information and Inventions Agreement . Executive acknowledges that he is and will continue to be bound by the terms and conditions of theProprietary Information and Inventions Agreement (the “ PIIA ”), a copy of which is attached hereto as Exhibit A, provided that if the provisions of this Agreementand the provisions of the PIIA conflict or are inconsistent, the provisions of this Agreement shall govern . -4-8. Conditional Nature of Severance Payments .(a) Non-Solicitation; Non-Competition . Executive agrees and acknowledges that Executive’s right to receive the severance benefits set forth inSection 5 (to the extent Executive is otherwise entitled to such benefits) shall be conditioned upon Executive’s continued compliance with Section 8 (Non-Solicitation) and Section 9 (Non-Competition) of the PIIA and Section 8(b) of this Agreement. Upon any breach of this section, all severance benefits pursuant tothis Agreement shall immediately cease including, without limitation, Executive’s right to exercise any stock options on a date that is more than ninety (90) daysafter the date that Executive’s employment was terminated.(b) Non-Disparagement . During and after the Employment Term, Executive agrees to refrain from any defamation, libel or slander of the Companyand its officers, directors, employees, agents, investors, stockholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, andassigns, and any tortious interference with the contracts, relationships and prospective economic advantage of any of the foregoing persons and entities.(c) Understanding of Covenants . Executive represents that he (i) is familiar with the covenants set forth in Section 8 and Section 9 of the PIIA, and(ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of suchcovenants.9. Confidentiality of Terms . Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any of theterms of this Agreement to any person, including other employees of the Company; provided , however , that Executive may discuss such terms with members ofExecutive’s immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice.10. Assignment . This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive uponExecutive’s death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of thisAgreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase,merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive anyform of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any otherattempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void.11. Notices . All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (a) on the date ofdelivery if delivered personally, (b) one (1) day after being sent by a well established commercial overnight service, or (c) four (4) days after being mailed byregistered or certified mail, return receipt requested, prepaid -5-and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:If to the Company:NanoString Technologies, Inc.530 Fairview Ave. N., Suite 2000Seattle, WA 98109Attn: CEOIf to Executive:to the last residential address known by the Company.12. Severability . In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, thisAgreement will continue in full force and effect without said provision.13. Application of Section 409A . Notwithstanding anything to the contrary set forth herein, any payments and benefits provided under this Agreement thatconstitute “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) and the regulations andother guidance thereunder and any state law of similar effect (collectively, the “ Section 409A ”) shall not commence in connection with Executive’s termination ofemployment unless and until Executive has also incurred a “separation from service” (as such term is defined in Treasury Regulation Section 1.409A-1(h) (the “Separation From Service ”), unless the Company reasonably determines that such amounts may be provided to Executive without causing Executive to incur theadditional 20% tax under Section 409A.It is intended that each installment of severance pay provided for in this Agreement is a separate “payment” for purposes of Treasury RegulationSection 1.409A-2(b)(2)(i). For the avoidance of doubt, it is intended that severance payments set forth in this Agreement satisfy, to the greatest extent possible, theexceptions from the application of Section 409A provided under Treasury Regulation Sections 1.409A-1(b)(4) and 1.409A-1(b)(9).If the Company (or, if applicable, the successor entity thereto) determines that any payments or benefits constitute “deferred compensation” underSection 409A and Executive is, on the termination of service, a “specified employee” of the Company or any successor entity thereto, as such term is defined inSection 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, thetiming of the payments and benefits shall be delayed until the earlier to occur of: (a) the date that is six months and one day after Executive’s Separation FromService, or (b) the date of Executive’s death (such applicable date, the “ Specified Employee Initial Payment Date ”). On the Specified Employee Initial PaymentDate, the Company (or the successor entity thereto, as applicable) shall (i) pay to Executive a lump sum amount equal to the sum of the payments and benefits thatExecutive would otherwise have received through the Specified Employee Initial Payment Date if the commencement of the payment of such amounts had not beenso delayed pursuant to this Section and (ii) commence paying the balance of the payments and benefits in accordance with the applicable payment schedules setforth in this Agreement.14. Arbitration .(a) General. In consideration of Executive’s service to the Company, his promise to arbitrate all employment related disputes and Executive’s receiptof the compensation, -6-pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputeswith anyone (including the Company and any employee, officer, director, stockholder or benefit plan of the Company in their capacity as such or otherwise) arisingout of, relating to, or resulting from Executive’s service to the Company under this Agreement or otherwise or the termination of Executive’s service with theCompany, including any breach of this Agreement, shall be subject to binding arbitration under the Arbitration Rules set forth in the Revised Code of WashingtonChapter 7.04 (the “ Rules ”) and pursuant to Washington law. Disputes which Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury,include any statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans withDisabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, claims of harassment, discrimination orwrongful termination. Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.(b) Procedure . Executive agrees that any arbitration will be administered by the American Arbitration Association (“ AAA ”) and that a neutralarbitrator will be selected in a manner consistent with its National Rules for the Resolution of Employment Disputes. The arbitration proceedings will allow fordiscovery according to the National Rules for the Resolution of Employment Disputes and the Washington Code of Civil Procedure. Executive agrees that thearbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication andmotions to dismiss and demurrers, prior to any arbitration hearing. Executive agrees that the arbitrator shall issue a written decision on the merits with findings offact and conclusions of law. Executive also agrees that the arbitrator shall have the power to award any remedies, including attorneys’ fees and costs, availableunder applicable law. Executive understands the Company will pay for any administrative or hearing fees charged by the arbitrator or AAA except that Executiveshall pay the first $200.00 of any filing fees associated with any arbitration Executive initiates. Executive agrees that the arbitrator shall administer and conduct anyarbitration in a manner consistent with the Rules and that to the extent that the AAA’s National Rules for the Resolution of Employment Disputes conflict with theRules, the Rules shall take precedence.(c) Remedy . Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute between Executive and theCompany. Accordingly, except as provided for by the Rules, neither Executive nor the Company will be permitted to pursue court action regarding claims that aresubject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitratorshall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.(d) Availability of Injunctive Relief . In addition to the right under the Rules to petition the court for provisional relief, Executive agrees that any partymay also petition the court for injunctive relief where either party alleges or claims a violation of this Agreement or the PIIA or any other agreement regardingtrade secrets, confidential information, non-competition, non-solicitation or non-disparagement. In the event either party seeks injunctive relief, the prevailing partyshall be entitled to recover reasonable costs and attorneys’ fees. -7-Administrative Relief . Executive understands that this Agreement does not prohibit Executive from pursuing an administrative claim with a local, state orfederal administrative body such as the Washington State Human Rights Commission, Equal Employment Opportunity Commission or the workers’ compensationboard. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim.15. Legal Fees and Expenses .(a) Unless prohibited by law, if Employee prevails on at least one substantive issue in seeking to enforce the Company’s obligations under thisAgreement, the Company shall pay and be solely responsible for any and all costs and expenses (including attorneys’ fees) incurred by Employee in connectionwith Employee’s action to enforce the Company’s obligations under this Agreement. The Company shall pay directly or reimburse Employee for any and all suchcosts and expenses within sixty (60) calendar days following the presentation by Employee or by counsel selected from time to time by Employee of a statement orstatements prepared by Employee or by such counsel of the amount of such costs and expenses. The Company shall also pay to Employee interest (calculated at theprime rate from time to time in effect at Bank of America, compounded monthly) on any payments or benefits that are paid or provided to Employee later than thedate on which due under the terms of this Agreement.(b) In order to comply with Section 409A of the Code, (a) in no event will the payments by the Company under Section 15 of this Agreement be madelater than the end of the calendar year next following the calendar year in which such fees and expenses were incurred; Employee shall be required to submit aninvoice for such fees and expenses at least 10 days before the end of the calendar year next following the calendar year in which such fees and expenses wereincurred; (b) the amount of such legal fees and expenses that the Company is obligated to pay in any given calendar year will not affect the legal fees and expensesthat the Company is obligated to pay in any other calendar year; (c) the Company’s obligation to pay Employee’s legal fees will terminate on the fifth anniversaryof the termination of this Agreement; and (d) Employee’s right to have the Company pay such legal fees and expenses may not be liquidated or exchanged for anyother benefit.(c) Any amount paid to Employee for the reimbursement of legal fees and expenses under this section shall not exceed $50,000 prior to a Change ofControl and $100,000 after a Change of Control.16. Voluntary Nature of Agreement . Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress orundue influence by the Company or any other person. Executive further acknowledges and agrees that Executive has carefully read this Agreement and thatExecutive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it,including that Executive is waiving Executive’s right to a jury trial. Finally, Executive agrees that Executive has been provided an opportunity to seek the advice ofan attorney of Executive’s choice before signing this Agreement. -8-17. Integration . This Agreement, any stock option and restricted stock agreements between the Company and Executive and the PIIA represent the entireagreement and understanding between the parties as to the subject matter herein and supersede all prior or contemporaneous agreements whether written or oral. Nowaiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of theparties hereto.18. Tax Withholding . All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.19. Governing Law . This Agreement will be governed by the laws of the State of Washington, without giving effect to principles of conflict of laws.IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.COMPANY:NANOSTRING TECHNOLOGIES, INC. By: /s/ Bradley GrayPrint Name: Bradley GrayTitle: President & CEO EXECUTIVE:/s/ David GhesquiereDavid Ghesquiere -9-Attachment AProprietary Information and Invention Assignment Agreement -10-NANOSTRING TECHNOLOGIES, INC.PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT(WASHINGTON EMPLOYEES)In consideration for my becoming employed (or my employment being continued), or retained as a consultant (or my consulting relationship beingcontinued), by NanoString Technologies, Inc. or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the “ Company ”), theCompany and I hereby agree as follows:1. Duties . The Company and I are parties to an Employment Agreement dated November 18, 2013 (the “Employment Agreement”) that describes theservices I will perform for the Company and the terms and conditions applicable to my employment by the Company. The Employment Agreement requires theCompany and I to enter into this Agreement. To the extent the provisions of the Employment Agreement and the provisions of this Agreement conflict or areinconsistent, the provisions of the Employment Agreement shall govern.2. Confidentiality Obligation . I understand and agree that all Proprietary Information (as defined below) shall be the sole property of the Company and itsassigns, including all trade secrets, patents, copyrights and other rights in connection therewith. I hereby assign to the Company any rights I may acquire in suchProprietary Information. I will hold in confidence and not directly or indirectly use or disclose, both during my employment by or consulting relationship with theCompany and after its termination (irrespective of the reason for such termination), any Proprietary Information I obtain or create during the period of myemployment or consulting relationship, whether or not during working hours, except to the extent authorized by the Company, until such Proprietary Informationbecomes generally known. I agree not to make copies of such Proprietary Information except as authorized by the Company. Upon termination of my employmentor consulting relationship or upon an earlier request of the Company, I will return or deliver to the Company all tangible forms of such Proprietary Information inmy possession or control, including but not limited to drawings, specifications, documents, records, devices, models or any other material and copies orreproductions thereof.3. Ownership of Physical Property . All documents, apparatus, equipment and other physical property in any form, whether or not pertaining to ProprietaryInformation, furnished to me by the Company or produced by me or others in connection with my employment or consulting relationship shall be and remain thesole property of the Company. I shall return to the Company all such documents, materials and property as and when requested by the Company, except only (i) mypersonal copies of records relating to my compensation; (ii) if applicable, my personal copies of any materials evidencing shares of the Company’s capital stockpurchased by me and/or options to purchase shares of the Company’s capital stock granted to me; (iii) my copy of this Agreement and (iv) my personal propertyand personal documents I bring with me to the Company and any personal correspondence and personal materials that I accumulate and keep at my office duringmy employment (my “ Personal Documents ”). Even if the Company does not so request, I shall return all such documents, materials and property upon terminationof my employment or consulting relationship, and, except for my Personal Documents, I will not take with me any such documents, material or property or anyreproduction thereof upon such termination. -11-4. Assignment of Inventions .(a) Without further compensation, I hereby agree promptly to disclose to the Company, all Inventions (as defined below) which I may solely or jointlydevelop or reduce to practice during the period of my employment or consulting relationship with the Company which (i) pertain to any line of business activity ofthe Company, (ii) are aided by the use of time, material or facilities of the Company, whether or not during working hours or (iii) relate to any of my work duringthe period of my employment or consulting relationship with the Company, whether or not during normal working hours (“ Company Inventions ”). During theterm of my employment or consultancy, all Company Inventions that I conceive, reduce to practice, develop or have developed (in whole or in part, either alone orjointly with others) shall be the sole property of the Company and its assigns to the maximum extent permitted by law (and to the fullest extent permitted by lawshall be deemed “works made for hire”), and the Company and its assigns shall be the sole owner of all patents, copyrights, trademarks, trade secrets and otherrights in connection therewith. I hereby assign to the Company any rights that I may have or acquire in such Company Inventions.(b) I attach hereto as Exhibit A a complete list of all Inventions, if any, made by me prior to my employment or consulting relationship with theCompany that are relevant to the Company’s business, and I represent and warrant that such list is complete. If no such list is attached to this Agreement, Irepresent that I have no such Inventions at the time of signing this Agreement. If in the course of my employment or consultancy (as the case may be) with theCompany, I use or incorporate into a product or process an Invention not covered by Section 4(a) of this Agreement in which I have an interest, the Company ishereby granted a nonexclusive, fully paid-up, royalty-free, perpetual, worldwide license of my interest to use and sublicense such Invention without restriction ofany kind.NOTICE REQUIRED BY REVISED CODE OF WASHINGTON 49.44.140 :Any assignment of Inventions required by this Agreement does not apply to an Invention for which no equipment, supplies, facility or trade secretinformation of the Company was used and which was developed entirely on the employee’s own time, unless (a) the Invention relates (i) directly to the business ofthe Company or (ii) to the Company’s actual or demonstrably anticipated research or development or (b) the Invention results from any work performed by theemployee for the Company.5. Further Assistance; Power of Attorney . I agree to perform, during and after my employment or consulting relationship, all acts deemed necessary ordesirable by the Company to permit and assist it, at its expense, in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in theInventions assigned to the Company as set forth in Section 4 above. Such acts may include, but are not limited to, execution of documents and assistance orcooperation in legal proceedings. I hereby irrevocably designate the Company and its duly authorized officers and agents as my agent and attorney-in fact, toexecute and file on my behalf any such applications and to do all other lawful acts to further the prosecution and issuance of patents, copyright and mask workregistrations related to such Inventions. This power of attorney shall not be affected by my subsequent incapacity.6. Inventions . As used in this Agreement, the term “ Inventions ” means discoveries, developments, concepts, designs, ideas, know-how, improvements,inventions, trade secrets and/or original works of authorship, whether or not patentable, copyrightable or otherwise legally protectable. This includes, but is notlimited to, any new product, machine, article of manufacture, biological material, method, procedure, process, technique, use, equipment, device, apparatus, system,compound, formulation, composition of matter, design or configuration of any kind, or any improvement thereon.7. Proprietary Information . As used in this Agreement, the term “ Proprietary Information ” means information or physical material not generally knownor available outside the Company or information or physical material entrusted to the Company by third parties, provided that Proprietary Information shall notinclude any information that I can show was known to or developed by me prior to the -12-execution of this Agreement. This includes, but is not limited to, Inventions, confidential knowledge, copyrights, product ideas, techniques, processes, formulas,object codes, biological materials, mask works and/or any other information of any type relating to documentation, laboratory notebooks, data, schematics,algorithms, flow charts, mechanisms, research, manufacture, improvements, assembly, installation, marketing, forecasts, sales, pricing, customers, the salaries,duties, qualifications, performance levels and terms of compensation of other employees, and/or cost or other financial data concerning any of the foregoing or theCompany and its operations. Proprietary Information may be contained in material such as drawings, samples, procedures, specifications, reports, studies, customeror supplier lists, budgets, cost or price lists, compilations or computer programs, or may be in the nature of unwritten knowledge or know-how.8. Solicitation of Employees, Consultants and Other Parties . During the term of my employment or consulting relationship with the Company, and for aperiod of one year following the termination of my relationship with the Company for any reason, I will not directly or indirectly solicit, induce, recruit orencourage any of the Company’s employees or consultants to terminate their relationship with the Company, or attempt any of the foregoing, either for myself orany other person or entity. Further, at any time following termination of my relationship with the Company for any reason, I shall not use any ProprietaryInformation of the Company to attempt to negatively influence any of the Company’s clients or customers from purchasing any of the Company’s products orservices, or solicit any licensor to or customer of the Company or licensee of the Company’s products, that are known to me, with respect to any business, productsor services that are competitive to the products or services offered by the Company or under development as of the date of termination of my relationship with theCompany.9. Noncompetition . During the term of my employment or consulting relationship with the Company and for one year following the termination of myrelationship with the Company for any reason, I will not, without the Company’s prior written consent, directly or indirectly work on any products or services thatare competitive with products or services (a) being commercially developed or exploited by the Company during my employment or consultancy and (b) on whichI worked or about which I learned Proprietary Information during my employment or consultancy with the Company.10. No Conflicts . I represent that my performance of all the terms of this Agreement as an employee of or consultant to the Company does not and will notbreach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my becoming an employeeor consultant of the Company, and I will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or materialbelonging to any previous employer or others. I agree not to enter into any written or oral agreement that conflicts with the provisions of this Agreement.11. No Interference . I certify that, to the best of my information and belief, I am not a party to any other agreement which will interfere with my fullcompliance with this Agreement.12. Effects of Agreement . This Agreement (a) shall survive for a period of five years beyond the termination of my employment by or consultingrelationship with the Company, (b) inures to the benefit of successors and assigns of the Company and (c) is binding upon my heirs and legal representatives.13. At-Will Relationship . I understand and acknowledge that my employment or consulting relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the relationship at any time for any reason or no reason, without furtherobligation or liability.14. Injunctive Relief . I acknowledge that violation of this Agreement by me may cause irreparable injury to the Company, and I agree that the Companywill be entitled to seek extraordinary relief -13-in court, including, but not limited to, temporary restraining orders, preliminary injunctions and permanent injunctions without the necessity of posting a bond orother security and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.15. Miscellaneous . This Agreement supersedes any oral, written or other communications or agreements concerning the subject matter of this Agreement,and may be amended or waived only by a written instrument signed by me and the Chief Executive Officer of the Company. This Agreement shall be governed bythe laws of the State of Washington applicable to contracts entered into and performed entirely within the State of Washington, without giving effect to principlesof conflict of laws. If any provision of this Agreement is held to be unenforceable under applicable law, then such provision shall be excluded from this Agreementonly to the extent unenforceable, and the remainder of such provision and of this Agreement shall be enforceable in accordance with its terms.16. Acknowledgment . I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully andfaithfully comply with such provisions.The undersigned have executed this Proprietary Information and Inventions Agreement as of November 20, 2013.COMPANY:NANOSTRING TECHNOLOGIES, INC. By: /s/ Bradley GrayPrint Name: Bradley GrayTitle: President & CEO EXECUTIVE:/s/ David GhesquiereDavid Ghesquiere -14-Exhibit ANanostring Technologies, Inc.530 Fairview Ave N, Suite 2000Seattle, WA 98109Ladies and Gentlemen:1. The following is a complete list of all Inventions relevant to the subject matter of my employment by the Company that have been made or conceived orfirst reduced to practice by me, alone or jointly with others or which has become known to me prior to my employment by the Company. I represent that such list iscomplete.2. I propose to bring to my employment or consultancy the following materials and documents of a former employer: xNo materials or documents. ¨See below: By: /s/ David Ghesquiere David GhesquiereExhibit 10.13EIGHTH AMENDMENT TO LEASETHIS EIGHTH AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 27th day of February, 2015 (“ Execution Date ”), by and betweenBMR-530 FAIRVIEW AVENUE LLC, a Delaware limited liability company (“ Landlord ”), and NANOSTRING TECHNOLOGIES, INC., a Delawarecorporation (“Tenant”).RECITALSA. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of October 19, 2007 (the “ Original Lease ”);B. WHEREAS, the Original Lease was amended by that certain First Amendment to Lease dated May 21, 2009 (“ First Amendment ”), that certain SecondAmendment to Lease dated June 16, 2010 (“ Second Amendment ”), that certain Third Amendment to Lease dated February 4, 2011 (“ Third Amendment ”), thatcertain Fourth Amendment to Lease dated May 31, 2012 (“ Fourth Amendment ”), that certain Fifth Amendment to Lease dated July 9, 2013 (“ Fifth Amendment”; that certain Sixth Amendment to Lease dated September 11, 2014 (“ Sixth Amendment ”), and that certain Seventh Amendment to Lease dated December 22,2014 (“ Seventh Amendment ”). As used herein, the “ Existing Lease ” shall mean the Original Lease, as amended by the First Amendment, the SecondAmendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh Amendment;C. WHEREAS, pursuant to the Existing Lease, Tenant leases certain premises (the “ Premises ”) from Landlord in the building located at 530 FairviewAvenue North in Seattle, Washington (the “ Building ”);D. WHEREAS, Landlord and Tenant desire to exclude from the Premises certain storage space comprising approximately 617 square feet located in thebasement of the Building that Landlord previously leased to Tenant pursuant to the Fourth Amendment (“ Storage Space ”); andE. ‘WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.AGREEMENTNOW, THEREFORE, Landlord and Tenant, in consideration of the Recitals set forth above which are incorporated herein by this reference, and inconsideration of mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,and intending to be legally bound, agree as follows:1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise definedherein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the “ Lease .” BioMed Realty form dated 12/16/14APPROVEDBIOMED REALTY LEGAL/s/ ML2. Exclusion of Storage Space from Premises . Landlord and Tenant acknowledge and agree that (a) effective January 1, 2015, the Premises shall exclude theStorage Space, and all references to the “Premises” set forth in the Lease shall mean the Premises, excluding the Storage Space, (b) the Rentable Area of thePremises, Tenant’s Pro Rata Share of the Building, Tenant’s Pro Rata Share of the Project, and the Basic Annual Rent for the Premises, all as set forth in theSeventh Amendment, were calculated as if the Premises already excluded the Storage Space, and therefore shall remain unchanged and shall be those set forth inthe Seventh Amendment.3. Brokers . Each party represents and warrants to the other that it has had no dealings with any real estate broker or agent in connection with the negotiationof this Amendment. Each party agrees to reimburse, indemnify, save, defend (at the other party’s option and with counsel reasonably acceptable to the other party,at its sole cost and expense) and hold harmless the other party and its affiliates and their respective shareholders, members, partners, directors, officers andemployees and their respective successors and assigns (the “ Indemnitees ”) for, from and against any and all cost or liability for compensation claimed by any suchbroker or agent employed or engaged by it or claiming to have been employed or engaged by it.4. No Default . Tenant represents and warrants that, to the best of Tenant’s knowledge, neither Landlord nor Tenant is in default of any of their respectiveobligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlordor Tenant thereunder. Landlord represents and warrants that, to the best of Landlord’s knowledge, neither Landlord nor Tenant is in default of any of theirrespective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by eitherLandlord or Tenant thereunder.5. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:NanoString Technologies, Inc.,530 Fairview Avenue, Suite 2000Seattle, WA 98109Attn: Wayne Burns, Senior Vice President Operations/Administrationwith a copy to:NanoString Technologies, Inc.,530 Fairview Avenue, Suite 2000Seattle, WA 98109Attn: General Counsel6. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditionsthereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment andthe Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease ” as used in the Lease shall mean the Existing Lease, as modified by this Amendment. 27. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply toand be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees.Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.8. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs andsubparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisionshereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute areservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.9. Authority . Landlord and Tenant each guarantee, warrant and represent to the other that the individual or individuals signing this Amendment have thepower, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, jointventurers or other organizations and entities on whose behalf such individual or individuals have signed. Each party further guarantees, warrants and represents tothe other that no third-party consent or approval is required in connection with this Amendment, or if such consent or approval is required, it has been obtained.10. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shallconstitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the sameforce and effect as, an original signature.[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 3IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date and year first above written. LANDLORD:BMR-530 FAIRVIEW AVENUE LLC,a Delaware limited liability companyBy: /s/ Kevin M. SimonsenName: Kevin M. SimonsenTitle: Sr. VP, Real Estate Legal STATE OF CALIFORNIA ) ) ss.COUNTY OF SAN DIEGO )On 2/27, 2015, before me, Fern M. Kissel Notary Public, a Notary Public in and for said County and State, personally appearedKevin M. Simonsen who proved to me on the basis of satisfactory evidence to be the person(s) whosename(s) is/are subscribed to the within instrument and acknowledged to me thathe/she/they executed the same in his/her/their authorized capacity(ies), and that byhis/her/their signature(s) on the instrument the person(s), or the entity upon behalf ofwhich the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of Californiathat the foregoing paragraph is true and correct. WITNESS my hand and official seal.Signature /s/ Fern M. KisselTENANT:NANOSTRING TECHNOLOGIES, INC.,a Delaware corporationa Delaware corporationBy: /s/ Wayne D. BurnsName: Wayne D. BurnsTitle: Sr. VP, Operations & Administration STATE OF WASHINGTON ) ) ss.COUNTY OF KING )On this 26, day of February, 2015; before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn personallyappeared Wayne Burns, known to me to be the SVP, OPS of NANOSTRING TECHNOLOGIES, INC., the corporation that executed the foregoing instrument, andacknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the purposes therein mentioned, and on oath stated that he/shewas authorized to execute said instrument.I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signatureappears on this document.WITNESS my hand and official seal hereto affixed the day and year in the certificate above written. /s/ Julia ChandlerSignatureJulia ChandlerPrint NameNOTARY PUBLIC in and for the State ofWashington, residing at SeattleMy commission expires 9.12.18Exhibit 10.19Execution VersionAMENDMENT AGREEMENT NO. 2THIS AMENDMENT AGREEMENT NO. 2 (this “Amendment”), dated as of October 30, 2015, is made among NanoString Technologies, Inc., a Delawarecorporation (the “Borrower”), the Subsidiary Guarantors listed on the signature pages hereof under the heading “SUBSIDIARY GUARANTORS” (each a“Subsidiary Guarantor” and, collectively, the “Subsidiary Guarantors”, and together with the Borrower, each an “Obligor” and, collectively, the “Obligors”) and theLenders listed on the signature pages hereof under the heading “LENDERS” (each a “Lender” and, collectively, the “Lenders”).The Obligors and the Lenders are parties to that certain Term Loan Agreement, dated as of April 1, 2014, amended by that certain Amendment AgreementNo. 1, dated as of April 16, 2015 (as further amended, amended and restated, modified or supplemented from time to time, the “Loan Agreement”).The parties hereto desire to amend the Loan Agreement on the terms and subject to the conditions set forth herein.Accordingly, the parties hereto agree as follows: SECTION 1Definitions; Interpretation.(a) Terms Defined in Loan Agreement . All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined hereinshall have the meanings assigned to them in the Loan Agreement.(b) Interpretation . The rules of interpretation set forth in Section 1.03 of the Loan Agreement shall be applicable to this Amendment and are incorporatedherein by this reference. SECTION 2Amendments.Subject to Section 3 , the Loan Agreement is hereby amended as follows:(a) The following definitions shall be added to Section 1.01 of the Loan Agreement in alphabetical sequence:““ Amendment No. 1 ” means that Amendment Agreement No. 1, dated as of April 16, 2015, among Borrower, the Subsidiary Guarantors and the Lenderssignatory thereto.“ Amendment No. 2 ” means that Amendment Agreement No. 2, dated as of October 30, 2015, among Borrower, the Subsidiary Guarantors and the Lenderssignatory thereto.“ Amendment No. 2 Closing Date ” means October 30, 2015.“ Amendment No. 2 Fee Letter ” means that fee letter agreement dated as of October 30, 2015 between Borrower and the Lenders party thereto.” 1(b) The following definitions in Section 1.01 of the Loan Agreement are hereby amended and restated in their entirety to read as follows:““ Borrowing Notice Date ” means, (i) in the case of the first Borrowing, a date that is at least twelve Business Days prior to the Borrowing Date of suchBorrowing, (ii) in the case of a subsequent Borrowing (except for the Borrowing for the fifth tranche of term loans), a date that is at least twenty Business Daysprior to the Borrowing Date of such Borrowing, and (iii) in the case of the Borrowing for the fifth tranche of term loans, a date that is at least twenty Business Daysprior to the Borrowing Date of such Borrowing, or, in each case, such shorter period as the Lenders may agree.“ Closing Date ” means April 17, 2014.“ Commitment ” means, with respect to each Lender, the obligation of such Lender to make Loans to Borrower in accordance with the terms and conditionsof this Agreement, which commitment is in the amount set forth opposite such Lender’s name on Schedule 1 under the caption “Commitment”, as such Schedulemay be amended from time to time. The aggregate Commitments on the date of Amendment No. 2 equal $60,000,000. For purposes of clarification, the amount ofany PIK Loans shall not reduce the amount of the available Commitment.“ Commitment Period ” means the period from and including the Closing Date and through and including December 31, 2016.“ Interest-Only Period ” means the period from and including the first Borrowing Date and through and including the twenty-eighth (28 th ) Payment Datefollowing the first Borrowing Date, which Payment Date shall be March 31, 2021.“ Loan Documents ” means, collectively, this Agreement, the Amendment No. 2 Fee Letter, the Notes, the Security Documents, any subordinationagreement or any intercreditor agreement entered into by Lenders with any other creditors of Obligors, and any other present or future document, instrument,agreement or certificate executed by Obligors for the benefit of Lenders in connection with this Agreement or any of the other Loan Documents, all as amended,restated, or otherwise modified.“ Maturity Date ” means the earlier to occur of (i) the thirty-second (32 nd ) Payment Date following the first Borrowing Date, which Payment Date shall beMarch 31, 2022, and (ii) the date on which the Loans are accelerated pursuant to Section 11.02 .“ PIK Period ” means the period beginning on the first Borrowing Date through and including the earlier to occur of (i) the twenty-fourth (24 th ) PaymentDate after the first Borrowing Date, which Payment Date shall be March 31, 2020, and (ii) the date on which any Default shall have occurred ( provided that if suchDefault shall have been cured or waived, the PIK Period shall resume until the earlier to occur of the next Default and the twenty-fourth (24 th ) Payment Date afterthe first Borrowing Date).” 2(c) Section 2.01 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:“ 2.01 Commitments . Each Lender agrees severally, on and subject to the terms and conditions of this Agreement (including Section 6 ), to make up to fivetranches of term loans (provided that PIK Loans shall be deemed not to constitute “term loans” for purposes of this Section 2.01 ) to Borrower, each on a BusinessDay during the Commitment Period in Dollars in an aggregate principal amount for such Lender not to exceed such Lender’s Commitment; provided , however ,that at no time shall any Lender be obligated to make a Loan (other than PIK Loans) in excess of such Lender’s Proportionate Share of the amount by which thethen effective Commitments exceeds the aggregate principal amount of Loans outstanding at such time. Amounts of Loans repaid may not be reborrowed.”(d) Section 3.02(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:“ Interest Generally . Subject to Section 3.02(d) , Borrower agrees to pay to the Lenders interest on the unpaid principal amount of the Loans and theamount of all other outstanding Obligations, in the case of the Loans, for the period from the applicable Borrowing Date, and in the case of any other Obligation,from the date such other Obligation is due and payable, in each case, until paid in full, (A) from the first Borrowing Date to but excluding the Amendment No. 2Closing Date, at a rate per annum equal to 12.50%, and (B) from and including the Amendment No. 2 Closing Date, at a rate per annum equal to 12.00%.”(e) Section 3.02(d) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:“ Paid In-Kind Interest . Notwithstanding Section 3.01(a) , at any time during the PIK Period, Borrower may elect to pay the interest on the outstandingprincipal amount of the Loans payable pursuant to Section 3.01 as follows: (A) from the first Borrowing Date to but excluding the Amendment No. 2 Closing Date,(i) only 9.00% of the 12.50% per annum interest in cash and (ii) 3.50% of the 12.50% per annum interest as compounded interest, added to the aggregate principalamount of the Loans, and (B) from and including the Amendment No. 2 Closing Date, (i) only 9.00% of the 12.00% per annum interest in cash and (ii) 3.00% ofthe 12.00% per annum interest as compounded interest, added to the aggregate principal amount of the Loans (the amount of any such compounded interest beinga “ PIK Loan ”). At the request of the Lenders, each PIK Loan may be evidenced by a Note in the form of Exhibit C-2 . The principal amount of each PIK Loanshall accrue interest in accordance with the provisions of this Agreement applicable to the Loans.”(f) Section 6.03 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:“ 6.03 Conditions to Subsequent Borrowings. The obligation of each Lender to make a Loan as part of subsequent Borrowings of a third, fourth and fifthtranche of term loans is subject to the following conditions precedent:(a) In the case of the third Borrowing:(i) Borrowing Date . Such Borrowing must occur on or prior to December 31, 2015. 3(ii) Amount of Borrowing . The amount of such Borrowing shall be $10,000,000.(b) In the case of the fourth Borrowing:(i) Borrowing Date . Such Borrowing must occur on or prior to June 30, 2016.(ii) Amount of Borrowing . The amount of such Borrowing shall be $5,000,000.(iii) Third Borrowing. A third Borrowing of $10,000,000 shall have occurred.(c) In the case of the fifth Borrowing:(i) Borrowing Date . Such Borrowing shall occur on or prior to December 31, 2016.(ii) Amount of Borrowing . A total of up to $15,000,000 shall be available to Borrower under this Section 6.03(c) in one Borrowing. Subject to suchavailability limit, such Borrowing, and the amount borrowed, is at Borrower’s option.(iii) Third and Fourth Borrowings. A third and fourth Borrowing totaling $15,000,000 shall have occurred.”(g) Schedule 1 of the Loan Agreement is hereby replaced in its entirety by Schedule 1 attached hereto. SECTION 3Conditions of Effectiveness.The effectiveness of Section 2 shall be subject to the following conditions precedent:(a) The Obligors and all of the Lenders shall have duly executed and delivered this Amendment and the Amendment No. 2 Fee Letter pursuant toSection 12.04 of the Loan Agreement.(b) The Obligors shall have paid or reimbursed Lenders for Lenders’ reasonable out of pocket costs and expenses incurred in connection with thisAmendment and the Amendment No. 2 Fee Letter, including Lenders’ reasonable out of pocket legal fees and costs, pursuant to Section 12.03(a)(i)(z) of the LoanAgreement.(c) The Obligors shall have provided the Lenders (i) certified copies of the resolutions of the Board of Directors (or shareholders, if applicable) of eachObligor authorizing the making and performance by it of this Amendment and the Amendment No. 2 Fee Letter, and (ii) official certificates of good standing intheir jurisdictions of organization, dated no earlier than 30 days prior to the date hereof.(d) The representations and warranties in Section 4 shall be true and correct on the date hereof and on the first date on which the conditions set forth inSections 3(a), (b) and (c) shall have been satisfied. 4SECTION 4Representations and Warranties; Reaffirmation.(a) Each Obligor hereby represents and warrants to each Lender as follows:(i) Such Obligor has full power, authority and legal right to make and perform this Amendment and the Amendment No. 2 Fee Letter. ThisAmendment and the Amendment No. 2 Fee Letter are within such Obligor’s corporate powers and have been duly authorized by all necessary corporate and, ifrequired, by all necessary shareholder action. This Amendment and the Amendment No. 2 Fee Letter have been duly executed and delivered by such Obligor andconstitute legal, valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their terms, except as such enforceability maybe limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and(b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Each of thisAmendment and the Amendment No. 2 Fee Letter (x) does not require any consent or approval of, registration or filing with, or any other action by, anyGovernmental Authority or any third party, except for such as have been obtained or made and are in full force and effect, (y) will not violate any applicable law orregulation or the charter, bylaws or other organizational documents of such Obligor and its Subsidiaries or any order of any Governmental Authority, other thanany such violations that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (z) will not violate or result in anevent of default under any material indenture, agreement or other instrument binding upon such Obligor and its Subsidiaries or assets, or give rise to a rightthereunder to require any payment to be made by any such Person.(ii) No Default has occurred or is continuing or will result after giving effect to this Amendment.(iii) The representations and warranties made by or with respect to such Obligor in Section 7 of the Loan Agreement are true in all material respects(taking into account any changes made to schedules updated in accordance with Section 7.21 of the Loan Agreement), except that such representations andwarranties that refer to a specific earlier date were true in all material respects on such earlier date.(iv) There has been no Material Adverse Effect since the date of the Loan Agreement.(b) Each Obligor hereby ratifies, confirms, reaffirms, and acknowledges its obligations under the Loan Documents to which it is a party and agrees that theLoan Documents remain in full force and effect, undiminished by this Amendment, except as expressly provided herein. By executing this Amendment, eachObligor acknowledges that it has read, consulted with its attorneys regarding, and understands, this Amendment. SECTION 5Governing Law; Submission To Jurisdiction; Waiver Of Jury Trial.(a) Governing Law . This Amendment and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, thelaw of the State of New York, without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction; providedthat Section 5-1401 of the New York General Obligations Law shall apply. 5(b) Submission to Jurisdiction . Each Obligor agrees that any suit, action or proceeding with respect to this Amendment or any other Loan Document towhich it is a party or any judgment entered by any court in respect thereof may be brought initially in the federal or state courts in Houston, Texas or in the courtsof its own corporate domicile and irrevocably submits to the non-exclusive jurisdiction of each such court for the purpose of any such suit, action, proceeding orjudgment. This Section 5 is for the benefit of the Lenders only and, as a result, no Lender shall be prevented from taking proceedings in any other courts withjurisdiction. To the extent allowed by applicable Laws, the Lenders may take concurrent proceedings in any number of jurisdictions.(c) Waiver of Jury Trial . Each Obligor and each Lender hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right totrial by jury in any suit, action or proceeding arising out of or relating to this Amendment, the other Loan Documents or the transactions contemplated hereby orthereby. SECTION 6Miscellaneous.(a) No Waiver . Nothing contained herein shall be deemed to constitute a waiver of compliance with any term or condition contained in the Loan Agreementor any of the other Loan Documents or constitute a course of conduct or dealing among the parties. Except as expressly stated herein, the Lenders reserve all rights,privileges and remedies under the Loan Documents. Except as amended hereby, the Loan Agreement and other Loan Documents remain unmodified and in fullforce and effect. All references in the Loan Documents to the Loan Agreement shall be deemed to be references to the Loan Agreement as amended hereby.(b) Severability . In case any provision of or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity,legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected orimpaired thereby.(c) Headings . Headings and captions used in this Amendment (including the Exhibits, Schedules and Annexes hereto, if any) are included for convenienceof reference only and shall not be given any substantive effect.(d) Integration . This Amendment constitutes a Loan Document and, together with the other Loan Documents, incorporates all negotiations of the partieshereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.(e) Counterparts . This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the sameinstrument and any of the parties hereto may execute this Amendment by signing any such counterpart.(f) Controlling Provisions . In the event of any inconsistencies between the provisions of this Amendment and the provisions of any other Loan Document,the provisions of this Amendment shall govern and prevail. Except as expressly modified by this Amendment, the Loan Documents shall not be modified and shallremain in full force and effect. 6[Remainder of page intentionally left blank] 7IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written. BORROWERNANOSTRING TECHNOLOGIES, INC.By /s/ James A. JohnsonName: James A. JohnsonTitle: Chief Financial OfficerAddress for Notices:530 Fairview Avenue, N.Suite 2000Seattle, WA 98109Attn: General CounselTel.: 206-378-6266Fax: 206-378-6288Email: ksmith@nanostring.comSUBSIDIARY GUARANTORSNANOSTRING TECHNOLOGIES INTERNATIONAL,INC.By /s/ James A. JohnsonName: James A. JohnsonTitle: TreasurerAddress for Notices:530 Fairview Avenue, N.Suite 2000Seattle, WA 98109Attn: General CounselTel.: 206-378-6266Fax: 206-378-6288Email: ksmith@nanostring.com S-1LENDERS CAPITAL ROYALTY PARTNERS II L.P. By: CAPITAL ROYALTY PARTNERS II GPL.P., its General Partner By: CAPITAL ROYALTY PARTNERS IIGP LLC, its General Partner By: /s/ Nate Hukill Name: Nate Hukill Title: Authorized Signatory PARALLEL INVESTMENT OPPORTUNITIES PARTNERS II L.P. By: PARALLEL INVESTMENTOPPORTUNITIES PARTNERS II GP L.P., itsGeneral Partner By: PARALLEL INVESTMENTOPPORTUNITIES PARTNERS II GP LLC,its General Partner By: /s/ Nate Hukill Name: Nate Hukill Title: Authorized Signatory CAPITAL ROYALTY PARTNERS II (CAYMAN) L.P. By: CAPITAL ROYALTY PARTNERS II(CAYMAN) GP L.P., its General Partner By: CAPITAL ROYALTY PARTNERS II(CAYMAN) GP LLC, its General Partner By: /s/ Nate Hukill Name: Nate Hukill Title: Authorized Signatory WITNESS: /s/ Nicole Nesson Nicole Nesson Name: S-2CAPITAL ROYALTY PARTNERS II – PARALLEL FUND“B” (CAYMAN) L.P. By: CAPITAL ROYALTY PARTNERS II (CAYMAN)GP L.P., its General Partner By: CAPITAL ROYALTY PARTNERS II GP LLC,its General Partner By: /s/ Nate Hukill Name: Nate Hukill Title: Authorized SignatoryWITNESS: /s/ Nicole Nesson Nicole Nesson Name: Address for Notices for All Lenders: 1000 Main Street, Suite 2500 Houston, TX 77002 Attn: General Counsel Tel.: 713.209.7350 Fax: 713.209.7351 Email: adorenbaum@crglp.com S-3Schedule 1to Term Loan AgreementCOMMITMENTS Lender Commitment Proportionate Share Capital Royalty Partners II L.P. $5,215,289 8.69% Parallel Investment Opportunities Partners II L.P. $25,288,888 42.15% Capital Royalty Partners II (Cayman) L.P. $1,806,934 3.01% Capital Royalty Partners II – Parallel Fund “B” (Cayman) L.P. $27,688,889 46.15% TOTAL $60,000,000 100.00% Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-189883, 333-194844 and 333-202768) and Form S-3(No. 333-198465) of NanoString Technologies, Inc., of our report dated March 11, 2016 relating to the financial statements, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLPSeattle, WashingtonMarch 11, 2016Exhibit 31.1CERTIFICATIONSI, R. Bradley Gray, certify that: 1.I have reviewed this Annual Report on Form 10-K of NanoString Technologies, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for theregistrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 11, 2016 /s/ R. Bradley Gray R. Bradley GrayPresident and Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATIONSI, James A. Johnson, certify that: 1.I have reviewed this Annual Report on Form 10-K of NanoString Technologies, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for theregistrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 11, 2016 /s/ James A. Johnson James A. JohnsonChief Financial Officer(Principal Financial and Accounting Officer)Exhibit 32.1NANOSTRING TECHNOLOGIES, INC.CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of NanoString Technologies, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2015, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, R. Bradley Gray, President and Chief Executive Officer (Principal Executive Officer) ofthe Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ R. Bradley GrayR. Bradley GrayPresident and Chief Executive Officer(Principal Executive Officer)Date: March 11, 2016A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained bythe Company and furnished to the Securities and Exchange Commission or its staff upon request.This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated byreference into any filing of NanoString Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.Exhibit 32.2NANOSTRING TECHNOLOGIES, INC.CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of NanoString Technologies, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2015, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, James A. Johnson, Chief Financial Officer (Principal Financial and Accounting Officer)of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James A. JohnsonJames A. JohnsonChief Financial Officer(Principal Financial and Accounting Officer)Date: March 11, 2016A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained bythe Company and furnished to the Securities and Exchange Commission or its staff upon request.This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated byreference into any filing of NanoString Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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