Good afternoon, ladies and gentlemen, and welcome to the Veracyte conference call. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Keith Kennedy, Veracyte's Chief Operating Officer and Chief Financial Officer. You may begin.
Thank you, Gigi. Good afternoon, everyone, and thanks for joining us to discuss Veracyte's exclusive global license of the NanoString nCounter platform for diagnostic use, as well as the acquisition of the NanoString Prosigna breast cancer prognostic test, an in-development LymphMark lymphoma subtyping asset. With me today is Bonnie Anderson, Veracyte's Chairman and Chief Executive Officer. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements include those regarding anticipated benefits of the transaction with NanoString, our future plans, prospects, and strategy, financial goals and guidance, product attributes and pipeline, drivers of growth, and other statements that are not historical facts.
Management's assumptions, expectations, and opinions reflected in these forward-looking statements are subject to risks and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance, or achievements discussed in or implied by such forward-looking statements, and the company can give no assurance they will prove to be correct and will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. Please refer to the company's December 3rd, 2019, press release and the risk factors included in the company's filings with the Securities and Exchange Commission for a discussion of important factors that may cause actual events or results to differ materially from those contained in our forward-looking statements. Prior to this call, we issued a press release, which is available on our website at veracyte.com under Press Releases in the Investor Relations section.
We also posted a presentation, which we will reference during our remarks. This presentation is also available on our website under Events and Presentations in the Investor Relations section of our website. I will now turn the call over to Bonnie Anderson, Veracyte's Chairman and CEO.
Thank you, Keith, and thanks everyone for joining us this afternoon. We are very excited to announce a strategic transaction today that we believe will enable us to realize our vision of becoming a leading global provider of advanced genomic diagnostic testing in oncology and other clinical indications. Two years ago, we crafted a 10-year vision and strategic plan for Veracyte to become a global enterprise. We determined as part of that effort that having our own simple, automated, distributed platform with high multiplex capability was critical to achieving success in the global marketplace and to long-term profitability. After extensive technical and market assessments, we concluded that the NanoString nCounter FLEX system offered all of the features needed to execute on this plan. We are thrilled today to announce that we have secured the exclusive global license to the technology and platform for diagnostic testing.
As Keith mentioned, we posted a presentation in the investor section of our website, which I will use to walk you through the deal, and the terms of the transaction, and lay out for you the incredible future that we believe this will allow us to build for Veracyte. I want to begin on slide three, where we show the nucleus of this transaction as leveraging Veracyte's leading menu of genomic diagnostic tests across three clinical indications, with our proven track record for developing and commercializing them, along with the NanoString nCounter FLEX system, a leading technology and automated platform for genomic diagnostic testing.
We are particularly excited about the opportunity this transaction brings for global expansion of our nasal swab classifier in lung cancer, especially on the heels of the strong preliminary clinical data we announced in October, and our plans to begin commercializing the test in the U.S. in early 2021. Slide four summarizes the components of the transaction. First, we've acquired the exclusive global diagnostic rights to the nCounter FLEX system. This elegantly designed and easy-to-use platform is powerful enough to perform simultaneous multiplexing testing of up to 800 RNA, DNA, and protein targets. This is really a key point, as many of the smaller automated systems have very limited content, which could really be a challenge for developing high-performing tests. We believe the nCounter system is the ideal platform on which to enable our genomic tests as kit-based products that are performed locally by labs in international markets.
Additionally, for testing in the United States, we plan to integrate the nCounter FLEX system into our CLIA-certified lab, and over the long term, add certain tests to the platform to realize increased efficiency and margin expansion. In addition to the platform, we have hired key members of NanoString's global diagnostic sales, marketing, medical affairs, and distribution team with a presence in over 20 countries where hundreds of systems are already installed, giving us a strong foundation for our international expansion. As part of the transaction, we've entered into a supply and service agreements with NanoString that will allow us to maintain operations as they are today for the near term, providing for a smooth transition and continuation of the business, and have the flexibility to establish our own manufacturing of the products long term. Lastly, we've acquired two assets that will expand our reach into new oncology indications.
First is the FDA-cleared Prosigna breast cancer prognostic test, which is used to assess risk of recurrence to help guide treatment decisions. Second is the LymphMark lymphoma subtyping test, which classifies cell of origin subtypes of diffuse large B-cell lymphoma tumors, potentially helping to identify patients who might benefit from treatments. The LymphMark test is currently in development on the nCounter platform. The four strategic elements of the deal are highlighted on slide five. These are the key takeaways of our call today. Number one, the transaction enables global market access with our own distributed platform, which we believe is a key to global success. Number two is the potential for substantial menu expansion on the platform, with the addition of our multiple high-value genomic diagnostic tests, especially in pulmonology.
Number three is the enhanced attractiveness for biopharmaceutical partnerships of our global patient access footprint in oncology and idiopathic pulmonary fibrosis, or IPF. Number four, we believe this transaction sets us on a pathway to long-term profitable growth. I will now walk you through the plan. Slide six shows our current U.S. market reach with all testing performed in our CLIA laboratory. We expect to achieve approximately $120.5 million in revenue for 2019, which is at the midpoint of our guided range, from our CLIA lab model serving the U.S. market, as we have previously guided. As illustrated in slide seven, the nCounter system is already available in international markets, with ProSigna offered as a kit-based test.
Therefore, a global expansion will begin in 2020, and we will be supported by more than 10 key employees who will have just come from NanoString with deep experience building diagnostic businesses in international markets. Additionally, we plan to offer Prosigna testing from our CLIA lab on the nCounter platform as well, expanding our menu of offerings in the United States and making testing available to a broader set of clinicians than just those with the volume, financial, and technical lab resources to support acquiring the nCounter platform. Turning to slide eight. In two to three more years, we expect to be offering a multi-product testing menu on the nCounter platform.
We plan to add our Envisia classifier for use in the diagnosis of IPF to the system in 2021 to access the European Union countries and add our nasal swab classifier in 2022 to reach the same markets following its 2021 commercial introduction in the U.S. As shown on slide nine, in 5 to 10 years, we expect to offer a comprehensive menu of kit-based tests on a distributed instrument platform with an exclusively licensed worldwide footprint across all major markets. This will enable us to drive test volume growth as we target a more than $40 billion global market for our current and pipeline products. In addition, our expanded CLIA-based test menu in the U.S. will help us further drive revenue growth and, over time, margin expansion. Turning to slide 10. The key driver for menu expansion and commercial flexibility is our novel science and technology engine.
We develop extensive patient cohorts across our clinical indications and extract as much genomic content from these examples as possible using RNA whole transcriptome sequencing. This enables us to leverage our deep machine learning capabilities to build classifiers that answer specific clinical questions or to utilize the vast gene alteration data to inform treatment decisions. We believe our technological expertise will enable us to add the right tests for use in a distributed instrument setting and maintain our current technologies where needed to inform treatment decisions or other clinical questions from a broader-based genomic content platform. On slide 11, we illustrate that the addition of Prosigna and LymphMark give us the opportunity to further develop our pipeline to inform treatment decisions in breast cancer and lymphoma at the same time as diagnosis, just as we are doing in our other clinical indications.
These assets, along with our global market reach, also increase our attractiveness to new biopharmaceutical partners, in addition to our Lilly/Loxo Oncology collaboration and our Johnson & Johnson Innovation collaboration for product development, companion diagnostics or other initiatives. We estimate the global market opportunity for our current and pipeline products, shown in slide 12, to total over $40 billion, largely driven by lung cancer, which remains the biggest cancer killer worldwide and a key opportunity for our global focus. We will sequence the offering of our products onto the nCounter platform over the next five to 10 years, as nicely illustrated in the visuals on slide 13. We will start in pulmonology, first with Envisia, and then with the nasal swab classifier in 2022, where we have the largest market opportunity.
We anticipate that broad global interest in the nasal swab classifier will help facilitate uptake of the other genomic tests once added. Over the next decade, we expect to offer all of our clinical classifiers on the nCounter platform to maximize global growth, realizing extensive revenue and market expansion benefits. In the U.S., we will retain the flexibility to use RNA sequencing or the nCounter platform in our CLIA lab based on what makes the most sense given the specific clinical decisions we wish to inform. In other words, we will offer results to patients and physicians through the model that works. With that, I will now turn the call over to Keith to briefly review the financial components of the transaction.
Thank you, Bonnie. Turning to slide 14 of the presentation, Veracyte has agreed to pay NanoString $50 million upfront, comprised of $40 million in cash and $10 million in Veracyte common stock. We will pay NanoString up to an additional $10 million in cash, contingent upon the commercial launch of our diagnostic test for use on the nCounter FLEX platform, which we expect to occur over the next two to three years. We expect to incur approximately $2.5 million in transaction fees and expenses associated with this transaction. We expect no change to our 2019 revenue guidance, which we've previously reported being between $119 million and $122 million. We continue to expect to achieve operating cash flow breakeven in the fourth quarter, inclusive of transaction fees.
We expect to realize a modest revenue increase in 2020 from sales of the Prosigna and nCounter systems of between $6 million-$8 million, and for the acquired product line to be cash flow neutral to our current business. We will provide 2020 specific guidance when we report our fourth quarter 2019 financial results. If we are successful in implementing the strategy that Bonnie just discussed over the next 10 years, we believe this transaction will improve our financial profile in three important ways. First, we believe this transaction and the ability to offer our tests via a kit-based solution will help us to accelerate our entry into even larger addressable markets, and as a result, accelerate our long-term target test volume and revenue growth rates to approximately 25%-30%.
Second, we believe this transaction will afford us the opportunity to offer a broad set of diagnostic tests priced for local markets while maintaining 70%, 80% gross margins, which we feel is necessary to build the infrastructure to address these markets and to attain profitability. Third, we believe this transaction will enable us to expand our current product portfolio, increase our product pipeline, and potentially add additional collaborations that may not have been possible without this technology. In 10 years, we believe it is possible to generate over $500 million in annual revenue from products enabled by this platform, and to diversify our revenue by generating over 25% of our revenue outside of the United States. I will now turn the call back to Bonnie.
Thanks, Keith. I'm sure by now you all agree that today's announcement marks a truly exciting inflection point for Veracyte. We now believe we can achieve our vision of becoming a global provider of advanced genomic testing in oncology and other indications on our own simplistically elegant, distributed platform, and with a team of professionals knowledgeable about their local markets, reimbursement, and guideline-driven care. This transaction enables us to inform diagnosis and treatment decisions for physicians and their patients worldwide, making the power of precision medicine more accessible to all.
We are especially excited about the tremendous opportunity in lung cancer, where we believe our non-invasive nasal swab classifier can help save more lives through early detection and diagnosis. In sum, we have very big aspirations, but we also have a proven track record, the leadership, people, experience in global markets, and a solid plan for achieving our goals, and the drive and passion to make it happen. I will now ask Gigi to open up the call for questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question is from Puneet Souda from SVB Leerink. Your line is now open.
Yeah. Hi, Bonnie. Thanks and congrats on the partnership here and your investment into the longer-term growth. The first question I have is, this appears to be a sizable big step in global expansion for you. I was hoping to understand what brought this about now. nCounter has been in the market for some time. What made you, in terms of making a decision and then taking action on this now, versus before? If you could elaborate a little bit on that, and I have a few follow-ups.
Absolutely. Thank you for joining and for asking the question. I think there actually is no better time than now. I think the thing that drives global market expansion is not what instruments are available, it's who has the menu that can proliferate multiple tests that are serving unmet needs in big indications, where clients all over the world are going to have a need to do multiple tests within their laboratories. It's only with multiple menu that you can justify the placement of a platform to perform those tests around the global markets.
Not only are we coming forward with tests that have already been developed in thyroid, lung cancer, and interstitial lung disease, probably the biggest fuel for taking action now is we want to be able to take advantage of the very large global opportunity we have with our nasal swab test in early lung cancer detection, seize that market and seize the moment of the opportunity to do that. If we move now with this acquisition, we can do the work to add this test to the platform in time for a 2022 launch. At that point in time, we could have a menu of three market-leading products in breast cancer and in pulmonology, along with the breast cancer test to fuel the menu that is needed for placement of systems.
Really the menu is the key driver, and we have one of the most comprehensive menus already in advanced genomic testing.
Okay. That's helpful. If you could elaborate your thinking on the Prosigna as a 510 approved, in terms of further tests that you're thinking, in terms of expansion and regulatory, and the FDA pathway ahead, how are you thinking about that longer term?
Yeah, exactly. Well, I think that what's really exciting about this deal is we are set up as one of the only companies in the space to have ultimate flexibility around answering that question. We may have tests that, for example, I would argue, our thyroid cancer test. If we were not consolidating testing in our own laboratory, it would be very hard to generate the profitability and margin that we generate on that test, because it's a very distributed market of where these samples are collected, and it's a compilation of a lot of sites doing small volume that would never work in a distributed fashion.
On the other hand, there could be opportunities with our nasal swab test, where you may be able to go to certain large centers that have lung cancer screening programs, and through an IVD approval on the platform, place systems and allow that test to be done in a distributed fashion. What I love about the FDA-cleared NanoString platform and its multiplex capacity, which is really significant, is that it gives us the flexibility to do what we need to do in each market to serve customer needs. I feel like we are set up today now with ultimate flexibility by market, by geography for each individual test and the clinical indication it is addressing, and have a platform that could go LDT or distributed IVD either way, based on what the market demands.
If I could follow up. You commented earlier on manufacturing. Could you elaborate a bit on that? Could you elaborate on the scope of it? What parts of the assays would you actually manufacture, and if there is any instrument component to that? Keith, if you could elaborate on the economics of the agreement in terms of potential cost reduction that you can see on Envisia versus RNA sequencing platform. Thank you.
Yeah, for sure. I'll start. Right now, we have no near-term plans to do anything. We think it made a lot of sense given that NanoString has built a world-class GMP facility, that actually is quite impressive. They have taken a very complicated technology and simplified it in a cartridge fashion. They have it perfected from a manufacturing standpoint. Our near-term plan, of course, is to continue to outsource our manufacturing to them, and we will do the same thing with the instrument. The point is that we've secured the rights to do whatever we want. If we were to decide, if volume were to grow in this business and we needed to make the investment, or move manufacturing somewhere else, or whatever the case may be, the deal allows us that level of long-term flexibility.
In the near term, we don't plan to disrupt any aspect of the business. We're certain that NanoString's going to be a fantastic manufacturing supply partner for us as we build these tests out. Long term, we'll have the flexibility to do what we need to for the business. As you know, as owners of the technology, it's the only way that we can get costs as low as they can be. Every other option, including what we're doing today, what we've done since we've founded the company, and what others are doing, is partnering with platform developers and test, or reagent manufacturers, et cetera. While that can work fine, you ultimately are building margin in for every element of the supply chain along the way. Long term, this will give us the best opportunity to expand margins and price.
That'll be down the road.
Puneet, to answer your question on the margins, we should be able to get a 50% reduction long term in our cost per test. For tests that are run in a distributed platform, on the distributed platform.
Okay, got it. All right. Thanks, guys. Congrats again.
Thank you.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Our next question is from Sung Ji Nam from BTIG. Your line is now open.
Hi. Thanks for taking my questions. Congrats on the transaction as well. I just have a few clarification questions. Maybe starting out with, I'm not as familiar with the nCounter platform. I was wondering, when you guys talk about having exclusive global license for diagnostic use, is this inclusive of laboratory developed testing, RUOs? What does that really entail? I'm just trying to better understand if they currently have tests that third-party users have developed on that platform as well, and what may happen to those?
Yes, excellent question. We will obviously, share and co-exclusively continue to place FLEX systems around the world. We hope to take advantage of some of those systems that are not yet diagnostic enabled, to do that over time, because as we add our test to the platform, we will create the software that will generate the patient report and keep the whole process automated. Diagnostic testing is defined as lab-developed tests as well as IVD, CE marked, anything that would be globally referenced as diagnostic testing. It does not mean that we won't continue to have some of that done on the platform, but anything that would fall under a diagnostic test would come through Veracyte.
Obviously, NanoString will continue to create opportunity with their biopharma partners to drive the long-term opportunity for tests that are discovered on this platform in a biopharma or academic center to be moved through a relationship with us where it makes sense to become a diagnostic product. We're going to work hand in hand to make sure that those handoffs are in place so that together they can exploit all of the life science research aspects of this business, and Veracyte can maximize the diagnostic opportunities. While we didn't speak to partnerships in our script in that way, I think you bring up a very good point. We do believe this platform could be incredibly attractive for other gene expression tests to be added to it for global reach. We'll be very open to considering those opportunities as well.
Okay, great. That's helpful. For some of the tests, as you transition from whole transcriptome sequencing to the nCounter platform, do you have a sense of whether or not the performance characteristics, the sensitivity, specificity could be affected, or do you foresee those to be comparable to your current methodologies?
Well, look, our team has a phenomenal technological background experience, whether it's Affy arrays, Ion Torrent, all the Illumina technologies, et cetera. I think one of the reasons that we talk about the power of our whole transcriptome discovery approach and machine learning is because we don't need to take the signature that works well on one platform and have those exact targets migrate to another platform. We have all the tools to go back to the larger set of data and retrain on the new platform to build a test that can be as high-performing there. We've obviously done quite a bit of technical due diligence. In fact, I will mention that our team has been evaluating this technology for 10 years and has always felt this was one of the best technologies for diagnostic testing.
Obviously, NanoString wasn't in the business as a supplier to everybody over the years, so we never really had a reason to adopt it. We have all the tools with all of our data and biorepositories and everything we need, we believe, to do the development and validation work that will be needed on the new instrument, which will be done. Much of our R&D spend over the next couple of years will shift to developing and adding these tests. In addition to the launch of our nasal swab test, et cetera, we will work to add our test to this platform. We are bringing on some of the technology experts from NanoString to be part of our R&D team, small number.
Okay, great. Then just lastly from me, and I'll get back into queue. Could you talk about the sales force expansion needs you might have, bringing in Prosigna to your product portfolio? I know you're bringing some of the salespeople associated with that, with the transaction. I was curious, are there near-term plans or needs to expand that further? Thank you.
Yeah. I would say that Prosigna is a great test to have on this platform. We will offer it out of our CLIA lab because we have a CLIA laboratory. It makes no sense for us to not do that. There are many clients in the U.S. that would love to get access to the test. They don't have the volume and resources and technical expertise in their laboratory to acquire a system. The low-hanging fruit in that regard, I believe we're bringing three to four commercial team members over in the U.S. market. We'll have a few employees that come inside R&D, project management.
Then the majority of the team we're bringing are about 12 folks in sales, marketing, medical affairs, and country leadership that are positioned in the key EU area markets, Israel, and then distributor agreements that we will tap as well directly with Veracyte to get to some of the other more attractive geographies. As I mentioned on the call, though, what we've done is limited our investment, if you will, in the people that are coming with the business, to what can be supported by the revenue of the business. We will be rationalizing that revenue a bit from where it might be today with NanoString.
We've put a very thoughtful plan together to drive revenue next year on the product in the $6 million-$8 million range and keep our spend tailored and focused so that we can run that business, quote, unquote, "cash neutral." As we move menu over to this instrument, I think what, for me, I have to remind everybody, I did spend almost two decades in global leadership positions with Beckman Coulter, leading instrument-driven, both diagnostic and life science businesses. The key to our expansion and when we will begin making more and more investments, will not be day one. It will be when we get menu on the box that will drive more value for patients and doctors and labs around the world to offer the complement of tests, not just one or two.
You can imagine three to five years from now, we'll be competing on a very different playing field because it won't be one test versus one test or one test versus another test. It will be the portfolio and menu of testing that a global client can get access to through this platform. That's what we'll be focused on building.
Great. Thank you so much.
Thank you for joining us today and the questions.
Thank you. Our next question is from Brian Weinstein from William Blair. Your line is now open.
Hey, guys. Thanks for taking the questions. A couple first on Prosigna and then some others just to kind of wrap up from what others were asking earlier. First on Prosigna, I think that it was doing somewhere around $10 million this year in revenue, which was, I think, flat to last year. Keith, can you talk about why $6 million-$8 million next year is the right number there? Is any of that revenue box revenue or is all of that assay revenue?
Some of that revenue is box revenue, but a majority of it is from kits. They offer that product in different configurations. Their sales force has changed over timeline and they have distributor relationships and things like that the commercial team and Bonnie will be rationalizing to make sure we're focused on where the profitable business is and where it makes sense and how we're going to offer that product commercially, which we'll talk more about on the fourth quarter call. That's really it.
Yeah. We would expect a little bit of disruption there. You're right, it has not been a growth product per se, but it helps us achieve our near-term goals.
Okay. You guys have such a focus on data, and it's one of the things that you guys have done such a good job of, is generating clinical data and outcomes data. Is there any data that you guys think that you'll need for Prosigna? Is there anything that they're working on today? I don't cover that company, so I'm not as familiar, but would be curious on clinical evidence that you think you may need to build to drive adoption of that product in particular.
Yeah. Very good question, Brian. Of course, we always look at clinical evidence. We are excited about a few of the clinical studies that are already underway. Most of those are in the international markets. I think that, when you look at the more recent success, if you will, where the product has had some traction and growth, it has been since evidence has been published and in the international markets where they have been able to gain some additional coverage decisions and enable laboratories and key medical centers to be able to perform the test in their own lab. That's where they've been able to be successful. They're not making huge investments in that, and so we want to be able to maintain the focus that's needed in those markets.
In the U.S. market, I think their client base is really limited to those centers that have enough volume to justify, operationally, the resources needed for the equipment. These types of tests are very distributed, as I used the example in our thyroid test. Having one test carry a platform is really difficult. Our goal, in both thinking about the distributed platform as well as timing of this, had to be at a point where we had enough menu to make the move and menu with market opportunities that are significant in the global markets, which is why we made the move following the early work that we were doing in our nasal test. It all just sort of came together.
Yep, that makes sense to me. Just so I have the baseline number here, what is that installed base today, U.S. and OUS, for the nCounter?
Yeah. I don't think we haven't broken them down in our data yet, but there's hundreds of nCounter systems, fewer that are DX-enabled, but many at clinical research sites that could be DX-enabled and wouldn't necessarily require these people to buy another instrument. That will certainly work in our favor as we begin to port menu over. We don't have to actually sell everybody platforms necessarily to get the menu adopted and do the early work that will be needed to get reimbursement lined up and things of that nature. We have a pretty sophisticated, thoughtful plan around how we intend to do all that.
Great. Last one from me. Keith, you mentioned the $500 million in 10 years.
Yeah
I think a 25% CAGR is what you referenced. Can you just give us an idea of what that assumes for some of the key products there, sort of the build up to get to that $500 million?
Yeah, I mean, Keith can certainly-
We both-
Yeah, go ahead, Keith.
Sorry, Bonnie and I are in different locations. Go ahead, Bonnie.
I was just going to say the lung portfolio is obviously the key driver, but Keith can give you a little more color on that.
Yep. We believe that this will accelerate our growth to 25%-30% long term over 10 years. We're very much interested in getting to the margins of 70%, 80% gross margins in this business. In order to offer these tests at a lower price point, you need the ability to manage your cost per test, right? That helps us in that. We believe that our market on the nasal side, as Bonnie was talking about, with our nasal swab test and the early detection test, we believe in 10 years, we'll reach over $500 million just on those products alone. That's revenue that we do not have today.
Okay. I'll follow up offline with you guys on that one just to get a little bit more detail if I can. That's it for me right now. I'll let others ask questions. Thanks.
Thank you. Our next question is from Steve Unger from Needham. Your line is now open.
Hi, thanks. Keith, could you just provide a quick or a rough estimate of the incremental costs and expenses from the relationship in 2020? Does this change the R&D spend trajectory? Will Veracyte be investing in clinical studies for either Prosigna or LymphMark?
Prosigna is a already FDA-approved product. LymphMark is something.
Will Zeus come out and talk more about that in the fourth quarter? Bonnie, you want to talk about that? You want to jump in and talk about LymphMark at all?
Yeah. I think that there are continuing studies underway that we plan to acquire and assume those clinical study agreements and continue to build out the evidence. They're not massive agreements or massive spend, but they're important for the key individual markets where clients like to do studies in their own lab on their own patients, and we will continue to support those. LymphMark is getting very close to being ready to file with FDA. We are really just working through the level of studies that we really want to do for that product. We think the product has its most significant attractive angle around subsetting the heterogeneous lymphomas to specifically identify subsets of patients for treatment.
We hope to figure out a way to take advantage of that, because the overall market is not huge, as you can see from our numbers with lymphoma, but that sub-target area is really attractive. As I think I mentioned, we're bringing on board three, four people inside our R&D, so we don't expect to see a significant increase in R&D spend. At the same time, we want to make smart investments to quickly advance some of this content so that we can access these global markets and build the growth story behind it that everyone is going to want to see out of this deal. I don't think you're going to see any massive shifts in big spend. That's just not how we run the business.
It certainly could increment a bit, and I think Keith and I will probably give a little more color on that when we give guidance for 2020 as we get a little bit deeper into some of the numbers.
Got it. That's great color. Europe can be tricky as far as reimbursement. Should we be assuming that you're going to start in the U.K. and work your way from there? Give us perhaps some color on that.
I wouldn't necessarily assume that. We've actually done quite a bit of extensive market research focusing in on the nasal and lung cancer opportunity, as well as our IPF opportunities, because we believe those pulmonology products are key. We know that the centers of excellence for IPF are only about 30 centers in Europe. You can imagine a very small team being able to serve that number of clients that are centers of excellence for IPF. I think IPF centers, because there is such a challenge in testing patients and getting them diagnosed, we do expect there could be some other avenues of getting the test paid for in the interim of ultimate payer reimbursement.
When you are able to place platforms into clinical research centers that get grant money for additional clinical research beyond just running patients' diagnostic testing, it's an easier pathway to driving adoption of these tests, especially in these two markets, IPF and lung cancer. We're not a lab sitting back here in the U.S. that literally has to get reimbursed by a payer for every test we run, or we lose a bunch of money. There are other avenues of financial support that can be tapped if you're placing systems in large research medical centers, which is where we will be focused. We're excited.
It's not going to happen overnight, but we have, we believe, a pretty clear pathway on how we will begin to roll these out in literally just a little more than a year and be able to begin to build that footprint and then over time, take advantage of the footprint and expanded menu, to build the growth.
Great. Okay. Congratulations. That's it for me. Thanks.
Thank you.
Thank you. Our next question is from Dan Brennan from UBS. Your line is now open.
Great. Thanks, Bonnie and Keith. Thanks for letting me ask a question here. I jumped on a few minutes late, but I had two questions, one back to what Brian had kind of talked a little bit about. I think there's about 80 or so Prosigna customers today. We estimate over 100 FLEX boxes, and I know on slide nine, you show what appears to be a significant global opportunity for you. Can you help us think about what the customer reach you expect to kind of get to commensurate with this opportunity that you laid out over the next 10 years?
Yeah, I think that we will initially, in the near term, be focused on the placement of boxes at medical center sites where we can exploit some multi-menu testing that will be done for patient care. These are quite common across Europe. You can go to Paris and a couple other places in France and hit the key major medical centers, right? As I just mentioned with IPF, there's only 30 centers of excellence that basically do the management of all the patients.
We haven't yet done a ticking and tying of everywhere we want to go, who already has a box, and who will need to buy a new box. I think that at the point where we have multiple menu items on our box, we will probably focus in on a diagnostic-only solution to the instrument, and because we would own the ability to do that could give us some additional pricing flexibility. We'll have the option to tap both research centers that have purchased the FLEX system for research, with the hopes of doing diagnostics. We could make them happy. We'll also, over time, be placing new diagnostic boxes as we go out to the global markets.
As we learn more about that and solidify those plans and get smarter about all of it, we'll bring those plans forth and try to keep everybody abreast of what those plans are. This market reminds me very much, I hate to go back in time and age myself, but in the early days of flow cytometry, it was all a life science business. I've often said over the years, had HIV never happened, flow cytometry may have never become a real technology tool. Because of all the research dollars that went into that, then we were able to start proliferating clinical assays on the technology. Most of our clients in the European markets and Israel and Australia and places like that, did both research and diagnostics on the same box.
I think the team that we're acquiring, me, some of our team in-house, we've got a pretty long history of understanding how these distributed businesses work. As you know, John Bishop's my lead director. He built out quite a brilliant story in that same fashion in the infectious disease area at Cepheid. I think we got the people and the knowledge to be able to be very thoughtful about doing it, and it'll take time.
Got it. Thanks, Bonnie. Maybe one follow-up, and this may be Duke's. I don't know. I'm not as close to the story. In terms of the split today between arrays, I know you've been moving more towards a sequencing-based approach, your plans going forward, it's what? Anything OUS will be on nCounter, in the U.S., vis-à-vis the CLIA lab, I think you said in the prepared remarks, you'll make the decision what's right for that particular test and customer. I'm just trying to think about, I think you talked about over the next 10 years, it'd be the shift, but between your three existing products, how do we think about how much goes to nCounter versus how much stays with either arrays or sequencing? Thanks.
Yeah. Okay. I think it'll become sort of evident over time, what we know we need to do to tap the global markets is have testing available on a simple, automated platform that can be done in any laboratory around the world. As we move tests that have attractive global markets, to make a comment, not that I'm trying to say anything odd here, but like, Afirma was not the one that I mentioned first, right? What we said was we're gonna focus first on our pulmonology products, because that is where the global market opportunity is the most significant for us to tap. We may have Afirma on our sequencing platform four years from now. It's all gonna be based around picking the products that have the greatest unmet need.
If those unmet needs are global, we're gonna be putting it on to this platform to try to tap that global opportunity, and if the markets are predominantly U.S.-driven, or if the market and clinical questions we're answering requires a more sophisticated technology, we already have that technology in our lab and have the most advanced technology to tap in that respect. As patient samples come in the door, our CLIA laboratory will always remain very flexible at running whatever platform is needed to generate the results. Anything that we distribute on the platform will have to be ported to it. Once we port something to the nCounter system, there may not be any reason to not run it in our own CLIA lab on the platform if we can gain the margin expansion.
We're a strong sequencing house, probably are doing some of the most advanced RNA whole transcriptome work in clinical. That, combined with our machine learning, allows us to be very confident we can pretty much build any clinical classifier that has a need, and we have actually done that every time we've tried. None of that is going away. We just have to tailor the business so that we're doing the right thing for the right market and for the right product.
Great. Thanks for that.
Mm-hmm. Thank you.
Thank you. Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.