10x Genomics, Inc. (TXG) Earnings Call Transcript & Summary

Well, the -- like -- it's not clear that we would have done necessarily done those launches in a different time frame that we did. It just it does create more of an issue in the near term. But we're always -- our focus is always in the long term, right, and making sure that we're doing the right thing for the company for the long term. And we also have a pretty strong imperative in the company oriented towards speed and making sure that we're delivering products as fast to the customers as we can, right, fast and at high quality. And so we don't sort of like the notion of it. If we have something developed, we don't like kind of waiting around. And yes, it does create some amount of friction sometimes in the decision-making process for customers and it does create an extra challenge on the commercial team. And we do recognize that. And part of what we're working on, have been working on is kind of setting up the commercial infrastructure for better scale to be able to support multiple product launches on multiple platforms simultaneously. I think that's the way that kind of you addressed the problem rather than kind of slowing down the cadence of our launches.

Yes. I think you touched on that a number of times during 2023 and that you may have overemphasized some of the Spatial at the expense of Chromium, now you're trying to balance that a little bit. Just how do you balance compensation for the sales force with these different moving pieces? And sort of how do you allocate between all the different parts of the portfolio, considering you've got all these different launches coming.

Yes. So it's always -- it is a work in progress. We definitely recognized last year, we made this intentional effort to focus the organization on Spatial to really bring up the Xenium launch to make sure that goes really, really well. Obviously, that went well last year but it created the need to now kind of put more focus on Chromium. We've set up incentives coming into this year, specifically part of the sales compensation is based around achieving Chromium numbers. Now as we enter the year, that's sort of -- that's one thing we put out there but at the same time, simultaneously, there's this huge interest that's coming from our customer side on the Spatial front, a lot of it is also kind of further accelerated or amplified by the launches we're making, which draws even further attention. So we're -- sort of like, on the one hand, we're pushing the sales team, commercial team more on the Chromium. On the other hand, there's this dynamic that's emerging that's pulling their attention away. I was in the field and it's clear kind of you walk in the holes. There's definitely single cell projects and single cell customers. At the same time, there's all these spatial people who are intruding Spatial that are coming at our salespeople in the field. And so it is definitely kind of a dial in a work in progress for us to make sure that we can support both and there's more that we can do and we're doing to bring more resources to bear on the Chromium side without kind of losing sight of Spatial imperatives as well.

Yes. I mean, most of the discussion so far has been 10x specific, portfolio specific. I want to take a step back and just talk about the broader market a little bit. There's been a lot of the focus in '22 and '23 sort of the state of your customer, the health of the end markets. When you think about your customers' biopharma, academia, translational and research, just sort of what's your assessment of that as we sit here in May. From that perspective, are things coming back to normal? Are budgets improving? Is that a constraint at all on you this year? And what are your expectations on that as you go through the rest of the year?

So we actually -- I would say the budgets have been in the environment, I would say, as I look at AMR, like the EMEA like has been more cautious, is probably the best way to describe it. And we started seeing especially on the CapEx side kind of when towards Q4 and kind of going into this year now. People -- the budgets roughly and age budgets and such have been roughly flat but other expenses have been going up. And I think there's more uncertainty around some of the budgets. And so we're seeing customers being kind of more deliberate, certainly compared to several years ago in terms of making choices in terms of making investments, especially big kind of investments. And again, that benefits itself on CapEx more so than on consumables. So there has been that general sort of macro somewhat of a pull in academia. Biopharma, I would say kind of a bit of a mixed bag. We're seeing certainly increasing interest in pharma in general in our technologies and adoption, both single cell and Spatial. At the same time, the sort of the restructurings that are going on that are affecting end market demand and there's biotechs that sort of -- that are disappearing as well that might have been kind of the purchasers in the past. Now -- and so like when I look at sort of early in the year, that there is a dynamic that's playing out that's pushing somewhat on sales. Now of course, at the same time, there's new biotechs that are appearing as well generally out there. It takes some amount of time for those to ramp up to the level of before. So the -- it's kind of a dynamic environment in that sense.

Okay. Just on pharma, you mentioned more interest in your offerings recently. Is that just sort of the natural evolution as you go through new product introductions, new technology introductions? You typically think about academia sort of bearing the brunt in the beginning, figuring out how to use it, how to design the experiments, how to incorporate into workflows? And then once you get some publications on that pharma adapts, is -- are we seeing the beginnings of that growth?

I think there's some of the dynamic. I think probably a bigger part is just the capability of the products. In terms of the -- like compatibility with fixed issues, specifically with FFPE. On the Spatial side, that's just a more like -- more national format for people kind of downstream on the translational side to be interested in pharma. We're also seeing kind of an emergence of this perturbation type of experiment. It's something that was interesting for pharma like actually since kind of the time when they first appeared in academic literature in 2016, these are large-scale perturbation screens using CRISPR for finding drug targets and like discovering drugs, very natural application in pharma. It's taking some amount of time for kind of the tooling to get built out around it and for people to become tangible interested in that. And now we're seeing quite a bit of interest in that as well. So to some extent, it's the evolution of the products themselves. And to some extent, it is that sort of transition from kind of more academic methods to pharma wrapping their heads around how they can use them in a tangible way.

And you touched on biotech funding and capital cycles, things like that, new biotechs emerging. 1Q was a pretty good start to the year in terms of funding raised but it takes a while for funding raise to show up and become funding spend. Any assumption for that in your current guide? Are you incorporating any kind of uptick in 4Q later through the year? Or...

I mean, in general, as we think about sort of the year, the baseline assumption is things will roughly stay macro wise similar to where they are right now.

Okay. All right. I mean the other part that often comes up in conversation is both the single cell and spatial landscape has definitely gotten a little bit more competitive in recent years. There's been a lot of new offerings by a lot of smaller private players but also by some bigger names. You've continued to innovate and launch a number of new products as we discussed already. Sort of what's your view of the competitive landscape? Are you running into competitors more often? Or is there just so much green space in terms of customers that...

Yes. So I mean the dynamics are somewhat different than spatial and single cell. Spatial, in fact, if you go back a couple of years ago, it was -- there's lots and lots of companies, lots and lots of players that has largely gotten reduced substantially. Obviously, it's an attractive market, and we expect that there will continue to be new entrants and new people trying to go on there. But the dynamic there has been going very strongly in our favor over the last couple of years. And in some sense, in terms of market perception, maybe no development or reality about market perception, we certainly come a long way over the last year and the last 2 years. On the single-cell side, the story is a little bit different than that. Obviously, we've been very successful there for a long time. There's always been some amount of competition, sometimes more intense, especially in the early years, sometimes less. So over the last couple of years, there's been new entrants coming in on the single-cell side, for sure, and this kind of -- we've -- to a large extent, trying to see through kind of lower pricing to establish some niches in the market. It has definitely put some amount -- some pressure on prices for us and kind of created some friction in the purchasing process where customers are trialing these new technologies, like we've been saying for the past couple of years, by and large, customers come back to us after trialing because much better performance, much better breadth of applications, our commercial customer support, just the fundamental performance of the products, much better workflow, all of those things ultimately kind of bring customers back and reinforce our position in the marketplace. There has been -- relative to a year ago, there has been somewhat more awareness with these other technologies. But I don't think it's kind of as much of a factor as some of the other dynamics we've talked about. And as far as our overall strategy when it comes to certainly single cell, to some extent, the maps over to spatial, we do believe there's a huge, huge market opportunity here. And our goal is to drive into that market opportunity. Single cell so far as large as it has gone as the market is still, in many cases, more of a boutique to clinic and we really -- it needs to be driven to being a routine part of our customers do biology. It is very clear vision. That's what we hear from customers. That's what we hear from kind of from KOLs who understand the space. And our goal is to drive into that -- the broader adoption. And one of the biggest levers that we have, one of the biggest variables is price. And that's how we've been talking about the fact that at the current pricing single cell per sample pricing is too high for that ultimate adoption. And over time, we're going to be driving the pricing down. We started -- we showed one step along that direction with the GEM-X introduction, which drives the price per sample down by 10%. There's going to be more. And that is really our goal as our [indiscernible] was to kind of keep growing the market and keep expanding into this much larger universal biological resource.

I mean that point you just touched on has been when we've focused on a number of times is sort of what's it going to take for single cell analysis to become routine to become an everyday experiment in the lab. I think we've been surprised how long it's taken, not that [indiscernible] been an incredibly successful business and a relatively short amount of time. But if you -- based on the understanding of the technology and the value it offers, you would think that it would be ubiquitous, right? There is no reason for anybody to not be doing it but it's not quite there yet. So you touched on price. I mean, do you have any thoughts on what it needs to be to become ubiquitous? And if there's anything beyond price in terms of more publications, more workflows, a more complete ecosystem around it, just what's holding it back?

Yes. So I think as far as use cases and publications, I think there's plenty, right, and that's why we have so much conviction. There's thousands and thousands of thousands of papers and more get published every day using single cell and showing it in all kinds of every area of biology, all kinds of experiment, all kinds of experiments, all kinds of finding. So the -- sort of the justification for using it for it [indiscernible] is clearly there. When the experiments are -- when the price per sample is over the $2,000, which is roughly to go with sequencing where it is, it's just that it's not going to be retained, right? So you need to get to lower price point. We do believe there's elasticity kind of as you go down kind of lower, lower, they should have a lot more and more demand. We talked about sort of the ultimate goal of being $100 a sample. You can achieve massive expansion in the market well before that. And there's typically different thresholds that people think about. There's sort of $1,000 a sample threshold that unlocks kind of a larger extra sort of bolus of demand. There's $500 is not a benchmark and kind of we're thinking along those lines to kind of drive towards those directions. In terms of what other things, other bottlenecks, traditionally, historically, we've talked about sample prep as being kind of one area like where people have struggled in the past, prices another, data analysis is another. And I think all of those need to be addressed. I do think that things around sample prep, while still an issue, somewhat less of an issue relative to what you might have heard 6 or 7 years ago. Data analysis, still work in progress, at the same time, the field has been converging more and more, some number of standardized ways you can sort of analyze those data. Like 80% probably will the papers do fairly standard kind of analysis and there's packages out there. And that over time, we're also -- we've been making efforts to make it even easier. When people and to the extent that, that's a bottleneck, we have very strong capabilities to industrialize those capabilities and kind of deliver them to our customer.

Okay. We're almost out of time but I want to squeeze in one more. Justin, I think it was at this conference a year ago where we asked you about sort of what's changing about your strategy. And one of the things you flagged was you're going to be a little bit more proactive in protecting your IP landscape, and you've certainly followed up on that over the past year. Most recently, Bruker, NanoString acquisition just announced and the process of closing. Any thoughts on how that's going to impact the competitive landscape? And just any color on the ongoing IP battles?

Yes. So I think fundamentally -- so a couple of things, I would say. Obviously, we think very deeply about intellectual property and litigation. We don't take litigation lightly. For us, the -- our intellectual property strategy is a core part of our innovation strategy. It's the way to a really, really important way to protect the innovations that we bring to market that we invest very, very aggressively and all those investments need to be protected. That's why we pursue litigation when we do. The entry of Bruker in the field doesn't fundamentally change our position or our expectations. We feel like we have a pretty thorough understanding on the landscape, and we feel really strong that we're in a good position just like we felt before. And the other part of sort of the landscape question is really the performance of the platforms. And I think that ultimately really carries the day. We feel really good about where Xenium is. It has performed really well in the field. It's been consistently doing better than competing platforms. We're hearing the speed. There's been -- from customers. There's been lots of benchmarks now done that have been published. And the [indiscernible] Xenium is only increasing. We've been adding more capabilities, launching more products, adding more improvements, and we continue to invest in the platform with great intensity. And so to the extent there has been a gap -- there certainly has been a gap in performance, there that gap is only increasing. And the recognition within customers of that gap is also increasing. And that we feel like ultimately carries the day, and that's why we feel really strongly about our position kind of regardless of what happens with the different assets out there.

Okay. great. And with that, we're out of time. Thanks so much, everyone. Thanks for joining in. Serge, Justin, thanks for being here.

Thanks, Mike.