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

Welcome. Day 2 of the TD Cowen Global Healthcare Conference. I'm Dan Brennan, and I follow Tools and Diagnostics. Really pleased to be joined here on stage with the senior management team of 10x. To my right, we have Serge Saxonov, who's the Chief Executive Officer. And to his right, we have Adam Taich, who's the Chief Financial Officer. So gentlemen, welcome. Thank you for being here.

Thank you.

Great to be here.

Great. So we'll kick it off with a few kind of maybe more high-level questions. So Serge, you just reported 4Q and full year '24 results a few weeks ago. Maybe like just kind of introductory comment about how '24 played out versus expectations, how the business evolved. You've introduced several new products and reorganized the commercial organization. So maybe just give like an intro commentary here.

Yes. So kind of thinking back to a year ago at the beginning of last year, it seems like a world away, right? The -- certainly, as we proceeded through the year, sort of on the background of an increasingly challenging macro environment. At the same time, we made lots of investments and lots of progress as a company that puts us in a really great position as I look forward, probably the best position that we've had ever as a company as far as just the general industry landscape is concerned and the capabilities we have as a company. We launched major new products throughout last year across every one of our platforms. And all those products have been received really, really well by our customers. Just last week, we're at this -- the big industry conference, AGBT, hearing great feedback consistent with that, kind of really extended our lead relative to any potential competition and really set us up well to expand our markets. We also, throughout last year, made major changes in our sales force, bringing in new leadership and also midyear embarking on a pretty major restructuring of how we do go-to-market. That's only entailed quite a bit of internal disruption while we're proceeding through that. But now as we've done it, as I'm looking to kind of the rest of the year, I actually feel really good about the new capabilities that we've built out and how things are progressing and are set up going forward.

Terrific. So your '25 guide reflects $610 million to $630 million in revenue. That's flat to 3% growth over 2024, which there declined slightly. Just maybe from a high level, could you walk us through the puts and takes of the guide, kind of how you envision the year playing out?

Sure, Yes, I can take that. So embedded in that guide, Dan, is already a 5% decline in NIH spend. So that was sort of -- the way we characterize that was in advance of that direct, indirect NIH dynamic. Then our business, which is 20% to 25% impacted by NIH or NIH-related spending. We've got a 5% decline sort of embedded into that. We've got great opportunity with the revised to Salesforce and the work that we've been doing there on the commercial effort. We've got really strong goals behind the biopharma side of our business, which continues to grow from a fairly small base. And embedded in that is a modest decline in the single cell business. That's double-digit increase in reactions, offset by price as well as a double-digit increase in our spatial business overall.

Okay. Maybe just digging in NIH for a moment, as you imagine, there's a lot of investor interest, which we ask all the panelist on stage is kind of a movie that's happening in real time right now. So I think your cut, as you mentioned, Adam, 5% decline in NIH. And I think you also talked about maybe there could be another $10 million or $15 million at risk from indirect spending caps. We've also heard from some of the speakers here that the government isn't really trying to cut. They're trying to redirect spending back into kind of direct grants. Just reflect upon that indirect potential impact for you and how we might look at that in terms of will it play out, won't it play out, and anything that you're hearing about redirecting money back into direct grants?

Yes. Maybe I'll touch on this. So I mean, first of all, kind of big picture-wise, I think our view of the state of the world is not materially different from what we articulated back in our earnings call. We're pulling this very, very closely, both our sales -- our field teams out there with customers reading what is coming out of the administration, the NIH and also me personally being with customers last week at AGBT. And there's certainly a very dynamic situation, clearly. It is important to keep in mind that NIH overall still represents a material but a minor fraction of our overall business. And as I said, we've already kind of incorporated, as Adam said, some expectation of decreases in NIH funding. Where we stand right now, we've said before, like our products are by and large, purchased using direct funds. And the understatements, again, from the administration, from NIH and all the court documents and all the sort of communications coming from the top is that the intention here is to shift the dollars, just not to cut the overall funding, but to shift the dollars from indirect to direct, which, of course, if that happens, to the extent it happens, it benefits us. Right now, things are in sort of in limbo in legal limbo. Customers are necessarily quite uncertain and cautious. There's a range of behaviors. Many of them are just continuing to kind of order product and continue research. Some are hanging back. Some are kind of looking, waiting to see how it's going to play out. And so again, this was sort of a dynamic we were anticipating and articulated back at our earnings call, and I don't think anything has materially changed.

Okay. Maybe one more just on this kind of top-down view, China, news today that Illumina can no longer import into China. Can you discuss reasons why on the 4Q call, why -- well, certainly, you're watching what's going on in China. You guys felt differently about your product positioning in there and maybe some risk profile, if you will, of something like that happening. Maybe just elaborate a little bit on your position in China, what's going on there and kind of what you baked in '25?

Yes. In China, one of the things about our business in China, it certainly suffered kind of several years ago with COVID and kind of the shutdowns and so on. We have made a lot of progress last year in terms of getting closer to our customers, building out a larger network of distributors and service providers. So we feel like we have pretty good visibility now on what's going on. The business has been quite healthy. As far as the news with Illumina is concerned, one of the things to really appreciate is that our products work with -- they're sequencer agnostic. They work with other sequencers. And that's what we've heard from our customers on the ground, the service providers that it's fairly straightforward to them to use other sequencers and to switch over. Of course, to -- sort of the latest news suggests that they can still kind of keep buying Illumina consumables going forward. So that further sort of mitigates whatever friction that might be in terms of kind of switching the switching the products to new sequencers. But overall, we feel like we're in a good position. Again, there's no good substitute out there for our products. We stand pretty far apart from the rest just competitively. So that puts -- gives us a good position. We're also not sort of in a bull's eye of the agencies, regulatory agencies over there the way that sort of conventional sequencing is.

Okay. So let's kind of shift in your business area. So single cell, you talked about the guide this year between the reaction and kind of the overall revenue growth. Last year, revenue declined in low double digits. It was flat to modestly lower volume, offset by low double-digit price pressure. Maybe just speak to -- I mean, you've had a proliferation of product announcements. You're trying to bring down price in a rational way. Talk about the price aspect. Like where are you? It's-- you have a lot of permeation in terms of how customers could use your products. Where do you feel you are today from a price basis? Do you think you hit a level that there's no longer really a big enough gap versus other players and kind of can we move forward on price? But just kind of walk through that kind of analysis, if you will.

Yes, right. So as I've always maintained that we believe there's a very large elasticity in these markets. Single cell is a general purpose kind of technology that's applicable across the range of biology. The vast majority of applications that should be using single cell aren't using it yet. And the biggest throttle -- the biggest variant has been price. We've heard from customers consistently, it makes sense from price principles. It is kind of the dynamic that has been clearly playing out in the market. And so last year, we've made a number of product introductions, specifically to enable kind of lower pricing in various configurations. We also, as part of our kind of commercial restructuring, also enable the sales team to be more kind of accommodating with customers, especially when they're looking to do new applications, big applications to drive volume. Where we feel -- and of course, the performance of our products relative to sort of any potential competition has been consistently great, consistently superior. And over the course of last year, the gap has increased with the new product launches. And again, the feedback we got consistently last week as well from customers. So we feel like we're -- as far as products are concerned, all these launches, we're in a good spot on pricing for any given application configuration, we can now deliver not only by far the best performance by a long shot, we're also delivering really cost-effective solutions for the most part, actually more cost effective than other products. So we do feel like we're in a great spot here. We will -- there's a dynamic where the new products as they gain adoption that does impose pricing pressure on the top line until the growth in volumes catches up with that decreased price. So that's what we talked about in contemplating our guide and kind of the progress through this year. But product-wise, we feel like we're in a good spot with the new lineup. We also -- as I said, we've given our sales team the direction to go up as they compete to win, right, to go up the large projects, these large new opportunities that are appearing. A great example of that was the Chan Zuckerberg initiative that we did. There's a lot more of those in the works. And that is another element that's going to drive a lot more volume, a lot more revenue, but to also reduce pricing at scale.

So we model single cell revenue growth picking up to, say, 4% growth in 2026. You talked about what's implied in the guide this year. Again you're not going to guide for '26 right now. But back to this question on price, you've got good volumes. We'll talk about pharma in a moment. Is it fair to think, though, like the price declines by back half '25, you feel pretty good or pretty leveling out and we could begin to get stability or maybe something positive?

Yes. I mean the general framework that we have in our minds, like there is sort of the initial pricing declines by virtue of the new products and kind of these new projects. And we're seeing volume growth coming out of that. I commented on that as we're going through Q3 to Q4 and stuff. And then as sort of the pricing stabilizes, the growth should -- the volume growth should continue, right? And that should drive top line. Again, we see that there is like a much larger opportunity out there than what has been captured so far for single cell. And we're seeing evidence of that with new applications on new customers kind of coming into the ecosystem now as well.

So maybe on Chan Zuckerberg, since it's a massive project, unclear what the revenue contribution would that would be. I mean, we would think for really large projects that has to be discount. So how do we think about projects like that contributing to revenue and any future ones which you alluded to could be in the works?

Well, I mean, you're right, right? These are very large volumes, so that does entail kind of being partners with us, with our customers around pricing. And we see a lot more of these in the works for sure. So we do see them that as net contributors, these are the kinds of things that would not have happened in the past. These are new projects, new ideas that are people coming up -- coming up of. And yes, we do see that as ultimately a material driver of growth, although any given project is not necessarily going to be hugely meaningful by itself.

Okay. Maybe just 1 more high level on this demand elasticity, maybe you can link directly to pharma. But when you see prices come down, maybe you can talk about pharma in this regard. But like what else would be the key demand elasticity points? Like if we looked out 2 years from now where prices are today and you were to see an acceleration in growth, like what are the new projects that would be coming in or new customers that would be coming in that would be kind of driving that kind of growth?

Yes. I mean some of it touches on pharma, some of it is just like broad academia. As I've said before, our products have gotten really, really well established among early adopters and innovators. In fact, if you do kind of a survey of our customers, they self-identify very much as early adopters and innovators by and large. But there's a broad sort of world of mainstream biology, right? Old experimentation that happens out there that could be -- it has not really gotten into single cell and there's a big opportunity there. And we certainly -- with the launch of our products around -- for allowing low price per sample, low price per cell. So on-chip multiplexing is an important one. GEM-X Flex last year is another important one. We are seeing new customers that were previously kind of on the sidelines for single cell now seeing it as being affordable and entering the ecosystem. Still early days, but the feedback has been very much consistent with that. So it's just kind of entering kind of more mainstream biology applications. We're seeing certainly more interest on the other side of it with the large-scale experiments doing it again. The CZI project is one example. There's a lot more where people are looking to do this massive single cell experiments to do perturbation -- spacial perturbation screens using CRISPR. This is an application that just has like really been thinking of is like been on the vertical kind of takeoff trajectory. Lots and lots of interest, kind of -- it's been sort of a confluence of the product innovation that we have been doing, the drop in price of sequencing and arrival of the AI technologies to make use of these massive data sets has drawn a lot of interest on the academic side, the more -- many, many researchers, but also on the biopharma side, lots of biotechs. And biopharma are also putting together these massive data sets to really kind of drive the understanding of biology, find drug targets, find drug candidates. And so in general, kind of large-scale combinatorial type screens, there's something that is a big application that is really exploiting in interest and the big unlock there is really a price per data point per cell, right? And that's happening, we're in the middle of it right now, and we feel really great about enabling it. And then I guess, one other element, one other vector, what I would mention is just the increasing interest of single cell, both single cell and spatial and translational applications. More and more people are -- kind of customers are looking at that. That's a new -- that's another vector of growth for us. Again, we sort of start out and more an academic setting. But with both sort of the maturation of products and being compatible now with FFP and fixed FFP tissues and fixed protocols, the stage has been set for their use in translation applications. And this is where you also expect to see larger and larger volumes. Samples are there. Price per sample is important, and you can imagine running larger and larger cohorts of samples to do this.

Is that part of the -- because I wanted to ask on pharma, the excitement and 15% to 20% of revenues today going to 50% over time, I'm not sure what over time is, but was going to ask what is driving the more emphatic confidence, if you will, about this pharma uptake? Is it -- the price has gotten down now at a point to kind of draw this demand in a -- obviously, you launched Flex a few years ago. Maybe it's just timetable for that. And then you're talking about this translational. I'm sure that's pharma as well. So really, what's driven the confidence? And any time frame over which you think we can go from 15% to 20% to 50%?

Yes. So fundamentally, it's sort of the conversations we've been having with pharma and kind of the existence proof of all these different applications across the entire continuum of drug development, right? I talked about kind of [indiscernible] in the earlier stage doing these massive screens, and there's a lot of interest in doing single-cell analysis in order to find drug targets and drug candidates on that -- in the discovery side of the world, that is really like growing really rapidly in many ways, kind of a sweet spot for single cell. And then also as you go down the sort of the process of drug development, lots of interest in preclinical work and using organoid model. So like single-cell and spatial is a very natural complement to that. More and more interest in also kind of looking into integrating these technologies in clinical trials. cell therapy, incredible interest like some places, this has become the workhorse. But in all of these examples, you see individual companies using it in a particular department or a particular individual company, but there's this opportunity to expand it to a much larger set across companies, across departments within pharma. And that's what gives us confidence is sort of these existence groups that are popping up all over the page across the entire continuum that all we need to do is scale it up now to kind of across the ecosystem. And the reason those existence groups have been popping up, it goes back to sort of your question is because the products have now matured to the point that, yes, you can run them at scale. The pricing points are now accommodating of all these applications, the fixation protocols, the FFP and the general progress of these products being other and people have had enough time to test them, right? It's always a little bit surprising to me and to us, we would like to move fast, how long sometimes it takes for companies to really kind of validate these protocols to validate these products, but it's happening and the trajectory is very positive, and that's what gives us confidence.

Maybe 1 more, and then we'll jump into spatial here. In terms of your share, you talked about where you are. You talked about the feedback from AGBT and the quality lead over the competitors. But they're definitely there, right, and the sole offering discounts. Any sense on your relative share of the single cell market today? And do you think that's kind of implied stable over the next few years? Could you still see a little share? Just how do we think about that in terms of the competitive landscape?

Yes. So I mean, look, there's always been competition on single cell for sure, since the beginning of kind of the field and sometimes easy to forget that. And it goes -- it has gone through cycles. The last few years, certainly, there has been more. For sure, we track this very closely through various kinds of surveys and kind of obviously engaging with our customers really tightly to evaluate. And one of the great benefits with what I said at the beginning of launching all the products we did last year, it really, really extended our lead relative to everyone else out there. And it's ended with in terms of performance, in terms of quality, in terms of ease of use and it closed whatever gaps exist in pricing. So we feel really good where we are in terms of the competitive position. We obviously also have a great commercial infrastructure, including support and to really deliver really great customer experience. And so as I look to the next several years, if anything, I expect our advantage in the market to increase.

Great. Okay. Let's hop over to spatial. So your guide this year is for double digits, and we've got it in the low teens growth rate ourselves. You grew over 30% in 2024. So you have really tough multiyear comps. Just kind of walk through where we are in spatial, kind of what you've assumed, like what are the key assumptions, if you will, for the '25 guide?

Yes. I mean I think as you mentioned, we've guided to double-digit growth for the business overall. It is -- continues to be a constrained CapEx environment. So that's part of what we've factored into that guide, and we continue to see really strong pull-through both on Xenium and on the Visium platform. There is competition in that market. We're conscious of that. So in part, if we need to, we'll continue to compete to win from a price perspective where needed on the spatial side. But we feel really good. Customers are extremely happy with the product they're getting. And I think it's a testament to a lot of the conversations in AGBT are really around spatial. So I really still feel like we're in early innings as it relates to that market.

So I think you've got around 420-ish Xenium installed base at year-end 2024, [indiscernible] placed 166 boxes last year. Just speak to what you think that market opportunity looks like overall and what you've assumed or what type of placement rate we could assume for 2025?

Well, so overall, I'll touch on the opportunity, and we can talk about sort of some of the assumptions around '25. So like overall, stepping back, around spatial, like what is what is like Xenium around? Like what is that -- what are the most -- like what is the essence of measuring biology, right? It's molecules, it's cells and tissues. Especially in particular, Xenium is the platform that's delivering this for the first time. And as a consequence of that, it is really a combination of kind of various technology stacks and also different kind of markets really coming together, right? Molecular biology, cell biology, tissue biology. And by virtue of that, the potential is really enormous. We said it from the very beginning of when we first made our investments in spatial, launching the product, and I still strongly believe in that. And if anything, the feedback from the market in terms of applications and the potential has been there. Now environment, the environment, especially around instrumentation has been particularly tough the last 1.5 years. And so we have to be conscious of that. But the overall opportunity is massive. It is absolutely massive. I still strongly believe this is -- this has the potential, I would say, the likelihood of being the biggest technology transformation since the launch of NGS. And when you think about the clinical implications and potential there, probably larger and probably faster. And again, it's going to be a question of how we kind of march through that opportunity. And there's a lot to be done in terms of sort of the initial stages of adoption for customers to be kind of ramping up their usage and doing it in the context of a much more challenged macro environment. But we feel really good about kind of certainly where we are platform-wise and the potential of the platform going forward.

And I would just add then piggybacking on Serge's comment. I mean, so with that in mind, when you think about double digits for 2025, it's really low to mid-single digit on the instrumentation side of the spatial business sort of strong double-digit growth on the pull-through from consumables.

We were chatting with some of the [ brood ], who we were trying to like in the clinical opportunity for spatial versus sequencing and they said it took about -- I mean, they picked a number, 7 years until sequencing went from research to TIFF, had like a clinical assay that actually moved it into the clinic. Is there any way to think about where we stand today with the research that's being done on spatial and academia and starting to be down on pharma? When you think we could begin to see spatial as a clinical tool? And -- so first, you've got the discovery, you have to find a signal that you need to measure on spatial and B. I don't know if the instrument needs to change to make it more robust and rugged to sit in the clinical lab. But we think about that kind of transition, if you will?

Yes. Well so the opportunity is there, and it's actually one of the most exciting things over the course of the past year is to see -- like it's been -- how it's been coming up like in very tangible ways. I mean, there's literally papers that have been coming out showing immuno-oncology signatures that you can get with spatial analysis, a little bit Xenium analysis that you can't get any other way. And it makes sense. Again, like you need to know what cells there are like immune cells, cancer cells, microenvironment, what they're doing, which [indiscernible] they're turning on and if they're close to each other or not. Those -- all those things are critical for understanding whether the immune therapy is working and why it's working, why it's not working. So those signatures are coming up, the interest is also there, both from pharma companies and kind of more forward-looking pathologists and clinicians. So then it's just a question of translating that interest and those like signatures that are already appearing into products, right? And that takes some amount of time, but I don't think we're very far away from that at all. And I do think that's one of the most exciting kind of things about spatial and the one we articulated from the very beginning, unlike NGS, the format of spatial technology is still if it to go into the clinic, right? You're dealing with lives. You don't need to do anything esoteric or exotic about it. You're doing kind of the same thing that pathologists have been doing forever, except you're increasing the plug level massively and are able to see things that they have not been able to see before, the level of resolution that actually drives like real biology.

And with Visium HD or Xenium or some product in between them, where you've got the speed and you've got the resolution, do you like a tool that could sit in the clinical lab?

I would say the technology converse are certainly there. We haven't talked about our technology road map beyond this year for sure. But if you think about the fact that you're able to analyze a large number of targets, but it's up to you like which targets and how many, the fact that it's a fully integrated system, the fact that it works with SOP with tissues right over that, it's all kind of makes the technology very attractive for that [indiscernible] direction.

So with Visium HD, kind of how do we think about the percentage of customers that are still on old Visium versus new Visium HD? And you just had AGBT last week. Just talk a little bit about that product and kind of the demand trends you're seeing?

I mean the predominant trend has been towards HD with our customers. And that has continued for sure. So we do great feedback from the product. It makes a lot of sense. We're driving a lot of discoveries. And so it is higher priced than has been, and we've been somewhat surprised to some extent by how many people kind of like using HD to -- but to a large extent to finish up existing studies and projects. I think everyone has their eyes on the transition to from what they've been seeing. Again, there's some subset of researches going on HD by virtue of kind of the 3 prime chemistry that's not yet available on HD, but we just announced that that's coming as well later this year.

Maybe discuss with a few minutes left, and I want to get to the balance sheet and kind of the cash flow statement. But if you think about what came out of AGBT and could you pick like what was the most notable thing that you thought you had a lot of incremental announcements, but all of them are probably important in the product road map. Any of them that could really be mean more?

Well, again, to put things in context, last year was a massive product launch year for us, probably the biggest in our history across all of our platforms. So there is work to be done to just kind of get that fully integrated through the customer ecosystem. We -- we've made -- we are going to be launching meaningful products on top of that. We're particularly excited about probe-based flex product in the Chromium side, which is going to enable these like plate-based workflows, especially in biopharma, where you're starting with a plate of samples with different conditions. It really kind of sets up things well. And we haven't talked about other details, but there's really nice advantages in terms of scaling, in terms of other workflow issues. So I think that's going to be the one too that we're particularly excited. But we're also excited about our Visium launches, our Xenium launches and the rest of it, as always, we are.

So Adam, can you walk through kind of the free cash flow expectation for 2025? Like where are we? Do you expect free cash flow positivity for the year? And how sustainable do you think that is?

Yes. Well, in this sort of dynamic macroeconomic climate, the strength of the balance sheet is critically important. It's something we take very seriously at 10x. We ended the year with $393 million of cash at the end of 2024, and we don't intend to burn cash in 2025. We believe that's sustainable from here on out.

What are the key levers to that, in the final minute or 2? I mean you're facing -- your top line is growing, but obviously, it's been a challenging environment. Like are you really pulling hard on different cost-out mechanisms? Or just kind of walk through...

Yes. With manufacturing productivity -- actually, the efficiency, even though we've made some investments to get sort of started in that commercial reorganization, it's a more efficient organization. We'll be able to scale that in a better way and continue to clamp down on the SG&A costs, really just working through cost discipline.

Great. Maybe last one, Serge, in the final seconds here. What's the most misunderstood?

Yes, about the company. So I mean, fundamentally, I said this before, and I think it's as important as ever, like fundamentally, I see 10x as a problem-solving machine. And if you look at where we are right now, I would say from sort of the landscape perspective from the internal capabilities perspective, we're in the best place we've ever been as a company. We've got like a great product advantage across all our platforms. We've got awesome capabilities. We always had great capabilities in R&D historically. We now have a great commercial engine. And we feel really great about the setup going forward for us.

Great. Well, thank you. Thank you both for being here. Thanks, everyone, in the audience.