There you go. Great! Welcome, day two of the TD Cowen Global Healthcare Conference. Dan Brennan, tools and diagnostics analyst. Really pleased to be joined with me on stage, senior management from 10x Genomics. We have, Serge Saxonov, CEO, and to his left, Justin McAnear, CFO. So, Serge and Justin, welcome.
Glad to be here. Thank you.
Thanks, Dan. Glad to be here.
And then we're actually just FYI for the people in the audience. We're following this 10 minutes after this with a panel on single-cell spatial in one of the ballrooms here. So we have four experts, three experts speaking there. So anyway, maybe Serge, busy start to the year. You had some new product announcements. You recently reported the quarter. Maybe you can just kind of kick it off with giving us your perspective on, you know, 2024, some of the key priorities, you know, Serge and Justin. Thank you.
Yeah, definitely. So we started the year. By the way, is this on? This, can you hear me? Yeah. Okay, cool. Yeah, started the year with multiple product launches. It's kind of interesting how it happened. So first, with the Visium HD, it's a big transformational launch on our Visium platform. It's gonna ship. We talked about it shipping this quarter. We announced three weeks ago a new architecture for our chromium, on our chromium product line, GEM-X. So new products coming out also this quarter. So a big, big change there. And also, we talked about our Xenium roadmap, so a lot of products on that side starting this quarter as well. So big, very rich in product development and product launches here.
So our first focus right now is to make sure those launches are successful. It's always there's always some amount of challenge in terms of getting the information, getting the commercial team prepared for the launches, and then getting our customers prepared and internalize all the features and all the new capabilities. So, that's key. We've talked about last year and this year, a lot more around Chromium, and specifically prioritizing that franchise. Over the last couple of years, a lot of our company's focus has been on spatial, especially with Xenium, and last year was the launch year for Xenium, for the Xenium platform. That has gone really, really well. We put a lot of focus on the commercial side to make sure it went well.
Now, as we enter this year, as spatial is kind of on a good trajectory, also we make sure we put the resources and attention on the chromium franchise. And then, finally, we've also... You know, over the last couple of years, we've been very good at driving spend discipline and cash discipline, and one of the priorities for us for this year is to keep driving that and keep maintaining that focus. And I think we're in a really, really good spot to do that and to, you know, take advantage of the financial health of the company so that all the cash that we do generate, we can reinvest back into the growth of the business.
Maybe just sticking with GEM-X and Visium just for a moment, since they are such important products. Just what's been the... You know, GEM-X, you have higher quality, so there's a lot of features that drives improved quality, also kind of lower the cost on a per-cell and per-sample basis. And the Visium HD, just, you know, better resolution, certainly has a step up in kind of price as well. So just, I don't know, what's been the early reaction on the GEM-X side? And kind of remind us, as, you know, within the context of your guidance for 2024, how does GEM-X fit into that guidance?
So the reaction, again, it's very early. We're still in that initial sort of transient phase, where we're getting the field, our customers informed of the launch of the products. The reaction has been very positive. It was initially positive from our field teams, who were really excited by the features, and now seeing that from the customers as well, has been really validating as well. It has a number of advantages over, you know, current generation of products.
Higher cell throughput, higher sensitivity, lower multiplet rates, higher robustness, and we're also launching it with a lower price per sample and a substantial lower price per cell. So all of that is resonating really well with customers. People do need to kind of figure out when to adopt this platform in terms of their ongoing studies and future projects and planning for those. So that is something that we are being cognizant of-
Mm-hmm
and watching. But overall sentiment, still very early days, is quite positive.
Mm-hmm. And kind of with the benefit of GEM-X, then we'll get to Visium HD, and then we can dig into some. But the benefit there, besides in terms of a financial impact, it's obviously probably should be stickier because the quality is higher, right? So customers are going to like it better, and maybe you kind of even gain more share with it. But B, you think from a usage standpoint, like, how does it. You know, you lower the cost. Would you expect people to kind of still kind of spend their budget and just do more kind of do more things with it? Or just, you know, maybe how do we think about, you know, from those factors?
Yeah. So there's going to be sort of multiple. There's several different factors and different use cases. In the short term, you're going to have customers, and we're seeing examples of all of those, where they've got budgets that are allocated, and they're going to spend those budgets. And now that the price point is lower, they can run more samples, right? And so they're going to spend. Some customers have studies that have a particular number of samples, and if they just straight up convert to GEM-X, then they spend less because of that.
And some customers will start thinking of new studies and new projects and larger projects, too. So they end up spending more. Now, that effect has to sort of take longer to play out. Ultimately, we very strongly believe, and we have evidence of that, in the elasticity, price elasticity in the marketplace. And so our strong view is that in the long run, ultimately, these price reductions lead to larger markets and more revenue, more dollars for the company.
Mm-hmm.
Um, so.
We contemplated these dynamics in our guidance range when we put that out.
Mm
on our earnings call. You know, and also, we gave additional detail around how we were thinking about seasonality-
Mm-hmm
this year, in particular, Q1, with having a lower weighting of the overall annual revenue within Q1.
Right.
Just due to some of these transitional factors.
And similarly, on Visium HD then, that one I think has been talked about a lot more, right? I think there's been more expectation of it coming, and now that it's out, the features are out, just kind of, you know, we've done some early checks on it, but just wondering, you know, what the feedback is from the sales force and/or any early customer feedback in terms of some of those same dynamics, like what do they really like about it? You know, you know, from the, you know, it's a higher cost. Is, you know, could that drive a nice kind of inflection in your Visium franchise? Just any thoughts about that?
Yeah. So, HD has been both the most requested feature, the high resolution has been the most requested feature, certainly on the Visium platform, maybe across all our platforms, and it has been the most requested product since we've started talking about it some time ago. Has been probably by far our most requested, in fact, product. And so, definitely was met with a lot of enthusiasm our early announcement this quarter, that it is actually it's going to be. That it's, that it's, it's launching, and it's going to be shipping soon. Lots of, you know, lots of customers are excited about it. I think it's not quite as straightforward, the conversion from standard Visium onto HD as maybe onto the GEM-X.
Mm-hmm
platform because there is a higher price.
Mm-hmm.
You're getting a huge increase in resolution, but it is going to cost people more. That said, a lot of people have been, you know, waiting on the sidelines to before jumping into Visium, into spatial, in anticipation or in the desire for higher resolution. So I think it is going to bring a lot of new, certainly new people, but also a lot of new projects into the fold, and we're seeing that for sure. There is going to be some period of transition, where, you know, some customers have to kind of sort through and figure out precisely what they need.
Mm-hmm.
But we're very bullish on HD, and the reception so far from customers has been quite strong from the field and from the customers.
Like, have you thought about, let's say, 100 customers, like, are you know gonna sign up for Visium HD? Like, how many of those are new customers that didn't like Visium or didn't think the resolution was high enough, and Xenium just didn't fit their profile? I'm trying to think through the profile. How much is this Visium upgrade? How much is kind of new to spatial and just this fits a new category for you? Just.
So I think initially, our focus is going to be on our current customers. In fact, in March of last year, we drove instrument placements, CytAssist placements, in anticipation of the HD launch. And, a lot of people bought the CytAssist in anticipation of being able to run HD, and that's a prerequisite right now as well. So, so I think our focus right now, and I think the natural first sort of wave of customers are going to be those who have tried Visium before and, and now can kind of contemplate new projects or converting their experiments to HD. Going forward, though, we do expect there's going to be, you know, material numbers of new customers-
Mm-hmm
that have been on the sidelines before.
Mm-hmm. And maybe one more on that. So the new customers, it was like they didn't want to adopt Xenium 'cause it wasn't like a whole transcriptome, or they didn't wanna adopt Xenium 'cause it was too expensive or... and kind of Visium, which just wasn't high resolution. Like, who is that customer that wasn't doing Visium, that'll do Visium HD, or wasn't doing Xenium, that'll do Visium HD?
So the customers that weren't doing Visium before, I mean, there's a whole set of them. People who were maybe sort of used to working with tissue
Mm-hmm
but they're used to, like, at a low, low plex kind of level, and they're used to seeing much higher resolution than standard Visium was allowing for. Potentially, you know, people who were more in the genomics world that wanted to get into these spaces, but kind of either low resolution or low plex was too limiting for them. So I think it is kind of across the board.
Mm-hmm.
People who are looking, who are running single-cell experiments and want to also now do spatial complements to them, that's very, you know, very naturally, they'd be waiting for, for these technologies, for Visium HD to, to deliver high resolution or for Xenium to deliver maybe higher plex levels.
Got it. Okay. Maybe kind of looking at the guidance, 8%-12% growth. We kind of have 4% on the single-cell side and much higher level on the spatial side. I'm just trying to think through and, you know, I think you grew 2% in 2023. You said at the beginning, like, the motivation to really set the right incentives for your sales force now to kind of maybe shift a higher priority on single-cell. You have GEM-X. Any color, like, comes up a lot, I'm sure, in kind of conversations that you have with investors, but what do you think the market is going single-cell? And do you think 4%'s a reasonable zip code for 2024, or could you do better? Just kind of how do we think about that?
Well, so first of all, like, our underlying contention around single cell is that this is still, like, really, really early. Ultimately, we see that all tissues, all cells need to be analyzed with single-cell context. This is where the biology is. Like, not having that context, you're sort of undermining much of the point of your measurement. So we do know that the world needs to get there. It's. We have also, you know, long believed that it's not gonna be necessarily a consistently monetizing client, right? You're going to reach various inflection points along the way. Some of them are due to just, you know, sort of our internal focus on where we're going to be putting resources, some with having to do with market dynamics.
We do think that in the long run, there's lots and lots, many, many years of robust growth for single cell going forward. Certainly, some commercial focus is part of it for us to drive that. Some of it is going to be driven by price. We see single cell being a routine part of how one does biology at multiple thousands of dollars per sample... it can't be that, right? So over time, we certainly see driving down the price point as being critical to kind of expanding the market and driving to those system demand, and our launch of GEM-X is one step in that direction. There's a lot more that we have planned.
What we have done with Flex assay, which allows you to multiplex at high levels, so that's official multiplex, you get down to really, really nice price points as well, is another kind of vector along this direction. We're also gonna be driving toward, you know, greater just ease of use, which becomes more important over time as you can enter larger customer segments. So I think this is. It's one of those things where it's not always going to be sort of smooth and monotonic. But the fact that, you know, sort of the recent growth has been less than what we would have wanted, doesn't indicate that there is not gonna be a more rapid growth going forward.
Mm-hmm. And, and do you think on the growth be kind of below, kind of where you think, you know, the natural rate is for, for 10x? Was that I mean, was competition kind of having some success there? Was it, you know, a big part China, spatial cannibalization? What. Like, I guess, the long way of saying, what do you think the market was growing at in the last few years while you were growing kind of those single cells?
So, if you look at the last few years, certainly geography was a big part of it, and China, it's. I don't think it would be appropriate to look at the full kind of market without breaking out it by geography. Certainly, we had kind of the first order effect, I would say, was China. When you peel apart sort of other regions, yeah, there's more robust growth, more consistent. It's not as high as we would have wanted. I think when we look at last year, certainly our focus and kind of the focus of the company and focus on commercial execution has been not so much on chromium, has been on other places, and I would place that as the first order variable.
There has been an increase in competition over the last years. So there's always been some competition in single cell. It's a big market. It's an attractive market. Companies have been trying to enter this the market more so. There's sort of more prevalence of these of smaller scale competitors that are out there now. They're having some effect. It's the dynamic is largely similar to what's been there before, where customers trial them, they use them. By and large, those customers come back to us because of the advantages in data quality, advantages in workflow, breadth of applications, customer support, but it does create some amount of friction and but I wouldn't call it as the kind of a primary driver.
Got it. Okay. Pharma has not been a big user, as far as we can tell. Flex, we thought, might have unlocked it. I think when you launched Flex a few years ago, similarly, you thought maybe that, that would be an unlock. Like, what's been the impact in pharma for single-cell? Is that a big opportunity, or is that something that, you know, is nice to have but isn't necessarily gonna be a big driver?
Yeah, no, we've, we've long believed that there's a big opportunity with single-cell in pharma. Yeah, we've done okay in terms of early discovery, kind of being putting ourselves there. I think there's a much larger opportunity going forward to unlock the opportunity, what we've said along, you do need to kind of mature your product set, especially for it to work with the fixed samples and be able to for fixation, to enable distributed sample connection, to enable kind of larger scale R&D projects within the pharma as well. And it's only over the last couple of years that those, the product portfolio has matured to the point where we have these capabilities with Flex being the primary example on single-cell side.
Yeah, the Flex hasn't done as well as we might have, you know, hoped for, but it certainly has a lot of potential, and we do intend to lean into it a lot. You know, once you have sort of the product portfolio in place, you also need to evolve your commercial strategies to go after those markets. We've grown up in sort of the world of academia, and, you know, we are making a concerted effort to focus, to add additional focus on biopharma customers in terms of specialization, in terms of adding more resources.
So, I think it's the right time to do this, with kind of where the product portfolio is as well. But, you know, zooming back out, we strongly believe there's huge potential. There was a recent quote from the CEO of Sanofi, who made, who made the point that something like 90, 90% of their new drugs have single-cell are credentialed by single-cell analysis. So that shows you that there is even at this early stage, when single-cell is still being used in a fairly sporadic, like it's a really expensive, really sophisticated tool, it's already making a big impact. Our goal now is to grow into routine use, both in Sanofi and also expand that mindset beyond Sanofi into all the other biopharma companies.
So maybe back to the beginning, then, when we talked about, like, so we're at 4% growth. I don't know, is there, like... I mean, have you seen where the street lined up? Is that a reasonable spot, do you think, for single cell? And then, B, it sounds like you remain very confident about the future opportunity in single cell. You know, I mean, would you characterize it as a 10% growth market opportunity, 5%? Any color how to think about what the market could grow at, you know, over the next period of time?
Yeah, as far as the growth rates go, maybe I'll start there. And even going back to what Serge was talking about, about this past year, about there just being a disparity between the results by region. And so when you look at AMR and EMEA, chromium consumables for those two regions together, you know, grew over 10%, last year, over 2022.
We've talked about the challenges that we've had in China, but then think about this year with the product transitions, and, you know, rolling out the update on GEM-X on our two flagship single-cell products with a 10% price decrease. And then, you know, also, you know, predicting the franchise to still continue to grow, overall, even going through that kind of transition this year. I think it is important to level set and put it in the context of those transitions that we're going through with that-
Mm-hmm.
with that price decrease.
So is the idea like Illumina launches a new sequencer, and usually, maybe end of year one or into year two is when the pull-through happens. Is that kind of what you're implying maybe with the GEM-X? Like, there's some transition, but exiting 2024 into 2025, you would see maybe stronger single-cell growth because of the transition?
Yeah. Well, it's like, ultimately, we, we believe that elasticity is there.
Mm-hmm.
Like, we're, we're firm on that. I think there's, maybe a question as far as how soon it will kick in.
Mm-hmm
And, you know, what we'll see in the near term versus, over the course of the year. And, you know, we think with this kind of transition, we do think there's going to be initial kind of bump.
Mm-hmm
But then more gradual transition throughout the rest of the year and have probably most customers on the platform by the end of the year. Like, new customers coming on should definitely go with the new product.
Mm-hmm.
Customers that have studies that are in work, it might take them longer to transition. To complete what they're working on before they switch, platforms.
Right.
But yeah, I think it'll take some time.
Okay. We can come back maybe at the end. So spatially, we have low-30s growth in 2024. That blends up to kind of the midpoint of your guidance. Maybe one thing on Xenium first, right? I think you placed 200 and, you know, 247 boxes in 2023. We have you placing around the same number, a little bit higher in 2024. You know, Justin, you talked about a bit of a pull forward that occurred. Just kind of give us a sense on. You know, but then you've got, you know, NanoString and this, you know, really disarray. Well, I wouldn't say disarray, but certainly with the bankruptcy. So just any color about how should we be thinking about the 2024 outlook for Xenium, given some of these factors?
Yeah, a few things. This is a expensive product. You know, a large amount of CapEx dollars go towards this. The larger the CapEx spend, typically the longer the cycle.
Mm-hmm.
So we're seeing about a six-month sales cycle on average, some longer, some shorter. I talked about the dynamics on the pull-through before. You know, just to summarize that, we did a price increase at the end of Q3, and then we had the year-end budget dynamics at the end of Q4. So, you know, we think we pulled forward probably, a quarter and a half of demand.
Mm-hmm
From the beginning of this year into Q3 and Q4. Q3 and Q4 placed about 180 instruments in total across those two quarters. And so when you combine all of those things, it points to a lower Q1 sequentially coming off of Q4.
Mm-hmm.
You know, with visibility as far as what we expect to close, you know, maybe over the next six months. But we do see a broad set of opportunities in the funnel, so it's gonna be a matter of getting those into that, like, six-month, six months till closing cycle, and just accelerating them from there. We did say that, you know, from what we can tell right now, probably 50-75 units per quarter is probably how to think about this in the near term. Starting off at the low end of that, for Q1, and then gradually ramping throughout the rest of the year.
So do you think ultimately, like, the institute's boxes will be kind of concentrated in, you know, a number of labs, but maybe it's, I don't know, 1,500 boxes placed in, like, four years around the world, across yourselves and the other competitors? Or could this become a much more ubiquitous, decentralized, like this goes to something more like, you know, mid-throughput sequencing, where you can really see a proliferation of placements given the utility of the technology?
Yeah, I mean, my view is it's going to be. It's not like a Chromium box, right? Which can be, like, literally on every benchtop, ultimately. It's also not like sort of a NovaSeq. I think there's a, I think a mid-throughput sequencing kind of is a nice benchmark to think about. I think certainly there's a, you know, there's a huge number of core labs that will be very like, that are and will be very interested in the, in Xeniums and potentially multiple Xeniums.
I think there's also quite a large number of individual labs that are buying it now, that we anticipate to keep buying it. It is a, you know, hefty for an individual lab, it's a hefty price tag, so it'll take, you know, that'll take somewhat longer. But yeah, we do think there is a very large potential for placements, you know, materially more centralized than Chromium, but nevertheless, quite wide.
Have you guys seen pressure from, like, the continuum resolution and, like, academic labs in the U.S.?
Yeah, we've heard, we've heard chatter about that coming from the field.
Mm-hmm. Is there anything baked in for the guidance on maybe a little bit more tempered spending there or not really?
Haven't talked about it that granular.
Right.
But, you know, typically there is. That's why there's a range.
Right. Right. Makes sense. And, and, you know, NanoString, you know, we're going to speak, you know, on our panel coming up. There's one customer who still uses NanoString. He's at one of the core labs. He's a technologist. He's, like, likes to get in the weeds. He's fine. He already bought it. But I'm just wondering, I would think a lot of customers who had maybe placed an order would be looking at it and say, "Makes a perfect time to kind of switch to, to 10x." And I think you guys have noted that you've kind of had some policies in place to try to attract some kind of capture from the NanoString funnel. Just what, what, what can you say so far you've had success with, and maybe what do you assume for 2024?
Maybe I'll start. I mean, so the, I think the largest, kind of, the first order dynamic really is the performance of the system, and that's where we drive, and that's where we'll lead with. I think that has been the, maybe the biggest sort of change in, when we, when we look at, like, what happened in Q3 and Q4 of last year. Like, it's, it's unambiguous that Xenium is, like, performing really, really, really well and well above competing platforms. And I think that's where we're leading with, and that's what's resonating with customers.
Yes, there are some customers that might continue to use CosMx, but you know, along any number of directions, dimensions, Xenium is just a superior platform, and it's only getting better with all the launches and all the new capabilities that we're adding. That's what we're focused on. There has been obviously a lot of sort of developments on, you know, with NanoString, with litigation and, and such. But, you know, again, I think the focus is on the platform, and I think that's what's really leading the success of Xenium in the field.
And what was your thought kind of on the reversal of the case in Europe, that the fact that they got that overturned? And I think they're in bankruptcy, right? The injunction kind of gets waived right now, so they could be selling, but are there any ramifications, do you guys think, for that decision in Europe to kind of flow back into the you know, to the cases in the U.S.?
Yeah, just to kind of on that point, I mean, so it's a small point. It's a reversal of a preliminary injunction, which doesn't. There's still the main action and a pretty high bar for a preliminary injunction in the first place. So, it's a fairly small ruling relative to, you know, so all the rulings that have happened, and that are coming up. We still feel very confident in the validity of these patents and in the infringement there. So when it comes to the main action, yeah, for sure, we feel very confident, and there's, you know, there's a lot of precedent behind that.
You know, as far as what the effect the bankruptcy is gonna have on these proceedings, that's a little bit hard to say right now, right? That's all those things are somewhat in dispute. As far as the effect on the U.S. case, no, I mean, there's no effect. Those are, those are different patents, different cases, and we feel very strongly about those.
Got it. And then maybe how much some of the, you know, the announcements at AGBT, at Singular with the G4X, and Illumina has made some comments, who knows? But, I mean, they've alluded to maybe something in spatial, but we'll have to wait and see. Just, you know, I guess the answer is you probably always welcome competition, but you know, do you you know, were you kind of some of the features that G4X offered, you know, look pretty interesting. Just kind of wondering what you think of the competitive landscape from some of the new news.
Yeah, like, we always talk about this being a very attractive market, very large, and it's only been validated, what's been happening in the field. So not surprising that other companies will start thinking about it and start trying to move in. It's hard to comment on the specifics of what Singular might have announced or others, without seeing kind of the full details of the product and the specs, especially since it's still kind of aspirational, it's still in the future. You know, we take all competition seriously, and certainly we, you know, contemplate all the different ways that this kind of data, this kind of technology can be achieved.
We've talked all along about, you know, one of the things that excites us about Xenium is just the tremendous amounts of headroom that it has, and our focus is to keep innovating, to keep investing in the platform. And so we've talked about all the features we have coming this year. There's a lot more in the works beyond that, in terms of new capabilities, more throughput, lower cost. And so, we feel, you know, confident in our position, and the focus is on innovation and serving customers really, really well, and I feel like that gives us- that puts us in a really strong position to compete against anyone who would choose to come into this space.
What do you think about the cadence on new innovation? You just rolled out these two really important products here. Is it kind of annually? There could be I mean, is that typically what we expect? 'Cause you've talked several times during this 28-minute discussion about new innovation, new stuff. We have more things in the hopper. Is that, like, next year, maybe the year after that, we continue to see a kind of steady pace of things or?
Well, I mean, you can look at us, kind of, historically, what we have done, and we've been pretty continuously innovating in all three platforms. The last few years, in particular, kind of standing up Xenium, which is a really complex, really sophisticated one, while also, launching new products on other platforms, has been somewhat of a challenge. I think that we're again, like I said, we have a lot more in the works, and I think looking back at our history is a good indicator of what's coming going forward.
I want to get a question on profitability, but, yeah, maybe I'll do that. So, Justin, you generated free cash in the fourth quarter. Kind of what are the expectations for free cash flow generation in 2024, and do you expect to be free cash flow positive for the year, and kind of how do you balance that versus the investments to support the business?
Yeah, thanks. You know, really proud of the team, that we were able to hit that goal in this past quarter. That was a goal that we put out a year and a half prior, and it took a lot of hard work by the team to get to that point. As far as thinking about 2024, all of the effort that we've put into controlling costs has paid off. You know, we've got the optionality right now to choose where we target investments to continue to drive growth in the business. And we've got a great setup for 2024. For Q1, we don't expect the free cash flow positivity to repeat there.
That's in part due to seasonality, but also due to the milestone payment that we made for the asset acquisition in the beginning of January, as well. But all in all, it's just, it's a great position to be in, that we can, you know, drive those positive operating cash flows and choose where we invest them back in the business, while not burning large amounts of cash.
So, Serge, I think investors, you know, have a pretty good handle on 10X and what you're doing, but there's a lot of moving pieces to the story, too, right? So what do you think people maybe don't really appreciate about the story?
Yeah, maybe kind of, you know, what I referred to earlier. Like, it, it helps to zoom out there because there are a lot of moving pieces any given quarter, any given year. And, when you zoom out and you think about, like, okay, how do we- how we're actually going to solve biology, how should biology be done? It's, like, unambiguous that it needs to be measured with single-cell context, with spatial context where appropriate.
So, once you kind of accept that premise, and I don't think anyone really can argue with that premise, you, you have to see that opportunity here is enormous, as big as anything in life sciences, just looking at our three platforms. And, and we're as well positioned as anyone can be in order to take advantage of those opportunities. So, I think also the...
That's a really critical conceptual point that sometimes gets missed when people focus on sort of the puts and takes of any given quarter. And again, this path is not necessarily going to be always monotonic, but ultimately, we have many, many years of robust, strong growth ahead because the opportunity is so large for us.
Great. I think we're out of time, so thank you, guys, for being here, and thanks, everyone, in the audience.
Thank you. Thank you.