All right, thanks everyone for joining us. We'll kick off our next session. I'm Michael Ryskin, on the Bank of America Life Science Tools and Diagnostics team, and joining us for our next session is 10x Genomics, and we're thrilled to host Serge Saxonov, Co-founder and CEO, and Justin McAnear, Chief Financial Officer. Serge, Justin, thank you.
Thanks, Mike.
Thanks, Mike. Great to be here.
Thanks for coming, as always. I'll kick things off with our sort of starter question. The usual is, you know, let's recap recent results. Like, how did 1Q play out relative to your expectations? You know, any key learnings you want to leave us with.
Yeah, Mike, I'll start with that. As far as Q1 results go, when looking at the top line, top line came in relatively in line with expectations, a little bit below, but we did over-deliver on spatial and under-deliver on Chromium. I would say in digging into that, there's been a ton of enthusiasm on the spatial side. This was the quarter that we launched Visium HD. That was one of the most highly anticipated products in 10x Genomics history. Been talking about that, and it's been under development for a number of years. And on the Chromium side, this was also the quarter that we launched our new Chromium architecture, GEM-X. And we announced GEM-X at the AGBT conference in February, and we also started talking about the impact that we expected to see during the GEM-X transition in our earnings call in February.
I think as far as understanding the basic mechanics of customers switching over from the Next GEM architecture to the GEM-X architecture, you know, we understood that there would be a, you know, a trial period where customers would try out the new product, validate those results before going ahead and cutting over, and ordering in larger quantities. I do think those mechanics played out, roughly as expected, but the magnitude of the switchover with more customers trialing GEM-X was greater than we had anticipated.
Okay. All right. I'll, I'll pick it up right there 'cause I think that's where we had a lot of the debate, is that GEM-X transition period sort of, feels like that's, you know, that's obscuring underlying results 'cause, like you said, it's gonna change customer ordering patterns as they're gonna be trialing out, the new architecture. It's not really indicative of underlying demand for Chromium for single-cell in the marketplace. So any data points you can point to or anything that you sort of learned over the last couple months that, you know, gives you confidence, you know, that, you know, X% of this is trial period, X% of this is market demand, just sort of, like, parse that out and maybe lift the veil on what's going on there?
So, maybe I'll kind of at least start here on this question. Yeah, last quarter was actually kind of as you think about the announcements we made, especially as you think about sort of the back half of the quarter, was sort of we created kind of a logjam of launches, multiple launches on all three platforms. And which, you know, we, it created some challenges with our commercial team to deliver those products, those new launches to the customers, and also in the customers' eyes kind of the sort of the ability to parse through the new launches. You know, the biggest transition there as we've talked about is sort of the Next GEM to GEM-X.
The thing to kind of recognize here is, like, we sprung this on customers, in the middle of the quarter, at AGBT, and if what we're saying about GEM-X is true, then it wouldn't make any sense for a customer to continue to go forward with Next GEM unless they have a project already in flight and don't want to switch in the middle. But for everything new, for any new study, for any new experiment, GEM-X is really superior to Next GEM on every metric that matters to customers, oftentimes by a significant margin, and is also cheaper. So for any customer, it just became clearly a key imperative if they're going to proceed forward to either switch over to GEM-X immediately or to test what we're saying is true.
And there's certainly customers that have proceeded along, but quite a few of them kind of paused and ordered, you know, GEM-X reagents to evaluate. And, you know, we're seeing this in the data in multiple ways. First of all, we can see there's, you know, specific orders that got stalled and pushed out of the quarter. You know, some of them substantially enlarged, some of them smaller. We see it in the numbers in terms of people ordering that have traditionally been ordering large-sized kits, 16-reaction kits, kind of a standard for single-cell analysis, ordering smaller-sized kits, so 4-reaction kits, so substantially smaller dollars in order to do this evaluation. So we're definitely seeing that effect. Of course, the effect is also convolved. Like I said, we had other launches. There's tons of interest in spatial.
That was also kind of slamming at our customers and our sales team simultaneously with this, with this transition. Those are the kind of the two biggest, sort of dynamic effects in the quarter I would, I would point to.
In terms of the customers ordering smaller batches and maybe evaluating, I think you can say in terms of how many of your, you know, customers from six months ago have fully onboarded with GEM-X versus how many are still evaluating versus how many still have to evaluate, just to give us a sense of, you know, how much longer this transition period could last?
Yeah. So I think there's a little bit of this counterintuitive element to these studies because the sort of workflow actually takes some amount of time to get through.
Yeah.
It takes, it takes surprisingly long usually for people to actually complete these studies because they have to order reagents. They have to, you know, set up the experiment, run the experiment, send the libraries off for sequencing, get the data back, and then analyze and kind of make their decision. And so you can, we can point to, for example, in the call, we, we referred to Fred Hutch. They kind of published, they talked about their findings in a, in a series of tweets. And you can imagine that they were among the first cohort of customers to kind of place the order for the evaluation, took them, you know, from that point on to, to talking about the results about six weeks. So it's, it's not an immediate kind of flip-the-switch kind of thing.
You know, the material fraction of the customers have been going through this process. We said on the call that, you know, about a third or so of orders were coming through, or of sales were coming through on the GEM-X side, out of the whole sort of Chromium consumables portfolio. And so, you know, it's been a fairly robust pickup, but it's gonna take some amount of time. The key thing here is really, like, what we've been watching is the performance of the product and the feedback, and that has been very, very positive. And so our expectation is, yes, Q1 was definitely kind of fed by this.
We expect Q2 to also be going through this dynamic, but as we enter the back half of the year, we expect that to start largely clearing up.
Okay. And you specifically mentioned Fred Hutch, but, you know, maybe other customers beyond that, the ones that have already gone through that six-week or whatever long evaluation period, you know, you're seeing them come back and start to, to order, GEM-X at sort of, like, the same frequency, same, same volume, same utilization as, as you would have expected. So, you know, gives you confidence that, that, that this is a temporary transition?
That's the expectation. It's still really early 'cause very few people again Hutch was sort of at the front end of that evaluation, but that's sort of the feedback that we're getting.
Okay. All right. And then, the other part of it is, you know, that was the under-on, on Chromium. Let's talk about the over-on spatial. You know, really strong quarter across the board. You got a couple different moving pieces there. You know, you talked about Visium HD. You've also got Xenium. So what are the dynamics we should be keeping in mind there, in terms of the launch cycles?
Yeah. So, like I talked about at the beginning, Visium HD launch quarter for that, I do think that, you know, that's a product that, you know, we've been talking about for quite some time. We've been messaging, basically out to the field and out to customers, that it was gonna be, you know, coming soon. We've also been talking about the future of the Visium platform being on CytAssist. So there's been messaging linked to the launch of Visium HD, which has also helped sell the CytAssist instrument over the last year, and has the added benefit of just having a lot of customers that are trained up on the Visium workflow that are ready to adopt a new product like, you know, Visium HD, when it's launched.
And then on the Xenium side, you know, we had a big Q3, and a big Q4. We had a price increase that went into effect at the end of Q3, beginning of Q4, where we raised the list price of the Xenium instrument. You know, that had the effect, you know, we believe, of pulling forward demand into the back part of last year. And so, you know, the placements in Q4 relatively substantial. There was a step down coming into Q1, as we, you know, made progress on working through the backlog, but, you know, placed roughly 50 instruments in Q1. You know, and we're at over 300 Xenium instruments now sold.
And then, you know, when you're looking at the Xenium consumables going from Q4 to Q1 or maybe just starting at the spatial consumables line, in total, most of the increase on that spatial consumables line was driven by the Visium HD launch with Visium. So, you know, that implies that, you know, overall, Xenium consumables, you know, roughly flat from Q4 to Q1. But keep in mind, there's a good amount of consumables that ship with the initial instrument. And so when you're looking at roughly half the instrument placements from Q4 to Q1.
Mm-hmm.
with consumables, you know, consumables, roughly flat. But I would say overall, when looking at the results from the quarter, you know, Visium HD, the demand around that, you know, I'd say exceeded our expectations. And, you know, just great work by the team, getting that product shipped in Q1, and overall, you know, very, very excited about the, you know, the results that we're seeing, and it's getting a great reception from customers.
Okay. Let's touch on Xenium consumables briefly just 'cause you were just there. You know, you talk about a lot being shipped initially with the instruments, and you had a boatload of shipments in 3Q, 4Q. But as you look back through the earlier part of the year, you know, the instruments you shipped in 1Q and 2Q of last year, have those customers sort of started to work through their initial, you know, delivery package of consumables? Are they coming back to reorder? Anything you're gleaning in terms of reorder rates and utilization rates on Xenium?
Yeah. Customer usage has continued to pick up. I would say the earliest customers are probably, you know, they've had the most time since receiving the instrument. Their usage has been increasing over time. And so that's a little bit different than the more recent customers, of which I'd say there's a pretty wide dispersal around utilization rates in the more near-term placements, where customers typically go through, I'd say, about two quarters to ramp up. And then another thing that impacts the customer ramp-up time is whether they go with the customized panels or the fixed panels. And so if you go the customized route, it takes a little bit longer for the design and manufacture and, you know, use and validation of that.
But, you know, the signs that we're seeing with the earlier customers are really encouraging. But overall, when you're looking at the population of Xenium instrument placements, there's a pretty wide range of utilization rates still. And I don't know that we want to boil that down to an overall average just yet.
Okay. I won't ask you about the number. If you want to give it, sure, but I won't ask you. But anything you're learning in terms of their preference or any trends that are coming up, anything you just sort of, from you know, it's been a little bit over a year, right? So anything that stuck out in terms of those, those trends and those usages?
Yeah. There's a lot of, like Justin says, there's a pretty wide dispersion of kind of how people are using it and how quickly they're ramping up. A big variable, like you mentioned, is, like, customization, whether they're, like, trying to set up custom panels. That usually that is probably the biggest throttler in general in terms of usage. Some customers are definitely have ramped up and are kind of going to town, and we have examples of people ordering more Xeniums because of, sort of that, that demand and also planning to order more. So, there's really, definitely strong signs around, around, around that. We also, you know, one thing we didn't talk too much about, there was also the cell segmentation kit.
That was something that we launched at the end of last quarter as well, and that had a bit of a stalling dynamic with some customers as well. They wanted to get that in place before proceeding to new experiments because it was, like, a really compelling kind of offering that a lot of people were waiting for. And now we're also kind of the next big thing coming on Xenium is 5K. And I would say this is the 5,000-plus panel capability that's coming. And there's quite a bit of interest and excitement around that more so than maybe I was kind of anticipating earlier. So gonna have to see how that kind of plays out. But there's certainly quite a few customers are interested in that.
And while that, you know, that panel actually will take it'll be a longer running time, so the kind of the effective throughput of how many runs you can do will be lower. You know, the price for that is higher. And so on that, we also anticipate that to be ultimately sort of helpful will pull through.
Okay. I wanna take a step back and go back to something you called out earlier, certainly thinking in your initial remarks, you said something along the lines of, you know, long jam of launches, in the last six months. I think that's certainly, you know, you can kind of see that in the numbers, and you talked about a number of times on the earnings calls. How do you work your way through that? How do you, you know, both with your customers and your sales force in terms of being able to pace things a little bit better going forward?
Well, like, it's not clear that we would have necessarily done those launches on a different timeframe that we did. It just 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 toward 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 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, you know, 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 address the problem rather than kind of slowing down the cadence of our launches.
Yeah. I think I think you touched on that a number of times during 2023 and that you, you know, 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, you know, how do you balance compensation for the sales force with these different moving pieces and, and sort of how do you, you know, how do you allocate between all the different parts of the portfolio considering you've got all these different launches coming?
Yeah. So it's always a work in progress. We definitely recognized last year, and then 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 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 toward Chromium. On the other hand, there's this dynamic that's emerging that's pulling their attention away. You know, I was in the field, and it's clear you're kind of walking the halls. There's definitely single-cell projects and single-cell customers. At the same time, there's all these spatial people who are interested in spatial that are coming, and at our salespeople in the field. So it is definitely kind of a dial in a work in progress that's for us to make sure that we can support both. 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.
Yeah.
Spatial imperatives as well.
Yeah. Okay. I mean, most of the discussion so far has been 10x specific, portfolio specific. I wanna take a step back and just talk about the broader market a little bit. It's been a lot of the focus in 2022 and 2023, sort of the state of, of your customer, the health of the end markets. You know, when you think about your customers biopharma, academia, translational and research, just sort of what's your assessment of that, as we said here in May? You know, from that perspective, are things coming back to normal? Are budgets improving? Is that is that a constraint at all on you this year? Or and, what are your expectations on, on that as you go through the rest of the year?
So we actually, I would say, the budgets have been, and the environment, I would say, been as I look at AMR, like at 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 in towards Q4 and kind of going into this year now, people, you know, the budgets roughly and the R&D 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 are 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 manifests itself on CapEx more so than on consumables.
So there has been that general sort of macro, somewhat of a pull in on academia. Biopharma, I would say kind of a bit of a mixed bag. We're seeing, you know, certainly increasing interest in pharma in general in our technologies and adoption, both single-cell and spatial. At the same time, you know, there's sort of you know, there's 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 big purchasers in the past. Now, and so, like, when I look at sort of early in the year, you know, there is a dynamic that's playing out that 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 there it's kind of a dynamic environment in that sense.
Okay. Just on pharma, you mentioned, you know, more interest in your offerings recently. Is that just sort of the natural evolution as you go through new product introduction, 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, you know, how to incorporate it into workflows. And then once you get some publications on that, pharma adopts. Are we seeing the beginnings of that growth?
I think there's some of a dynamic. I think, probably a bigger part is just the capability of the products, in terms of, like, compatibility with fixed tissues, specifically with FFPE. On the spatial side, there's just a more, like, more natural format, for people kind of downstream on the translational side to be interested in pharma. We're also seeing, kind of an emergence of a group of these perturbation-type of experiments. That'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 of pharma. It's taking some amount of time for kind of the tooling to get built out around it and for people to become tangibly interested in that.
Now we're seeing quite a bit of interest in that as well. To some extent, it's the evolution of the products themselves. 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.
Okay. And you touched on biotech funding and capital cycles, things like that, new biotechs emerging. 1Q was a, you know, pretty good start to the year in terms of funding raised, but it takes a while for funding raised to show up and become funding spent. 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, our 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've been a lot of new offerings by a lot of smaller private players but also by some bigger names. You know, 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?
Yeah. 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 was 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 in there. But the dynamic there has been going very strong in our favor over the last couple of years. And in some sense, in terms of market perception maybe not development, not reality, but market perception, we've certainly come a long way over the last year and the last two years. On the single-cell side, you know, the story is a little bit different in that, you know, 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 it's kind of, we've, you know, to a large extent, you know, trying to see through kind of lower pricing to establish some niches in the market. It has definitely put some amount of 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, you know, by and large, customers come back to us after trialing it because much better performance, much better breadth of, you know, applications, our, you know, commercial customer support, just the fundamental performance of the products, much better workflow.
All of those things ultimately, you know, kind of bring customers back and reinforce our position in the marketplace. There's been, you know, relative to a year ago, somewhat more awareness of these other technologies. But I don't think it's, kind of, you know, as much of a factor as some of the other dynamics we've talked about. As far as our, like, overall strategy, when it comes to certainly single-cell, to some extent, it maps over to spatial. We do believe there's a huge market opportunity here. Our goal is to drive into that market opportunity. Single-cell so far, as large as it has gone as a market, is still, in many cases, more of a boutique technique. And we really it needs to be driven to being a routine part of how customers do biology.
It is very clear, our 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, you know, 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.
That's our imperative is to kind of keep growing the market and keep expanding into this much larger universe of biological research.
I mean, that point you just touched on that's, that's been something we've focused on a number of times is sort of what's it gonna take for single-cell analysis to become routine, to become a, an everyday experiment in the lab. I think, you know, we've been surprised how long it's taken, not that Chromium hasn't been an incredibly successful business in a relatively short amount of time, but, you know, if you based on the understanding of that technology and the value it offers, you would think that it would be ubiquitous, right? You know, there's, there's 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, any thoughts on what it needs to be to, to become ubiquitous?
If there's anything beyond price in terms of more publications, more workflows, more complete ecosystem around it, just sort of what's holding it back?
Yeah. 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 and thousands of papers and more get published every day using single-cell and showing it in all kinds of, in every area of biology, all kinds of experiments, all kinds of findings. So the sort of justification for using it, for it to become routine, is clearly there. You know, when the price per sample is over $2,000, which is roughly together with sequencing where it is, it's just not going to be routine, right? So you need to get to a lower price point. We do believe there's elasticity kind of as you go down kind of lower that should unlock more demand.
You know, 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 you know, there's typically different thresholds that people think about. There's sort of $1,000 a sample threshold that unlocks, you know, kind of a larger extra sort of bolus of demand. There's $500 as another benchmark. And we're thinking along those lines to kind of drive toward those directions. In terms of other bottlenecks, you know, traditionally, historically, we've talked about sample prep as being kind of one area, like where people have struggled in the past. You know, price is another. Data analysis is another. And I think all those need to be addressed.
I do think that, you know, things around sample prep, while still an issue, somewhat less of an issue relative to what you might have heard 6 or so, 7 years ago. Data analysis is still a 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 this data. You know, like, 80% probably of all the papers do fairly standard kind of analysis. And there's packages out there. And that, over time, we've been making efforts to make it easier and easier on 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. All right. We're almost out of time, but I wanna squeeze in one more. Justin, I think it was, I think it was at this conference a year ago where we asked you about sort of what's changing in, about your, your strategy. And one of the things you flagged was, you're gonna be a little bit more proactive in, in protecting your IP landscape. And you've certainly followed up on that over the past year. Most recently, you know, Bruker NanoString acquisition, just announced and, and, you know, in the process of closing. Any thoughts on how that's gonna impact the competitive landscape and just, you know, any, any color on the ongoing IP battles?
Yeah. So, I think fundamentally, so a couple of things, I would say. You know, obviously, we think very deeply about intellectual property and litigation. We don't take litigation lightly. For us, our intellectual property strategy is a core part of our innovation strategy. It's, 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 in. And all those investments need to be protected. That's why we pursue litigation when we do. You know, 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 of the landscape, and we feel really strongly that we're in a good position, just like we felt before.
The other part of the landscape question is really the performance of the platforms. And I think that ultimately really carries the day we 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 this feedback; there's been from customers. There's been lots of benchmarks now done that have been published. And the advantage of 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 out 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.
That's why we feel really strongly about our position, kind of regardless of what happens with the different assets out there.
Okay. Great. With that, we're out of time. Thanks so much, everyone. Thanks for joining, and Serge, Justin, thanks for being here.