Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics Second Quarter 2020 Earnings Conference. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaker Eric Jaschke, Director of Investor Relations and Strategic Finance. Please go ahead.
Thank you. Earlier today, 10x Genomics released financial results for the second quarter ended June 30th, 2020. If you have not received this news release, or if you would like to be added to the company's distribution list, please send an email to investors@10xgenomics.com. An archived webcast of this call will be available on the investor tab of the company's website, 10xgenomics.com, for at least 45 days following this call. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. You should not place undue reliance on these forward-looking statements.
Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the press release 10x Genomics issued today, and in the documents and reports filed by 10x Genomics from time to time with the Securities and Exchange Commission. 10x Genomics disclaims any intention and obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Joining the call today are Serge Saxonov, our CEO and co-founder, and Justin McAnear, our chief financial officer. In addition, Brad Crutchfield, our chief commercial officer, will be available for Q&A. With that, I'll now turn the call over to Serge.
Thanks, Eric. Good afternoon, and thank you for joining our call to review our second quarter 2020 results. I hope you and your families are staying healthy and safe. I'd like to start out the call today by again thanking the amazing team at 10x for their unwavering dedication and incredible execution during this quarter, despite all the challenges they've had to face. I've always been proud of our team and culture, but it's been especially inspiring to see the ability that everyone has shown to adapt and succeed in the face of new obstacles. This perseverance has been critical to ensure that we continue to execute on our plans and take advantage of the opportunities ahead. As expected, the impact of COVID-19 created a challenging environment in the second quarter. Our revenues were down 23% year-over-year at $42.9 million.
This decline was a direct result of widespread customer lab closures due to the pandemic. We started the quarter with only 25% of our customer labs open, and we exited the quarter with nearly 60% open, though most of them have been operating at a much reduced capacity. We anticipate that lab closures will continue to impact our business until our customers are fully operational. That said, once we look past the short-term disruption, I'm more confident than ever in our mission and in our business. It is clear that the current events have reinforced the importance of mastering biology, and not just among researchers, but among the broader public as well. As just one example, if finalized, the proposed increase for next year's NIH budget would be one of the largest in decades.
In many ways, the COVID pandemic has likely become a catalyzing event for accelerating the century of biology. On today's call, I will start with a review of our commercial progress during the second quarter. Next, I will discuss some operational highlights, including the launch of several breakthrough products. I will also discuss our thinking about the future and the investments we're making to capitalize on long-term opportunities. I will then turn the call over to Justin for a more detailed look at our financials, including additional detail on the impact from COVID-19 during the second quarter. Starting with our commercial business. Despite the impact from widespread lab closures, we were encouraged by several dynamics we saw throughout the quarter. Importantly, there was continued and high level of engagement from our customers while they were away from their labs but planning for their eventual return.
Also, we saw strong demand for our instruments, particularly driven by COVID-19- related research, which often required placing the Chromium Controller in a biosafety lab. On select occasions, because of the urgency of their work, we provided some customers with strategic discounts on instruments used directly in COVID-19 research. While we're encouraged by the short-term demand for our instruments related to COVID, it's also important to note that the benefits to 10x and to the greater COVID research efforts will be realized over the long term. The research into the biology of COVID-19 and other infectious diseases enabled by these instruments will likely persist far into the future. While the demand for our consumables was significantly reduced during the quarter because of COVID-19, we saw notable tailwinds from our immune profiling products.
Researchers around the world are using these products to increase the understanding of the SARS-CoV-2 infection, decipher the body's immune response, and in some cases, identify antibodies, which may have therapeutic or prophylactic benefits. There are now well over 50 preprints and peer-reviewed papers featuring 10x products across these applications. For instance, there have been multiple publications in major journals in which researchers were able to individually analyze and rapidly identify neutralizing antibodies for the SARS-CoV-2 virus. The research holds great potential for reducing the toll of the pandemic. In fact, several of the most promising COVID-19 treatments making their way through clinical trials are based on neutralizing antibodies. More broadly, we're encouraged by the many coordinated and collaborative efforts across the scientific community and the speed with which scientists have been making progress in understanding this disease. We're immensely proud to play a role in supporting these efforts.
While the overall usage of our single-cell consumable products was significantly impacted this quarter, the underlying demand remains strong. We experienced continued high engagement from existing customers, as well as robust interest from new potential customers based on high levels of attendance and follow-up in our numerous webinars and virtual events. There are now over 1,000 peer-reviewed publications featuring our single-cell products. These publications serve as a validation and an accelerant of future demand because they demonstrate the value of single-cell approaches across just about every area of biology and disease, spanning the spectrum from basic exploratory science to translational work with clinical applications. Of course, the COVID-19 pandemic is a stark demonstration that when faced with an urgent need to understand the biology of a disease, single-cell approaches are essential.
Turning now to spatial, we saw continued enthusiasm for our Visium platform, particularly once researchers were able to come back to their labs. In addition to the strong adoption of Visium with existing Chromium users, we have seen a continued uptake with customers who are entirely new to 10x. Furthermore, a substantial fraction of the Visium business last quarter was driven by repeat customers. We are encouraged by the strength because it speaks to customer enthusiasm, especially given that the platform was launched only a short time ago. We have been excited to see a wide range of applications and use cases that our customers are pursuing with Visium. In particular, we have been seeing continuous interest from translational researchers. Responding to this interest, we formally announced the launch of the Visium Clinical Translational Research Network in June.
With members including global industry leaders like GSK, Johns Hopkins, and Mass General, this network will function as a collaborative research community. It will aim to accelerate the expansion of Visium into clinical translational studies and to enable discoveries across multiple disease areas, including oncology, neurology, and immunology. With this program, we provide our members with exclusive access to specialized support and various discounts on Visium products. Many of the participants have already started their work, and we expect publications to begin rolling out later this year. Now, turning to internal execution. We have been working to meet the significant operational challenges that the COVID-19 pandemic imposed on the business. Our product development teams, as well as our manufacturing, shipping, and customer service functions, need to be on-site. On our last earnings call, I stressed our commitment to ensure a safe work environment for all of our employees.
With that imperative in mind, we implemented a novel program to provide recurring SARS-CoV-2 testing for all employees at our Pleasanton headquarters who are unable to accomplish their jobs remotely. This testing is just a part of a comprehensive approach to maintaining a safe workplace that also includes digital employee symptom screening and risk factor assessment, provision of personal protective equipment, and other preventative procedures. With the testing program and other measures in place, we have been able to dramatically increase our R&D productivity relative to the height of the shutdown. Furthermore, we have been able to maintain our production, shipping, and customer service functions throughout the pandemic. We also pushed forward with the implementation of a long-term cloud-based ERP system in the second quarter.
We believe the new system will enable increased automation and operational clarity and serve as a foundation to help us scale the business in the years ahead. Despite COVID-related challenges, we substantially completed the transition onto this platform in early July as planned. Now, in the first quarter, we laid out an ambitious roadmap of new products and applications. We have been executing on this roadmap, having now launched multiple products so far this year, with more on the way. This has been a great operational achievement by our team, given the challenging environment and the large number of unexpected obstacles. We believe that many of these newly announced products will enable significant new research and exciting new discoveries across biology. I will now give an overview of the products we have launched so far this year. Starting with our Chromium Targeted Gene Expression solution.
By allowing customers to focus on the cell types and biomarkers that matter most to their research, the solution is designed to enable them to answer biological questions quickly, efficiently, and cost-effectively. By moving beyond unbiased discovery and into targeted research via predefined and custom panels, our targeted solution will accelerate adoption of 10x in cancer and immunology research and drug discovery, as well as among a much wider group of customers within basic science research. This product is currently shipping to all 10x customers. We have consistently heard intense interest from our customers in ability to simultaneously profile gene expression and epigenetic programming from the same cell across many thousands of cells at once.
To satisfy this demand, we have developed and began taking orders earlier today for our Single-Cell Multiome ATAC + Gene Expression product, providing our customers with a unified view of a cell's gene expression profile and its epigenetic landscape. With this product, researchers will be able to deepen their characterization of cell types, discover new gene regulatory interactions, and better understand the rules of epigenetic programming. The potential of this technology is profoundly exciting because it seeks to address one of the central challenges to understanding human biology and can drive fundamental new insights across many disease states. In July, we announced the launch of a new product that we have not talked about previously. This was version two of our Chromium Single Cell Immune Profiling solution. Notably, this product extends the capabilities of the original version and offers an up to 60% increase in gene detection sensitivity.
This increase in sensitivity allows our customers increased flexibility to either reduce the sequencing costs while preserving biological insights or access increasingly rare gene transcripts. We believe this product will be an important tool for advancing the state-of-the-art in immuno genomics and will have powerful applications across many areas, including infectious disease, cancer, and autoimmunity. We expect to begin shipping this product imminently. Now turning to Visium. Similar to the targeted solution on Chromium, our targeted Visium gene expression product will allow researchers to focus on the cell types and biomarkers of interest while also maintaining the spatial arrangement of these cells within their tissue sample. We believe that this will be particularly useful in translational settings and allow researchers to balance costs with biological insight. We expect to begin shipments in September.
Since our last earnings call, we also started shipping Visium Spatial Gene Expression with Immunofluorescence solutions, which is extending Visium to protein analysis. With this solution, researchers are able to perform whole transcriptome spatial analysis and immunofluorescence protein detection in parallel. This capability is likely to open up a lot of fascinating areas of discovery. Within neuroscience, for example, we have seen customers compare Alzheimer's post-mortem brain tissue to normal brain tissue using immunofluorescence to look at amyloid beta plaque within the tissue and overlaying gene expression data via Visium. Lastly, I want to touch on our integrated software. In early July, we launched the latest version of our data analysis pipeline, Cell Ranger 4.0, which adds support for Targeted Gene Expression analysis.
Importantly, Cell Ranger 4.0 also increases data analysis speeds by a factor of four while continuing to run on conventional CPUs, making these benefits available to all of our customers without additional investments in specialized hardware. As we keep developing and launching new products, we continue to make significant investments in our patent portfolio to protect these incredible innovations. As of July 15th, we had over 250 patents issued or allowed and over 500 patents pending. We had over 100 new patent filings and almost 50 patents issued or allowed in the second quarter alone, including broad intellectual property addressing spatial and multi-omics approaches. The pandemic has highlighted the ability of our team to execute relentlessly through the short-term challenges. At the same time, within 10x, we keep our focus on the long term and the vast set of opportunities enabled by the century of biology.
As we look to the future, we see more exciting opportunities ahead of us than ever before. At the same time, our confidence in our ability to capitalize on them is stronger than ever. We plan to keep investing in the business to build on our momentum thus far and to create stronger foundations for future growth. Within R&D, we remain intensely focused on maintaining our culture of rapid innovation and robust product development. As we look beyond the COVID-19 crisis, we intend to accelerate investment in R&D to continue improving existing products and launching new ones. We will keep making investments in intellectual property to protect these products, and within our commercial organization, we will continue to build out sales force across key geographies around the world, as well as invest in capabilities to address the interest we're seeing from the biopharma and translational markets.
In summary, this was a tough quarter, but our team executed remarkably well. While the near-term environment is likely to remain uncertain, the long-term fundamentals of our markets are very strong. The importance of our mission is as clear as ever, and we will drive to provide the technologies needed to accelerate the mastery of biology and advance human health. With that, I will now turn the call over to Justin for more details on our financials.
Thank you, Serge. Total revenue for the three months ended June 30th, 2020, was $42.9 million, compared to $55.8 million for the prior year period, representing a 23% decrease year-over-year. Consumables revenue was $34.2 million, which decreased 27% over the prior year period. Instrument revenue was $7.3 million, which decreased 12% over the prior year period. Service revenue was $1.5 million, which increased 48% over the prior year period. Consumable revenue was impacted this quarter due to lab closures having a direct impact on the ability of researchers to perform experiments using our products. Instrument revenue was also impacted this quarter due to lower ASPs, primarily related to the strategic discounting of COVID-related placements. Service revenue was not materially impacted. North America revenue for the second quarter was $20.3 million, which decreased 39% over the prior year period.
EMEA revenue for the second quarter was $11.7 million, which decreased 4% over the prior year period. APAC revenue for the second quarter was $10.9 million, which increased 3% over the prior year period. The decline in revenue this quarter was the direct result of widespread customer lab closures. We started the second quarter with about 25% of customer labs open. In mid-June, as conditions began to improve, we saw a modest acceleration in U.S. lab openings, which continued through the final two weeks of the quarter. By quarter end, we estimated that approximately 60% of our accounts in aggregate were open for general research, with the majority of those operating at a much reduced capacity. Labs within the U.S. were closed throughout most of the quarter, with a modest acceleration in openings beginning in mid-June and continuing through the final two weeks of the quarter.
Labs in EMEA began to reopen slightly ahead of those in North America before plateauing in mid-June. The recovery experienced in APAC, primarily driven by China, towards the end of the first quarter held into the second quarter, and the percentage of labs closed in that region remained fairly consistent throughout the quarter. Thus, the net impact to our Q2 revenue was primarily driven by customer lab closures in North America and, to a lesser extent, those in EMEA and APAC. We believe that the rate of lab reopenings will remain unpredictable, and at this time it is unclear how unknown factors such as resurgent case counts or another wave of infections may impact the pace of lab reopenings in the coming quarters. Now, turning to the rest of the income statement.
Gross profit for the second quarter of 2020 was $32.9 million, compared to a gross profit of $40.8 million for the prior year period. Gross margin for the second quarter was 77%, compared to 73% for the second quarter of 2019. The gross margin increase was primarily driven by lower accrued royalties related to ongoing litigation, partially offset by charges related to idle capacity and the continued build-out of our manufacturing facility in Singapore. Total operating expenses for the second quarter of 2020 were $72.3 million, an increase of 41% from $51.2 million for the second quarter of 2019. This was primarily attributable to increased personnel-related expenses related to ongoing expansion within R&D and the commercial organizations, stock-based compensation, increased infrastructure spending, legal expenses, and the administrative cost of becoming a public company.
R&D expenses for the second quarter of 2020 were $27.5 million compared to $18 million for the second quarter of 2019. This was driven primarily by $8.2 million of increased personnel-related expenses, including stock-based compensation and $1.3 million increase in allocated costs for facilities and information technology. SG&A expenses for the second quarter were $44.4 million compared to $32.6 million for the second quarter of 2019, with the increase driven primarily by $8.8 million of increased personnel-related expenses, including stock-based compensation and $1.4 million of increased legal expenses. Operating loss for the second quarter was $39.4 million compared to a loss of $10.4 million for the second quarter of 2019. This includes $13.9 million of stock-based compensation for the second quarter of 2020 compared to $3 million for the second quarter of 2019.
Net loss for the period was $40.2 million compared to a net loss of $10.9 million for the second quarter of 2019. We ended Q2 2020 with $339.8 million in cash and cash equivalents. While we are encouraged by the recent trends, there remains near-term uncertainty related to COVID-19, and we will refrain from reinstating guidance at this time. At this point, I'll turn it back to Serge.
Thanks, Justin. Before closing, I want to again thank everyone at 10x for all of your efforts this past quarter. It's been amazing to see how well you have executed, and I could not be more proud to be a part of the team. Despite the potential for near-term volatility, we're as confident as ever about the long-term opportunities ahead for 10x, and we're committed to making the necessary investments to capitalize on these opportunities. This is the century of biology, and we're just getting started. With that, we will now open it up for questions.
To ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Once again, to ask a question, please press star one. Your first question is from the line of Tycho Peterson of JP Morgan. Your line is now open.
Hey, thanks. Serge, maybe I'll start with the Clinical Translational Research Network. Can you maybe just help us think about that in context of the 45 biopharma customers, how material that could be in terms of the volume and volume ramp and utilization levels and, will this also drive Chromium Connect placements as well? Thanks.
I would say it's not, as far as revenue impact in the near term, I think I would caution against putting too much weight. In the long run, certainly, we see that as one of the accelerants for the clinical and, yeah, the pharma markets as well. Similar with the Connect front as well. Again, these are the steps we're putting in place and investments we're making for market development that should bear fruit in the next year and beyond.
Then on the COVID dynamic, are you able to put any metrics around just the size of the opportunity? Should we mainly think about it as impacting the immune profiling V2 product that you highlighted? Is that the main driver?
The V2, the immune profiling product, certainly COVID has a significant tailwind for that product, but it certainly has applications well beyond just COVID. Cancer, autoimmunity, like, I would say immunotherapy, immuno- oncology. Those are the big drivers for that product as well. As far as COVID, the tailwinds are concerned, they're definitely there. They're substantial, but I would say, relatively speaking, they pale in comparison to the headwinds we're suffering from the lab closures.
Okay, just two housekeeping one before I hop off. On Visium, you didn't give an updated number of labs. You did that the last two quarters. Are you able to talk on how many customer sites are using Visium? Secondly, on FFPE, I'm just curious, is that still on deck for early next year? Thanks.
In terms of customers for Visium, the number at this stage is over 600. We've added a substantial number of labs over the course of last quarter. As far as the FFPE for Visium is concerned, that's still on plan for the first half of next year.
Okay. Thank you.
Your next question comes from the line of Derik de Bruin of Bank of America. Your line is now open.
Hi, good afternoon.
Hey, Derik.
Hey, I realize that there's a ton of moving parts and variables, but I'm just sort of wondering if you can give us a sense of what the difference was in demand. Basically what I'm saying, if 60% of your labs were open at the end of the quarter, and that started in sort of mid-quarter, I'm just sort of thinking what was sort of the revenue contribution that last two weeks to get a sense for it. I'm just trying to get a sense of that so I can try to model on a forward basis.
Hey, Derik, this is Justin. I'll take that. Typically, we do see a higher concentration of revenue in a normal quarter, particularly in the last few weeks.
Yep.
In Q2, we did see more weighting, particularly in the last two weeks of June, than we normally see. I do think that that was related to a number of customers that were shut down for the majority of the quarter, that opened up around the same time. We did see a spike during those last couple of weeks. I think it remains to be seen what that will look like steady state as the customers then move to be out of sync with one another.
I guess, we heard some other companies have mentioned about people worried about not getting their hands on supplies going forward and any sense of stocking or people buying ahead of when they think things are going to open up, in that sense?
No, we didn't see any indications of any kind of pull forward or buy ahead from customers.
Got it. Obviously, you're very heavily in U.S. academic markets, and I guess, can you give us some flavor on what you're hearing from your customers on their lab openings? Any sense of a flavor for how many think that, are their labs half staff, fully operational? Do you have any sense of sort of the mix? I know you said that most of them are still at reduced capacity, but can you give us some flavor on that? Does it have any rhyme or reason in terms of the size of the institution, the types of institutions, and just some sense, just a little bit more flavor on what you're sort of seeing in that critical segment of the market?
Hey, Derik, this is Brad. I'll take that. It's really a mixed bag. Presumably, the customers are having the same problem that everybody else has, dealing with childcare and other disruptions. Obviously, the local situations are changing. This is obviously, when we were on the call last quarter or early this quarter, I guess it was still last quarter, we thought that the South was opening up really fast, and we thought that was portend for the future, but the coast was much slower in opening up. Even now, institutions are all trying to figure out how to get as many people in the lab through different shifts, and then just plain distancing, and that certainly impacts the capacity of it.
Got it. I guess, and if I missed it in your remarks, my apologies, but did you give a number for how many Chromium Connects you placed?
No. We aren't splitting the Connect out from the regular Chromium Controller at this time. We'll update the total installed base annually.
One final question, before my competitors kill me. The ramp in the Visium, are you seeing people reordering? Is it mostly new people? I guess, can you give us some flavor on how those experiments are ramping and how people are ordering? Is it new customers? Is it reorders? Is it people expanding experiments if they try it? Just some flavor on the ramp.
Derik, this is Brad. Yeah. We definitely have seen good reorder rates, people using it, starting to adopt it, expanding the size of their experiments, number of samples, things like that. Obviously, again, the second quarter and the limited access to the lab didn't help. Overall, again, I think we continue to be impressed by the wide range of use cases and how those are moving to publications, and really looking forward to the publications that we see already coming out in bioRxiv, but ultimately, ones that will come out throughout this year will really expand the whole horizon for Visium.
Great. Thank you.
Your next question comes from the line of Doug Schenkel of Cowen. Your line is now open.
Hey, guys. My first one is one which I think I know the answer to, but I want to ask it anyway. When we look at the pace of operational investment and your commentary on the outlook for continued investment in growth initiatives, I just want to make sure that we should view that as really a sign of confidence that, first, you're seeing robust demand, albeit somewhat deferred for your products, and that along those lines, you're confident that the likely duration of deferrals doesn't warrant any real material slowdown in the pace of investing in long-term growth opportunities.
Absolutely.
Okay.
Good one. Obviously, we look at a lot of leading indicators, looking at demand, as I commented in my opening remarks, looking at the long-term demands and how sort of the shape of what customers are thinking about for the future and where the technology is kind of how they're evolving. All of that we feel very positively about. Yes, this is a near-term disruption, but at the same time, we feel pretty confident that there's, once we're past through the pandemic, there's a really strong business for us on the other side.
Okay. Makes sense. You talked a little bit about what's going on in the different end markets. I guess, just from a commercial standpoint, and how you're prioritizing things, as biopharma labs in general seem to reopen a bit more quickly than some of the academic research centers, were you able to make, I guess, kind of commercial lemonade out of lemons in a way and really just kind of pivot and maybe be a bit more aggressive in going after some of those pharma commercial accounts that may have been a bit harder to penetrate and prioritize historically?
Doug, this is Brad. The one thing with biopharma, the perception is it really depends on the size. The larger biopharmas were all much closer to academic institutions as far as their opening and much more issues with employee programs to get people in the lab. Obviously, the smaller and the small biotechs were able to move fairly quickly to reopen. That's kind of a difference there. I think overall, we have been focusing on pharma, and even obviously through now the pandemic, and there's a number of programs we think ultimately will be part of expanding beyond the discovery into some of the more operational or validation platforms. That, we continue to make progress on. Over time, I think in general, we were able to pivot very quickly and keep the customer engagement.
I will say by the end of the quarter, all the other companies had done the same thing, and then we were all just poisoning our customers with Zoom calls. Ultimately, there was a balance across that. In general, we have looked at this time as an opportunity to make some lemonade, no matter how tough it is.
Okay. Thanks for that, Brad. One last one. You talked about focusing on Zoom, and of course, there's Zoom fatigue. Separate from that, in diagnostics, you hear about more virtual and more e-detailing. In research tools, there's increased focus on what companies can do to basically enable their lab customers to get back to work if they're not in the lab. It's tough to do, but keeping in mind many of your users don't actually have a Chromium physically in their own lab, and Visium, of course, is a consumable solution without a captive instrument for spatial profiling.
I'm wondering if those attributes, and by extension, the fact that an investment in your technology really has a lower cost of entry, has helped better position you for adoption and utilization as folks figure out how to really operate in this environment, as it's clear it's going to last a little bit longer than we all would've hoped.
Yeah. Those are really good questions. I think the most important thing is the idea of a fast start, and that's kind of what you described and the benefits for our business, both in terms of being able to get the capital to buy it. Obviously, that helps with the Chromium and certainly Visium is very easy in that sense because there is no capital. A key point to our success is these fast start, and that really goes to our support organization and our ability, both Visium and Chromium, to successfully onboard customers and be able to do that with a lot of digital tools that we already had in place, not expecting the fact that would be our only access.
That fast start has allowed us to get even customers, with Visium, who got into their labs at the end of the quarter, again, didn't have any capital investment, and we were able, through our support organization, to get them up and running and doing experiments and getting data. The other thing I'll point out, and you kind of touched on this, is that there's a lot of capacity for our instruments, so we have a lot of people who use other instruments, the so-called halo users, which ultimately become useful as opportunities for us to sell a Chromium instrument to. Well, in the world right now, where there's a lot of controls about buildings and what floors you can go on and all that is we're starting to see a lot more interest in helping us drive box placements as well.
Okay. Super helpful. Thank you, guys, for all the details.
Your next question comes from the line of Luke Sergott of Evercore ISI. Your line is now open.
Hey, guys. Maybe just another way to ask Derik's question on getting kind of the pace of the recovery. When you think about those 60% of the labs that are now open, how has the capacity, I know you talk about reduced capacity, but the labs that were open before, the 20% that you guys talked about before, has their capacity increased, or are you seeing that kind of cap out at like at 60% and then as these other labs come on, they're at 20% and going up to 60%?
I'll take this. It's interesting because it's all over the map. We have examples in Germany where you have institutions that are almost fully operational at this point, and then we have most of the big U.S. labs that, customers, if we even go to the coast, are operating probably around 50% capacity. Again, I just always warn that opening closed capacity is a good number, and we certainly literally watch that on a weekly basis. Remember, in some cases, even labs that are opening maybe only 20% will be consuming a lot of our product because it's really at that front end of the experiment, the sort of sharp end of the spear, as I like to say.
You have institutions like the Broad that largely shift initially to doing COVID testing because there was such a demand for testing, has now pivoted almost exclusively to research on the biology of COVID. When labs shift like that introduces some delay because they're building entirely new workflows and access to the biology, obviously the testing and the capacity to run our products. There's really a mixed bag on this one. I don't know how to give you more resolution on that, but that's kind of how we look at it.
No, that's helpful. I guess just to follow on onto that, I mean, you guys continue this torrid pace of new product introductions. Can you talk about the demand as these new labs open? Is it for all these new products? Are you getting everybody to, just follow on with Doug, with the flavor and I mean, with the lemonade, like whetting their appetite by putting out all these new press releases on these new products, and then is there a risk that they're not going to use some of the legacy products, you're not catching the full value of that?
There's still the workhorse that's driving so much insight in biology is our original sort of blockbuster, the 3-prime expression, which we've brought successive versions of that product out and added increased capacity. That's really what we're leading with. Even when we look at Multiome and products that are combining measurements, I mean, those are all sort of pivoted on that 3-prime expression. Again, I wouldn't think that anything we do moves away from that. It just kind of enhances it. I think the real thing is when we bring out these products, it's again, it's consistent with our execution, and then we've, for the last several years, have laid out a roadmap and, to the credit of our R&D team and operational team, have been executing on that and as Serge pointed out, in very difficult times.
I mean, I think, yeah, I'll just leave it with that.
Okay. Lastly, I guess, Justin, on margin cadence. Should we expect a similar type of offset to the royalties continuing to roll off from the continual build-outs and capacity expansion?
For the next gen transition, I've talked before about how that's basically a linear progression over six quarters starting at mid 2019. We're basically executing along that schedule, maybe slightly ahead of it on a percent basis from where we would expect to be if you just straight lined it. I would expect that we would continue at the same pace through the end of the year.
Awesome. All right. Thanks.
Your next question comes from the line of Patrick Donnelly of Citi. Your line is now open.
Great, thanks. I appreciate the color on the lab openings through June, obviously a few questions on that. Any insight you guys can provide? Obviously, it's been another month and a half since then. We've seen the cases in the U.S. tick up, obviously. Any framework you can provide just around the last month and a half as things have gotten a little worse here in the U.S. in terms of openings, spend, whatever it may be on the lab side?
Hey, Patrick, this is Justin. I'll take that. 60% of labs were open at the end of Q2. As Brad said, most were operating at a reduced capacity, some at a much-reduced capacity, and there was a pretty wide range of variability amongst those labs. We haven't necessarily seen things get worse since then. Overall, if I was to give some color on how Q3 is shaping up, I would say that revenue is tracking pretty similar to where we were a year ago.
Okay. No, that's really helpful, Justin. Thanks for that. Then I guess on the COVID market, how aggressively are you guys going after that? It sounds like you discounted some instruments to get placements out there. Can you just expand a bit on the demand you're seeing there? Any way to size the opportunity, potential tailwinds from some of that research?
This is Brad. I think in the end, the SARS-CoV-2 is going to be effectively a model for how people will study the immune system, because it is so much data around the outcomes and how the immune system responded to the virus, and in some cases, over-responded. In a sense, we see a lot of interest to use this, these wealth of data and patient outcomes, and I've said this before, we continue to push on that. We market around that, and it's not just the Immune Profiling product, it's all our products are studying the biology. I think over time, you're going to see more and more studies that are looking at time course studies on multiple tissues, because it turns out they're all related and they're all communicating.
To me, I think this is, as Serge pointed out at the beginning, in some sense, this pandemic has created an incredible value case for the study and understanding and mastery of biology. I think specifically, SARS itself will be a great case study.
That's helpful, Brad. Thanks. Maybe just one last one, might be for Serge or Justin, just on the IP side, maybe just an update there. Obviously, we saw some news last week. Can you just run us through, I guess, what you guys thought about that, then what's left outstanding, any timing expectations in the near term in terms of material updates on that side?
I'll take that. Serge. There was a decision, kind of thinking about the major decisions that have been happening. There was the appeal in the original Delaware case, where there was a decision that came down last week or the week before. I want to emphasize that this covers, again, the legacy products, none of the next gen products, kind of a backwards-looking case. What was found there is that of the three patents, two of the patents were overturned on infringement, were found to be overturned. To the extent, the accumulated damages have already been accounted for in our financials. The decision, there's still more mechanics to be worked out in the final decision, that's coming in the coming months. That's that decision.
I think, nothing else major to update on the legal side.
Okay. Thanks, Serge.
Your next question comes from the line of Dan Arias of Stifel. Your line is now open.
Afternoon, guys. Thank you. Maybe just a couple of follow-ups on the ones that have been asked, starting with belaboring the point a bit on the current environment. Are you able, Serge or Brad, to sort of contrast the percentage of labs that are open, that 60% or so, with the percentage of labs that are open and accessible in terms of just being able to install and train? I guess, how meaningful is that difference if we're just sort of thinking about orders, but then thinking about new customers and new installations maybe in the back half of the year?
Yeah, I'll just jump into that on that one. It's interesting because for the most part, as labs open for their own work, they are closed to any outside visitors, and that remains almost universal. We're seeing a little bit of change in Europe, and in some cases we have gone on site in the U.S. to do installations on the Chromium Connect. In general, we kind of disconnect from there because again, from a sales standpoint, we're operating from the view that this is all done virtually, and we've kind of settled into that mode and assuming we're going to be in that mode for a while. Ability to onboard customers, we have not seen any limitation in that beyond, I'm sure our FAS and some of our customers would like to meet each other face-to-face.
Other than that, the personal side of it, we've been able to effectively onboard new customers.
Yep. Okay. Just maybe on the Clinical Translation Network, in ballpark figures, do you have the percentage of those labs that are Visium users today? I'm curious, just thinking about the pricing scheme that's associated with that program, which I believe incorporates a little bit of discounting. Would that discounting be expected to be at a level that could be at all meaningful to gross margins?
First off, the vast majority of the CTRNs were new customers. These were new applications. They might have been customers, sort of early adopters, but generally were new customers. That was the pull and why we decided to run into that marketplace. I don't believe, because some of the testing we do is for a limited number of samples, so I don't believe that this would have a material impact on the gross margin of the company.
I would just add to that, just overall, the Visium product does have a lower gross margin than some of the other products. As that does increase materially as a % of overall revenue, there is going to be some impact from that, but there's positive impacts to margin over the same time period as well.
Yeah. Okay. Justin, since you chimed in there, maybe I'll just finish with one for you there. Can I just sort of extend on the thought that you had to Patrick's question by asking if there's any reason why, just given if you're tracking to flattish in 3Q, that you can't be up year-over-year in 4Q?
Yeah, I'd say as far as Q3 goes, like I said to Patrick, it does look like we're shaping up to be, at least from the few weeks that we can see from this quarter, that we're on pace to be pretty similar to Q3 of last year. If the positive trend continues and more customers not only open up, but open up to fuller capacity overall and also open up to outside visits, that would obviously be a positive driver of revenue overall. There's also the risk that things could turn the other way, which we haven't seen to date, but there is that risk and things could turn down as well. It all hinges upon the openings and how they're going to progress between now and the end of the year.
Yep, certainly understand that. Okay, thanks a bunch.
Your last question comes from the line of David Westenberg of Guggenheim Securities. Your line is now open.
Hi. Thanks for taking my question. Sorry if I ask a repeat, I'm in a storm and my phone dropped several times during the call. My first question is on NIH dollars. They don't tend to go away. Right now, we're looking at mid $40 billion-ish with budget this year, probably increasing at historic kind of numbers here. Can you guys give us a flavor in terms of your customers accessing those funds? I mean, maybe put it into three camps here. I mean, number one, do you think that there could be any kind of demand destruction, because of inability to access that fund?
Number two, maybe a parallel shift in that demand, so maybe equal part that you would get in 2020, you get to 2022, 2021, 2022, or do you think there might even be a catch-up in terms of those dollars as we see that increase in NIH and your customers access those funds?
Boy, that's a tough question. That's a lot of questions. What was the first one?
No, basically, I'm asking on your customers accessing NIH dollars and how they're going to be able to access that NIH dollars, and whether or not we're going to see either, A, any kind of demand destruction, B, just a pure shift in demand, parallel shift in demand, or C, whether we'd see those dollars in a kind of a pent-up demand fashion as we look at 2021. Basically, what I'm asking is, there's definitely excitement in the research market post-COVID. If we're looking at 10x prior to COVID versus 10x now, in 2022, I could almost even see a kind of a scenario where you would see there's more NIH dollars. You have an NIH backdrop. There's excitement in genomics, and it's really obvious that your customers need to know what's going on with the immune system post-COVID.
Yeah. The demand destruction, and that's a new term I know I've heard other companies use this. I mean, obviously, we can't make up for lost time. There'll be some ability to continue to make up for experiments as samples are weighted. You got challenges at key institutions because the core facilities are busy. Again, pent-up demand, some of it COVID related. The other thing to note is when we think of the NIH, remember, obviously, as you know, you've studied it a lot, there's really two parts to it. There's the extramural and the intramural. The intramural budgets are still subject to the current fiscal year, and those monies still have to be spent. We had some question early, I guess, on the last call, of wondering whether the NIH would relax or change that. They decided not to do that.
We are seeing that gear up for the end of the quarter. Well, mine's the end of Q3, of course. As far as going forward, I see a lot of parallel and opportunities to enhance our business. As I pointed out earlier, research that is going to get done because of COVID and the wealth of information. Again, the last part I guess, C there was, would there be a massive catch-up? I don't see that happening because a lot of that's just related to the biology and samples. I don't see that as a meaningful source of growth.
Yeah. Thank you very much. Just a second one on Visium. I talked to a service provider who said they would recommend 85% of their single-cell work also have a compo-
He dropped his phone. The storm hit by lightning. Well.
I don't know.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.