Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics fourth quarter earnings conference. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker, Carrie Mendivil , with investor relations. Please go ahead.
Thank you. Earlier today, 10x Genomics released financial results for the quarter and year ended December 31st, 2019. If you have not received this news release, or if you'd 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 the next 45 days following this call. Before I 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 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 or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I'd like to turn the call over to Serge Saxonov, the company's Co-founder and Chief Executive Officer. Serge?
Thanks, Carrie, thank you everyone for joining us this afternoon. I'm pleased to welcome you to 10x Genomics earnings call to review our fourth quarter and year-end 2019 results. Joining me today is Justin McAnear, our Chief Financial Officer. Brad Crutchfield, our Chief Commercial Officer, will join us for Q&A. On today's call, I will provide an update on our commercial execution, talk about our investments to drive future growth, we'll walk through some of the new capabilities in our pipeline. I will turn the call over to Justin for a more detailed look at our financials and outlook for 2020. 2019 was a big year for 10x. Our revenues continued to grow, we ended the year with $245.9 million in total revenue, up 68% over 2018.
During the year, we also continued to see a large and rapidly growing body of scientific publications coming out of our customers' labs. The number of publications more than doubled during 2019, and there are now over 700 papers where our customers have made fundamental scientific discoveries using our products. Even more exciting than the number of publications has been the breadth of areas where we have seen our customers do their work and the tremendous number of applications where our products are being used. During the year, we have seen major discoveries in Alzheimer's, important studies of autoimmune diseases, fundamental breakthroughs in many types of cancers, fascinating work on age-related diseases. While there are many great studies to choose from, I wanted to highlight a paper from last quarter that demonstrated a strikingly powerful approach to antibody discovery.
Researchers out of Vanderbilt University used our immune profiling solution to screen vast numbers of B cells from HIV-infected patients to quickly find HIV and influenza-specific antibodies while gaining an exquisite understanding of their specificities. We expect that this approach will become an integral tool for antibody discovery and for vaccine development across a wide range of therapeutic areas. This kind of work by our customers demonstrates why we believe this is the century of biology. It shows how new technologies, new tools, and new understanding will lead to cures. These studies give profound meaning to the work we do at 10x and is a huge motivator for the team. Turning to commercial execution. Our products are organized around two core platforms, Chromium and Visium. The Chromium platform enables single-cell analysis.
With Chromium, our customers are able to see what is happening in their samples at the right level of resolution, the single-cell resolution. The Visium platform enables spatial analysis. With Visium, our customers are able to see where it is all happening, how cells and molecules arrange with respect to each other in tissues. We began taking pre-orders for Visium in September and started shipments at the end of November. Remember that unlike Chromium, Visium does not require an instrument, which we believe will accelerate adoption of this platform. We're very excited about this product and its potential. Even though it is early days, the interest we're seeing from new customers has exceeded our initial expectations. In fact, as of the year-end, Visium was already being used by more than 200 labs.
While we're excited by this early interest, the trajectory of Visium adoption will be a function of how our customers use these products and of their demonstrated success. So far with Visium, we have seen interest across many different research areas. While our initial focus has been on discovery, Visium in particular has seen more interest among translational applications, most notably in oncology and in Alzheimer's. Our customers are using Visium to study disease in patient samples, look for biomarkers, and predict responses to therapy. The first product launched on the Visium platform at the end of last year was for measuring gene expression, but this is just the first product. We have many more in the works to enable new applications to measure additional biological analytes and to make improvements to the underlying platform. Looking at our Chromium platform, the transition to Next GEM architecture continues to progress well.
At this point, all Chromium instruments that we sell operate exclusively with our Next-Gen solutions. We have been careful not to disrupt existing studies of our customers using our legacy Gen products and expect the transition to be complete by the end of the year. Across our two core platforms, Chromium and Visium, our customers averaged a pull-through of over $150,000 of annual consumable revenue in 2019. As of year-end, we have sold a cumulative 1,666 Chromium instruments around the world. Going forward, we will invest in efforts both to increase the usage of our products by our existing customers and to increase the number of new customers. We see a tremendous wealth of opportunities ahead, and we are focused on scaling our business for the future.
One of the core pillars of our competitive advantage is our innovation engine, which comprises both knowing what breakthrough products to build and the ability to build them at rapid velocity. We have identified many exciting opportunities in the near and long term that have potential for exponential impact. To take advantage of these opportunities, we're executing on a rich product roadmap and are increasing our investment in R&D. Our team is working on a number of programs, some of which I will discuss today, and all of which can add substantially to our long-term growth. As the pioneer of single-cell genomics, we now have over 700 patents issued or pending relating to our key innovations, including foundational patents in single-cell analysis, epigenomics, spatial analysis, and multi-omics. We continue to invest heavily in developing and defending this patent portfolio, which provides significant differentiation and protection.
We're also investing in our operational infrastructure to support our rapid growth. We're actively building out a new Singapore manufacturing site to support our global expansion and to ensure the continuity of our operations. We're also transitioning to a global ERP system after this year. Our commercial organization ended 2019 with over 200 employees and over 75 commissioned sales executives. We're still direct in North America and Europe and employ a hybrid approach in Asia Pacific with local distribution partners working together with 10x employees to develop individual markets. Our commercial infrastructure complements our innovation engine to drive rapid global adoption of our products. Through close partnership with our customers, we have direct insight into their needs and their future questions. This information feeds directly into our product development pipeline.
It allows us to both rapidly iterate our products to deliver an ever-improving customer experience and to identify new opportunities for future products. Now I will preview some of the capabilities we're working on, starting with our Chromium platform. The single biggest request we have received from our customers is to be able to measure gene expression and epigenetics together from the same cell. With our existing capabilities, our customers have been able to read epigenetic programming across large numbers of cells. The next challenge is directly linking the epigenetic programming to its output, which is gene expression. That is precisely the capability we're going to launch with our next product. For the very first time, our customers will be able to read both epigenetic programming using ATAC-seq and RNA gene expression across thousands to tens of thousands of cells in a single experiment.
Our customers have been intensely interested in this capability because it will allow them to start unlocking the rules of cellular programming, and with it, one of the most fundamental challenges to addressing human health and disease. The second focus of innovation for Chromium is to further broaden the reach of the platform. Since ushering in the single-cell revolution, one of our core tenets is to make our products accessible to all biologists. While single-cell research has been transforming the way that science is done across thousands of labs around the world, our next goal is to enable this approach for tens of thousands of new researchers who are just starting to be intrigued by this technology. To that end, we will be launching two new capabilities to make single-cell experiments less expensive and more flexible. First, we will enable targeted sequencing.
This means that instead of sequencing the full transcriptome of each cell, our customers will now be able to sequence just a subset of genes. This will dramatically reduce the cost of sequencing and significantly decrease the cost of overall single-cell experiments. It will also allow experiments to be more focused on specific questions, opening up more validation and translational use cases. We're also launching a proprietary solution that will allow our customers to combine samples together into a single 10x lane. This will increase the number of available samples for single-cell analysis and allow experiments to be scaled beyond what is currently practical. Finally, the third area of focus for Chromium is to further increase throughput of single-cell experiments. The launch of this platform in 2016 allowed, for the first time, labs to run 1,000-cell experiments routinely.
Since that point, we have helped our customers scale to 10,000-cell experiments and beyond. In fact, many labs are now actually running 100,000-cell experiments routinely. Biology is very complex, and the way to address this complexity is through scale. We have now heard from our customers an interest in running million-cell experiments, and over the next two years, we will be launching multiple features, capabilities, and products to enable this type of scale. In fact, we see the future going well beyond one million cells. We expect to develop our technology to the point where we can enable 10 million-cell experiments. This will transform many of the applications where single-cell analysis is currently used. This massive scale at single-cell resolution will also enable experiments across new research areas like enormous drug screens, massively parallel gene and pathway analyses, large-scale cohort and population scale studies. Turning now to Visium.
With the launch of Visium, we brought high throughput molecular analysis to tissue slices and pathology workflows. The standard way that pathologists analyze their tissues is using IHC, or immunohistochemistry, which uses fluorescence to measure protein markers. We're now planning to launch a new capability that will allow our customers to do both, the IHC and Visium gene expression from the same tissue, from the same sample, at the same time. This will significantly increase the amount of information that our customers can get from their samples. Even more importantly, will serve as a bridge from the traditional world of pathology to the new world of rich, high throughput molecular analysis that we're delivering with Visium. IHC is great for measuring one protein marker, maybe two, but it can't really scale much further. To address this fundamental limitation, we're bringing our Feature Barcoding technology to Visium.
With Feature Barcoding, customers will be able to measure very high plex levels of protein targets using oligo-tagged antibodies. This technology can be pushed to the point where customers could be measuring hundreds, potentially even thousands of proteins at the same time, together with gene expression on the same sample. Finally, our early focus with Visium has been grounded squarely in foundational discovery and research. That said, we have already received a great deal of interest from translational and clinical researchers. For these customers, the most important type of sample is formalin-fixed, paraffin-embedded, or FFPE, which is the standard way that patient samples are collected and stored in human pathology.
FFPE is fine for visualizing tissues, but it is absolutely awful for the kinds of things it does to molecules in a sample. Our current Visium product was not initially designed to be compatible with FFPE. Given the incredible amount of interest, we have now internally developed the capability for the platform to work with FFPE, and we will be releasing this as a product in the future. We're very excited for what is ahead and look forward to providing more details on each of these new capabilities next week at the AGBT conference. This has been a very eventful year at 10x Genomics. I'm very proud of the progress our team has made to date. Looking ahead to 2020, we expect revenue for the full year to be in the range of $350 million-$360 million.
I'm confident that we're well positioned to continue to execute on our strategy in 2020 and well into the coming decade as we usher in the century of biology. With that, I will now turn the call over to Justin McAnear for more details on our financials.
Thank you, Serge. Total revenue for the three months ended December 31st, 2019, was $75.3 million, compared to $50.6 million for the prior year period, representing a 49% increase. Similar to prior years, our revenue in 2019 was more heavily weighted to the back half of the year, particularly Q4, due to the budgetary cycles of our customer base. Consumables revenue was $64.7 million, which increased 69% over the prior year period. Instrument revenue was $9.4 million, which decreased 18% over the prior year period. Service revenue was $1.1 million, which increased 51% over the prior year period. The decrease in instrument revenue was driven primarily by the consolidation of our instrument product line into one full-featured, lower-priced instrument in early 2019. North America revenue for the fourth quarter was $42.5 million, representing 51% growth over the prior year period.
EMEA revenue for the fourth quarter was $21.4 million, representing 54% growth over the prior year period. APAC revenue for the fourth quarter was $11.5 million, representing 35% growth over the prior year period. Gross profit for the fourth quarter of 2019 was $58.7 million, compared to a gross profit of $35.7 million for the prior year period. Gross margin for the fourth quarter was 78%, compared to 71% for the fourth quarter of 2018. The gross margin increase was driven primarily by lower accrued royalties related to ongoing litigation. Total operating expenses for the fourth quarter of 2019 were $66.8 million, a decrease of 40% from $110.6 million for the fourth quarter of 2018. The fourth quarter of 2018 included $40.1 million of in-process R&D, as well as an incremental $30.4 million in accrued contingent liabilities related to ongoing litigation.
R&D expenses for the fourth quarter of 2019 were $27.9 million, compared to $13.1 million for the fourth quarter of 2018, excluding in-process R&D expenses related to acquisitions. The increase was primarily attributable to higher personnel, lab materials, and infrastructure costs. SG&A expenses for the fourth quarter were $38.8 million, compared to $26.9 million for the fourth quarter of 2018. The increase was primarily due to personnel costs, facilities driven by construction of our new global headquarters, as well as higher professional services and insurance costs associated with our status as a publicly traded company. Operating loss for the fourth quarter was $8.1 million, compared to a loss of $75 million for the fourth quarter of 2018. This includes $5.1 million of stock-based compensation for the fourth quarter of 2019, compared to $1.1 million for the fourth quarter of 2018.
Net loss for the period was $7.1 million, compared to a net loss of $75.5 million for the fourth quarter of 2018. Turning to our full year results. Total revenue for the full year ended December 31st, 2019, was $245.9 million, compared to $146.3 million for 2018, representing a 68% increase. Consumables revenue was $206.9 million, an increase of 92% over the prior year. Instrument revenue was $34.9 million, a decrease of 4% over the prior year. Service revenue was $4.1 million, an increase of 89% over the prior year. As of year-end, we have sold a cumulative total of 1,666 Chromium instruments, up 645 instruments from 1,021 instruments at the end of 2018. The decrease in instrument revenue was, again, driven by the consolidation of our instrument product line into one full-featured, lower-priced instrument in early 2019.
Our average annual instrument pull-through was $158,000 for 2019, up from $148,000 for 2018. Average annual instrument pull-through is calculated from the simple average of the quarterly pull-throughs and also includes Visium. North America revenue for the full year was $139.8 million, representing 64% growth over the prior year. EMEA revenue for the full year was $58 million, representing 62% growth over the prior year. APAC revenue for the full year was $48.1 million, representing 89% growth over the prior year. Gross profit for 2019 was $184.9 million, compared to a gross profit of $117.7 million for 2018. Gross margin for 2019 was 75%, compared to 80% for 2018. The decrease in gross margin was driven primarily by higher accrued royalties related to ongoing litigation, which impacted cost of revenue for full year 2019, whereas these accruals only impacted cost of revenue in the fourth quarter of 2018.
Total operating expenses for 2019 were $215.4 million, a decrease of 6% from $228.4 million for 2018. Operating expenses for 2018 included $62.4 million of in-process R&D, as well as an incremental $29.1 million for accrued contingent liabilities. R&D expenses for 2019 were $83.1 million, compared to $47.5 million for 2018, excluding in-process R&D expenses related to acquisitions. The increase was primarily attributable to higher investments in personnel, lab materials, and infrastructure. SG&A expenses for 2019 were $130.8 million, compared to $87.9 million for the prior year. The increase was primarily due to personnel costs, with increased hiring across all SG&A functions, along with increased facilities costs due to the transition to our new global headquarters. Operating loss for 2019 was $30.6 million, compared to a loss of $110.8 million for 2018.
This includes $13.3 million of stock-based compensation for full year 2019, as compared to $2.7 million for full year 2018. Net loss for 2019 was $31.3 million, compared to a net loss of $112.5 million for 2018. We ended 2019 with $424.2 million in cash and cash equivalents. Turning to our outlook for 2020. As Serge mentioned, we expect full year revenue for 2020 to be in the range of $350 million-$360 million, representing growth of 42%-46% over full year 2019. This outlook is based upon the latest market conditions and our best views of timing of upcoming new product launches. As in prior years, we expect revenue to be heavily weighted toward the back half of 2020, with modest sequential increases in the first half of the year.
We are excited about the size and growth of opportunities in front of us in the near term, throughout the next decade, and beyond. This conviction has led us to increase our investments at this stage. We have a robust product pipeline with a multitude of new products at various stages of development. We are increasing R&D head count and expanding our laboratory and manufacturing facilities. We continue to expand our commercial organization, increasing coverage in direct markets to build stronger relationships with existing customers while onboarding new customers. This is in addition to developing the channels to support our global expansion. We are deliberately accelerating our investments and are focusing on our top-line revenue growth. These near-term investments will help drive continued revenue growth and will deliver what we expect to be best-in-class operating margins over the long term.
At this point, I would like to turn the call back to Serge for closing comments.
Thanks, Justin. I'm very proud of our team for such an incredible year. During 2019, we successfully navigated a number of major transitions, including rebuilding completely new product architecture with Next GEM and taking the company public in the third quarter, all while successfully launching our second platform technology with Visium and delivering exceptional revenue growth. With these transitions largely behind us, we look forward to continuing our rapid pace of innovation in 2020, which is truly what is at the core of our vision at 10x. The capabilities I outlined earlier are just a glimpse of what is ahead. This is the century of biology. Our goal is to build technologies to measure every aspect of biology and make these technologies available to everyone, whether for academic research, for development of new medicines, or for treating patients.
Our vision is that in the end, given any biological sample, you should be able to measure every analyte of relevance at the right resolution with all the necessary context, because that is how we will achieve understanding. That's how we will arrive at cures. With that, we will now open it up to questions. Operator?
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Tycho Peterson with JP Morgan. Please go ahead.
Hi, this is Eleni on for Tycho. Thanks for taking our questions. In terms of this quarter, the beat relative to our model primarily came from services revenues, while instrument sales came in a bit shy. Just wondering whether we should be modeling the business a bit differently going forward in light of the Visium launch and higher throughput Chromium Connect rollout this year. Just wondering if you can parse out the assumptions underpinning your 2020 guidance across instruments, consumables, and services segment sales. In particular, are you anticipating continued double-digit declines in instrument sales for the full year as a result of these dynamics?
Hey, this is Justin. There was a lot there. I guess let's go back to the beginning and start with the beat compared to the consensus. The beat was primarily due to increased revenue coming from consumables. That was the largest contributor overall. As far as how you should model this going forward, as I mentioned, we've taken market conditions, our assessment of demand, timing of new products, and our own ability to deliver into account when developing the guidance model. We would expect the instrument placements to increase year-over-year, and we would expect similar consumable pull-through to how we've been guiding you and other analysts all along, which is around or just above $150,000 on an annual basis. Can you please repeat the other parts of your question?
How we should be thinking about the guidance framework.
I think I just answered that.
Yeah. That's helpful. I was just wondering, around 15% of your business comes from Asia, just wondering whether you're seeing any disruptions from the coronavirus outbreak and how we can dimension the risk for your business and, in particular, for 1Q. Also wondering if you're embedding any conservatism into your 2020 guide.
We'll take the coronavirus question first. We've been assessing the impact of that on both our expected sales and the supply chain. We're going to continue to monitor the situation, but we do see some potential impact for Q1, with up to about 5% of our expected revenue at risk. We've accounted for this within the range of our annual guidance estimate. In terms of the supply chain, we're not yet aware of any impact to the supply chain, but some impact could be possible if the virus were to spread and impact our operations in Singapore.
Okay, that's helpful color. Lastly, on Chromium Connect, I was wondering whether you have started to roll out to early sites, and if so, what the feedback has been so far. Can you also give us an early read of the funnel of pre-orders and what proportion are from biopharma customers? Lastly, wondering whether capital expenditure has come up as a barrier to broader adoption during your discussions, or are clients comfortable with justifying the capital expenditure with higher levels of pull-through?
This is Brad. I'll take that question. We plan to begin delivering Chromium Connect in the next few weeks. The early demand has been heavily skewed to pharma, but several large genome centers have also purchased or placed an order for the instrument. In terms of funnel, we are really not going to disclose that, but we have seen good demand. The list price for the instrument is $260,000. That is well within the capital constraints of virtually any customer that would be contemplating higher throughput single-cell experiments.
Okay. Thank you.
Thank you. Our next question comes from Derik de Bruin with Bank of America.
Hey, guys. This is Mike Ryskin getting on for Derik. Thanks for taking the question. First off, congrats on the quarter. I want to follow up on some of the moving pieces you talked about, both in 4Q and for the forward-looking guide. Not sure if you're going to be able to disclose this. At least directionally, maybe you could talk to the magnitude of the Visium contribution in 4Q. Then also when we think about how that should scale over the course of 2020. Is this to the point where by the end of 2020, it's going to be on its own sort of a meaningful number? I know when you talked about the 2019 numbers, like for example, the 158,000 pull-through, you mentioned that Visium is included in that.
Just wondering how that number's going to ramp, and how the contribution could grow over the next year?
Hey, Mike, this is Justin. I'll take that. As far as Visium being included in our pull-through, we made the decision to combine that metric because, basically from a business perspective, we expect that our sales of Visium would go primarily to existing customers. As far as how we can think about the contributions of Visium in the future, it's pretty early in the life cycle now, very early, in fact. While initial orders have exceeded our internal expectations, we're starting to see reorders come through now, it's going to be some time before we have a firm handle on how to model and project Visium. What it really depends upon is the success of our customers as reflected in their publications.
Okay. That's helpful. That actually knocks out one of my follow-up questions in terms of the type of orders. You also mentioned that you had really positive uptick in the first couple months. Could you talk a little bit about your manufacturing supply, making sure you have capacity for Visium and then also for Chromium going forward in the next couple of years? I got one last follow-up after that.
Yeah. With the transition to Next GEM, just talking about products broadly overall, the amount of SKUs that we've had to manage internally has basically doubled when we released that product line. It has been challenging for us to manage it, but the operations and manufacturing logistics teams have done a great job of managing that. As we mentioned before, we are going to continue to expand our manufacturing operations in Singapore now, later on domestically, and that's to add capacity and also for risk mitigation to provide a redundant source for mostly our entire product line. For the near term, at least from what we can see, we don't see any major risks to either our supply chain or our manufacturing capacity. In fact, because of the seasonality of our business, we really plan to build out at a much higher capacity than we need from quarter to quarter.
Okay. Thanks. One last one, if I could. Really appreciate the color you provided, Serge, on some of the new capabilities you're working on. I'm just curious for any of those, are they built into the guidance assumptions for 2020? Also, if you could provide any even directional comments on expectation of timing. Is this next six months, 12 months, three to five years? Just to sort of gauge, then, yeah, when do you think they'll start showing up in the numbers?
I'll start. The products are contemplated fully within the guidance that Justin gave. In terms of more detail around timing, these are not far out capabilities. The specifics of this timing we'll be sharing next week at AGBT.
Okay, great. Thanks. I'll get back in the queue.
Thank you. Our next question comes from Doug Schenkel with Cowen.
Hi there. This is Adam Wieschhaus on for Doug. Thanks for taking my questions. It was a strong placement quarter to end the year with also a strong close on the pull-through side of things. How should we think about the near-term balance of instrument placement growth with pull-through growth? In other words, continuing to decentralize your product within an institution, which would drive new placements, would also likely pressure instrument pull-through. Should we therefore expect that instrument placement growth will outpace pull-through growth at least for the next few years, considering there remains ample opportunity to penetrate deeper within many institutions?
Well, it's a really good question, and there's the multiple dynamics embedded in our market adoption. We are going to be pushing forward on placing more instruments. That's certainly a core part of our strategy. At the same time, we will also work on increasing usage and pull-through. Both in terms of just helping our customers ramp up and releasing new applications and new products. We know that kind of historically, when we look at the different cohorts, people who have had the instruments for longest use reagents the most, and they keep ramping. The next kind of high usage cohort is the next set of customers who adopt the base system. There's multiple dynamics going on under the average pull-through, and we're going to be pressing all the levers going forward.
Okay. Appreciate the color. You announced that Visium had stronger than expected uptake in the translational setting and your upcoming targeted sequencing application, FFPE compatibility, which is expected in the near term, could have roles in the translational workflows as well. Maybe a question for Brad. How do you view the near-term opportunity in the translational setting versus your core academic customers from a commercial standpoint?
That's a really good question, and it's, again, one that we thought would be further out. Again, with the new capabilities that have been announced and just in general, there's been such a pull in the marketplace, we're definitely seeing the sort of translational networks, and we're in the process of enabling those. We'll talk a little bit more about that next week at AGBT, because, again, this is somewhat of a new customer segment for us or a different call point, but we're preparing to sort of be proactive in that area as well.
Okay, thanks. Just one last one for me. The strong growth margins in the quarter were attributed to some progress with the Next GEM conversions. Maybe I missed it, are you still targeting the year-end of 2020 for all customers to be converted, or is it possible this could occur sooner?
Yeah. We're still targeting by year-end having all customers converted. In fact, we've let our customers know that that's what we're targeting. We started shipping Next GEM at the end of Q2 of 2019, beginning of Q3. Really, we look at it as a six-quarter transition with basically a linear progression of adoption of Next GEM over that six quarters.
Great. Thank you.
Thank you. Our next question comes from Luke Sergott with Evercore.
Hey, guys. How you doing? Just wanted to follow up on that last question on the translational. On Visium, we expected the discovery side to be the near-term opportunity, and it's turning out that the translational is coming sooner. Just are you seeing any competitive win rates versus Vizgen? Was it more of a decision to get into this market, was it more of a pull from the customer side, or was it just you guys saw this opportunity and decided to go for it?
Luke, this is Brad. I'll take that. We really haven't had any direct competitive situations, obviously, with genomics. We have customers that are using both, so we haven't looked at that as strictly a competitive situation. To your second question, we were absolutely being pulled in by people that are looking at clinical studies and validation studies. This is something that, again, the majority of our customers initially were people that had used our single-cell products. Again, as we pointed out, we were somewhat surprised that so quickly we'd be asked to support these other kinds of applications.
Okay. Are you seeing differences in pull-through between the translational and discovery customers?
It's way too early at this stage.
It's too early. Okay. That's fair. The commentary, Serge, on the expanding out outside the 10,000-cell experiments going up to one million, 10 million, it's kind of like when the Genome Analyzer and the HiSeq and the X Ten. How should we think about that in terms of pull-through? I'm sure it's not linear compared to the exponential ramp of cells enabled per experiment.
Well, I think, we will be talking about, again, the details of this roadmap and what it means for our customers next week, the AGBT. There's multiple moving pieces under it in terms of applications and capabilities. As I said earlier, we are looking to expand the market and the usage across all the different vectors. The cell scale is one of those, but there's others that we're also working on.
Okay. Lastly, the supply chain and the ERP changes, is there any additional incremental cost outside of the traditional model that we've discussed earlier?
This is Justin. I'll take that. Nothing outside of what we've talked about before.
Okay.
There are some costs we have with the IT implementation and the ramping of the Singapore plant, but nothing new past those two things.
Nothing new. Okay. All right. Thanks, guys.
Thank you. Our next question will come from Patrick Donnelly with Citi.
Thanks, guys. Maybe just one for Serge. Justin mentioned some increased spend this year, not surprising, given the breadth of opportunities you guys have. Can you just talk about where the R&D priorities are, how focused you guys are on a few different big projects versus kind of spreading it out over a bunch of different opportunities?
Well, being focused is one of our core principles here. Having said that, as I mentioned, we do have a diversity of opportunities. We're investing both on the Chromium side and on the Visium side, and both in the interim and the long term. It's a balance. I wouldn't say there's any particular thing that we're investing well above everything else. It's a balance, and we try to stay focused while at the same time making sure that we have a good span of opportunities.
Okay. Then Justin, maybe one for you just on the gross margins. Can you just help us on the cadence through the year? I know you have some puts and takes with Next GEM, obviously being a positive, things like the Singapore ramp, maybe a little bit of an offset on the build-out there. Can you just help us think about the ramp throughout the year in 2020?
Sure. The biggest driver of gross margin is going to be the transition over to Next GEM. We talked about that progressing over the six quarters on a linear progression. I would expect that the transition in Next GEM would probably be a little bit slower in Q1, but then would accelerate more in Q2 and Q3 to finish out the year. That's the biggest, basically positive factor for gross margin this year. There are some headwinds around Singapore manufacturing, that's going to impact gross margin in Q2, Q3 as we're ramping up the facilities there. Also our spend on the ERP project that we expect to go live here in the latter part of this year.
Also some of our new product introductions that have lower gross margins than existing products, for example, Chromium Connect, there is higher gross profit per instrument, but lower gross margin just due to the cost and selling price. Also Visium has a slightly lower gross margin than our current product lineup.
Okay. No, that's helpful. Maybe one just on Visium, definitely encouraging to hear kind of that 200 lab number. I didn't hear, is it still tracking around 20% of customers are new to 10x? If so, what's the feedback been? What's drawing these customers in? Are the early customers kind of similar to those early adopters you saw on single-cell as well?
This is Brad, I'll take that. Yeah, initially, we do have that roughly 20% of customers are new to 10x. Even within the core customers, what we've really been excited about is their ability to work with tissue. These customers traditionally don't come from tissue as a starting material, and we've put a lot of effort in training videos, we have a tissue optimization kit, and what's been amazing is how successful they've been. We actually encourage customers to send in their optimization slides or at least a picture, that will help them choose the best conditions, and it's just been remarkable. What's happened is that, because we have a one-day workflow, so we're ready for a sequencer, at the end of the first day. We're seeing more and more customers reorder, which certainly reflective of the fact that they're seeing success.
That's helpful. Thanks, guys.
Thank you. We do have a follow-up question from Derik de Bruin with Bank of America.
Hey, it's Mike again. Just wanted to squeeze a follow in, thanks. Following up on some of the operating expense comments you made, as we think about SG&A going forward with some of the new products you highlight and then some of the move into a little bit more of a translational setting and move into some of the pathology customers, do you anticipate having to expand sales force more than you would've otherwise? Is there any incremental spend as we go forward to support some of the new product launches, or how does that fit into the model?
This is Brad, I'll take that. We've factored all of the products into our sort of growth plans in terms of the operating expense and growing up the sales organization. Clearly, as we get further down the road, we might very well start looking at a more specialized targeted force as we move more towards the pathologist. Right now, in terms of 2020, I think we're well covered and are not planning anything incremental at this stage.
This is Justin. Just to add to that, you asked about some of the opex trends. Just due to our ongoing litigation, there are some legal expenses that will hit in different parts throughout the year. For example, we just won a case with the ITC, and there's a success fee that's associated with that. You could see payments like that spread out throughout the year.
Okay, that's helpful. Actually, Justin, that's the perfect bridge. One last thing I want to squeeze in was if you could provide some update on some of the ongoing litigation. There were some rulings in December. You had the news that hit just a couple of days ago, with the ITC about the ddSEQ products. Anything you could say across the board there, sort of just to make sure we're not missing anything?
This is Serge. I'll take that. The rulings that have come out over the last few months have been largely in line with what we have been communicating and what we have been expecting. The ITC ruling back in December in our defensive case explicitly once again confirmed that Next GEM does not infringe, those terms and also added an additional exclusion for our existing customers to keep using some of the applications. The ruling that just came out a few days ago was where the ITC commission, the International Trade Commission, found that Bio-Rad single-cell products infringe on three of our patents.
The ITC issued an exclusion order on Bio-Rad. We see that things kind of are unfolding as roughly as we expected. As I mentioned earlier, we are the pioneer in single-cell Vizgen, and we're pleased that the court recognized our core patents were valid and were infringed. As I said, at this point, we have over 700 patents issued or pending, and that is a big source of growing competitive advantage for us.
Great. Thanks. Looking forward to AGBT.
Thank you.
Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Serge Saxonov for any closing remarks.
Well, thank you, everyone, and have a good evening.
Goodbye. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.