Earnings Call: Q4 2019

Feb 18, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics 4th 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Carrie Mendivil Investor Relations. Please go ahead. Thank you. Earlier today, 10x Genomics released financial results for the quarter year ended December 31, 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 e mail to investors10xgenomics.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, and 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 Saksinov, the company's Co Founder and Chief Executive Officer. Serge? Thanks, Terry, and thank you, everyone, for joining us this afternoon. I'm pleased to welcome you to 10x Genomics' earnings call to review our Q4 year end 2019 results. Joining me today is Justin McAnear, our Chief Financial Officer Brad Krachfeld, our Chief Commercial Officer will join us for Q and A. On today's call, I will provide an update on our commercial execution, talk about our investment to drive future growth, and we'll walk through some of the new capabilities in our pipeline. Then 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 and we ended the year with 245 $900,000 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' lives. 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. And even more exciting than the number of publications has been the breadth of areas where we have seen our customers do their work and a 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. And 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 use 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 center 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. Now turning to commercial execution. Our products are organized around 2 core platforms, Chromium and Vizium. 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 Vizium platform enables spatial analysis. With Vizium, our customers are able to see where it is all happening, how cells and molecules are arranged with respect to each other in tissues. We began taking pre orders for ViZium in September and started shipment at the end of November. And remember that unlike Chromium, ViZium 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, Vizium was already being used by more than 200 labs. While we're excited by this early interest, the trajectory of Vizium adoption will be a function of how our customers use these products and of their demonstrated success. So far with Vizium, we have seen interest across many different research areas. While our initial focus has been on discovery, Vizium 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 Vizium 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. Now looking at our Chromium platform, the transition to next gen 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 JEM products and expect the transition to be complete by the end of the year. Across our 2 core platforms, Chromium and Visium, our customers averaged a pull through of over $150,000 of annual consumable revenue in 2019. And as of year end, we have sold a cumulative 1666 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 and 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 up innovations, including foundational patents in single cell analysis, epigenomics, spatial analysis and multiomics. 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 the 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 commission sales executives. We sold 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. And 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. And now I will preview some of the capabilities we are 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. But the next challenge is directly linking the epigenetic programming to its output, which is gene expression. And 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 1,000 to tens of 1,000 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 tenants 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 just starting to be intrigued by this technology. And to that end, we will be launching 2 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 transcription of each cell, our customers will not 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 translation of 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. And finally, the 3rd area of focus for Chromium is to further increase throughput of single cell experiments. The launch of this platform in 20 16 allows 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 cell experiments and beyond. In fact, many labs are now actually running 100,000 cell experiments routinely. But 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 1,000,000 cell experiments. And over the next 2 years, we will be launching multiple features, capabilities and products to enable this type of scale. And in fact, we see the future going well beyond 1,000,000 cells. We expect to develop our technology to the point where we can enable 10,000,000 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 genome and pathway analyses, large scale cohort and population scale studies. Turning now to ViZium. With the launch of ViZium, we brought high throughput molecular analysis of tissue slices 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. But even more importantly, will serve as a bridge from the traditional world of pathology to the new world of rich, high through with molecular analysis that we're delivering with Visium. IHC is great for measuring 1 protein marker, maybe 2, but it can't really scale much further. To address these fundamental limitations, 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 oligoTAC antibodies. This technology can be pushed to the point where customers could be measuring 100, potentially even thousands of proteins at the same time together with gene expression on the same sample. We believe this capability will be transformative to the kind of information our customers can extract from biological samples and tissues. And finally, our early focus with ViZium 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. Now FFP is fine for visualizing tissues, but it is absolutely awful for the kinds of things it does to molecules in a sample. Our current BiCM product was not initially designed to be compatible with FFPE. However, given the incredible amount of interest, we have now internally developed the capability of 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 $350,000,000 to $360,000,000 I'm confident that we are 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. And 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 3 months ended December 31, 2019 was $75,300,000 compared to $50,600,000 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 $64,700,000 which increased 69% over the prior year period. Instrument revenue was $9,400,000 which decreased 18% over the prior year period. Service revenue was $1,100,000 which increased 51% over the prior year period. The decrease in instrument revenue was driven primarily by the North America revenue for the Q4 was $42,500,000 representing 51% growth over the prior year period. EMEA revenue for the Q4 was $21,400,000 representing 54% growth over the prior year period. APAC revenue for the Q4 was $11,500,000 representing 35% growth over the prior year period. Gross profit for the Q4 of 2019 was $58,700,000 compared to a gross profit of $35,700,000 for the prior year period. Gross margin for the 4th quarter was 78% compared to 71% for the Q4 of 2018. The gross margin increase was driven primarily by lower accrued royalties related to ongoing litigation. Total operating expenses for the Q4 of 2019 were $66,800,000 a decrease of 40% from $110,600,000 for the Q4 of 2018. The Q4 of 2018 included $40,100,000 of in process R and D as well as an incremental $30,400,000 in accrued contingent liabilities related to ongoing litigation. R and D expenses for the Q4 of 2019 were $27,900,000 compared to $13,100,000 for the Q4 of 2018, excluding in process R and D expenses related to acquisitions. The increase was primarily attributable to higher personnel, lab materials and infrastructure costs. SG and A expenses for the Q4 were $38,800,000 compared to $26,900,000 for the Q4 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 Q4 was $8,100,000 compared to a loss of $75,000,000 for the Q4 of 2018. This includes $5,100,000 of stock based compensation for the Q4 of 2019 compared to $1,100,000 for the Q4 of 2018. Net loss for the period was $7,100,000 compared to a net loss of $75,500,000 for the Q4 of 2018. Turning to our full year results. Total revenue for the full year December 31, 2019 was $245,900,000 compared to 1 $146,300,000 for 2018, representing a 68% increase. Consumables revenue was $206,900,000 an increase of 92% over the prior year. Instrument revenue was $34,900,000 a decrease of 4% over the prior year. Service revenue was $4,100,000 an increase of 89% over the prior year. As of year end, we have sold a cumulative total of 16.66 Chromium instruments, up 6.45 instruments from 10 21 instruments at the end of 2018. The decrease in instrument revenue was again driven by the consolidation of our instrument product line into 1 full featured lower priced instrument in early 2019. Our average annual instrument pull through was $158,000 for 20.19, 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 $139,800,000 representing 64% growth over the prior year. EMEA revenue for the full year was $58,000,000 representing 62% growth over the prior year. APAC revenue for the full year was $48,100,000 representing 89% growth over the prior year. Gross profit for 2019 was $184,900,000 compared to a gross profit of $117,700,000 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 Q4 of 2018. Total operating expenses for 2019 were $215,400,000 a decrease of 6% from $228,400,000 for 2018. Operating expenses for 2018 included $62,400,000 of in process R and D as well as an incremental $29,100,000 for accrued contingent liabilities. R and D expenses for 2019 were $83,100,000 compared to $47,500,000 for 2018, excluding in process R and D expenses related to acquisitions. The increase was primarily attributable to higher investments in personnel, lab materials and infrastructure. SG and A expenses for 2019 were $130,800,000 compared to $87,900,000 for the prior year. The increase was primarily due to personnel cost with increased hiring across all SG and A functions along with increased facilities costs due to the transition to our new global headquarters. Operating loss for 2019 was $30,600,000 compared to a loss of $110,800,000 for 2018. This includes $13,300,000 of stock based compensation for full year 2019 as compared to $2,700,000 for full year 2018. Net loss for 2019 was 31,300,000 compared to a net loss of $112,500,000 for 2018. We ended 2019 with $424,200,000 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 $350,000,000 to $360,000,000 representing growth of 42% to 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 twenty twenty 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 and D headcount 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 NextGen and taking the company public in the Q3, all while successfully launching our 2nd platform technology with Vizium 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 center 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 yours. With that, we will now open it up to questions. Operator? Thank you. Our first question comes from Tycho Peterson with JPMorgan. 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? And just wondering if you can parse out the assumptions underpinning your 2020 guidance across instruments, consumables and services segment sales? And in particular, are you anticipating continued double digit declines in instrument sales for the full year as a result of these dynamics? So this 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 100 and 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. Yes. So yes, that's helpful. And then I was just wondering around 15% of your business comes from Asia. So 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? So we'll take the coronavirus question first. So 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 turning to 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. And then 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 preorders and what proportion are from biopharma customers? And 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're really not going to disclose that, but we have seen good demand. The list price for the instrument is $260,000 that's 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 on for Derik. Thanks for taking the question. First off, congrats on the quarter, but I want to follow-up on some of the moving pieces you talked about in both in 4Q and the forward looking guide. Not sure if you're going to be able to disclose this, but at least directionally, maybe you could talk to the magnitude of the VIZIYAUM contribution in 4Q? And then also, when we think about how that should scale over the course of 2020, I mean, 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. So just wondering how that number is going to ramp, and how the contribution could grow over the next year? Yes. So hey, Mike, this is Justin. I'll take that. So as far as VIZIYAM 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 VIZIYAUM would go primarily to existing customers. As far as how we can think about the contributions of VIZIOM in the future, it's pretty early in the lifecycle now, very early in fact. While initial orders have exceeded our internal expectations, we're starting to see reorders come through now. But 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 1st 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? And then I got one last one follow-up after that. Yes. So we with the transition to next gen, just talking about products broadly, overall, the amount of SKUs that we've had to manage internally is basically doubled when we released that product line. So 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 risk to either our supply chain or our manufacturing capacity. In fact, because of the seasonality of our business, we really plan to build out in 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? Or and also if you could provide any even directional comments on expectation of timing, is this next 6 months, 12 months, 3 to 5 years, just to sort of gauge? And then, yes, sort of when do you think they'll start showing up in the numbers? So, I'll start. The products are contemplated fully within the guidance that Justin gave. In terms of more detail around timing, these are not like far out capabilities. The specifics of this timing will be sharing next week at AGPT. 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. There 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, continue 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 it's going to be there's multiple dynamics embedded in our market adoption. We are going to be pushing forward on placing more instruments. They're certainly a core part of our strategy. At the same time, we will also work in increasing usage and pull through. A lot of our 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 regions the most and they keep ramping. And the next kind of high usage cohort is the next set of customers to the quota up with the system. And so it kind of there's multiple dynamics going on under the Savaris pull through and we're going to be pressing all the levers going forward. Okay. I appreciate the color. You announced that Vizium had stronger than expected uptake in the translational setting in your upcoming targeted sequencing application, FFP compatibility, which is expected in the near term could have roles in the translational workflows as well. So maybe a question for Brad. 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. But 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 these sort of translational networks. And we're in the process of enabling those. And 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. And just one last one for me. The strong gross margins in the quarter were attributed to some progress with the Next Gen conversions. Maybe I missed it, but are you still targeting the year end of 2020 for all customers to be converted? Or is it possible this could occur sooner? Yes. So 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 NextGen at the end of Q2 of 2019, beginning of Q3. And so really, we look at it as a 6 quarter transition with basically a linear progression of adoption of NextGen over that 6 quarters. Great. Thank you. Thank you. Our next question comes from Luke Securic with Evercore. Hey, guys. How are you doing? Just wanted to follow-up on that last question on the translation. We all on VIZIYAUM, we expected the Discovery side to be the near term opportunity. It's turning out that it's kind of the translational is coming sooner. Just are you seeing any competitive win rates versus the GeoMx? And then was it more of a pool 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 actually we know what we have customers that are using both. So we don't look at that as strictly a competitive situation. And to your second question, we were absolutely being pulled into by people that are looking at clinical studies and validation studies. So this was this is something that again the majority of our customers initially were people that had used our single cell products. But again, as we pointed out, we were somewhat surprised that so quickly we'd be asked to support these other kinds of applications. Okay. And are you seeing differences in pull through between the translational and discovery customers? It's way too early at this point. It's too early. Okay. That's fair. The commentary Serge on the expanding outside the 10,000 cell experiments going up to $1,000,000 $10,000,000 it's kind of like when the genome analyzer and the HiSeq and the X10. How should we think about that in terms of pull through? I mean, I'm sure it's not linear compared to the exponential ramp of cells 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. And there's multiple moving pieces under it terms of applications and capabilities. We are, 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. And 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. 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 and D priorities are? How focused you guys are on a few different big projects versus spreading it out over a bunch of different opportunities? Well, so we being focused is one of our core principles here. Having said that, yes, as I mentioned, we do have a diversity of opportunities. We're investing both on the Chromium side and on the Vision side and both on the near term and the long term. So it's a balance. I wouldn't say there's any particular thing that we are investing well above everything else. It's a balance and we drive to stay focused while at the same time making sure that we have a good span of opportunities. Okay. And 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 NextGen 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 kind of the ramp throughout the year in 2020? Sure. The biggest driver of gross margin is going to be the transition over to NextGen. We talked about that progressing over the 6 quarters on a linear progression. I would expect that the transition in NextGen would probably be a little bit slower in Q1, but then would accelerate more in Q2 and Q3 to finish out the year. So 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 and also our spend on the ERP project that we expect to go live here in the latter part of this year. And then 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 due to the cost and selling price. And then also Visium has a slightly lower gross margin than our current product lineup. Okay. That's helpful. And then maybe one just on VIZIOM. Definitely encouraging to hear kind of that 200 lab number. I didn't hear you is it still tracking around kind of 20% of customers are new to 10x? And if so, what's the feedback been kind of what's drawing these customers in? Are the early customers kind of similar to those early adopters you saw single cell as well? This is Brad. I'll take that. Yes, initially we do have that roughly 20% of customers are new to 10x. But even within the core customers, what we've really been excited about is their ability to work with tissue. I mean these customers traditionally don't come from tissue as a starting material and we put a lot of effort in training, 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. So what's happened is that because we have a one day workflow, so we're ready for a sequencer at the end of the 1st day. And so we're seeing more and more customers reorder, which certainly reflected in the fact that they're seeing success. That's helpful. Thanks guys. Thank you. And 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 and A going forward with some of the new products you highlighted 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 have otherwise? Sort of 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 factored all of the products into our sort of growth plans in terms of the operating expenses growing up the sales organization. I mean, clearly, as we get further down the road, we might very well start looking at a more specialized targeted course as we move more towards the pathologists. But right now in terms of 2020, I think we're well covered and are not planning anything incremental at this stage. And this is Justin. Just to add to that, you asked about some of the OpEx trends. Just due to our ongoing litigation, there is some there are some legal expenses that will hit in different parts throughout the year. So for example, we just won a case with the ITC and there's a success fee that's associated with that. And you could see payments like that spread out throughout the year. Okay. That's helpful. And as actually Justin, that's the perfect bridge. One last 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 DD Seq products, anything you could say across the board there sort of just to make sure we're not missing anything? So this is Serge. So I'll take that. I mean, so 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 NextGen does not infringe. Those patents also had an additional exclusion for 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 founded Bio Rad single cell products infringed on 3 of our patents. And so the ITC is an exclusion order on Bio Rad. And so I mean, we see that things kind of are unfolding as roughly as we expected. As I mentioned earlier, we are pioneer single cell genomics and we're pleased that the court recognized our core patents were valid and we're infringed. And as I said, we have 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 Saxonoff for any closing remarks. Well, thank you. Closing remarks. Well, thank you everyone and have a good evening. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.