10x Genomics, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the 10X Genomics third quarter 2020 earnings conference call. At this time, all participants' lines 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 then one on your telephone. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Eric Jaschke, Director of Investor Relations and Strategic Finance. Thank you. Please go ahead, sir.

Thank you. Earlier today, 10X Genomics released financial results for the third quarter ended September 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 at 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 invoke 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 to Next 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. Joining the call today are Serge Saxinov, our CEO and co-founder, and Justin McInerney, 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 third quarter 2020 results. On today's call, I will start with a review of our financial performance during the third quarter. Next, I will discuss some strategic and operational highlights, including updates on recent product launches and acquisitions. I will also discuss the opportunities that lie ahead and how we're planning and investing to capture those opportunities. I will then turn the call over to Justin for a more detailed look at our financials, including detail on the trends we're seeing within our customer base. Starting with our third quarter results, revenues grew to $71.8 million, up 17% year over year, and up 67% sequentially. The strong growth this quarter was driven primarily by an improved operating environment, as many labs around the world continue to reopen for general research. Demand for instruments remained high during the quarter, and we saw a rebound in utilization of consumables as more customers returned to the lab. The increase from the prior quarter was primarily due to the rebound in general research demand. Overall, in the face of a challenging operating environment, we have made incredible progress thus far in 2020. At the beginning of the year, we laid out our key priorities to drive near-term execution, scale the company and invest ambitiously for the future. While this year has turned out much differently than anyone expected, we continue to execute on our strategic goals and have laid the groundwork for an expanded set of long-term opportunities. In addition to strong commercial and operational execution, we achieved a number of important milestones this year, including multiple product launches, the completion of our follow-on offering, the announcement and closing of two acquisitions, and the opening of our manufacturing facilities in Singapore. Our vision is based on the premise that this is the century of biology, in which many of humanity's most pressing health challenges will be solved with precision diagnostics, targeted therapies, and cures to currently intractable diseases. In order to make this future a reality and take advantage of the resulting opportunities, we need to build tools that will accelerate our understanding and mastery of the underlying biological systems. Tools that can measure biology at scale and resolution that matches its massive complexity. Since the start of the single cell revolution a few years ago, it has become increasingly clear that cell heterogeneity intertwined with complex gene networks is a pervasive feature of all human tissues. The future of biological analysis, whether for research or clinical applications, lies with multiplex multi-omics measurements performed at large scale with single cell context. We have designed our product platforms to enable this future. Our Chromium and Visium platforms provide the means for measuring biology at high resolution and scale. We will also develop our future platform around in situ analysis based on a similar vision and to complement our existing platforms. These three approaches should become essential across a wide range of applications in the coming years and beyond. Now, starting with Chromium, the vision for the platform and the value it delivers is being increasingly validated in the market. Demand for our Chromium platform continues to expand rapidly. We are encouraged with the pace of utilization as existing customers have come back into the lab and are especially pleased by the impressive influx of new customers coming into the 10x single-cell ecosystem. It is easy to forget that our Chromium single-cell products have been on the market for only four years, and there are already nearly 2,000 scientific publications that have made use of our technology. The pace of these publications, as well as the breadth of studies they describe, speaks to the fundamental importance of single-cell approaches and underscores the vast potential of the Chromium platform. Last quarter, there have been many great studies that use 10X across a range of fields, including oncology, immunology, neuroscience, infectious diseases, as well as many others. Here, I would like to highlight one paper from researchers at Stanford University and the University of Pennsylvania who sought to understand the reasons for neurotoxicity that's a common side effect of B-cell targeting immunotherapies. Using chromium, the scientists discovered that the target gene for these therapies is also expressed in a small subset of cells in the brain. This finding has important scientific implications, and it demonstrates the crucial value of single-cell analysis for developing new medicines. We executed against our ambitious product roadmap throughout the year and introduced a number of breakthrough products on the Chromium platform thus far in 2020. We launched our targeted gene expression product and a new version of the CellRanger analysis software in the second quarter. In the third quarter, we launched our next generation immune profiling solution and our gene expression Placitaxix multi-ome solution. We have been very encouraged by the initial response to these products. We launched version two of the immune profiling solution in July to provide a number of performance improvements over the previous version. The immune profiling product allows large-scale sequencing of paired immune cell receptors together with multi-omic profiling of the immune cells. The new version detects more receptor pairs and delivers significantly higher gene detection sensitivity, yielding more insights with more efficiency. Since launch, the rate at which customers have been adapting the new immune profiling solution has been impressive and ahead of our expectations. Most customers have been switching to the new version without running head-to-head comparisons that are customary during similar upgrade cycles. This speaks to our reputation in the marketplace and the trust the customers now put in the 10X brand. Moving now to the multi-ome gene expression and ataxic solution. The ability to profile the epigenome and the transcriptome from the same cell across large numbers of cells has been the number one request from our customers over the past two years. The reason this capability has been of such intense interest to scientists is that it provides a path to decipher the rules of epigenetic programming, which has been the holy grail of epigenetic research. With Multium, for the first time ever, researchers now have access to a commercial solution that can answer these questions by measuring gene expression and epigenetic programming simultaneously from the same cell across thousands of cells in parallel. Since its launch in September, this product has drawn lots of interest from our current customers, but also from the epigenetic community more broadly. We're happy to say that it has exceeded our expectations to date. The development of the Multium product was an incredible achievement for the 10X team and is a great example of our competitive advantage. It relied on a number of breakthroughs across multiple disciplines, and was only made possible by the tight multidisciplinary collaboration and the depth of expertise we have assembled across the company. The development of Valtium resulted in a dozen patent applications. Our internal expertise, together with our customer insights, helped us gain early conviction to invest aggressively in this effort. And all of this has now resulted in a highly differentiated product that is having immediate and powerful resonance with the market. Overall, we remain very early in market penetration for chromium, and we're excited about the growing breadth of researchers who are interested in single-cell approaches. Our goal is to keep accelerating broad adoption of our products as we move past the early technologies to the tens of thousands of biologists spanning different fields of study and different types of expertise. We plan to invest broadly in this vision through market development and product innovation. And as single-cell approaches make their way to labs more broadly, solving analytical bottlenecks is becoming an essential part of the customer experience. With this in mind, we recently launched limited access to our 10x cloud analysis platform. This platform includes secure collaboration tools, scalable storage, and compute infrastructure, and provides our customers with the best possible speed and ease of use when running analysis pipelines for gene expression and for immune profiling. These core capabilities come at no additional cost to our customers, which helps to lower the barriers of adoption and democratize single-cell analysis. This is an exciting extension of our highly differentiated software tools from the native environment into the cloud, and this is just the start. Over time, we will continue to add more features and more capabilities. Moving on to Visium. We continue to be impressed by the level of adoption we have seen since we launched this product less than a year ago. The number of new Visium customers continued to grow during the third quarter. Yet even with this influx of new customers, repeat Visium customers for the first time made up the majority of the Visium business, as many of our earlier adopters are increasingly progressing from pilot programs to larger experiments and larger projects. Underscoring this progress are more than 50 publications and preprints describing studies that have made use of the Visium technology today, with many of these being published within the last few months. We're encouraged by the breadth and the pace of these publications. They validate the high-value Visium experiments and demonstrate the ability of our customers to progress through the workflow successfully and make meaningful discoveries. Just as we experienced with single-cell, we believe these papers will drive broad market adoption and are an indicator of future demand. These publications have featured a variety of applications, most notably in oncology and neuroscience, but now in more new areas as well. For example, just recently, in Nature, researchers used Visium in conjunction with chromium-based analysis to study acute respiratory distress syndrome, known as ARDS, in influenza patients. In this study, researchers uncovered a new special state of fibroblast cells and the mechanisms through which they drive the overall response by the immune system. This finding suggests a new potential approach to develop therapies to preserve lung function and improve clinical outcomes. Overall, Visium is very early in its lifecycle, and we're making extensive investments in market development and product development to drive adoption of the platform. In the second quarter, we launched IHC compatibility with Visium, allowing whole transcriptome spatial analysis and immunofluorescence protein detection to be performed in the same tissue. In October, we also launched our targeted gene expression on Visium. This case of product introductions will continue to next year and beyond. Development of the Visium FFPE solution remains on schedule. We are preparing to launch that product in the first half of 2021. And while we aren't ready to give exact product details at this time, the early performance data we have seen to date has exceeded our expectations. We have many other products in development and are very excited about our Visium roadmap. And while both Chromium and Visium remain early in their adoption, looking further out to the future, we have identified in-situ analysis as a logical next step following in the footsteps of our existing platforms. To that end, We were excited to announce the acquisitions of RITCOR and CARTANA, which combined with our early work in this area will form the foundation for the development of our third product platform in the emerging in situ field. In situ analysis refers to the sequencing or measurement of large numbers of different molecules, including RNA, DNA, and proteins directly in their native tissue and with subcellular resolution. This is unlike most current analytical techniques, which require that molecules be removed from tissue before measurement and analysis. In situ approaches entail developing an integrated system with capabilities that are highly complementary to both chromium and visium. In situ methods have analogs with an existing IHC or FISH-based pathology workflows, but offer much higher levels of multiplexing and vastly greater amounts of biological information. We believe that this technology will enable powerful molecular analysis tools which will support discoveries made by the Chromium and Vision platforms, broaden the range of customers, and enable new translational and clinical applications. Based on our in-depth assessment of the C2 landscape and our own internal R&D efforts, we determined that acquiring the RIT Core at Cortana was the right path to address this compelling opportunity. With these acquisitions, Tenex gained key technological advances, teams with deep expertise and talent, as well as a comprehensive intellectual property portfolio, including over 110 foundational patents covering a variety of in situ approaches. As we look to the future, we anticipate that most tissue samples will be analyzed using at least one of these approaches, chromium, visium, or in situ, whether for basic science research or for clinical applications. And while our existing platforms have already been adopted by large numbers of customers, it is important to remember that we're still very early in Chromium market penetration and even earlier with Visium. We continue to be excited by the rapid adoption of Chromium and are highly encouraged by the early trajectory of Visium. And we intend to invest aggressively in both platforms to fully realize their potential. In parallel, will invest in in situ over the coming years to create a new platform with performance and the user experience that 10X customers have come to expect. Since our IPO, we have laid the groundwork to position ourselves to take advantage of the vast opportunities we see unfolding in the coming decade. As we move into 2021, we will continue to invest across our business to realize the full potential of these opportunities. This includes investments in R&D to continue our rapid pace of product development and innovation across all of our platforms, in intellectual property to protect our products and scientific advancements, in our commercial organization to continue to build our sales and service infrastructure and adequately address the interest we're seeing from a variety of markets, including biopharma and translational. And finally, in our operational capabilities to make sure that we have the foundation to support our future growth. As we sit here today, I have more confidence than ever in our strategy. I strongly believe that the resolution and scale of ultra-bio products will be essential in helping to understand biology and advance human health. The interest and excitement for our products reinforce our conviction in our mission and in the vast opportunities that lie ahead for 10X, both now and well into the future. With that, I will now turn the call over to Justin for more detail on our financials.