10x Genomics(TXG) - 2022 Q4 - Annual Report

PART I Business 10x Genomics provides integrated platforms for high-resolution biological analysis, serving global research institutions and biopharmaceutical companies - The company's mission is to accelerate the mastery of biology to advance human health[23] - As of December 31, 2022, 10x Genomics has sold a cumulative total of 4,630 instruments to researchers worldwide, serving all top 100 global research institutions and top 20 global biopharmaceutical companies[25] Financial Performance (2021-2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $516.4 million | $490.5 million | | Year-over-Year Growth | 5% | - | | Net Loss | $166.0 million | $58.2 million | Our Solutions and Platforms The company's product portfolio features Chromium, Visium, and Xenium platforms for single-cell, spatial, and in situ analysis, supported by integrated instruments and software - The Chromium platform enables high-throughput analysis of individual biological components by partitioning samples into millions of micro-reactions, each barcoded for unique identification[31] - The Visium platform provides spatial analysis, using DNA arrays to encode the physical location of biological analytes within a tissue sample, creating a visual map of their distribution[31] - The Xenium platform for in situ analysis detects and preserves the cellular localization of hundreds of RNA targets directly in tissue without requiring conventional sequencing, providing a detailed map of gene expression patterns[31][91] Overview of 10x Genomics Solutions | 10x Solution | Platform | Key Applications | | :--- | :--- | :--- | | Single Cell Gene Expression | Chromium | Developmental Biology, Oncology, Immunology | | Single Cell Immune Profiling | Chromium | Immunology, Oncology, BioPharma | | Single Cell ATAC | Chromium | Developmental Biology, Oncology, Immunology | | Single Cell Multiome ATAC + Gene Expression | Chromium | Developmental Biology, Oncology, Immunology | | Visium Spatial Gene Expression | Visium | Developmental Biology, Pathology, Oncology | | Xenium In Situ Gene Expression | Xenium | Developmental Biology, Pathology, Oncology | Market Opportunity and Strategy The company targets a $16 billion accessible life sciences market, pursuing growth through technology development, instrument sales, consumable adoption, and strategic acquisitions - The company views the global life sciences research tools market, valued at over $67 billion in 2021, as its total addressable market, with its current solutions accessing approximately $16 billion of this market[102][103] - The growth strategy includes developing new enabling technologies, expanding instrument sales, strengthening the use of recurring consumables, and acquiring or licensing relevant technologies to accelerate product development[111][112][113][114] - Strategic acquisitions have been key to expanding the product portfolio, including Epinomics and Spatial Transcriptomics in 2018 (for ATAC-seq and Visium) and ReadCoor and CartaNA in 2020 (for the Xenium platform)[114] Operations and Organization The company emphasizes interdisciplinary R&D, operates global commercial and manufacturing teams, and employed 1,243 individuals as of December 31, 2022 R&D Expenses | Year | R&D Expense | | :--- | :--- | | 2022 | $265.7 million | | 2021 | $211.8 million | Employee Headcount by Function (as of Dec 31, 2022) | Department | Number of Employees | | :--- | :--- | | Total Employees | 1,243 | | Research and Development | 448 | | Sales, Marketing and Support | 453 | | General and Administrative | 213 | | Manufacturing | 129 | - The majority of consumable products are manufactured in-house at ISO 9001:2015 certified facilities in Singapore and Pleasanton, California, while instrument manufacturing is outsourced to qualified contract manufacturers[136][138] Competition, Regulation, and Intellectual Property The company navigates intense competition, operates under Research Use Only regulations, and protects its competitive advantage with a portfolio of over 700 patents - The company competes with established and emerging companies in genomics, single cell, spatial, and in situ analysis, as well as with researchers developing their own in-house solutions[145][181] - Current products are marketed for Research Use Only (RUO), exempting them from most FDA medical device requirements, but future clinical or diagnostic products would face more onerous regulations[149][150] - As of December 31, 2022, the company owns or exclusively in-licenses over 700 issued or allowed patents and has more than 1,050 pending patent applications worldwide[107][151] - The company has exclusive license agreements with Harvard University and Stanford University for key technologies, requiring low single-digit royalty payments on net revenue of certain products[154][156] Risk Factors The company faces significant risks including fluctuating operating results, R&D spending dependency, intense competition, manufacturing complexities, regulatory changes, IP litigation, and stock volatility Risks related to our business and industry The business faces industry risks from fluctuating operating results, R&D spending dependency, intense competition, supply chain disruptions, and challenges in new product development and market penetration - Operating results may fluctuate significantly due to factors like variable demand, changes in government research funding, product mix, and supply chain disruptions[170][171] - The business is highly dependent on R&D spending by research institutions, which can be affected by budgetary constraints, changes in funding priorities, and macroeconomic conditions[175][178] - The company faces intense competition from both established and early-stage companies, as well as from researchers developing their own in-house solutions[180][181] - Manufacturing of complex instruments and consumables is subject to risks of quality defects, production problems, and reliance on single-source suppliers for critical components like enzymes and reagents, which could harm the business if disrupted[183][189][190] Risks related to our regulatory environment and taxation The company faces regulatory risks from potential FDA oversight for clinical use, trade tariffs, evolving tax laws, and limitations on Net Operating Losses, which could impact financial results - Products are currently marketed for Research Use Only (RUO), but could become subject to more onerous FDA or other regulatory agency oversight if intended for clinical or diagnostic use, which would increase costs and could delay commercialization[272] - The business is exposed to risks from enhanced trade tariffs, import/export restrictions, and other trade barriers, particularly concerning the U.S.-China relationship[275][276] - Changes in tax laws, such as the requirement to capitalize and amortize U.S. R&D expenditures, could adversely affect cash flow and financial results[280] - The ability to use significant Net Operating Loss (NOL) carryforwards ($717.0 million federal as of Dec 31, 2022) to offset future taxable income may be limited due to past and future ownership changes under Section 382 of the Code[281][282] Risks related to our intellectual property, information technology and data security Success depends on protecting intellectual property and managing risks from infringement claims, licensed IP, cyberattacks, data breaches, and complex global data privacy regulations - Success depends on the ability to obtain, maintain, and protect intellectual property rights, and failure to do so could allow competitors to use the company's technologies and erode its competitive advantage[286] - The company relies on in-licensed intellectual property, and its rights are subject to compliance with the terms of those license agreements[299] - The company is subject to governmental regulations and legal obligations related to data privacy and security (e.g., GDPR, CCPA), and failure to comply could result in significant penalties and harm the business[320][321][326] - The company experienced a ransomware attack in March 2020 where cybercriminals accessed its IT systems and confidential information was believed to be stolen, highlighting its vulnerability to cyber threats[333] Risks related to litigation and our intellectual property The company is engaged in multiple patent infringement lawsuits against competitors, facing potential damages, commercialization restrictions, and costly licensing requirements - The company is involved in ongoing patent infringement litigation against Nanostring Technologies related to Nanostring's GeoMx and CosMx products[354][355] - The company has filed a patent infringement suit against Vizgen, Inc. related to its MERSCOPE Platform, and Vizgen has filed counterclaims alleging infringement by the company's Xenium product[359][360] - A patent infringement lawsuit has been filed against Parse Biosciences, Inc. concerning its Evercode Whole Transcriptomics and ATAC-seq products[361] - Intellectual property litigation is costly and time-consuming, and an adverse outcome could prevent the company from commercializing its products, require substantial damage payments, or invalidate its patents[344][346] Risks related to ownership of our Class A common stock Ownership of Class A common stock carries risks from concentrated voting control, stock price volatility, anti-takeover provisions, and exclusive forum clauses for stockholder disputes - The dual-class stock structure concentrates voting power with holders of Class B common stock (10 votes per share) versus Class A common stock (1 vote per share), limiting the influence of Class A stockholders on corporate matters[377] - The market price of the Class A common stock is highly volatile and subject to wide fluctuations[384] - Anti-takeover provisions in the company's certificate of incorporation and bylaws, as well as Delaware law, may discourage, delay, or prevent a change in control[379] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[396] Properties The company's global headquarters, R&D, manufacturing, and distribution facilities are primarily in Pleasanton, California, with total leased space of 396,000 square feet globally - The company's headquarters are in Pleasanton, California, where it leases approximately 307,000 square feet and is constructing a new 150,000 square foot facility on land acquired in January 2021[397] - Total leased space globally is approximately 396,000 square feet, which includes a manufacturing center in Singapore[397] Legal Proceedings The company is actively engaged in multiple patent infringement lawsuits against competitors Nanostring, Vizgen, and Parse, with uncertain outcomes - The company has filed multiple patent infringement lawsuits against Nanostring Technologies in the U.S. and Germany concerning Nanostring's GeoMx and CosMx products, while Nanostring has filed a counterclaim alleging infringement by 10x's Visium products[399][400][402][403][404] - In May 2022, the company sued Vizgen, Inc. for patent infringement related to its MERSCOPE Platform, and Vizgen has filed counterclaims alleging infringement by the Xenium product and tortious interference[405][406] - In August 2022, the company sued Parse Biosciences, Inc. for patent infringement related to its Evercode Whole Transcriptomics and ATAC-seq products[407] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[409] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on Nasdaq under 'TXG', has never paid dividends, and shows a cumulative return of $69.08 on a $100 investment since its 2019 IPO - The company's Class A common stock is listed on the Nasdaq Global Select Market under the symbol "TXG"[411] - The company has never declared or paid cash dividends and does not expect to in the foreseeable future, intending to retain future earnings[412] Cumulative Total Return Comparison (Sept 2019 - Dec 2022) | Index | Sept 12, 2019 | Dec 31, 2022 | | :--- | :--- | :--- | | 10x Genomics, Inc. | $100 | $69.08 | | Nasdaq Composite Index | $100 | $127.73 | | Nasdaq Biotechnology Composite Index | $100 | $128.83 | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, revenue grew 5% to $516.4 million, but gross margin declined to 77%, and operating expenses rose 20%, resulting in a net loss of $166.0 million Overview and Key Business Metrics The company sold 4,630 instruments by year-end 2022, but will discontinue reporting consumable pull-through per instrument due to increasing product portfolio complexity Cumulative Instruments Sold | As of December 31, | 2022 | 2021 | | :--- | :--- | :--- | | Cumulative instruments sold | 4,630 | 3,511 | Consumable Pull-Through Per Instrument | Year ended December 31, | 2022 | 2021 | | :--- | :--- | :--- | | Consumable pull-through per instrument | $109,000 | $142,000 | - The company will discontinue reporting 'consumable pull-through per instrument' as a key metric after the 2022 reporting period, as the increasing complexity and diversity of its product portfolio make this average less representative of business trends[442] Results of Operations In 2022, revenue increased 5% to $516.4 million, but gross profit decreased, and operating expenses rose 20%, leading to a net loss of $166.0 million Revenue Breakdown (2021 vs. 2022) (in thousands) | Revenue Source | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Instruments | $72,396 | $64,474 | $7,922 | 12% | | Consumables | $435,588 | $418,740 | $16,848 | 4% | | Services | $8,425 | $7,276 | $1,149 | 16% | | Total Revenue | $516,409 | $490,490 | $25,919 | 5% | Gross Profit and Margin (2021 vs. 2022) (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of Revenue | $120,386 | $74,091 | $46,295 | 62% | | Gross Profit | $396,023 | $416,399 | ($20,376) | (5)% | | Gross Margin | 77% | 85% | - | - | Operating Expenses (2021 vs. 2022) (in thousands) | Expense Category | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $265,667 | $211,752 | $53,915 | 25% | | Selling, general and administrative | $298,300 | $257,560 | $40,740 | 16% | | Total operating expenses | $563,967 | $468,652 | $95,315 | 20% | Liquidity and Capital Resources As of December 31, 2022, the company held $430.0 million in cash and equivalents, with net cash used in operations at $33.6 million, and anticipates $60-$70 million in capital expenditures - As of December 31, 2022, the company held approximately $430.0 million in cash, cash equivalents, and marketable securities[482] - The company anticipates capital expenditures of $60 million to $70 million over the next 12 months, primarily for construction costs at its Pleasanton, California facility[483] Cash Flow Summary (in thousands) | Activity | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(33,606) | $(21,373) | | Net cash used in investing activities | $(350,887) | $(106,729) | | Net cash provided by financing activities | $15,817 | $35,297 | Critical Accounting Estimates Critical accounting estimates involve significant judgment in revenue recognition, inventory valuation for obsolescence, and stock-based compensation fair value using complex models - Revenue Recognition: In contracts with multiple products and services, the transaction price is allocated to each performance obligation based on its standalone selling price, determined using average selling prices or management estimates[497] - Inventory: Judgment is used to identify and write down obsolete, slow-moving, or unsalable inventory based on factors like expiration dates, open orders, and sales forecasts[498] - Stock-Based Compensation: The fair value of stock options and ESPP rights is estimated using the Black-Scholes model, while market-based performance awards (PSAs) are valued using a Monte Carlo simulation, both requiring significant assumptions about volatility, risk-free rates, and expected term[499][500][501][502] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, where a 100 basis-point increase would reduce investment portfolio fair value by $1.4 million, and foreign currency risk, where a 10% adverse movement would impact cash and receivables by $6.0 million - A hypothetical 100 basis-point increase in interest rates would decrease the fair value of the company's investment portfolio by approximately $1.4 million as of December 31, 2022[504] - A hypothetical 10% adverse movement in foreign currency exchange rates would change the U.S. dollar value of reported cash and accounts receivable by approximately $6.0 million as of December 31, 2022[505] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, including balance sheets, statements of operations, and cash flows, with an unqualified opinion from Ernst & Young LLP Consolidated Financial Statements The consolidated financial statements detail the company's financial position and performance, reporting total assets of $1.03 billion and a net loss of $166.0 million in 2022 Consolidated Balance Sheet Highlights (as of Dec 31, 2022) (in thousands) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $1,028,980 | | Cash, cash equivalents, and marketable securities | $430,000 | | Total Liabilities | $223,237 | | Total Stockholders' Equity | $805,743 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2022) (in thousands) | Account | Amount (in thousands) | | :--- | :--- | | Revenue | $516,409 | | Gross Profit | $396,023 | | Loss from Operations | $(167,944) | | Net Loss | $(166,000) | | Net Loss Per Share | $(1.46) | Notes to Consolidated Financial Statements The notes detail accounting policies, acquisitions, restructuring charges, revenue breakdown by geography, and significant patent litigation, providing context to the financial statements - In August 2022, the company implemented a reduction in force, incurring restructuring charges of $4.2 million, primarily for severance-related costs[585] - The 2021 acquisition of Tetramer Shop for $8.5 million in cash was accounted for as a business combination, resulting in $4.5 million of goodwill and $5.6 million of intangible assets[587][590] Revenue by Geography (in thousands) | Region | 2022 | 2021 | | :--- | :--- | :--- | | United States | $284,987 | $258,274 | | Europe, Middle East and Africa | $117,068 | $108,491 | | China | $59,559 | $74,924 | | Asia-Pacific (excluding China) | $46,004 | $42,087 | | North America (excluding United States) | $8,791 | $6,714 | | Total Revenue | $516,409 | $490,490 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[668] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with an unqualified opinion from Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022[669] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, and the independent auditor, Ernst & Young LLP, issued an unqualified opinion on its effectiveness[672][676] - There were no changes in internal control over financial reporting during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, internal controls[673] Other Information The company reports no other information under this item - None[684] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[685] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Annual Meeting of Shareholders proxy statement - The information required for this item is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days of the fiscal year-end[689] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Annual Meeting of Shareholders proxy statement - The information required for this item is incorporated by reference from the company's definitive proxy statement[690] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and related matters is incorporated by reference from the company's 2023 Annual Meeting of Shareholders proxy statement - The information required for this item is incorporated by reference from the company's definitive proxy statement[691] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's 2023 Annual Meeting of Shareholders proxy statement - The information required for this item is incorporated by reference from the company's definitive proxy statement[692] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's 2023 Annual Meeting of Shareholders proxy statement - The information required for this item is incorporated by reference from the company's definitive proxy statement[693] PART IV Exhibits, Financial Statement Schedules This section lists filed financial statements and exhibits, noting the omission of inapplicable financial statement schedules - The financial statements are included in Part II, Item 8 of the Annual Report[696] - Financial statement schedules have been omitted because they are not applicable or the required information is included elsewhere[696] Form 10-K Summary The company reports no summary under this item - None[700]