10x Genomics, Inc. Price & Performance (TXG)

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 the Securities and Exchange Commission. Tenx 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 Sir Sachinoff, our CEO and Co Founder and Adam Page, our Chief Financial Officer. We will host a question and answer session after our prepared remarks. We ask analysts, With that, I will now turn the call over to Serge. Thanks, Kathy, and good afternoon, everyone. During today's call, I'll start with a brief overview of the product launches and foundational progress we made in 2024 and why we have a great setup to execute on our long term strategy. Next, I will highlight our key priorities and focus areas for 2025. Then, Adam will provide a more detailed look at our financial results business trends, revenue guidance for the year. Adam will also touch on recent developments around the academic funding environment.

As previously announced, we finished 2021 with total revenue of $611,000,000 down 1% compared to the prior year. On the background of an increasingly challenging macro environment, 2024 was a year of change for us. First, we launched major new products across all three of our platforms. While this entails extra effort from both our sales team and our customers to understand trial and transition over to the new portfolio, these launches have been met with a tremendous customer response. Second, within our single cell portfolio, we introduced a number of new products that deliver lower price per cell and per sample. We believe there's great potential to grow single cell revenue by reducing prices to increase volumes over time. And finally, we embarked on a major reorganization of our sales force to support the growing diversity of our products and customers and to allow us to scale into the future. While all these changes entail some near term challenges, we're confident that they better position us to capture the tremendous long term opportunity we see ahead. I'll start with the product innovations we introduced in 2024. First, on our Chromium platform, last year was the biggest year of Chromium product launches in our history.

We introduced a new microfluidic architecture and a slate of new products and capabilities. Once again, we raised the borrowing performance on data quality, on robustness we rolled out powerful new capabilities to improve ease of use sample prep and data analysis. And we did it all with products at lower prices. We also established a new standard for scale and cost. Customers can now run million cell experiments with a single chip then a single run, They can also do so at a price point of $0.01 per cell with our GEMEX And with our on chip multiplexing products, customers can now get down to $600 per sample at any scale. We also launched Chromium XO, an instrument that provides a low cost entry point point, so more researchers can access instrument powered workflows and performance advantages of Chromium single cell analysis. Our goal is to democratize single cell to drive it to ubiquity and retain use. This past year, we took major steps in this direction. Both in product capabilities The average price per chromium reaction decreased as we proceeded through [indiscernible] This was expected as customers transitioned over to our lower priced Gen 10X product The drop was more pronounced in Q4 than first quarter in which GemmaX Flex and on chip multiplexing became available to customers.

In conjunction with lower prices, we saw sequential increases in reactions sold throughout the year. While we expect it will take time for volume growth to offset the lower prices, and result in overall revenue growth. We're motivated by the early interest and adoption of our new assays. Turning to spatial. 2024 was also a big year for our spatial platforms. With product revenue growing 33% year over year as the portfolio continues to become a larger portion of our overall business. A significant contributor to the excitement for spatial last year was the new products we launched notably Visimichi and Xenium Prime five ks.

Within our Vizio platform, we launched VizioMD, which brings spatial discovery to a new level by enabling whole transcriptome spatial analysis at single cell scale resolution, critically enabled by our Cytosis instrument Vizum HD increases the resolution of the Vizum platform by over three orders of magnitude all while leveraging the same robust and easy to use workflow the Vision platform is known for. Since its launch, continue to see positive momentum from our customers. In the fourth quarter, customers continued the trend of ordering Visium in larger volumes, and new to Vizium customers are now overwhelmingly opting for Vizium HD. We also continue to execute on our robust Xenium R and D pipeline across our assays, applications and software. We started the year by launching our widely request multimodal cell segmentation kit which leverages advances in assay chemistry and sophisticated machine learning algorithms. To significantly improve the determination of cell boundaries. We also added new content extended sample compatibility and showed major advances data analysis Finally, we launched Xenium Prime five ks increasing Flex by an order of magnitude to 5,000 genes. Xenium Prime five ks features brand new chemistry and software to deliver excellent per gene sensitivity specificity and spatial fidelity. [indiscernible] from customers for these launches only adds to our excitement about the Xenia platform and its long term potential to be the most significant technology of revolution since the arrival of NGS.

We're encouraged by the robust utilization trends we're seeing from researchers and by reorders from customers purchasing additional Xenium systems as they experienced PERSAM the platform's benefits. In addition, there has been a growing number of publications and a core lesson of interest from Riccitrus Corp planning cohort studies on Xenu. Further fueling our conviction in opportunity ahead. Both Vizim HD and Zenu five ks have been met with In fact, one customer called the arrival of these technologies a watershed moment in spatial transcriptomics revealing biological complexity as unprecedented resolution. We share our customers' excitement and believe in spatial potential in scientific discovery translational work and ultimately clinical applications. Alongside the product innovations we introduced in 2024, we also embarked on a major reorganization of our sales force in order to realize the full potential of our expanding product portfolio. Evolving customer mix. As mentioned on our Q3 call, we created greater specialization establishing our capital equipment biopharma and emerging account teams, all with the goal of improving focus and creating more defined roles with targeted incentives. We've made meaningful progress with our new sales model since its introduction. While we still have open roles to fill, we're gaining traction with hiring and onboarding.

Our team is creating new opportunities at a faster pace. And we're bringing more consistent attention across customer accounts of both sizes in both biopharma and academia. Overall, we believe we're on track for our new sales model to be in full force by midyear. As expected. As we cook off 2025, we're executing against several key priorities. First, finishing our commercial transformation and transitioning researchers to our new product portfolio. Our goal is to start taking advantage of the benefits that these foundational changes enable and deliver consistent execution quarter after quarter. Second, we are working to drive more volume and greater use of single cell through lower prices. We firmly believe in the elasticity of demand of our products. That's why we are working to democratize [indiscernible] delivering better products, better workflows and better pricing so more customers can do more single cell work [indiscernible] Third, we plan to leverage our new single cell portfolio and the momentum we have in spatial to unlock exciting new growth opportunities. Including in biopharma, translational studies and large scale single cell Let me share a bit more about each of these. We believe we have the opportunity to deliver outsized growth in biopharma.

Today, this segment makes up around 15% to 20% of our total revenue. And we intend to expand biopharma to be half of our business In addition, there has been rapidly growing interest in using single cell and spatial for translational cohort studies. And we believe it's still early days. As we look forward, we expect both the damper and scale of such studies to continue to increase as researchers work to transform how we understand, diagnose and treat disease. Another significant growth opportunity is enabling large scale single cell studies to map out gene functions and construct AI models of biology. The convergence of our technologies and AI has the potential to transform how research is done. Just last week, for example, the Chem Zuckerberg Initiative launched its unprecedented billion cell project. We're extremely proud to partner with both CZI and Ultima Genomics on this landmark initiative to fuel rapid progress in AI model development [indiscernible] And finally, as we move through 2025, we will continue our focus on managing costs taking disciplined approach to spending, so we can maintain the strength of our balance sheet. When you take a step back, it is clear just how vast and viral hold opportunities for single cell and spatial truly are.

It seems not a week goes by, but other new exciting revelation being made using our technologies. Let me highlight just a few that have inspired and motivated our team recently. As featured in Nature last month, researchers relied on Chromium, Visium and Xenium to demonstrate how different immune cells emerge and are deployed to fight infection in the small intestine. In a recent Nature Cancer paper focused on diagnostic markers brain tumors, the authors demonstrated how spatial trust economics previously restricted to research now shows potential in routine diagnostics. And it's not just scientific journals, they note of the revolutionary potential of our technologies. Recently, The Atlantic described a goal of our work the virtual cell as a holy grail of science. The potential of our tools to master of biology and advance human health has never been more clear. That's why we do what we do. That's why we believe the opportunity in front of us is so large. With that, let me turn it over to Adam. Thank you, Serge. I'll start by reviewing our financial results for the three months ended 12/31/2024. Then I'll review our financial results for the full year 2024 and I'll finish by discussing our outlook for 2025.

All growth rates provided will be on a year over year basis unless otherwise noted. In line with our previously announced preliminary results, total revenue for the quarter was $165,000,000 an increase of 9% sequentially and a 10% decrease year over year. Looking at our revenue breakout, total consumables revenue was $133,500,000 down 5%. Chromium consumables revenue was $97,700,000 down seven The and spatial consumables revenue was $35,800,000 up 61%. Moving on to instruments, total instrument revenue decreased 37% to $24,400,000 Promium instrument revenue was $10,900,000 down 2% and spatial instrument revenue was down 51% to $13,400,000 driven by fewer Xenium instruments sold. Services revenue was $7,100,000 up 35%. Looking at our revenue by geography, Americas decreased 16% to $87,200,000 EMEA decreased 2% to $49,800,000 and revenue in APAC was down 5% to $28,000,000 Turning to the rest of the income statement. Gross profit for the fourth quarter was $111,000,000 compared to $115,800,000 for the prior year period.

Gross margin increased to 67% from 63% in the fourth quarter of twenty twenty three.

This was primarily driven by change in product mix, predominantly fewer Xenium instruments sold. Total operating expenses for the fourth quarter decreased to $160,800,000 compared to $171,000,000 for the prior year period. This decrease was primarily driven by a $19,600,000 in process research and development expense related to a technology acquisition in the prior year period partially offset by an increase in outside legal expenses. R and D expenses increased to $3,000,000 for the prior year period, primarily driven by higher laboratory materials and supplies. SG and A expenses increased to $93,800,000 compared to $86,100,000 for the prior year period primarily driven by increased outside legal expenses. Operating loss for the fourth quarter was $49,800,000 compared to a loss of $55,200,000 in the fourth quarter last year. Net loss for the period was $49,000,000 flat to the fourth quarter of twenty twenty three. Turning to our full year results.

Total revenue for the full year ended 12/31/2024 was $610,800,000 representing a 1% decrease over full year 2023. Total consumables revenue for the year was 493,400,000.0 Chromium consumables revenue was $372,300,000 down 11% and spatial consumables revenue was $121,100,000 up 104%. Total instrument revenue was $92,700,000 down 25 Chromium Instrument revenue was $35,200,000 down 26 and spatial instrument revenue was $57,500,000 down 24%. Services revenue was up 57% to $24,600,000 Looking at our regional results for full year 2024, Americas revenue was $347,800,000 down seven EMEA grew 12% to $159,800,000 and revenue in APAC was $103,300,000 flat to prior year. Turning to the rest of the income statement for full year 2024. Gross profit was $414,500,000 compared to gross profit of $409,300,000 for the prior year.

Gross margin increased to 68% compared to 66% for 2023.

This was primarily driven by change in product mix, predominantly fewer Xenium instruments sold. Total operating expenses for 2024 decreased to $6.00 $9,000,000 compared to $674,600,000 for the prior year.

The decrease was primarily driven by a six research and development expense related to a technology acquisition in the prior year and lower personnel expenses partially offset by higher outside legal expenses. R and D expenses decreased to $264,700,000 compared to $2,300,000 for the prior year, primarily driven by lower personnel related costs. SG and A expenses increased to $344,300,000 compared to $343,300,000 for the prior year primarily driven by increased outside legal expenses, partially offset by lower personnel related costs. Operating loss for 2024 was $194,600,000 compared to a loss of $265,300,000 for 2023. Net loss for 2024 was $182,600,000 compared to a net loss of $255,100,000 for 2023. We ended 2024 with $393,400,000.0 in cash and cash equivalents and marketable securities an increase of approximately $5,000,000 from December 31, 2023. Turning to our outlook for 2025. We expect full year revenue to be in the range of $610,000,000 $630,000,000 representing 0% to 3% growth over full year 2024. At the midpoint, this guidance implies double digit growth for both corona reactions as well as our overall spatial revenue. With this outlook, we are making the following assumptions.

First, we are not anticipating improvements in the overall macro environment and generally to what we experienced in the second half of last year. That said, it has been a very fluid situation over the past few weeks and days with heightened uncertainty surrounding NIH funding. As we've shared previously, we estimate total NIH funding exposure to be about 20% to 25% of our revenue. Our guidance range contemplates previously and based on delays and reductions in new grant funding and how broader uncertainty around funding may impact customers' budget and spending patterns. However, the current guidance range does not reflect the potential impact of the recently announced 15% cap on indirect costs. Should that be fully implemented. Second, our goal is to democratize single cell analysis and we remain committed to driving increased access and usage of our products and customers' labs. We expect Chromium consumables revenue to be modestly down this year as our lower priced products become a larger portion of our sales. And finally, we continue to execute on the commercial changes that we made As previously discussed, anticipate some lingering impact from these changes during the first half of twenty twenty five as we fill open roles.

Particularly in our Xenium team. We have conviction that these were the right structural changes to make and remain on track to be fully complete by the middle of the year. As Serge mentioned, we continue to focus on managing our spend. We are taking a disciplined approach to our expenses, and are driving efficiencies throughout the organization. We ended the year with $393,000,000 in cash and cash [indiscernible] and we feel confident about our strong balance sheet and we are well positioned for the long term. At this point, I'll turn it back to Serge. Thanks, Adam.

Before we open it up for questions, want to thank the Tenx team I'm so grateful for your tireless work labor and dedication obsession with customer success, as we continue to push through boundary and hard challenges together, I have full confidence in the talented tenacity of our team we execute on our twenty twenty five priorities with urgency and excellence, [indiscernible] That's how we'll advance our mission and create value for all stakeholders both now and over the long term. With that, we will now open it up for questions. Operator?

Thank you. We will now begin the question and answer session. And your first question comes from the line of Dan Brennan with TD Cowen Maybe the first one would be just on kind of single cell pricing. Serge, you talked about and Adam talked about the investment in price that you're making and you still expect There will be some pressure on consumables this year. Just give us a sense of kind of where are we in the evolution? It looks like if we just took your consumables divided by reactions price was down about 11% in '24 So how do we think about what's baked in for 2025? And what's the gap today between your price and the competition and kind of how much narrower does it need to get?

Hi, Dan. Yes, thanks for the question. So One thing to keep in mind, is that we have multiple products with multiple configurations. And different customers depending on applications, depending on their experiments are looking at these experiments different differently, right? So for some, the price per cell is important, for some, price per sample is important, for some price per experiment is important. And we believe that we have really, really compelling value propositions for all these customers across all these applications now. With all the launches we would have last year. So and it's important to keep in mind that our primary imperative here is to grow the market. We see there is a lot more potential in single cell than what has been tapped into so far. There's great potential to grow volumes. And last year, we took major steps in enabling unlocking some of these price barriers and enabling much enabling new applications and greater volumes. So we believe that with our current product composition and lineup, we're in a good spot to drive more volume, which is what Adam was referring to earlier. That's our expectation for the year. I think the story for this year is going to be kind of the transition from into the new product lineup and which will drive ASPs average price per reaction lower just per virtue of the product mix kind of shifting into all these new products. [indiscernible] Thank you.

And your next question comes from the line of Patrick Donnelly with TD. Please go ahead.

Hey guys, thanks for taking the questions.

Serge, maybe one, I know the NIH you touched on a little bit, It sounds like maybe that new Monday 15% potential cut not really included in guidance there any reaction to that news? Understand the NIH exposure, but just that second derivative to the academic market, how do you think about that? And what's the right way to fence those the risk there? Thank you so much.

Yes. Let me just turn over to Adam to Yes, let me to provide some transparency around the assumptions we've made. In the revenue guide. So as I mentioned earlier, we estimate total NIH funding is about 20% to 25% of our total revenue. And so at the midpoint of our guidance range, what we've assumed here is a mid single digit decrease in NIH funded projects to our customers in 2025. And so that would equate to about a seven or so million dollars impact to our revenue. And that assumption is based on continuation of general conservatism, some of spending patterns that you just asked about Patrick. And delays that we first saw from our NIH funded customers in the second half of last year And then certainly some of the announcements in the funds flow in January related to the NIH. And then since that time, the situation has been pretty fluid and dynamic, as you noted. The indirect funding costs were capped last Friday. And temporarily suspended by a judge a couple of days later we expect there is going to be additional challenges to these new rules from universities and from others, And no one really knows with certainty what the final outcome of those various announced changes will be.

So as such, we have not incorporated these more recent events the indirect conversation, which have changed day by day and in some cases by the hour, we have not incorporated those into our guidance. Generally speaking, our customers use direct funds to purchase our products, including instruments. So while this potential cap on indirect costs is not in our guidance, let me give you some color about how we're broadly thinking about these latest developments. Without going into real detail on direct versus indirect funds, we can reasonably found the potential impact of an overall reduction in NIH fund The NIH has said it expects the indirect path to save more than $4,000,000,000 annually which would imply an 8% cut to the overall NIH budget. So based on our 20% to 25% exposure, we estimate that this potential 8% reduction if fully implemented across both direct and indirect funds, the result in approximately a $10,000,000 to $15,000,000 impact to our revenue. Again, not accounted for in our 2025 guidance. I would add to that, also part of your question, apart from the quantitative impacts, we have to acknowledge the collective and heightened uncertainty around funding is going to have an additional impact on the confidence of our customers.

And this can further impact customer spending patterns their ability to make purchases and the timing of their purchases. We're here to support our customers as they navigate this uncertain time. Which unfortunately distracts from the important work they're doing to push science in the world forward. We're watching closely to see how customers deal with this uniquely dynamic environment and we are here to partner with them. Given its critical role funding advanced research and discovery, the NIH has historically received bipartisan support and we hope and expect that will continue as conditions normalize. And your next question comes from the line of Dan Arias with Stifel. Please ahead. Hi guys. Thanks for taking the questions. Serge, can you just add some color your comment on Chromium volumes it looks like Chromium reactions were basically flat this year down a point or two, I believe. You're guiding to double digit growth in 2025, which is a pretty big step up particularly given the environment right now. So where is the confidence in going from zero to 10 plus and just where is it coming from as a discrete project like billion cells? Think you opened up the market with some of these new products?

Would just be helpful to sort of get your take on how you're feeling about going to that level of acceleration? Thanks.

Yes, Dan. So one thing to maybe keep in mind is that we actually had a sequential increase in reactions going from Q3 into Q4. Which we see as kind of starting the pattern that we have worked on to establish. And we anticipate that trend will continue into this into this year. And yes, I mean, it's a function of the things we've talked about before. The new products, the new price points, the new configurations. Opening up more use cases, opening up more routine use for some people, opening up new new people entering. Single cell that weren't necessarily [indiscernible] And for sure opening up of big large projects. So the CCI was a great example. There's many people who are looking to scale up their single cell research and up until recently, pricing was a big barrier. So we do anticipate that to continue, and we see that the we saw starting Q4 is going to continue. All right. Thank you. And your next question comes from the line of Anit Souda with Leerink Partners. Please go ahead.

Yes. Hi, Serge. I'm struggling with the fact that the indirect cuts are not included in your guide. Simply saying that because when you last your customers and I'm sure your sales reps are getting this feedback, The instrumentation purchases are very risky and in times when there is significant uncertainty on something that the researchers have really not experienced ever before And indirect cuts, when they go in, they're going to [indiscernible] schools, private universities that have significant indirect exposures, 60% to 80% sometimes larger, and they're expected to cut to 15%. So in situations like that, the uncertainty is even heightened and that's where some of your innovative products are going. So I'm trying to understand, knowing the fact pattern here, knowing at least in the first week the level of conservatism that you're seeing and the fact that really the legal cases that you talked about they might be temporary and Congress Act might require much longer. Given all that uncertainty, I'm just trying to understand still why this is and direct cuts are not baked into the guide?

Our goal here is to provide management transparency in terms of how we're thinking about about the year. As Adam mentioned, it's a very, very kind of volatile situation Right now, things are changing by the day, by the hour. So we need to be careful in making assumptions. About how it's all going to turn out. You're right, the customers, as we said, are definitely on edge right now. There's a lot of uncertainty. I do want to emphasize that our exposure when it comes to to instruments is also somewhat bounded, right? Only a fraction, a small fraction of the instruments that we sell going to academic core labs. And within those, the instruments are supposed to be financed through by majority through direct funds.

So while we recognize there's certainly exposure and the current environment is highly uncertain, the potential impact is also bounded. And that's what Adam articulated and that's how we're thinking about And your next question comes from the line of Doug Schenkel with Wolfe Research.

Hey, good afternoon, everybody. Thank you for taking my question.

I'm going to, I think, follow-up with just a couple of clarification questions on guidance. And I'm sorry if I'm just being a little slow or maybe need a little more coffee. Late in the afternoon, but there's just a couple of things I'm not clear on. So the first is I think you talked about reducing your guidance by $7,000,000 due to something relating to the NIH, which occurred prior to the news about the indirect cuts. So I want to just understand what the $7,000,000 was. Then I believe you said your best estimate on the impact of indirect funding being capped would be an additional $10,000,000 to 15,000,000 I want to make sure I have that right. That kind of gets that one of the big elephants in the room. Which is the NIH then what I don't think you talked about was China and you weren't named in the same way Alumina was named, but there were obviously lots of concerns about what's going on in terms of demand for genomic tools in China, and I think it's broader than that in tools. So the first thing is, can you clarify what's in and what's not in for the NIH?

How you're treating China then I think the other thing you haven't talked about is really pacing. And again, I'm sorry if I missed that, but given everything that's going on in the world, I could either see where folks are trying to accelerate activity in in advance of uncertainty or they're actually slowing down and basically waiting for more clarity. What are you seeing and how are you treating that in guidance? And accordingly, how should we model things by quarter. Yeah. So why don't I start Doug, and then I may sort of back and forth the search on the China piece of this. So I think you let me clarify is I think you actually got it right. So baked into the guide, is roughly a mid single digit decrease in an NIH funded projects for our customers. So we knew things were they were shaky before the indirect news came out. I guess it was last [indiscernible] So that's what we've tried to incorporate into our guide. That is roughly $7,000,000 impact if you think about a mid single digit decrease in funding for that 20% to 25% or so of our revenue. Again, that's just based on sort of the conservatism that we've been seeing Again, things are more uncertain.

Obviously, now given the indirect, but that's really from a direct funding perspective. What we baked into the guide.

The $10,000,000 to $15,000,000 that is not incorporated in the guide is really just we were to say, look, it's just a complete 8% cut to the total NIH budget.

And there are two distinct pools of money. There isn't direct, there isn't indirect. That's the math that we were trying to walk people through. Again, I think as surgeons mentioned, we're just trying to be as transparent try to give people the right parameters to understand and bound the risk. And so again, based on our 20% to 25% exposure, if there's a full 8% reduction kind of just across the board is the way that it played out, implemented across both the direct and indirect funding result in roughly $10,000,000 to $15,000,000 impact to our revenue. And that's the piece of it that we didn't we didn't put into the guide. Let me just touch on pacing. Real quick. So from a pacing perspective, there's a couple of things to consider. One is just yes, we're living in interesting times right now and anticipate the year to be a bit more back end loaded. The other though, which we've been transparent about I guess going back all the way towards Q3 is that we're still working through and building up our commercial force. And so hiring is going quite well. We still have some gaps that we're filling.

We're training up the reps that we were able to hire and bring on board really in Q4 of last year. But even just as a result of getting that team up to full force and again consistent with the message we've been sending, we would anticipate we're really all systems go from a commercial perspective by the time we get into the second half. And so as such, we're really thinking about as we thought about sort of quarterly pacing and sort of first half versus second half modeling it out much more consistent with what we saw in 2023 And I think, I mean, both of these years predate me, but I think even 2022, where there's more business that's transacting in the second half than we in the first half. So I think if you use that kind of a general guideline looking back at 2023, pacing by quarter I think that gives you a pretty good parameter of what we're thinking about And then maybe Serge, do you want to touch on the China questions? Yes.

So Doug, I mean there's a few things embedded in China sort of concerns with people.

First of all, there's sort of the news around the Lumina and to what extent that would affect us given that a lot of our products are used in conjunction with alumina sequencer. Now the important thing to appreciate there is that our products are inherently compatible with just about any sequencing technology. Right? And so it is fairly straightforward for our customers to switch over to another sequencer. In fact, that's what's happening. In many cases over there. And so we don't anticipate a major impact from the fact that Illumina could be taken out of some of our customers' labs.

Here. Also as far as sort of our actual technology, it doesn't draw really the same levels of attention over there compared to some of these other products like sequencing. Or others.

And also there isn't really a great alternative in the country for our products. [indiscernible] So, kind of putting all those factors together, while there's a lot of different kinds of issues that are going on around China, we feel like generally we're our risk is reasonably contained.

And again, China is is also a fairly minor part of the overall business at 9%. Stage.

Thank you. And your next question comes from the line of Tycho Peterson with Jefferies. Please [indiscernible] Hey, thanks. A couple of cleanups on guidance, I guess. Serge, can you talk about what your baking in for contributions from the product launches last year? Just any color you can give on what you're baking in there? And then Chan Zuckerberg, what's in the guide for that? And are there other similar projects you're baking in? Legal, I think goes down post the NanoString and So maybe just talk a little bit about spending there. And then one thing I want to understand on NIH is just the funding has actually good. I mean, it was up 35% last year for spatial. I think you have $400,000,000 of trailing twelve month funding available. When does that start to flow through? Obviously, there's a lot of noise here in the near term and I get I get all that, but the funding actually went up quite a bit last year.

Yes. So, Tycho, on the first part of the question, as far as new products are concerned, concerned, yes, I mean there are definitely a big part of what we expect to happen this year. First of all, we do expect that materially all of sort of the Chromium business will turn over into the Gemmax. I should most of the business will transform over to the Gem X architecture. Across the course of this year. We also are seeing good traction with the launches we did in Q3 around on chip multiplexing and with Gemax Flex. So those are going to be a larger, larger fraction of the overall product mix. [indiscernible] they are and that's part of what's going to be driving increased volumes. Through the year. The larger projects that we've talked about CCI being one of them is also part of what we expect to be happening this year. So that is also contemplated within our expectations within our guide. As far as on the funding for NIH, you're right. Sort of if you look if you close down the level of the low of the overall total funding trends, The trends for single cell and spatial are actually really from a and really really, really healthy, which is what part of the reason that gives us some amount of optimism about how things are going to be trending into this year and beyond.

We just have to temper it somewhat with the current situation and uncertainty around that.

I think the last part, sorry, to your question around sort of legal from an OpEx perspective, I mean, from an OpEx, we continue to manage our costs in a disciplined way. And we would anticipate our costs year on year roughly flat from an operating expense perspective and that legal piece is part of it.

All right. Thank you. And your next question comes from the line of TJ Selvang with Morgan Stanley. Please go ahead.

Hey, guys. Good evening.

Just a couple of cleanups on the guide and then I have one on the on the legal side of things as well. So maybe Adam for you, any color on gross margin cadence through the year? There's a few moving pieces here. Obviously, you mentioned the pricing headwind and mix and so on. But also potentially some of these large single cell projects come through, does that sort of weigh a little bit on the gross margin line? So any color there would be great. And then on the IP litigation with Vision that was settled here, were you generally satisfied with the terms? Can you share whether they involve any ongoing royalty or licensing fees to you? And given the patent overlap between that case and the one with Bruker, I guess any color on how you think sort of that outcome positions you for the other case?

Why don't I take the gross margin question and then I'll defer to Serge on the second part of your question, Tejas. Yes, I think on gross margin, the way we're thinking about the year in total is roughly in the same zip code of of where we ended Couple of things that I would add, you touched on them. Product mix from a for one can swing things, right? So the more Xeniums we sell and again sort of embedded in that when I say that margins will be fairly consistent year on year, as an assumption around Xenium to the extent that we're selling more Xenium instruments that will put some pressure on it. We certainly have, but I'm not talking about specific tariff commentary, but we've got cost pressures in business really just basic inflationary supply costs that we're working our best with our ops team here to be mitigating through other efficiencies. I think your point on large projects, it's hard to to forecast the timing of those, but we're going to compete to win. And so to the extent and we're going to do that across our business. So to the extent with our portfolio, we've got flexibility to compete under extent that we're competing and winning some of those larger projects during the course of the year, yes, that could have a negative or a detrimental impact on gross margin.

It's not something that we're baking kind of into the plan as it stands, but that's something that certainly we would be talking about as the year progresses. [indiscernible] Yes. We're actually extremely happy with the outcome. Fundamentally, the settlement validates the intellectual property investments fundamental importance of George George's work on those foundational inventions around in situ. The team recognized the importance of this intellectual property early on and invested in developing this idea and the products and R and D all around it. And I think this is is a really great moment and a huge testament to the whole team And yes, we're very happy with the outcome.

And your next question comes from the line of Rachel Battenstahl with JPMorgan. Please go ahead. Hi. This is Jaden on for Rachel.

Just digging into the placements, how should we think about placements for Xenium and VIZIOM next quarter and then in 2025. And then on Chromium, what's the total pricing discount headwind you expect for next year for Chromium Consumables?

Yeah, let me take the first part of your, actually I can take both parts of your question. So I think on the Xenium instrument side, I think what we said from a guidance perspective is that we anticipate the entire Spatial business to grow double digits. So we are anticipating growth in the Xenium unit placements during the course of the year. And we would anticipate we'll sell more in 2025 than we did in [indiscernible] We've got a great pipeline. We've got a dedicated Xenium capital equipment team now they're starting to hit their stride. That is the team that probably still has the most hiring to do.

So we do anticipate as the year progresses as that team continues to develop and push the great opportunities that they're developing through the pipeline and closing those that we'll have growth in the Xenium instrument business year on year. Your question on Chromium consumables, I guess a couple of things I would say to sort of bound to the math there.

We called out double digit volume is what we're anticipating and that's what's baked into The guide We also said that was part of the guidance section that I mentioned earlier, that would be modestly down overall. And so I think you can infer from that we'll probably have as we think about the new products that we launched really from a price and creating accessibility from a customer perspective. Down sort of in that double digit sort of framework on a year on year basis from a reaction price [indiscernible] Question comes from the line of Dan Leonard with UBS. Please go ahead.

Thank you.

I was hoping you could elaborate a bit more on your biopharma comment I think you commented that's about 15% of your revenue could grow to 50% over time. Can you perhaps share what was the growth rates for biopharma in 2024 And just any more color around what the cadence would be to up mix that part of your revenue?

Yes. So I mean overall, Eviopharma was for the year was fairly challenged, especially as you go back to earlier like the first part of last But as we proceeded through, especially after sort of we made our changes on commercial side and set up the new team, In Q3, we saw a really nice sequential improvement in Q4. And a lot of the signs that we're now seeing as far as the team is concerned having the people in place, having sort of the new applications opening up and conversations we're having with customers, is all pointing in this in the direction of there's great potential to grow our business there. And And so yes, so we're going just a bit over historically, we've been around 15% to 20%. Per ton. And now we're making conservative investments and we're seeing great, great opportunities to grow much faster in there towards that goal of about 50%.

Next question comes from the line of Subbu Nami with Guggenheim Securities. Please go ahead. Hey, guys. Thank you for taking my question. On gross margin, it was a bit weaker than expected in the quarter.

Was it just a function of high instrument mix or is there also some inefficiency associated with the rollout of new consumable products that are dragging on margin?

Yes. Thanks, Tewoop. It was really a Xenia mix impact. We did mention We saw we weren't anticipating originally budget flush towards the end of the year just based on what we've had been I think we mentioned earlier in the year publicly that we did end up seeing. So when you think about where we had guided and where we landed portion of that was budget plus a good portion of that was in Biopharma and then there were certainly some denim instruments that played into that. And so when you think about gross margin trend during the course of the year, that was really the primary impact of that what you described there in Q4.

And your next question comes from the line of Kyle Nixon with Canaccord Genuity. Please go ahead.

A follow-up on biopharma that's a focus for you going forward. Can you talk about the biopharma spending assumptions in the $25,000,000 guidance given the budget launch experience at the end of twenty twenty four? And secondly, just on the IV side, [indiscernible] Just given that litigation, is there going to be even more competitive headwinds in single store going forward?

Thanks.

So, yes, maybe I'll address the first part of the question.

The second part of the question first. No, absolutely. Now the decisions look have a bearing in terms of like overall protection of our products. And our technologies. We feel really, really strong about those. And as far as competitive dynamics are concerned, we feel really great about the position of our products, the value that they provide, all the advantages in terms of data quality, in terms of performance, in terms of ease of use. Value that they deliver to our customers. And we feel really great where we are and that's always going to be our North Star is delivering great value for our customers. As far as Wyetharma is concerned, I mean, we are certainly as part of our guidance to temporarily consider the trajectory and [indiscernible] the impact, the growth within biopharma this year as well.

Thank you. And your next question comes from the line of Luke Sir Godfried Barclays. Please go ahead.

Great. Thanks guys.

Just a quick cleanup here, might have missed it, but did you give any sense or direction on the split between VIZYIUM and VNIUM consumables in quarter? And then unrelated, can you kind of give us some timing there on the cell project and kind of how that plays out and can they get that done in two, three years or what's needed there from equipment perspective?

Well, so we the project itself is getting going. Pretty quickly. As far as the time need to complete, obviously, these services are very large scale sort of It's not it shouldn't be kind of a three year timeframe, but it will take time. For it get done.

Your next question comes from the line of Matt LeRue with William Blair. Please go ahead. Hey, thanks. I have two.

Unrelated follow ups.

The first, based on the reaction and pricing commentary you've gave as well as the JetEx transit started Q4 twenty twenty four Is it reasonable to assume that you will grow single cell revenue in the fourth quarter and your current plan, that's part one.

And then part two understanding any transition from perspective overhead would be a challenge. Can you talk a little bit about your customers in Europe in terms of what their behavior is like? Certainly, it may have been a very rapidly growing category for you over the last four or five years in that scenario where indirect is up to 25%. So I would just be curious to hear about any differences similar to the customer behavior there?

Thanks.

So as far as the European sort of business and Ovid has a I think your question is around sort of the indirect and overhead kind of funds and how that plays out. Yes. So I mean, that's a good point in comparison. Our European business has actually been doing relatively well over the course of the past year plus. And that sort of indicates what happens when there is sort of a lower potential indirect rate. Over there. Now of course, when we're looking at The U. S, we have to be cautious and anytime you have a significant change of this magnitude, that creates a lot of uncertainty. And that is a certainly affecting outlook of our customers. But yes, you can see that in long run, this can work out and research can continue at a really robust rate.

Thank you. And your next question comes from the line of Matt Sykes with Goldman Sachs. Please go ahead.

Hi. Thanks for taking my question.

Just back to the commercial changes you made last year. Just as we think about the first half of this year, measuring your progress, and the success of those commercial changes I know you said that Xenium would likely be a little bit later You made some comments about biopharma seeing sequential improvement. At the end of last year. But how should we think about where sort of the leading indicators of success of these changes would be? Is it in Chromium CapEx? Is it in consumables? What are some of the measuring sticks we should be Right. Well, so one thing to appreciate here is that the The changes that we implemented were meant to be holistic right? This is like a rearchitecting of our go to market fundamentally where we created new sub organizations with our commercial function with a specified focus, with specified target incentives, and as such it's going to affect all parts of our business. We specifically wanted to make sure we have special dedicated team to focus on Xenia's which is great. It's going to help Xyngular, but also by virtue of taking Xenium instruments out of the bag of other sales executives that gives us the opportunity to focus more on the Chromium products and on the Vision products which should also help those product lines.

Also, by virtue of separating out the focus of academia from biopharma, will help biopharma, but will also help academia. Academic accounts. And overall, as we kind of zoom out where we are, we do feel like we're in a good place and making good progress as we have outlined previously. Good progress with hiring, good progress with the onboarding, opportunity management, account coverage, And as we look for the balance of the year, we should be really in full force by the middle of this year.

Thank you. And your next question comes from the line of Michael Rieske with Bank of America. Please go ahead.

I want to Just follow-up on a couple of earlier points, make sure I caught it right. I think Adam, you talked about first half, second half seasonality in 2025. You guys occasionally give quarterly guidance just whenever there's an end to keep in mind. So just Any additional clarity on 1Q specifically or are you just going to keep it by halves And then the other follow-up question, Serge, maybe a better suited for you. I think Dan and Leonard asked on earlier, your comments about pharma and biotech growing to 50%. Just want to push on that a little bit more. I mean, if you're at 15% to 20% revenue mix now, I realize that longer term for a lot of technologies and genomics and tools, there's growing use cases in translational research as you sort of move out of that earlier pure academic pure research setting. But if I look at your portfolio, these technologies have been out there for a while. This is not that new. And yet despite being on the market for in some cases five, ten years now, you're still only at 20%. So I'm just wondering, how do you get to 50%, right?

I mean, I would have thought that if you're really going to get there, you would have been further along the ramp now. Is there something from a commercial organization or from a customer use case that you think is holding you back and sort of keeping you out of pharma and biotech to a greater extent?

Thanks.

Yes. Yes, Mike. So a couple of things.

So first of all, the products themselves actually have not reached the level of maturity capability that's really suitable for pharma until would say a couple of years ago.

Because it is really imperative to have the ability to fix your samples or work will be able to work with fixed tissues especially FFP as you think about kind of later stage clinical work or clinical trial work. And that was not available up until just a couple of years ago.

Now we have it across our entire product line with the Flex product and FFP compatibility on the single cell side with with the Vision supporting FFP with Xenium being kind of FFP native from the very beginning. I think that is a really, really important context to keep in mind. As you think about getting out of like the early stage discovery into later stage of product development, you do need to have fixation compatibility, which wasn't really the case. There before. The second is just, yes, I mean things take somewhat longer to to get tested and to get validated and to spread.

Within pharma and biotech. And we have we are seeing the emergence of new applications that were sort of out there for since really 2016. That are now really gaining wide adoption and lots of interest. So specifically, large scale CRISPR screens, something that's of great interest to biopharma has emerged as a really big obligation across many companies. And we see that this is just the early days. Lots of applications through the full continuum of drug development as we have been getting into the so the specifics of all these different applications, And yes, I mean, the last point is this has to be also enabled by the appropriately focused commercial team. We have been very much focused on academia historically and we have created now for the first time a separate distinct organization that's focused on driving this biopharma business. It's a different kind of sales motion, it's a different kind of expertise. That's required to do so and we feel like we are putting the right pieces in place to now drive it at a greater speed going forward.

Thank you, presenters. And that is all the time we have for questions. This now concludes today's conference call. Thank you all for joining. You may now disconnect.