Good morning, everyone. Welcome to day three of the Morgan Stanley Global Healthcare Conference. My name is Edmund Su, and I work on the Life Science Tools team here at Morgan Stanley. It's my pleasure to be hosting 10x Genomics today. Representing the company, we have Co-founder and CEO, Mr. Serge Saxonov. Thank you for joining us. Thank you for having me. Before we start, I'd just like to remind everyone in the audience important disclosure information can be found on our research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your MS sales rep. With that, maybe to kick things off, Serge, it's been a unique year with various policy and macro headwinds impacting your end market. Understanding things have changed meaningfully since the start of the year, how would you sum up the past nine months for 10x Genomics? What would you say are your proudest achievements in this challenging market? Yeah, it has certainly been a pretty eventful year. We started out with really good momentum. There has been a lot of news flow, a lot of changes in the macro environment. I would say at a high level, the things I would want to emphasize is just how proud I am of the team and their execution through all the things that kept hitting them and all the challenges and all the changes in the environment. That's across the board, the people in the field, the sales team dealing with the customers and all the issues and all the problems they're facing, the operations teams, R&D, G&A, across the whole company really coming together and kind of navigating and persevering through this environment. In terms of the substantive achievements of the team, there's been a whole number. We finished our commercial restructuring, which is particularly impressive in light of all the challenges we faced. We made really incredible progress in product development, including some of the products we launched already this year. Another one that's about to launch soon, I'm really excited by, Chromium Single Cell Gene Expression Flex V2 on the single cell side. Really importantly, especially in the current environment, but also more generalized, I think, to the future, huge focus on cost management. We came into the year with a strong balance sheet. We have strengthened it further through the year, through the actions and just the relentless cost discipline of the team. Overall, it puts us in a really good position to both navigate this environment and to come out stronger than ever on the outside of it. Great. Before diving into your segments and products, let's maybe touch upon your end markets really briefly and maybe starting with the academic end market. Serge, I think you mentioned that the customers in the U.S. are somewhat more optimistic versus earlier in the year, yet they remain cautious given the uncertainty around next year's funding and the slow pace of fund disbursements. I guess, has there been any changes in sentiment for customers in this end market over the past couple of weeks? I know this question gets asked all the time, but ultimately, the question of when academic customers will likely reopen their wallets remained a key focus for investors. Yeah, definitely a fair question. Obviously, a big focus for us. I would say at the highest level, there's not really been a change or any significant change since the time when we had our call in terms of the customer sentiment and those kinds of patterns. Obviously, things were feeling really dire back in the early in the year. There was a continuous stream of news that made things continuously worse or more dire. That created a lot of uncertainty, increasing uncertainty. At some point, the news flow changed in the sense that the uncertainties maybe stopped increasing, but they're still there. It has been, to the extent that there is stability, the stability of uncertainty. It's still large. It has been consistent until we see more clarity on what the budget is going to be next year around NIH, until we see more clarity around the actual cash, like actual money making our way into the bank accounts from the grant. Maybe more clarity around the direct versus indirect issues. People are going to be, the academic institutions, the PIs are all going to be similarly cautious around their spending patterns, for sure. We're still in that same state. I would say it hasn't gotten better. It hasn't gotten worse. Got it. How are your U.S. academic customers standing? Yeah, I mean, certainly much better than in the U.S., right, the situation. I would say it's still, you know, the current environment is not like awesome. It's not amazing. Like several years ago across the world, there was a lot of investment in biomedical research. I don't think that's kind of the case anymore. It's relatively subdued. We're finding it's particularly subdued on the capital equipment side of things where, you know, I'm doing a fair bit of travel in Europe and in Asia talking to customers. Yeah, there's just materially more scrutiny when it comes to instrument purchases. Whereas in the past, you might have a PI just go ahead and buy an instrument, buy this sort of piece of equipment. Now the department comes over the top and asks them hard questions like, well, you know, if the instrument already exists at another place in the institution, like there's one at the core, why don't you use that one for now instead of purchasing another one? We're seeing that kind of pattern across the world, just more pressure. Not universal, obviously, different geographies have all their own sort of pattern. I would say at a high level, the environment is somewhat subdued, not nearly as bad as what's in the U.S., but also not sort of the high-flying days of several years ago. Got it. That's super helpful. Maybe switching to the biopharma side, I know it's a smaller part of your business, but you guys have been very active in trying to further penetrate this end market. Maybe you can share some color on what you're hearing from your biopharma customers and some updates or progress on how the biopharma commercial team has been progressing so far. Yeah, I would say, first of all, very, very happy to have the biopharma focus team in place, both because it gives us much more clear visibility into what's happening there and also levers, much more sort of concentrated levers in terms of managing that business. Really good to have that. Really glad we did that reorg last year. We're ready for this environment. In terms of what is actually happening with the macroeconomic environment, we have our biopharma business composed of roughly half of biotech and half of larger pharma. Biotech has been in a sort of recession/depression for the past several years. I would say it still is in that mode where companies are really struggling for funding and are really trying to figure out how to make their cash last longer and so on. It's been certainly challenging from that perspective. Not to say that there aren't new companies coming aboard or you do hear about these very large funding rounds. There are quite a few of them who are basing their research programs or their development programs in large part on single cell and spatial foundations. We certainly get revenue from those. By and large, on average, the environment within biotech has been very challenging for the past several years. That has not really changed yet. On the big pharma side of things, one thing to keep in mind is that we tend to be indexed more toward the early development discovery stage of the pipeline. This year so far, we saw really nice momentum at the end of last year, early this year. Since a lot of news flow in the environment, they've been more cautious. A lot of that is just not having necessarily certainty around how things are going to look in the future in terms of pricing, in terms of tariffs, MFN, things like that makes them cautious right now investing in early stage discovery and so on. What we've seen so far this year is that reticence while they're waiting for things to shake out on a policy front. Got it. Super helpful. I was just thinking about all the pressures that your markets are seeing today. Are you seeing any sort of preference shifts for your customers in terms of either doing a single cell project or a spatial project? Yeah, it's kind of an interesting question. I would say, I can't really say that that has been the case, right? Again, the current environment is definitely, so relatively speaking, there's a preference for consumable kind of purchases as opposed to instruments or big capital equipment. In terms of the applications and these modalities, single cell and spatial, I wouldn't say that there's relative preference one way or the other. If you look at what people are actually interested in investing in, where they see their research programs going, where there's particular interest and enthusiasm, I think both single cell and spatial actually figure very, very prominently. I would argue probably at the top of the list. If you look at what are the big areas of growth in tools, spatial is probably the most promising kind of still early emerging franchise. Single cell is probably the most promising, relatively mature kind of segment. The cool thing too is now with single cell, we're seeing almost a reemergence, like these new applications that are accelerating the interest and the intensity of interest in single cell. Both are, I think, doing quite well, at least from the interest perspective. I guess the dollars are somewhat more concerning these days. Got it. Maybe looking at your product portfolio, starting with the Chromium franchise, you mentioned Chromium Single Cell Gene Expression Flex V2 earlier, your base product. Tell us more about this. I'm not sure if you disclosed this, but timing for the launch. Yeah, we haven't given more sort of concrete timing. We talked about it at the beginning of the year that it's coming. It's still scheduled for later this year. The team has been making great progress. We're really excited. The product is doing really well. We've been relatively cautious in terms of promoting it just yet, but we've engaged with a lot of early access customers. The feedback has been just phenomenal. I am personally really excited about it, and I think it's going to be a major event for single cell analysis fundamentally. It opens up a whole new set of workflows. That is really exciting, especially in the context of running very large scale perturbation screens. There's this new wave of interest and efforts that are coalescing around building large scale AI models of biology, and we see Flex V2 as being the foundational technology for enabling that. In fact, we've heard that from our customers, and there's this huge potential there. Just to step back, the benefits of Flex in general that are going to be amplified with this product introduction are really, really exciting to me too. It fundamentally has really, really great sensitivity and allows you to really get the expression of even the lowest expressed genes, which oftentimes are the most important ones, like transcription factors and things like that. It has really great, incredibly robust performance by virtue of its fixation, which makes it particularly amenable for broader adoption for people who are kind of new to the world of single cell. It's a lot more forgiving of various workflow deviations maybe. It works with fixed samples and in particular works with FFPE. Over the past couple of years, we have further refined those capabilities, which makes it uniquely amenable for translational and clinical applications now. It also is incredibly flexible in terms of how many samples, like now with V2, how many samples or how many cells you want to run through your single cell experiment. It's going to be a pretty big deal, and we're very excited about it as we're heading toward launch. Great. Chromium consumables, last quarter revenue was down, but reaction was about the year over year and quarter over quarter. What do you think today in terms of the GenX transition? I know you pointed to expectations for it to be completed by around year end, but you also said some customers mentioned that they would probably not switch to GenX because of certain features. Could you elaborate more on this? Are you ultimately expecting a certain percentage of customers to stay on NextGen? Yeah, so first of all, there's not really any real reason for people to stick with NextGen. It's more the fact that people have studies that are ongoing and they don't want to switch in the middle of a study, in the middle of experiments. There's sort of a general kind of notion if you're used to running a particular assay and it works well for you, which in a lot of cases it works really well, right? You don't want to switch. Like in subsequent GenX, it's just monotonically better along every dimension than NextGen. At this stage, the vast majority of our customers have switched. Not everyone. There's definitely kind of a minority that's still sort of that tail of running NextGen. We have announced publicly that we're going to be end of lifing NextGen. We're expecting that to now kind of accelerate the last wave of conversion as we're heading towards the end of this year and early next year. Got it. I guess the million dollar question that everyone wants to know is what gives you confidence in the long term elasticity in the single cell market? When can we expect to see Chromium consumables return to growth? Yeah, I mean, there's been several different questions here, sort of the fundamental premise and the timing. I would say, you know, the fundamental premise here, like why elasticity? First of all, I'll just go back to the first principles. When we first launched the single cell, it was always very clear to me, look, this is the foundational capability. It's a general purpose kind of technology that applies to just about every area of biology. Anytime you're starting your analysis, you're starting with tissue or cells, you really need to be looking at the cell by cell level. That's the basis of biology. I've never heard, we've not seen any kind of argument to the contrary, like fundamentally for anything that has become much like universally recognized that that's the right way to look at biology. At the same time, we knew from the beginning, if you're charging $1,500 a sample plus more of a sequencing, if you're in the thousands of dollars per sample, that cannot be kind of a universal technology. We knew that over time, you need to get into more like hundreds of dollars to drive to that universal ubiquitous adoption. That gives you kind of, again, from a first principles kind of a view that there's got to be elasticity. There's huge amounts of money that should be being spent on single cell that's currently not being spent. We also had a fair amount of empirical evidence along the way that we gathered when we did experiments either with particular products. When we first launched Flex and seen kind of the adoption curve of customers, once they kind of get to a lower price per sample, what happens to their volume, what happens to their dollars? Those increase, not immediately, but give it something like three quarters. The total revenue you make from that particular customer kind of increases. The reaction growth overwhelms the sort of the decline in ASP. We've seen, we've done some experiments geographically. We also have predicates from other technologies that have gone through this as well at similar price points and so on. That gives us a lot of conviction that there is elasticity. In fact, I think there's massive amounts of elasticity. Also, kind of going back to the point I made earlier, you can see now, like as we've been communicating these lower price points, there's new applications that are opening up. We're seeing new use cases. We're seeing new customers taking interest. At a high level, it's going, it's all kind of going in that direction. We're seeing now increase in reaction volumes, pretty significant, pretty consistent. Of course, it's on the background of ASP declines as well. I would say that, you know, like I think in an environment where that was more normalized, we'd probably see even more like growth, higher growth in reaction. To some extent, the point at which sort of you see true elasticity and the reaction growth leads to revenue increase is also a function of what's happening in the macro environment, right? We kind of have to see how that evolves. In general, we feel optimistic that we're very much on the right path here, and we're set up for a much larger growth going forward. Got it. Your recent Scale Biosciences acquisition, this has also generated a lot of buzz in the investment community. Can you help us better understand the strategic rationale here? I mean, from a tech perspective, I think researchers have shown that if you incorporate one round of barcoding ahead of encapsulation, you can run a lot more cells through Chromium. Is that the idea here? I mean, that's pretty perceptive, I would say. Kind of overall, right, this acquisition, this is a technology acquisition. The Scale team, the founding team was, is incredibly inventive, incredibly creative. They developed a number of technologies that were, again, they're both really foundational and fundamental and really clever. We're really looking forward to integrating them into our product lineup. If you think about it, the general notion, what does it take at the highest level to do single cell analysis? What is the key enabler? You need to be able to separate cells. You need to be able to deliver barcodes within the individual partitions. You need to be able to make massive numbers of barcodes, huge diversity of scale, right? Scale presents a really powerful approach for doing that, for pushing the third vector of scale. We expect to incorporate that into our Chromium product line. It gives us tons and tons of headroom to keep scaling the experiments and to deliver on the roadmap and all the things that our customers are excited for the future. Got it. How big of a lift could that be? When can we expect to hear something along the lines of a first product that incorporates the technology? Yeah, I mean, we haven't talked about our product roadmap beyond the current year. As you know, conceptually, kind of as you mentioned, these are very nicely complementary kinds of things. It's not a huge lift at all to combine what we have with the Scale fundamental scale technology. Got it. To the extent that you're comfortable, are you able to provide us with an update on where the scaling cost mitigation currently stands? Yeah, so Scale Biosciences brought a patent infringement suit against 10x Genomics several years ago. It's scheduled to go to trial in October, and that's still the timing and proceeding forward. Got it. What are your views on the single cell competitive landscape today? In addition to commercialized competitors, I know the preprint of STANT method last year generated a lot of buzz. I think it was officially published in Cell recently. What have customers been saying about using spatial images for single cell transcriptomics? Yeah, I mean, first of all, in terms of just single cell competition more broadly, obviously, the last few years, there has been a number of new entrants. The dynamic has been largely the same. Our products have just really, there's a huge gap in terms of the capabilities of our products relative to what exists out there with competition. Customers invariably go and try all these products. There's definitely a lot of trialing going on, and it has been now for the past several years. Just about invariably, they come back to us because, again, much superior data quality, much better sensitivity, much better robustness, the range of applications, customer support, all of these things that we've built out over the years to make our products that much better and much better as a customer for customer experience. To the extent that in the past, there was sort of a question of cost and pricing where that was kind of the wedge that people were driving through, that has also been, I would say, in many ways, addressed now by virtue of the product introductions we had last year with Elm Street Multiplexing, with what Flex is able to do. Now with Scale being in our portfolio as well, that kind of gives us a really nice breadth of coverage on the cost side as well. Generally, we're feeling really, really good about our position in single cell. As far as the STANT approach is concerned, it is very exciting. There's definitely quite a bit of interest, at least conceptually, in this approach. To be clear, this is something that we have been excited for a long time. Since we first started thinking about spatial, it was very natural to think, hey, you can take the dissociated cells and put them on that spatial and on a closed cell and do the analysis. That was always kind of part of our thinking. In fact, a lot of the very early customers of Xenium did precisely that. They would just put individual cells on a floor cell and run these experiments. The fact is it's still quite early, and there's no really commercial solution for that that's really streamlined. There's still a whole lot of trade-offs that you're making, and we'll likely be making for quite some time to come relative to actually doing proper single cell analysis. The depth of information that you get from individual cells when you're using Chromium is just far and above what you could currently do with the imaging approaches. It is a really exciting area. In principle, they can certainly drive down the cost per cell really far. For some applications, it is very compelling, not really the same applications that Chromium is used for. For that reason, for us, it's all good news. Just use more, right? Right. Got it. I guess speaking of Xenium, your protein co-detection capabilities were launched recently. Just wondering what early traction in customer feedback or reception is sounding like. I think based on our channel checks earlier this year, it seems like a lot of researchers have gravitated towards a separate spatial transcriptomics imager and a spatial proteomics imager. Just wondering what the research community is thinking about a co-detection on one platform nowadays. Yeah, so first of all, very early. I mean, we just started shipping the product, and the initial feedback has been quite positive. It's something, but it's too early to talk with a whole lot of substance yet on that. I think your general question around people kind of converging more toward having separate platforms, I mean, I think that's probably true in the current sort of environment. I think that's more of a function of the technologies that are available as opposed to necessarily customer interest. I think what customers would ideally want is a single platform that can do from the same section, actually do both modalities or more than that. We have seen that fairly consistently. Remember, Xenium can actually do also low-plex protein imaging. It It has been for, you know, since just about the beginning. You can take your Xenium section, do the RNA analysis, and then do immunofluorescence afterwards on the same section. People do this all the time. We do expect that there is a fundamental customer need to do both. The issue is that there hasn't yet been a technology that did it in a way that wasn't compromising things both sides. In the absence of that, for sure, I think what we've seen in the market is that people then get like three different platforms and do separate analysis. I don't think that's necessarily what the ultimate future is going to hold. Got it. Can you talk about your approach here? It seems like you guys are using small panels with the option of combining all of them for detecting 20 proteins, yeah, along with around 500 RNA. What is the thinking behind the strategy here? When can we expect to see protein co-detection with 5K prime? Yeah, so again, I haven't talked about more details of the roadmap and when the different things are going to be coming and in what sequence. I would say, maybe I just emphasize a couple of points. First of all, there is a lot of, you know, when you talk to customers around how many proteins they really want and need. Obviously, the first order, the more the better, right? That's what everyone wants too. When you press really, what is the real number that you need, given that you can get a pretty comprehensive overview of your sort of biology from RNA, something like on order of 20 is really where they're particularly kind of where the need really coalesces, right? Beyond that, it's better to have more, but it starts getting more marginal. That's one part of the equation. The other thing to consider is that it's not that the platform itself is limited to those numbers. With Xenium, with this approach, you can do a lot more proteins, for sure. Where the challenge is usually in these things is actually content, where you've got to put together the right set of antibodies that work really well together in concert, and getting the appropriate validation. This is the kind of thing where we're showing the capability. The first panel is very compelling on its merit for immune oncology for a number of applications. We've heard that from customers, but we're also giving the means for customers to evolve and build their own as well over time. We'll see how that goes. We do expect that over time, both the PLEX level and the diversity of panels will increase as we go forward. Great. On the topic of 5K prime, how has the traction been there? Are you starting to see any indications for customers that prefer smaller size panels, given some of the ongoing budgetary pressures? It's kind of interesting. The panel has been more like, it's been consistent in that people like 5K, and it's been trending that way. If you compare, like right out of the gate, it's kind of exceeded expectations. If you look at year over year, people are, the relative sort of utilization has been favoring, has been trending more toward 5K versus the smaller panels. Got it. I guess one of the interesting things last time on the Q2 call was you talked about the Xenium utilization graph. It was coming from both early adopters and new users. I was wondering if you could share some metrics on how this is progressing and what's really driving this interest. Yeah, it's too early to kind of, we haven't shared the specific metrics. I can say qualitatively, it's been very encouraging to see the patterns. It's kind of multiple vectors here that are encouraging for us. The average utilization of the number of runs people are scaling up, and that's across both people who are just ramping up early, which you would expect them to increase their usage as they're learning the system, as they're building their necessary panels, but also people in the middle of their life cycle. Our earliest users are still ramping up as well, which is again an encouraging sign. There's the number of runs across the user base, but also how much they're spending per run has also been increasing by virtue of people doing more 5K, relatively speaking. All those trends are pointing in the right direction with the utilization, which makes us fundamentally really excited about the future of the platform. In the current environment, when instruments are really pressured, it's a little hard to tell from the instrument sales. The utilization is all pointing in a really encouraging direction. No, that's great. In terms of Xenium placements, I know in the past before all of this stuff happened in the market, you guys have pointed to a range of about 50 to 70 units placed per quarter. I was just wondering, once the market recovers, is that something you guys would still expect going forward? Yeah, for now, we've been in the past few quarters sort of in that range, lower 30%. We hesitate to make predictions until there's more clarity on the macro and so on. First principles, like the signals that we're seeing there from the market, there's a lot of interest in Xenium. Certainly, once the environment is more amenable, we do expect for things to improve going forward. Fundamentally, just have strong, really, really strong conviction in this platform and the utility that we're seeing of it with the customers. Got it. In terms of your spatial consumable growth, I think it's primarily driven by Xenium. Maybe we can touch upon how Visium and Visium HD have been doing of late and what the current mix is between standard versus HD. Yeah, I mean, Visium has been doing well as well. I don't want to kind of game play with what's happening there. It is a nice set of applications, good resonance with customers. I do think that as we look forward, because we're seeing what customers are planning to do, Xenium is getting more and more mindshare. Also, in terms of account technology development, there's a lot more kind of headroom there as well. Fundamentally, Xenium is certainly getting more and more sort of focused. Visium continues to be a robust platform. By and large, now people have switched over to HD. HD still kind of has a minority of usage, but it's shrinking and more and more high definition, which is kind of what we expected. Got it. In terms of the spatial competitive landscape, litigation headwinds are now lifted for competitors Vizgen and NanoString. Are you seeing any shifts in the competitive landscape on the spatial side? No, not really. I would say the pattern has generally, it's sort of what I've been seeing is roughly a continuation of the previous pattern. People are increasingly recognizing just the superiority of Xenium In Situ relative to other platforms. The data quality, the sensitivity, the specificity, the robustness of the workflow, the consistency of the data, all these things are all really, really strong resonance and feedback from customers. I think that sort of led to the awareness of that and recognition of that has been spreading. We feel really good where we are on the market. I don't think there's been any real change to that sort of trajectory. Got it. On the last call, a scaling up of large scale studies on both your single cell and spatial side was discussed. I think on the spatial side, you highlight the Genomics to Singapore and your project with TissueNet. Can you share some more color there in Xenium In Situ's role? Yeah, no, it's like this is a real exciting project, and it's a couple of reasons. First of all, the Genomics Institute of Singapore is like they're very much at the forefront of really deep expertise on single cell and spatial and kind of genomics research in general. Some of the best people in the world. They also are really intimately integrated into the healthcare system in Singapore, which in itself is really, really great in terms of keeping track of all the clinical data and having it all be integrated. It's a really, really great place to do a large study of the kind that we've been excited to kind of set up the foundation for translational research and ultimately clinical application. In this case, the study is of 2,500 FFPE samples in cancer and autoimmunity to discover biomarker signature for drug response, disease progression, and also finding drug targets. I think it's a really great example of the kind of research that will happen. We know there's a lot of efforts around the world along a similar direction, again, scaling up and kind of pushing towards the translational side. You also touched a little bit on the single cell side. That's another huge wave. Both there's on the translational side where running these large scale experiments. We just had a press release with a company called ClySeq out of Weizmann Institute in Israel to do this large clinical trial to basically study bone, being able to diagnose kind of bone marrow diseases from blood drops instead of bone marrow taps. There's lots of other work like that. I mentioned this earlier, this whole big wave of building virtual cells or really AI models of biology, which is necessitating running very, very large scale experiments. You're talking about billions, but we're talking about tens of billions of those kinds of cells. That's a huge wave that we see coalescing around the world as well. Got it. I realize we're close to time, but let's give you another extra two minutes. In closing, what are some things that you want to highlight for investors just to make sure they focus on this amongst all of the noise in the market today? Yeah, I mean, it is true. There's certainly not a shortage of news and news flow and kind of macro environmental things one could try to track. What I always do myself and encourage the team, you know, kind of zoom out and think about the fundamentals, right? The fact is like the fundamentals of the business are incredibly strong. We are the single cell, like I've said before, the cell is the fundamental unit of biology. Single cell and spatial approaches are fundamental to measuring biology. I see like ultimately, you know, the future, if you're starting with any kind of tissue, any kind of cell, you really need to be analyzing those approaches, which is why I say it's the future of biological research, ultimately the future of drug discovery and the future of diagnostics. Also the technologies. That's why, you know, when you look, when you survey these customer surveys, where you look at where the sort of people are focusing and where their attention is going to be in research, single cell and spatial feature is probably the most promising franchises in all of tools. From that perspective, and then like, you know, when I think about from that perspective, given that we're like probably in the best strategic position we've been as a company ever, right? We've got a great market position. We've got a full complement of technologies now. We have an incredibly strong balance sheet and ability to deploy it and to use it to navigate both this current environment and invest for the future to take a full advantage of this, obviously, as a massive opportunity going forward. Great. Thank you very much, Serge. Thank you.