10x Genomics: Long-Term Growth Potential Marred By Near-Term Funding Risks

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10x Genomics (NASDAQ:TXG) held its inaugural capitalist day earlier this month, highlighting the lawsuit for a importantly larger addressable marketplace accidental semipermanent and an enhanced near-term maturation outlook pursuing the commercialized launch of Xenium. The second is simply a peculiarly affirmative step, arsenic it allows TXG to grow its offerings into in-situ investigation instruments, adding to its enactment successful single-cell investigation and spatial transcriptomics.

That said, determination was small successful the mode of mid-term guidance updates oregon further commentary connected the FY23 outlook, arsenic absorption refrained from committing to immoderate guidance ranges. With the halfway single-cell concern continuing to decelerate, this apt means a weaker setup into the adjacent twelvemonth unless absorption tin extract meaningfully higher opex/capex efficiencies. Perhaps adjacent much importantly, the currency pain is high, and a further narrowing of the liquidity runway could effect successful a dilution lawsuit down the line. The banal isn’t inexpensive either astatine ~7x EV/Sales, truthful adjacent if investors are bullish astir the company’s competitory positioning, holding retired for a amended introduction constituent mightiness beryllium the prudent determination here.

A $16bn TAM Opportunity with Room for Further Expansion

TXG’s existing offerings springiness it entree to a ~$16bn addressable marketplace accidental (or TAM) breached down arsenic follows - translational probe astatine ~$7bn, cellular & molecular biology astatine ~$5bn, arsenic good arsenic atlassing and familial mechanisms astatine ~$2bn each. The caller penetration astatine this year’s expert time was that TXG is besides targeting downstream objective applications, fixed the outsized crab diagnostics accidental astatine ~$10bn. This could grow significantly, though, should TXG successfully penetrate caller illness applications down the line. Depending connected the gait of adoption of large-scale, high-resolution methodologies implicit the agelong run, absorption sizes the wide beingness subject TAM imaginable astatine a monolithic ~$67bn.

10x Genomics

Digging deeper into the slides, the translational and objective sub-segments seemed to beryllium management’s absorption areas. Given these were besides sized arsenic the larger marketplace opportunities with longer penetration runways (translational probe presently has <5% penetration), expect absorption to deploy much resources towards commercializing these areas to physique retired its broader biopharma presence. This represents a invited strategical displacement from the anterior absorption connected single-cell investigation tools, which had seen comparatively dilatory adoption by a mostly world extremity market.

Xenium Platform Launch Accelerated But Near-Term Challenges Remain

Another cardinal takeaway from the lawsuit was the commercialized motorboat of the Xenium In Situ Platform, which enables high-throughput subcellular mapping of RNA targets, up of the antecedently guided FY23 motorboat date. Management didn’t disclose galore specifics, though, different than that the archetypal shipments person taken spot and that request for the level has been beardown frankincense far. Given the debased cumulative gross basal astatine ~$78m for the spatial conception successful Q3 (mainly from molecular profiling solution Visium), a palmy Xenium ramp-up should thrust further maturation successful FY23.

10x Genomics

While the latest Xenium improvement is affirmative for the gross trajectory heading into a challenging twelvemonth ahead, it remains aboriginal days, and gross publication volition apt beryllium minimal successful H1 2023. Even successful an optimistic script wherever a larger ramp successful H2 2023 materializes, it won’t beryllium a game-changer, and wide maturation volition inactive beryllium babelike connected a decelerating Chromium business. Also concerning is that Xenium is projected to beryllium dilutive to wide gross margins successful the archetypal stages. Thus, pending economies of standard for Xenium, the currency break-even timeline could endure delays, driving elevated backing risks ahead.

Free Cash Flow Breakeven Target Reiterated

Somewhat disappointingly, absorption offered minimal colour connected the FY23 outlook; instead, it reiterated the $500-520M gross guidance scope for FY22 and the currency travel break-even people by FY23. This seems counterintuitive to maine – not lone volition caller merchandise launches specified arsenic Xenium beryllium insufficient to offset the decelerating halfway single-cell business, but the incremental borderline dilution volition apt propulsion the break-even timeline further out. This leaves opex cuts and different ratio initiatives arsenic the cardinal levers to get there, with reduced headcount increases and an >50% capex simplification earmarked for adjacent twelvemonth post-buildout of the caller installation successful H1 2023.

10x Genomics

Long-Term Growth Potential Marred by Near-Term Funding Risks

As its capitalist time presumption outlined, the semipermanent TXG maturation outlook remains intact. Having cemented its enactment successful single-cell genomics probe via its Chromium platform, the institution is present looking to grow into caller merchandise launches crossed Spatial and In Situ going forward. In sum, the accidental for important TAM enlargement is compelling and should thrust maturation for the years to come.

Yet, backing the pipeline is expensive; with TXG besides contending with near-term macro headwinds, on with a decelerating halfway single-cell business, determination is simply a worldly hazard of a superior raise, successful my view. From here, execution volition beryllium cardinal to driving the guided gross inflection and the FY23 currency break-even target. While the banal has been beaten down YTD, astatine ~7x fwd revenues, determination is apt inactive rather a spot of optimism priced in; thus, I would clasp disconnected for a amended introduction constituent down the line.

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