10x Genomics Stock Plummets: Why We’re Not Worried

“Each cell in your physique has the identical DNA. Besides it doesn’t.” That was the title of a 2018 New York Occasions article that talked about how “the genome doesn’t simply differ from individual to individual, it additionally varies from cell to cell.” That very same yr, an article was printed by Science discussing a landmark examine which exhibits how mind cells can revamp their DNA over time, one thing that might doubtlessly trigger Alzheimer’s. In different phrases, there’s a transparent want for scientists to attain mobile decision for DNA sequencing which might solely occur with instruments like these on provide from 10x Genomics (TXG) and different life sciences firms.

Conventional next-generation sequencing (NGS) strategies study DNA taken from a group of cells in order that it turns into “the typical of the inhabitants.” Such strategies are known as “bulk sequencing” versus “single cell sequencing” which is what it says on the tin. That’s in keeping with an article by Know-how Networks which breaks down the single-cell sequencing course of into 4 steps.

1. Isolation of single cells from a cell inhabitants.
2. Extraction, processing, and amplification of the genetic materials of every remoted cell.
3. Preparation of a “sequencing library” together with the genetic materials of an remoted cell.
4. Sequencing of the library utilizing a next-generation sequencer.

That fourth step is the place Illumina comes into the image given they’re the dominant supplier of NGS machines. Right here’s a diagram taken from a 2021 weblog put up by Illumina exhibiting how the 10x Genomics workflow interacts with Illumina sequencing machines.

As all the time, we need to put money into the single-cell revolution by discovering the main supplier of instruments, and that appears to be 10x Genomics.

10x Genomics – A Single Cell Chief

The final time we checked in with 10x Genomics was again in August 2019 once we wrote about The 10x Genomics IPO and Single-Cell Sequencing. Since that piece, we exited our place in Berkeley Lights – one other firm dabbling in cells – and went lengthy 10x Genomics. Right now, we need to examine in with the corporate and ensure they’re wholesome and proceed main the pack. With shares having fallen -68% because the starting of the yr (in comparison with a Nasdaq fall of -23% over the identical time frame), checking in additionally helps present us with confidence within the face of heavy paper losses.

Each time doable, we like to seek out material specialists to do the heavy lifting on the analysis aspect. In response to the intense people at DeciBio, 10x Genomics is rising as a frontrunner in serving to scientists perceive cells. 10x Genomics clients embody all the prime 100 international analysis establishments as ranked by Nature in 2020 primarily based on publications and all the highest 20 international biopharmaceutical firms. No single buyer accounts for greater than 10% of revenues. Two key metrics to look at – offered within the 10-Ok – might be seen under.

The variety of machines offered wants to extend for apparent causes, whereas “consumable pull-through” represents whole consumables income for the given time-frame divided by the variety of machines deployed. Primarily, it’s a metric that ensures clients are utilizing the machines they’re buying.

With capital drying up, we additionally need to consider survivability for any firm we’re holding. 10x Genomics gross margins are practically 85% which suggests the platform and consumables are extremely worthwhile. With $540 million in money and marketable securities on the books exiting Q1-2022, the corporate has a runway of about three years given final quarter’s working lack of $41 million.

Stumbling Income Development

The last word floor fact for management in a total addressable market (TAM) is income development. That’s the place 10x Genomics seems to have stumbled in Q1-2022.

Right here’s what the corporate stated concerning the slowdown of their filings.

We imagine revenues within the quarters ended December 31, 2021 and March 31, 2022 have been negatively impacted by sure of our clients’ staffing capability points, slowdowns and normal elevated uncertainty round near-term operations. We imagine these impacts have been notably related for tutorial clients who make up the massive majority of our income.

Whereas 10x Genomics compares each quarter to the identical quarter within the earlier yr, we prefer to see how every quarter compares to the one instantly previous it. Right here’s how that income slowdown appears once we break it out by income section.

Above you may see how evaluating Q1-2022 to Q1-2021 doesn’t look half dangerous, however evaluating Q1-2022 to This autumn-2021 exhibits a significant drop in revenues throughout each devices and consumables. The corporate blames a few of this drop on a chilly chain failure that passed off in Europe. Some clients obtained a product that was spoiled and solely found this after working their experiments. Consequently, orders have been placed on maintain as the corporate labored to determine the issue and resolve it. Certainly, we see that Q1-2022 revenues for Europe dropped sharply by 40% in comparison with different areas which skilled development – besides North America.

The 23% drop in North American revenues is regarding and will relate to what the corporate stated about “uncertainty round near-term operations” for tutorial clients. If three quarters of 10x Genomics revenues come from tutorial clients, and tutorial establishments are deciding to chop again their budgets as a result of the financial system is hitting the skids, then that’s an issue that may persist all through the rest of the yr. Positive, the corporate expects that business clients would be the majority income contributors sooner or later, however that’s going to take a while. And that’s solely a profit if business utilization is extra resilient to finances cuts than tutorial utilization.

On the intense aspect, the breadth of functions that 10x Genomics touches signifies that traction will possible proceed. Right here’s a take a look at the distribution of three,300 peer-reviewed articles which were printed primarily based on information generated utilizing their merchandise. 

The 10x Genomics Chromium platform consists of a number of options which might be being developed in response to buyer calls for.

The final merchandise within the above desk – Visium – is a pure consumables providing that’s utilized by Chromium clients. Revenues from Visium are blended into Chromium consumables to type a single consumables section. Not seen above is a 3rd platform known as Xenium, a flexible instrument, consumables, panels, and software program, that may permit researchers to create gene expression maps at mobile and subcellular decision. Anticipated to launch on the finish of this yr, the brand new platform was talked about 23 occasions within the Q1-2022 earnings name implying that analysts have excessive expectations for it.

Our 10x Genomics Place

We’ve been including shares of TXG over the previous rolling yr and are closing in on the utmost quantity of capital we allocate to any single place. For these traders sitting on the sidelines, you could need to see how Q2-2022 outcomes need to see the ultimate impression of the European chilly provide chain drawback and whether or not North American revenues proceed to say no. Market volatility has elevated which suggests concern is within the air. In occasions of uncertainty, budgets usually get lower as establishments of every kind change into extra cost-conscious. 10x genomics appears to be main the pack in what they do, however a falling tide impacts all boats. With a easy valuation ratio of 13 primarily based on final quarter’s outcomes, there’s nothing retaining TXG shares from taking an enormous dump if Q2-2022 disappoints the lofty expectations of traders. For those who’re opening a place or including to at least one, achieve this slowly over time versus making an attempt to time the market. You’ll by no means purchase on the backside, and also you’ll by no means promote on the prime.

Even when tutorial budgets are lower throughout the board and 10x Genomics’ income development flatlines for some time, they’ve the gross margins wanted to outlive if money begins to run dry. Administration talks about persevering with enlargement in 2022 with plans to rent upwards of 100 salespeople. We count on they’ve their finger on the heart beat of the market and don’t see a lot trigger for concern following their Q1-2022 income stall. Whereas the European chilly chain hangover could carry over into Q2-2022, they’ve set expectations for a resumption in development for Q3/This autumn 2022.

We proceed to count on our full-year 2022 income to be within the vary of $600 million to $630 million representing development of twenty-two% to twenty-eight% over full yr 2021.

10x Genomics Q1-2022 Earnings Name

If that doesn’t occur, then we’ll begin to fear.

Conclusion

In case your tech portfolio appears to be crumbling earlier than your eyes, that’s as a result of volatility goes each methods. Beginner traders panic and promote at a loss. A battled hardened investor has the temperament to stay with their unique thesis by way of occasions of turmoil. For those who put money into high quality firms, they’ll survive robust occasions and thrive when the mud settles. Sturdy gross margins, broad market penetration, and stable key metrics imply 10x Genomics will possible keep the course and proceed to execute no matter what their share value does.

Tech investing is extraordinarily dangerous. Reduce your danger with our inventory analysis, funding instruments, and portfolios, and discover out which tech shares you need to keep away from. Turn out to be a Nanalyze Premium member and discover out immediately!