TXG - 10x Genomics: Still Waiting For Entry

2024-01-20 06:55:00 ET

Summary

• 10x Genomics reported 18% YoY revenue growth in Q4, reaching $184M, with instruments revenue seeing a remarkable surge of 71%.
• The company celebrated the successful launch of its cutting-edge platform, Xenium, which offers exceptional vision and surpasses competitors in speed, sensitivity, and specificity.
• 10x Genomics is poised for sustained growth with its pursuit of scientific advancements, expanding applications in various fields, and strategic partnerships.

In my previous article on 10x Genomics (TXG), I debated the potential insertion of TXG in the Compounding Healthcare "Bio Boom" speculative portfolio. This deliberation was centered on the company's ability to develop cutting-edge products, services, and R&D capabilities. The article defined my game plan fixated on technical analysis and explicit conditions for entry. However, those circumstances did not appear, and I am still sitting on the sidelines, awaiting a suitable opening to start a position in TXG. The company recently reported their preliminary Q4/2023 earnings from 10x Genomics showcasing remarkable growth, buttressing my bullish stance on the company and providing insights to amend my entry conditions.

I intend to provide an overview of 10x Genomics and its preliminary Q4 performance before discussing the updated outlook, potential downsides, and my revised strategy for starting a position in TXG.

Background On 10x Genomics

10x Genomics is a prominent life sciences tools and tech company, globally recognized for its cutting-edge tools and products. The company's continuous R&D efforts, coupled with strategic acquisitions, have expanded its range of abilities. 10x Genomics has a diverse assortment of products and services, including consumables for chromium instruments, related software, and platforms for instance the Xenium In Situ Analysis Platform, Chromium Single-Cell Platform, and Visium Spatial Platform. These tools allow for single-cell analysis, contributing to advancements in bespoke medicine, disease research, and drug discovery.

Preliminary Q4 Performance

In Q4 2023 , 10x Genomics recorded 18% year-over-year revenue growth, reaching $184M. 10x expects their full-year total revenue to be roughly $618.7M, which would be an inspiring 20% growth over the previous year. Notably, instruments revenue saw a remarkable surge, reaching about $123.5M, demonstrating a considerable 71% increase. This growth was attributed to the accomplishment of both Chromium and Spatial instruments, contributing ~$48M and $75.6M, respectively. Consumables revenue pulled in a steady 10% growth, totaling around $479.6M, while Services revenue also soared, displaying an 86% increase to around $15.7M.

The company marked a noteworthy milestone by selling in excess of 5,900 cumulative instruments by the end of 2023, comprising more than 5,150 Chromium instruments, more than 500 Visium instruments, and above 250 Xenium instruments.

Xenium Launch Update

2023 was a big year for 10x Genomics as the company celebrates an exceptional launch for Xenium, its cutting-edge platform that has recorded praise from leading researchers and institutions. Xenium's matchless competencies provide exceptional vision into the molecular pathology of diseases at an unbelievable resolution.

Moreover, Xenium has breakneck speed, outperforming competitors like CosMx by 3x-4x. In addition, Xenium boasts higher sensitivity and throughput, exceeding NanoString's ( NSTG ) CosMx platform by 2x-15x and Vizgen's MERSCOPE by 3x-14x. In terms of specificity, Xenium is 30x-45x better than CosMx. Furthermore, Xenium has been operative in diverse tissues, emphasizing Xenium's versatility and excellence in imaging spatial transcriptomics platforms.

Xenium's exceptional launch not only solidifies its position as a trailblazer in genomics platforms but also sets the stage for robust revenue growth for years to come as the leading platform for In Situ Analysis.

Growth Drivers

In addition to Xenium's promising launch, 10x has a few broader growth drivers that should fuel the company's evolution. Primarily, 10x's pursuit of scientific advancements to stay at the front of the pack will allow them to benefit from increased interest in genomics. The company's single-cell and spatial genomics solutions enable researchers to delve deeper into the complexities of biological systems. As the demand for more precise and detailed genomic information continues to grow, 10x Genomics is poised to capitalize on this trend for the foreseeable future.

The company is also working on expanding applications in various fields, including oncology, neuroscience, and immunology. With an increasing number of researchers and healthcare companies exploring new therapeutic possibilities, the demand for 10x Genomics' solutions is likely to surge as they expand their reach thanks to the versatility of their platforms and positions the company for sustained growth across multiple sectors.

10x is also committed to securing strategic partnerships and collaborations with leading academic institutions, research centers, and healthcare companies in order to strengthen their status in the industry. These partnerships not only enhance the company's research capabilities but also open up opportunities for the development of new applications and markets.

These large growth opportunities are expected to deliver strong revenue growth in the coming years. Notably, the Street expects 10x to report robust double-digit revenue growth into the next decade.

Although this is not a breakneck growth rate, it is difficult to find a life sciences tools and solutions company that has similar projections. Pacific Biosciences of California ( PACB ), AbCellera Biologics ( ABCL ), and Harvard Bioscience ( HBIO ) are some of only a handful of life sciences tools and solutions tickers that offer a similar growth trajectory.

Risks To Consider

While 10x Genomics exhibits strong growth prospects, there are inherent risks. 10x continues to record losses, and the competitive nature of the industry can hinder the company's growth and possibly derail the bull thesis if the competition launches a superior product line. Although the company did win their patent case against NanoString ( NSTG ) and Vizgen in Germany, there is still a strong list of competitors such as Illumina ( ILMN ), Bio-Rad ( BIO ), PacBio ( PACB ), Becton, Dickinson, & Co. ( BDX ), Fulgent Genetics ( FLGT ), and Mission Bio. For me, 10x is arguably the leader in single-cell, so I don't anticipate them being relegated anytime soon. However, I will point out that a larger company such as Thermo Fisher Scientific ( TMO ) may be able to acquire an under-the-radar private company that has next-gen tech that could make 10x obsolete in several years. 10x only had $357M in cash and cash equivalents at the end of Q3, which is enough to sustain the company for the near term, but I am not sure it is sufficient to fund a rebuild at a formula level. Again, I don't see any serious competition on the horizon, but any threat could inject some volatility into the stock price volatility and add additional risk factors.

Considering these risks, I still see TXG as a speculative ticker with a conviction rating of 3 out of 5 at this time.

Still Waiting For An Entry Point

I have attempted to find an entry point on TXG multiple times, but once again, concerns raised during technical analysis have kept TXG on the Compounding Healthcare watchlist for 2023. The share price faced rejection after breaking certain sequences, encountering downtrend resistance, and exhibiting a bear flag formation on the Monthly Chart.

The absence of a high-conviction setup prompted me to remain cautious and observe the ticker's behavior.

However, recent monitoring of the share price in relation to uptrend and downtrend rays shows that we might be close to a potential breakout of the bear flag with a move above the high of the formation.

In addition, the share price is approaching the downtrend ray from the all-time-high, which if broken, would be a bullish signal for the ticker. Therefore, I am going to wait for TXG to break the formation and hold above at the downtrend ray from the all-time high before establishing an entry. Once I have opened a position, I will look to add the following earnings reports that support the growth narrative. Admittedly, I will be looking to trade the ticker in order to generate some profit and de-risk a core position for a long-term investment.

Overall, 10x Genomics presents a compelling case for inclusion in the Compounding Healthcare Bio Boom Portfolio, supported by its growth, innovation, and strong financial position.

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