10x Genomics, Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics Third Quarter 2020 Earnings Conference Call. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Eric Jaschke, Director of Investor Relations and Strategic Finance. Thank you. Please go ahead, sir.

Thank you. Earlier today, 10x Genomics released financial results for the third quarter ended September 30, 2020. If you've not received this news release or if you would like to be added to the company's distribution list, please give an email to investors@10xgenomics.com. An archived webcast of this call will be available on the Investor tab of the company's website at 10xgenomics.com for at least 45 days following this call. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, 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 with the Securities and Exchange Commission. 10x 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 Serge Saxonov, our CEO and Co-Founder; and Justin McAnear, our Chief Financial Officer. In addition, Brad Crutchfield, our Chief Commercial Officer, will be available for Q&A. With that, I'll now turn the call over to Serge.

Thanks, Eric. Good afternoon, and thank you for joining our call to review our third quarter 2020 results. On today's call, I will start with a review of our financial performance during the third quarter. Next, I will discuss some strategic and operational highlights, including updates on recent product launches and acquisitions. I will also discuss the opportunities that lie ahead and how we're planning and investing to capture those opportunities. I will then turn the call over to Justin for a more detailed look at our financials, including detail on the trends we are seeing within our customer base. Starting with our third quarter results. Revenues grew to $71.8 million, up 17% year-over-year, and up 67% sequentially. The strong growth this quarter was driven primarily by an improved operating environment as many labs around the world continue to reopen for general research. Demand from instruments remained high during the quarter, and we saw a rebound in utilization of consumables as more customers return to the lab. The increase from the prior quarter was primarily due to the rebound in general research demand. Overall, in the face of a challenging operating environment, we have made incredible progress thus far in 2020. At the beginning of the year, we laid out our key priorities to drive near-term execution, scale the company and invest ambitiously for the future. While this year has turned out much differently than anyone expected, we continue to execute on our strategic goals and have laid the groundwork for an expanded set of long-term opportunities. In addition to strong commercial and operational execution, we achieved a number of important milestones this year, including multiple product launches, the completion of our follow-on offering, the announcement and closing of two acquisitions and the opening of our manufacturing facilities in Singapore. Our vision is based on the premise that this is the century of biology, in which many of humanity's most pressing health challenges will be solved with precision diagnostics, targeted therapies and cures to currently intractable diseases. In order to make this future a reality, and take advantage of the resulting opportunities, we need to build tools that will accelerate our understanding and mastery of the underlying biological systems, tools that can measure biology at scale and resolution that matches its massive complexities. Since the start of the single-cell revolution a few years ago, it has become increasingly clear that cell heterogeneity intertwined with complex gene networks is a pervasive feature of all human tissues. The future of biological analysis, whether for research or clinical applications, lies with multiplex, multi-omics measurements performed at large scale with single cell context. We have designed our product platforms to enable this feature. Our Chromium and Visium platforms provide the means for measuring biology at high resolution and scale. We will also develop our future platform around in situ analysis based on a similar vision and to complement our existing platforms. These three approaches should become essential across a wide range of applications in the coming years and beyond. Now starting with Chromium. The vision for the platform and the value it delivers is being increasingly validated in the market. Demand for our Chromium platform continues to expand rapidly. We are encouraged by the pace of utilization as existing customers have come back into the lab and are especially pleased by the impressive influx of new customers coming into the 10x single-cell ecosystem. It is easy to forget that our Chromium single cell products have been on the market for only four years, and there are already nearly 2,000 scientific publications that have made use of our technology. The pace of these publications as well as the breadth of studies they describe speaks to the fundamental importance of single-cell approaches and underscores the vast potential of the Chromium platform. Last quarter, there had been many great studies that use 10x across a range of fields, including oncology, immunology, neuroscience, infectious diseases, as well as many others. Here, I would like to highlight one paper from researchers at Stanford University and the University of Pennsylvania, who sought to understand the reasons for neurotoxicity, which is a common side effect of B-cell targeting immunotherapies. Using Chromium, the scientists discovered that the target gene for these therapies is also expressed in a small subset of cells in the brain. This finding has important scientific implications and demonstrates the crucial value of single cell analysis for developing new medicines. We executed against our ambitious product roadmap throughout the year and introduced a number of breakthrough products on the Chromium platform thus far in 2020. We launched our targeted gene expression product and the new version of the Cell Ranger analysis software in the second quarter. In the third quarter, we launched our next-generation immune profiling solution, and our gene expression + ATAC-seq Multiome solution. We have been very encouraged by the initial response to these products. We launched version 2 of the immune profiling solution in July to provide a number of performance improvements over the previous version. The immune profiling product allows large-scale sequencing of paired immune cell receptors together with Multiomic profiling of immune cells. The new version detects more receptor pairs and delivers significantly higher gene detection sensitivity, yielding more insights with more efficiency. Since launch, the rate at which customers have been adopting the new immune profiling solution has been impressive and ahead of our expectations. Most customers have been switching to the new version without running head-to-head comparisons that are customary during similar upgrade cycles. This speaks to our reputation in the marketplace and the trust the customers now put in the 10x brand. Moving now to the Multiome gene expression and ATAC-seq solution. The ability to profile the epigenome and the transcriptome from the same cell across large numbers of cells has been the number one request from our customers over the past two years. The reason this capability has been of such intense interest to scientists is that it provides a path to decipher the rules of epigenetic programming, which has been the holy grail of epigenetic research. With Multiome, for the first time ever, researchers now have access to a commercial solution that can answer these questions by measuring gene expression and epigenetic programming simultaneously from the same cell across thousands of cells in parallel. Since its launch in September, this product has drawn lots of interest from our current customers, but also from the epigenetic community more broadly. We're happy to say that they have exceeded our expectations to date. The development of the Multiome product was an incredible achievement for the 10x team and is a great example of our competitive advantage. It relies on a number of breakthroughs across multiple disciplines and was only made possible by the type of multidisciplinary collaboration and the depth of expertise we have assembled across the company. The development of Multiome resulted in a dozen patent applications. Our internal expertise, together with our customer insights, helped us gain early conviction to invest aggressively in this effort. And all of this has now resulted in a highly differentiated product that is having immediate and powerful resonance with the market. Overall, we remain very early in market penetration for Chromium, and we're excited about the growing breadth of researchers who are interested in single cell approaches. Our goal is to keep accelerating broad adoption of our products as we move past the early technologies to the tens of thousands of biologists spanning different fields of study and different types of expertise. We plan to invest broadly in this vision through market development and product innovation. And as the single cell approaches make their way to labs more broadly, solving analytical bottlenecks is becoming an essential part of the customer experience. With this in mind, we recently launched limited access to our 10x cloud analysis platform. This platform includes secure collaboration tools, scalable storage and compute infrastructure, and provides our customers with the best possible speed and ease of use when running analysis pipelines for gene expression and for immune profiling. These core capabilities come at no additional cost to our customers, which helps to lower the barriers of adoption and democratize single-cell analysis. This is an exciting extension of our highly differentiated software tools from the native environment into the cloud, and this is just the start. Over time, we will continue to add more features and more capabilities. Moving on to Visium. We continue to be impressed by the level of adoption we have seen since we launched this product less than a year ago. The number of new Visium customers continued to grow during the third quarter. Yet even with this influx of new customers, repeat Visium customers, for the first time, made up the majority of the Visium business, as many of our earlier adopters are increasingly progressing from final programs to large experiments and larger projects. Underscoring this progress are more than 50 publications and preprints describing studies that have made use of the Visium technology to date, with many of these being published within the last few months. We're encouraged by the breadth and the pace of these publications. They validate the high value of Visium experiments and demonstrate the ability of our customers to progress through the workflow successfully and make meaningful discoveries. Just as we experienced with single cell, we believe these papers will drive broad market adoption and are an indicator of future demand. These publications have featured a variety of applications, most notably in oncology and neuroscience, but now in new areas as well. For example, just recently, in nature, researchers used Visium in conjunction with Chromium-based analysis to study acute respiratory distress syndrome, known as ARDS, in influenza patients. In this study, researchers discovered a new special state of fibroblast cells and the mechanism through which they drive the old response by the immune system. The findings present a new potential approach to develop therapies to preserve lung function and improve clinical outcomes. Overall, Visium is very early in its life cycle, and we're making extensive investments in market development and product development to drive adoption of the platform. In the second quarter, we launched IHC compatibility with Visium, allowing whole transcriptome spatial analysis and immunofluorescence protein detection to be performed on the same tissue. In October, we also launched our targeted gene expression on Visium. This cadence of product introductions will continue into next year and beyond. The development of the Visium FFPE solution remains on schedule. We are preparing to launch that product in the first half of 2021. And while we aren't ready to give exact product details at this time, the early performance data we have seen to date has exceeded our expectations. We have many other products in development and are very excited about our Visium roadmap. And while both Chromium and Visium remain early in our adoption, looking further out to the future, we have identified in situ analysis as a logical next step following in the footsteps of our existing platforms. To that end, we were excited to announce the acquisitions of ReadCoor and CartaNA, which, combined with our early work in this area, will form the foundation for the development of our third product platform in the emerging in situ field. In situ analysis refers to the sequencing or measurement of large numbers of different molecules, including RNA, DNA, and proteins directly in their native tissue and with subcellular resolution. This is unlike most current analytical techniques, which require that molecules be removed from tissue before measurement and analysis. In situ approaches entail developing an integrated system with capabilities that are highly complementary to both Chromium and Visium. In situ methods have analogs with existing IHC or FISH-based pathology workflows but offer much higher levels of multiplexing and vastly greater amounts of biological information. We believe that this technology will enable powerful molecule analysis tools, which will support discoveries made by the Chromium and Visium platforms, broaden the range of customers and enable new translational and clinical applications. Based on our in-depth assessment of the in situ landscape and our own internal R&D efforts, we determined that acquiring ReadCoor and CartaNA was the right path to address this compelling opportunity. With these acquisitions, 10x gained key technological advances, teams with deep expertise and talent, as well as a comprehensive intellectual property portfolio, including over 110 foundational patents covering a variety of in situ approaches. As we look to the future, we anticipate that most tissue samples will be analyzed using at least one of these approaches, Chromium, Visium, or in situ, whether for basic science research or for clinical applications. And while our existing platforms have already been adopted by large numbers of customers, it is important to remember that we're still very early in Chromium market penetration and even earlier with Visium. We continue to be excited by the rapid adoption of Chromium and are highly encouraged by the early trajectory of Visium as we intend to invest aggressively in both platforms to fully realize their potential. In parallel, we will invest in situ over the coming years to create a new platform with performance and the user experience that 10x customers have come to expect. Since our IPO, we have laid the groundwork to position ourselves to take advantage of the vast opportunities we see unfolding in the coming decade. As we move into 2021, we will continue to invest across our business to realize the full potential of these opportunities. This includes investments in R&D to continue our rapid pace of product development and innovation across all of our platforms, in intellectual property to protect our products and scientific advancements, in our commercial organization to continue to build our sales and service infrastructure and adequately address the interest we're seeing from a variety of markets, including biopharma and translational. And finally, in our operational capabilities to ensure that we have the foundation to support our future growth. As we sit here today, I have more confidence than ever in our strategy. I strongly believe that the resolution of scale offered by our products will be essential in helping to understand biology and advance human health. The interest and excitement for our products reinforce our conviction in our mission and the vast opportunities that lie ahead for 10x, both now and well into the future. With that, I will now turn the call over to Justin for more detail on our financials.

Thank you, Serge. Total revenue for the three months ended September 30, 2020, was $71.8 million compared to $61.2 million for the prior year period, representing a 17% increase year-over-year. Consumables revenue was $60.6 million, which increased 22% over the prior year period. Instrument revenue was $9.7 million, which decreased 7% over the prior year period. Service revenue was $1.6 million, which increased 46% over the prior year period. The increase in consumable revenue this quarter was primarily driven by growth in the instrument installed base, though this was partially offset by decreased demand due to lab closures related to COVID-19. Instrument revenue was primarily impacted by lower instrument placements during the quarter, though partially offset by a slightly higher ASP due to shipments of Chromium Connect. Service revenue increased due to a larger number of instruments coming off of their initial one-year warranty and on the paid service contracts. North America revenue for the third quarter was $42.4 million, which increased 18% over the prior year period. EMEA revenue for the third quarter was $15.5 million, which increased 28% over the prior year period. APAC revenue for the third quarter was $14 million, which increased 6% over the prior year period. We saw modest improvements in both the academic and biopharma markets throughout the quarter as researchers continue to return to the lab. We ended the second quarter with approximately 60% of our accounts open for general research. And at the end of the third quarter, we estimated that the number of customer labs open in general research increased to approximately 80%, with many operating at reduced capacity. Currently, we estimate that approximately 85% of customer labs are open for general research in varying capacities. Now turning to the rest of the income statement. Gross profit for the third quarter was $57.4 million compared to a gross profit of $45.7 million for the prior year period. Gross margin for the third quarter was 80% compared to 75% for the prior year period. The gross margin increase was primarily driven by lower accrued royalties related to ongoing litigation. Total operating expenses for the third quarter were $122.7 million, an increase of 124% from $54.8 million for the third quarter of 2019. This includes a $40.6 million charge to in-process research and development expense resulting from the CartaNA acquisition. Outside of the charge related to CartaNA, the increase in operating expenses was primarily attributable to increased personnel-related expenses due to ongoing expansion within R&D and the commercial organizations, including stock-based compensation, increased legal expenses and expenses related to our ongoing COVID-19 employee testing program. R&D expenses for the third quarter, excluding the charge related to CartaNA, were $30.1 million compared to $22.2 million for the third quarter of 2019. This was driven primarily by $5.5 million of increased personnel-related expenses, including stock-based compensation, and a $1.6 million increase in expenses related to lab materials, supplies and equipment. SG&A expenses for the third quarter were $51.5 million compared to $32.6 million for the third quarter of 2019, with the increase driven primarily by $9.6 million of increased personnel-related expenses, including stock-based compensation, and $7.6 million of increased legal expense. Operating loss for the third quarter was $65.3 million compared to a loss of $9.1 million for the third quarter of 2019. This includes $13.8 million of stock-based compensation for the third quarter of 2020 compared to a $3.9 million stock-based compensation expense for the third quarter of 2019. Net loss for the period was $65.8 million compared to a net loss of $9.6 million for the third quarter of 2019. We ended the quarter with $769 million in cash and cash equivalents, which includes net proceeds of $482 million from our September follow-on offering and is net of restricted cash. While we are encouraged by the results this quarter, there remains near-term uncertainty related to COVID-19. And as such, we will refrain from reinstating guidance at this time. However, as we did last quarter, we would like to offer some color on quarterly trends to date. As of the end of last week, our overall orders for the fourth quarter are trending approximately 35% up from the fourth quarter of 2019. While we are generally optimistic, this represents our best view of the business as we stand here today. It does not contemplate the impact of rising case counts, potentially leading to increased shutdowns or reduced customer lab capacity, and neither does it contemplate the potential for customers to exhaust higher-than-normal budgets at year-end or increase in lab capacity if the situation improves. Turning to cash flow for the fourth quarter. We expect several one-time expenditures, beginning with the payment of $100 million in cash upon closing of the ReadCoor acquisition, our $30 million payment for the land acquisition in Pleasanton, and potential litigation-related payments. At this point, I'll turn it back to Serge.

Thanks, Justin. Before we wrap up the call, I want to thank everyone at 10x for your continued dedication and incredible efforts this past quarter. Despite numerous obstacles and challenges, you have executed superbly and achieved a remarkable number of key milestones in just a few short months. Looking ahead, we're now in a better-than-ever position to execute on our ambitious mission. We remain committed to building and commercializing technologies needed to accelerate the mastery of biology and advance human health. With that, we will now open it up for questions. Operator?

Our first question comes from Tycho Peterson with JPMorgan.

I'll start with ReadCoor. Serge, I'm just wondering if you could talk a little bit about optimizing the technology. Throughput is one issue. I think that's been flagged as something that needs to be improved on. So where do you think throughput can go? And then other ways you could leverage the sequencer as well on the back end beyond kind of the fully integrated system? In other words, could it be decoupled and partnered up with Chromium at some point?

So it's too early to talk about specifics of product configuration and specifications. So at this point, we're very much focused on integrating the teams and the technologies across the three different sites, ReadCoor, CartaNA, and 10x. We certainly have strong enthusiasm regarding the potential of the technology and what it can do and feel quite optimistic, especially in the long term, about addressing whatever concerns that people might bring up around this technology. So we will update the market in the future as we proceed through integration and once we've established the teams into our product development process. I think it's too early to discuss anything on the back-end sequencing or configurations around Chromium and the rest of them.

Okay. And then I'm wondering if you could just talk to interest for the base business from translational customers post the IHC launch? And how do you think about that kind of market playing out?

So yes, I mean, we are very excited about the market and certainly, the traction and interest in the translational side of the business. We have previously discussed our clinical translational research network, a set of customers who have come to us, forming to promote the use cases and teach each other use cases within a translational framework. The primary requirement within that market is FFPE compatibility, and that's certainly something that we're working on and excited about the progress; it's coming next year, as we mentioned. But overall, as we look to the long run, it looks very promising, both the level of interest now and the excitement about the future of the platform.

Okay. And then last one for Justin. If I look at how things have progressed here, you've seen a 30% drop in the second quarter and then flattish in July and then 17% for the third quarter implies a big September acceleration. Can you talk a bit about the momentum coming out of the quarter? I know you talked about lab accessibility and the percentage of sites that are open. But as we see cases going back up, what's the risk of slowing a bit here versus the momentum you saw in September?

We closed Q3 with about 80% of customers open. As of right now, we're at about 85%. So there is some positive momentum towards openings. But as of late, we have seen case counts continue to rise. So there is some uncertainty as to how this will play out over the next few weeks. I think there is the potential downside of perhaps the openings reversing and having some closures. But there's also the upside of customers having the normal seasonal year-end budget expenditures or the seasonality increase that we typically see in most years. We'll have to see how those two factors play out as we close out the year.

Tycho, this is Brad. Maybe I'll just give you a little bit of color on the U.K. because that's one that has gone into a more austere kind of shutdown mode. I think we're seeing this across Europe in general. The labs are not shutting down. Although there are severe restrictions on social engagements and restaurants, the labs and schools are remaining open. There's been a fair amount of work to see that there isn't a lot of spread within the labs, given the fact that the use of PPE is standard in these environments.

Our next question comes from Derik De Bruin with Bank of America.

This is Mike Ryskin on for Derik. Appreciate the questions. I'll start with Visium. You provided some interesting color there on reorders comprising the majority of demand in the quarter for the first time. But could you give us a little bit more color on sequential growth from the first quarter, second quarter into the third quarter? How many customers are ordering now? And also, is Visium sort of helping you penetrate beyond that traditional Chromium installed base?

In terms of answering your last question first, we are indeed continuing to see a robust influx of new 10x customers. In fact, I would say the fraction of new customers is likely to have grown this past quarter. These are largely translational-oriented researchers driving a lot of this interest in our ecosystem. So that trajectory remains strong. Regarding the usage and sequential growth, yes, definitely, the platform is growing and gaining traction. The last few quarters have been challenging to analyze due to COVID and the novelty of the product, but overall, the trajectory looks promising.

Justin, maybe one for you, especially following the secondary offering this quarter, with nearly $800 million on the balance sheet, even after some of the deals you've executed. So clearly, there is a lot of focus in the prepared remarks on investing in the business, but it seems like you're more than well-capitalized for that. Is there incremental spend beyond what we've been modeling previously? What particular areas are you focusing on to add to above and beyond? And could you provide some context about additional platforms or verticals where you could expand inorganically through mergers and acquisitions, following the investment in in situ?

Mike, good question. The investments in R&D have been a key emphasis for us in almost every call lately. I think, with each successive call, we grow more convinced about the opportunities that lie ahead. When COVID first hit, we paused to assess the areas for investment. We identified the various cost levers and different scenarios that could play out. Now, coming out of COVID, and given our follow-on offering and the two acquisitions, we feel now is the right time to invest for the future. With each call, we plan to make more investments; it will likely exceed previous expectations.

Regarding your question on mergers and acquisitions, our philosophy is to push the frontiers of biology and life sciences in general while working backward to identify what technology needs to be developed. We view mergers and acquisitions as part of our larger strategy for product development, but we don't have specific targets for acquiring a set number of companies per year or quarter.

Our next question comes from Doug Schenkel with Cowen.

I'm just trying to reconcile a few of your comments. You talked about 35% year-over-year order growth for Q4, at least through last week. You've indicated that 85% of labs are open, but with varying levels of activity. How do I triangulate these data points? Can you tell us how long it typically takes for an order to convert? Is there a difference in patterns you're seeing between capital and consumables?

Doug, this is Justin. To elaborate on the 35% year-over-year order growth, that reflects what we've currently observed. As of the end of last week, orders are up 35% from a year ago, remaining fairly consistent since the beginning of Q4. However, I would warn against completely extrapolating this figure into Q4 as we're unsure of how the year-end seasonal push or rising COVID cases will affect our results. Generally, our order cycles are less than six months, but larger clinical studies take much longer.

In answer to your question about sales cycles, they typically last less than six months. Larger orders, such as those for moving into clinical studies, take significantly longer due to detailed contractual requirements. There's also the risk of complications around revenue recognition as restrictions may limit our ability to deliver products right at quarter-end due to flight limitations and availability of transport.

What about orders? Is there a significant difference between capital and consumables?

It's generally consistent across both. While consumables feature repeat orders, capital sales, like the Chromium Connect, have a longer sales cycle due to additional approval processes. However, both typically fall within the six-month range for getting orders through.

Okay, that's helpful. And regarding ReadCoor, I'm curious if the announcement of that acquisition has impacted discussions with existing or potential new accounts? Also, any updates on the timeline for instrument launch related to the ReadCoor acquisition?

Regarding your second question, it's too early to discuss any timelines or product specs from these acquisitions, as the integration process is just beginning. However, we're overall very excited about the technology's potential and feel optimistic about its forward trajectory. I'll let Brad address the customer dynamic question.

There's a lot of intuitive interest regarding Spatial analysis and, certainly, with in situ analysis. This market is experiencing excitement, especially since CartaNA has a service business that has enabled meaningful research outcomes. Customers are enthusiastic, expecting that we can elevate this technology to a level that reflects the 10x experience. We are currently engaging with customers to understand their interests and how this technology can address pertinent research questions.

Our next question comes from Patrick Donnelly with Citi.

Brad, regarding the year-end look, you've mentioned budget uncertainty heading into the end of the year, typically associated with budget flushes. What are customer conversations revealing about this? Additionally, could you share the percentage of revenues typically generated in the last month of Q4?

Yes, we are experiencing the end-of-quarter impacts, primarily due to COVID constraints. We have seen a significant amount of pent-up spending as the NIH renewed activity post-lab opening. As the labs open, many customers are presently focused on making necessary purchases to recover lost time. This is particularly evident in the pharma sector, where there is noticeable interest in spending to balance year-over-year budgets and avoid losing funds. It's taken longer than I initially expected, but we are experiencing noticeable dynamism in the market now. As for your question regarding Q4 revenue typically generated in the last month, we generally see an uptick around the second week of December leading to the end of the year.

Patrick, this is Justin. We haven't disclosed before about how much of our revenue comes in the final weeks of Q4, but I can reiterate that we typically observe a significant influx of orders in the last couple of weeks of December.

Our next question comes from David Westenberg with Guggenheim Securities.

I want to touch on expectations for 2021. Given that labs are reopening a bit more slowly than expected, do you see 2021 reflecting the growth we initially anticipated for 2020, possibly with additional pent-up demand? When thinking about 2021 or 2022, shouldn't we expect a relatively similar trajectory, considering NIH funding remains constant? I understand there are considerations for COVID-19, but I see positive reception for your products from your customer base, perhaps ahead of earlier expectations for this year.

There are a lot of questions embedded in that, David. If you're asking about the outlook for 2021 and whether it should bounce back to what we initially expected for 2020, I believe it would be reasonable to view it that way. We have also experienced some lost time this year in terms of research and customer activities. Although there is definitely pent-up demand, there are still experiments that may not be conducted now due to time lost. So we can't expect a complete bounce back as many have been removed from consideration, but overall, I think 2021 ought to reflect strong growth.

Slightly fewer placements.

In regard to your question about the total addressable market for ReadCoor, we’re on the right track. We’ve looked at it by estimating its volume based on existing methodologies for FISH, IHC, then applying a premium for how it could scale up. This market potential is compelling and spans beyond just the scope of sequencing as it is also applicable to the microscopy market, with added premium nuances. Additionally, with regard to FISH and sequencing technologies, yes, we believe we've secured substantial intellectual property through these acquisitions, broadly covering the spatial technology area.

Our next question comes from Dan Arias with Stifel.

Serge or Brad, for new Visium customers, are you able to ship product to the lab and help them get operational through remote support, or is there a need for in-person assistance?

This is Brad. Regarding Visium, we always considered it would require minimal installation support, so we planned this to be conducted entirely virtually from the beginning. We have onboarded customers with extensive resources that include a series of steps that are done online, which customers can navigate at their own pace. Our Field Application Scientists engage with them virtually for comprehensive support during their adoption of our technology.

That's helpful. Can I ask for some context on the V2 immune profiling kit? Where are you seeing initial traction? While I understand you might not want to share specific dollar amounts, could you provide insight on its contribution potential in comparison to your other assays or kits? Are there expectations for 4Q contributions to be up quarter-over-quarter due to the pace of COVID work?

The immune profiling product is growing quite nicely as it has various applications. We noticed that, during this quarter, many customers using the initial version transitioned directly to version 2 without comparison testing. This repeated the pattern we observed during the gene expression product upgrade. Customers trust that the new immune profiling product would meet their needs effectively. It provides more sensitivity and efficiency while conserving sequencing resources. This upgrade frees us to transition our legacy GEM-based immune profiling products entirely onto the Next GEM platform by year-end.

On in situ, within the body of existing work, is the focus primarily on RNA, DNA, or protein? I realize it's a mixed approach, but I'd appreciate understanding where the foundation is being concentrated.

We aren't ready to share specific details on that yet. The majority of work done by companies in the field has been mainly focused on RNA. However, we prefer not to divulge specifics concerning our future plans at this point.

And our next question comes from Tejas Savant with Morgan Stanley.

Just going back to the COVID impact question. Brad, could you discuss any specific pockets of impact from the resurgence, especially in Europe? One of your competitors indicated facing headwinds there. I understand you mentioned freight and shipping issues across borders, are you actually observing these challenges? Or are you simply exercising caution regarding framing Q4?

Thus far, we haven't observed significant lab shutdowns or closures. In fact, we think labs are operating with a heightened level of efficiency, even with reduced workforce capabilities. Although some labs are working at 25% capacity, many have altered their operations to maximize output. We continue monitoring the situation closely, though we’re hopeful that the impact on Q4 will remain manageable.

That's helpful. How about in terms of expectations regarding revenue from Asia, particularly China? I believe you mentioned about 18% revenue exposure there. Can you provide clarity on the pace of recovery and how things have normalized in China?

China is nearing pre-COVID conditions. Labs are open, our sales representatives are conducting calls, and events are occurring as usual. There may be some funding disruptions as they manage testing in response to localized outbreaks, but overall, China has largely returned to prior operational levels.

Lastly, regarding Chromium ASPs, how should we view the balance of discounting alongside Chromium Connect launch, given the latter carries higher ASPs?

Regarding ASPs, during Q2, we introduced larger discounts related to COVID sales. Initially, we planned larger discounts linked with substantial consumable orders. However, for the Chromium controller alone, we did see an increase in ASP from Q2 to Q3 due to reduced COVID sales. Calculating an overall ASP with both Chromium Connect and the customary Chromium controller will raise the average ASP, as the latter is priced in the mid-200k range. Still, the Chromium Connect sales represent a relatively small percentage of total instrument sales.

I am showing no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.