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10x Genomics, Inc. - Quarter Report: 2020 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
_____________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-39035

txg-20200930_g1.jpg
10x Genomics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware45-5614458
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
6230 Stoneridge Mall Road
Pleasanton, California
94588
(Address of principle executive offices)(Zip Code)
(925) 401-7300
(Registrant’s telephone number, including area code)
_____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol		Name of each exchange
on which registered
Class A common stock, par value $0.00001 per shareTXGThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☐
Emerging growth company☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☒
As of October 30, 2020, the registrant had 80,156,104 shares of Class A common stock, $0.00001 par value per share, outstanding and 27,450,713 shares of Class B common stock, $0.00001 par value per share, outstanding.

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10x Genomics, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Quarterly Report, including statements concerning our plans, objectives, goals, beliefs, business strategies, results of operations, financial position and business outlook, as well as future events, business conditions, uncertainties related to the global COVID-19 pandemic and the impact of our responses to it, business trends and other information, may be forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot provide any assurance that these expectations will prove to be correct and actual results may vary materially from what is expressed in or indicated by the forward-looking statement. Such statements reflect the current views of our management with respect to our business, results of operations and future financial performance.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” in our prospectus filed with the Securities and Exchange Commission (the “SEC”) on September 11, 2020 and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. For a more detailed discussion of the risks, uncertainties and other factors that could cause actual results to differ, please refer to the “Risk Factors” we previously disclosed in our prospectus filed with the SEC on September 11, 2020 and in this Quarterly Report, as such risk factors may be updated from time to time in our periodic filings with the SEC. Our periodic filings are accessible on the SEC’s website at www.sec.gov.
The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Further, as the COVID-19 pandemic is unprecedented and continuously evolving, our forward-looking statements may not accurately or fully reflect the potential impact that the COVID-19 pandemic may have on our business, financial condition, results of operations and cash flows.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Unless otherwise stated or the context otherwise indicates, references to “we,” “us,” “our,” “the Company,” “10x” and similar references refer to 10x Genomics, Inc. and our subsidiaries.
Channels for Disclosure of Information

Investors and others should note that we may announce material information to the public through filings with the SEC, our website (https://www.10xGenomics.com), press releases, public conference calls, public webcasts and our social media accounts, https://twitter.com/10xGenomics, https://www.facebook.com/10xGenomics/ and
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https://www.linkedin.com company/10xgenomics/). We use these channels to communicate with our customers and the public about the Company, our products, our services and other matters. We encourage our investors, the media and others to review the information disclosed through such channels as such information could be deemed to be material information. The information on such channels, including on our website and our social media accounts, is not incorporated by reference in this Quarterly Report and shall not be deemed to be incorporated by reference into any other filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing. Please note that this list of disclosure channels may be updated from time to time.
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10x Genomics, Inc.
PART I—FINANCIAL INFORMATION
Item 1.    Financial Statements.
10x Genomics, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
September 30,
2020		December 31,
2019
(Unaudited)(Note 1)
Assets
Current assets:
Cash and cash equivalents$768,773 $424,166 
Restricted cash59,451 — 
Accounts receivable, net36,026 33,371 
Inventory25,118 15,270 
Prepaid expenses and other current assets11,083 8,033 
Total current assets900,451 480,840 
Property and equipment, net65,111 48,821 
Restricted cash5,474 52,327 
Operating lease right-of-use assets45,379 — 
Other assets26,129 23,935 
Total assets$1,042,544 $605,923 
Liabilities and stockholders’ equity
Current liabilities:
Accrued contingent liabilities$77,558 $— 
Accounts payable9,490 13,028 
Accrued compensation and related benefits11,189 12,394 
Accrued expenses and other current liabilities38,583 24,448 
Term loans, current portion— 9,882 
Deferred revenue, current3,775 3,297 
Operating lease liabilities4,976 — 
Total current liabilities145,571 63,049 
Term loans, noncurrent portion— 19,837 
Accrued contingent liabilities— 68,658 
Accrued license fee, noncurrent11,223 16,251 
Deferred rent, noncurrent— 16,120 
Operating lease liabilities, noncurrent56,618 — 
Other noncurrent liabilities4,052 1,925 
Total liabilities217,464 185,840 
Commitments and contingencies (Note 6)


Stockholders’ equity:
Preferred stock, $0.00001 par value; 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2020 and December 31, 2019
— — 
Common stock, $0.00001 par value; 1,100,000,000 shares authorized and 105,599,976 shares issued and outstanding as of September 30, 2020; 1,100,000,000 shares authorized and 96,241,596 shares issued and outstanding as of December 31, 2019
2 2 
Additional paid-in capital1,214,655 682,494 
Accumulated deficit(389,525)(262,367)
Accumulated other comprehensive loss(52)(46)
Total stockholders’ equity825,080 420,083 
Total liabilities and stockholders’ equity$1,042,544 $605,923 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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10x Genomics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Revenue$71,817 $61,207 $186,627 $170,604 
Cost of revenue14,411 15,480 39,571 44,451 
Gross profit57,406 45,727 147,056 126,153 
Operating expenses:
Research and development30,143 22,209 83,670 55,208 
In-process research and development40,637 — 40,637 — 
Selling, general and administrative51,549 32,614 146,352 92,078 
Accrued contingent liabilities332 — 956 1,360 
Total operating expenses122,661 54,823 271,615 148,646 
Loss from operations(65,255)(9,096)(124,559)(22,493)
Other income (expense):
Interest income28 481 1,471 986 
Interest expense(397)(708)(1,365)(2,087)
Other expense (income), net361 (272)121 (413)
Loss on extinguishment of debt— — (1,521)— 
Total other expense(8)(499)(1,294)(1,514)
Loss before provision for income taxes(65,263)(9,595)(125,853)(24,007)
Provision for income taxes585 8 1,305 110 
Net loss$(65,848)$(9,603)$(127,158)$(24,117)
Other comprehensive income:
Foreign currency translation adjustment(366)(126)(6)(123)
Comprehensive loss$(66,214)$(9,729)$(127,164)$(24,240)
Net loss per share, basic and diluted$(0.65)$(0.33)$(1.28)$(1.21)
Weighted-average shares of common stock used in computing net loss per share, basic and diluted101,341,945 29,184,218 99,058,139 19,904,184 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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10x Genomics, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(In thousands, except share data)
Convertible
Preferred Stock		Common StockAdditional Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance as of December 31, 2019— $— 96,241,596 $2 $682,494 $(262,367)$(46)$420,083 
Issuance of Class A common stock upon exercise of stock options— — 1,903,612 — 3,283 — — 3,283 
Vesting of shares subject to repurchase, including early exercised options— — — — 122 — — 122 
Stock-based compensation— — — — 6,718 — — 6,718 
Net loss— — — — — (21,143)— (21,143)
Other comprehensive income— — — — — — 5 5 
Balance as of March 31, 2020— — 98,145,208 2 692,617 (283,510)(41)409,068 
Issuance of Class A common stock related to equity awards——2,113,974 —8,051 ——8,051 
Vesting of shares subject to repurchase, including early exercised options— — — — 42 — — 42 
Stock-based compensation— — — — 13,920 — — 13,920 
Net loss— — — — — (40,167)— (40,167)
Other comprehensive income— — — — — — 355 355 
Balance as of June 30, 2020— $— 100,259,182 $2 $714,630 $(323,677)$314 $391,269 
Sale of Class A common stock— — 4,600,000 — 482,279 — — 482,279 
Issuance of Class A common stock related to equity awards— — 740,794 — 3,920 — — 3,920 
Vesting of shares subject to repurchase, including early exercised options— — — — 42 — — 42 
Stock-based compensation— — — — 13,784 — — 13,784 
Net loss— — — — — (65,848)— (65,848)
Other comprehensive income— — — — — — (366)(366)
Balance as of September 30, 2020$— $— 105,599,976 $2 $1,214,655 $(389,525)$(52)$825,080 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.






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10x Genomics, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Continued)
(Unaudited)
(In thousands, except share data)
Convertible
Preferred Stock		Common StockAdditional Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance as of December 31, 201867,704,278 $243,244 14,549,801 $1 $11,165 $(231,116)$(37)$(219,987)
Issuance of Class A common stock upon exercise of stock options— — 898,858 — 923 — — 923 
Vesting of shares subject to repurchase, including early exercised options— — — — 72 — — 72 
Stock-based compensation— — — — 1,359 — — 1,359 
Net loss— — — — — (3,636)— (3,636)
Other comprehensive loss— — — — — — (24)(24)
Balance as of March 31, 201967,704,278 243,244 15,448,659 1 13,519 (234,752)(61)(221,293)
Issuance of Class A common stock upon exercise of stock options— — 696,723 — 1,082 — — 1,082 
Vesting of shares subject to repurchase, including early exercised options— — — — 89 — — 89 
Stock-based compensation— — — — 3,025 — — 3,025 
Net loss— — — — — (10,878)— (10,878)
Other comprehensive income— — — — — — 27 27 
Balance as of June 30, 201967,704,278 $243,244 16,145,382 $1 $17,715 $(245,630)$(34)$(227,948)
Issuance of Class A common stock upon exercise of stock options— — 508,120 — 1,013 — — 1,013 
Conversion of convertible preferred stock into Class B common stock(67,704,278)(243,244)67,704,278 1 243,243 — — 243,244 
Issuance of Class A common stock upon initial public offering, net of issuance costs— — 11,500,000 — 410,824 — — 410,824 
Cashless exercise of Class A common stock warrants— — 261,024 — — — — — 
Vesting of shares subject to repurchase, including early exercised options— — — — 170 — — 170 
Stock-based compensation— — — — 3,874 — — 3,874 
Net loss— — — — — (9,603)— (9,603)
Other comprehensive loss— — — — — — (126)(126)
Balance as of September 30, 2019— $— 96,118,804 $2 $676,839 $(255,233)$(160)$421,448 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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10x Genomics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20202019
Operating activities:
Net loss$(127,158)$(24,117)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization10,094 4,221 
Stock-based compensation expense34,357 8,258 
Loss on disposal of property and equipment— 614 
Loss on extinguishment of debt1,521 — 
Accretion of discount on term loan17 72 
Amortization of right-of-use assets3,511 — 
Changes in operating assets and liabilities:
Accounts receivable(2,654)1,938 
Inventory(9,848)(4,735)
Prepaid expenses and other current assets(3,363)(2,756)
Other assets(2,574)49 
Accounts payable(3,307)2,686 
Accrued compensation and other related benefits(1,286)838 
Deferred revenue898 787 
Accrued contingent liabilities8,900 24,501 
Accrued expenses and other current liabilities9,464 2,550 
Deferred rent, noncurrent— 12,841 
Operating lease liability(3,093)— 
Other noncurrent liabilities(3,202)180 
Net cash (used in) provided by operating activities(87,723)27,927 
Investing activities:
Acquisition of intangible assets(801)— 
Purchases of property and equipment(15,327)(36,186)
Net cash used in investing activities(16,128)(36,186)
Financing activities:
Payments on financing arrangement(5,846)— 
Payments on term loans(31,256)— 
Proceeds from issuance of common stock upon initial and follow-on public offering, net of issuance costs483,047 412,679 
Proceeds from borrowings under revolver— 11,000 
Payments on borrowings under revolver— (11,000)
Issuance of common stock from exercise of stock options and employee stock purchase plan purchases15,255 3,018 
Net cash provided by financing activities461,200 415,697 
Effect of exchange rates on changes in cash, cash equivalents, and restricted cash(144)(37)
Net increase in cash, cash equivalents, and restricted cash357,205 407,401 
Cash, cash equivalents, and restricted cash at beginning of period476,493 70,088 
Cash, cash equivalents, and restricted cash at end of period$833,698 $477,489 
Supplemental disclosures of cash flow information:
Cash paid for interest$1,670 $1,722 
Cash paid for taxes$224 $22 

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10x Genomics, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20202019
Noncash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities$14,183 $6,511 
Right-of-use assets obtained in exchange for new operating lease liabilities$10,883 $— 
Deferred offering costs in accounts payable and accrued expenses and other current liabilities$768 $1,855 
Conversion of convertible preferred stock into common stock upon initial public offering$— $243,244 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
o
1.    Description of Business and Basis of Presentation
Organization and Description of Business
10x Genomics, Inc. (the “Company”) was incorporated in the state of Delaware on July 2, 2012 and is a life sciences technology company focused on building innovative products and solutions to interrogate, understand and master biological systems at resolution and scale that matches the complexity of biology. The Company’s integrated solutions include the Company’s Chromium and Chromium Connect instruments, which the Company refers to as “instruments,” and the Company’s proprietary microfluidic chips, slides, reagents and other consumables for both the Company’s Visium and Chromium solutions, which the Company refers to as “consumables.” The Company bundles its software with these products to guide customers through the workflow, from sample preparation through analysis and visualization. The Company began commercial and manufacturing operations and selling its instruments and consumables in 2015. The Company is headquartered in Pleasanton, California and has wholly-owned subsidiaries in China, Germany, Netherlands, Singapore, Sweden and the United Kingdom.
Initial Public Offering
The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on September 11, 2019 by the Securities and Exchange Commission (“SEC”), and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on September 12, 2019. On September 16, 2019, the Company completed its IPO, in which the Company sold 11,500,000 shares of Class A common stock (which included 1,500,000 shares that were offered and sold pursuant to the full exercise of the IPO underwriters’ option to purchase additional shares) at a price to the public of $39.00 per share. Including the option exercise, the Company received aggregate net proceeds of $410.8 million after deducting offering costs, underwriting discounts and commissions of $37.7 million.
Follow-on Public Offering
The Company’s registration statement on Form S-1 related to its follow-on public offering was declared effective by the SEC on September 10, 2020. The Company sold 4,600,000 shares of Class A common stock (which included 600,000 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) at a price to the public of $110.00 per share. Including the option exercise, the Company received aggregate net proceeds of $482.2 million after deducting offering costs, underwriting discounts and commissions of $23.8 million.
Basis of Presentation
The accompanying condensed consolidated financial statements, which include the Company’s accounts and the accounts of its wholly-owned subsidiaries, are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The condensed consolidated balance sheets at December 31, 2019 have been derived from the audited consolidated financial statements of the Company at that date. Certain information and footnote disclosures typically included in the Company’s audited consolidated financial statements have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations, comprehensive loss and cash flows for the periods presented, but are not necessarily indicative of the results of operations to be anticipated for any future annual or interim period. All intercompany transactions and balances have been eliminated. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The inputs into our judgments and estimates consider the economic implications of COVID-19 on our critical and significant accounting estimates.
The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2019 included in the Annual Report on Form 10-K filed with the SEC on February 27, 2020. Certain immaterial reclassifications were made to the prior year financial statements to conform to the current period presentation.
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
2.    Summary of Significant Accounting Policies
During the three and nine months ended September 30, 2020, there have been no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except as described below under “Recently Adopted Accounting Pronouncements.”
Segment Information
The Company operates as a single operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating financial performance.
Fair Value of Financial Instruments
The Company determines the fair value of an asset or liability based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability.
A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:
Level 1: Quoted prices in active markets for identical instruments
Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)
Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)
Cash and cash equivalents are comprised of money market funds and cash. Money market funds are highly liquid investments which are actively traded and are comprised of United States government securities. The pricing information for the Company’s money market funds is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy. There were no transfers between Levels 1, 2 or 3 for any of the periods presented. As of September 30, 2020 and December 31, 2019, the Company held $717.7 million and $398.5 million in money market funds, respectively, with no unrealized gains or losses.
Leases
The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.
As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its credit risk, term of the lease and total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The lease terms may include options to extend or terminate the lease when the Company is reasonably certain it will exercise such options. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses and costs of goods sold over the reasonably assured lease term.
The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for any lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.
Internal-Use Software
The Company capitalizes costs incurred to develop internal-use software within fixed assets and commencing from the first quarter of 2020, began capitalizing costs to develop hosting arrangements within other assets in the condensed consolidated
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
balance sheets. Costs incurred during the preliminary planning and evaluation and post implementation stages of the project are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. These costs are amortized on a straight-line basis over the estimated useful life of the asset.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets, such as property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets to their estimated fair values based on a discounted cash flow approach or, when available and appropriate, to comparable market values. There were no impairment losses recorded for the three and nine-month periods ended September 30, 2020 and 2019.
Revenue Recognition
Commencing on January 1, 2019, the Company recognized revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers.
The Company generates revenue from sales of products and services. The Company’s products consist of instruments and consumables. The Company began shipping its Chromium Connect instrument during the first quarter of 2020.
The Company recognizes revenue when control of the products and services is transferred to its customers in an amount that reflects the consideration it expects to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service.
Revenue from product sales is recognized when control of the product is transferred, which is generally upon shipment to the customer. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Instrument service agreements, which relate to extended warranties, are typically entered into for one-year terms, following the expiration of the standard one-year warranty period. Revenue for extended warranties is recognized ratably over the term of the extended warranty period as a stand ready performance obligation. Revenue is recorded net of discounts, distributor commissions and sales taxes collected on behalf of governmental authorities. Customers are invoiced generally upon shipment, or upon order for services, and payment is typically due within 45 days. Cash received from customers in advance of product shipment or providing services is recorded as a contract liability. The Company’s contracts with its customers generally do not include rights of return or a significant financing component.
The Company regularly enters into contracts that include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. The transaction price is allocated to each performance obligation in proportion to its standalone selling price. The Company determines standalone selling price using average selling prices with consideration of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, the Company relies upon prices set by management, adjusted for applicable discounts.
Stock-Based Compensation
The Company’s stock-based compensation relates to stock options, restricted stock units (“RSUs”) and stock purchase rights under an Employee Stock Purchase Plan (“ESPP”). Stock-based compensation expense for its stock-based awards are based on their grant date fair value. The Company determines the fair value of RSUs based on the closing value of its stock price listed on Nasdaq at the date of the grant. The Company estimates the fair value of stock option awards granted to employees and directors on the grant date using the Black-Scholes option-pricing model. The fair value of stock option awards is recognized as compensation expense on a straight-line basis over the requisite service period in which the awards are expected to vest and
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
forfeitures are recognized as they occur. Stock option awards that include a service condition and a performance condition are considered expected to vest when the performance condition is probable of being met.
The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield and the expected stock price volatility over the expected term. For all stock options granted, the Company calculated the expected term using the simplified method for “plain vanilla” stock option awards. The Company had no publicly available stock price information prior to its IPO and limited publicly available stock price information subsequent to its IPO and therefore, the Company has used the historical volatility of the stock price of similar publicly traded peer companies. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.
Stock-based compensation expense for nonemployee stock options is measured based on fair market value using the Black-Scholes option pricing model and is recorded as the options vest. Prior to January 1, 2019, nonemployee stock options subject to vesting were revalued periodically over the requisite service period, which was generally the same as the vesting term of the award. From January 1, 2019, the grant date fair market value of nonemployee stock options is recognized in the condensed consolidated statements of operations on a straight-line basis over the requisite service period and forfeitures are recognized as they occur.
Net Loss Per Share
Net loss per share is computed using the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A common stock and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.
The Company’s participating securities included the Company’s convertible preferred stock, as the holders would have been entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend was paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, do not have a contractual obligation to share in losses.
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase.
For the calculation of diluted net loss per share, basic net loss per share is adjusted by the effect of dilutive securities, including convertible preferred stock, awards under the Company’s equity compensation plan and common stock warrants. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding. For periods in which the Company reports net losses, diluted net loss per share is the same as basic net loss per share because potentially dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-2, Leases (Topic 842). This standard requires substantially all leases to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. On January 1, 2020, the Company early adopted Topic 842 using the optional transition method by recognizing a cumulative effect adjustment to the opening balance of accumulated deficit as of that date. Results for the three and nine months ended September 30, 2020 are presented under the guidance in Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840 – Leases.
The Company elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification and to not reassess initial direct costs.
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Notes to Unaudited Condensed Consolidated Financial Statements
Adoption of Topic 842 resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $38.0 million and $53.8 million, respectively, on the Company’s condensed consolidated balance sheet as of January 1, 2020. The adoption of the new standard did not have an impact on the Company’s beginning accumulated deficit, statement of operations or cash flows.
The following table summarizes the impact of Topic 842 on our condensed consolidated balance sheet as of January 1, 2020 (in thousands):
December 31,
2019		Adjustments due to
the adoption of
Topic 842
January 1,
2020
Assets:
Operating lease right-of-use assets
$— $38,005 $38,005 
Prepaid expenses and other current assets
8,033 (434)7,599 
Total assets
$8,033 $37,571 $45,604 
Liabilities:
Accrued expenses and other current liabilities
$24,448 $(99)$24,349 
Operating lease liabilities
— 3,086 3,086 
Deferred rent, noncurrent
16,120 (16,120)— 
Operating lease liabilities, noncurrent
— 50,704 50,704 
Total liabilities
$40,568 $37,571 $78,139 
The adjustments due to the adoption of Topic 842 related to the recognition of operating lease right-of-use assets and operating lease liabilities for the Company’s existing operating leases.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected and provides that credit losses relating to available-for-sale debt securities and accounts receivable should be recorded through an allowance for credit losses. The guidance was amended through various ASUs subsequent to ASU 2016-13. The Company calculates the allowance for credit losses as a percentage of the trade accounts receivable balance based on collection history and current economic trends that we expect will impact the level of credit losses over the life of our receivables. The allowance is re-evaluated on a regular basis and adjusted, as required. Trade accounts receivable are considered past due based on the contractual payment terms. Once a trade account receivable is deemed uncollectible, it is charged against this allowance. The Company early adopted this standard on a modified retrospective basis effective January 1, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.
In November 2019, the FASB issued ASU 2019-8, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which expands the scope of ASC Topic 718 to provide guidance for share-based payment awards granted to a customer in conjunction with selling goods or services accounted for under Topic 606. The Company early adopted this standard on January 1, 2020, which did not have a material impact on the condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. The Company early adopted this standard on a prospective basis effective January 1, 2020. As a result of the adoption of this standard, during the three and nine months ended September 30, 2020, the Company capitalized $0.1 million and $2.8 million, respectively, of implementation costs for enterprise resource planning and related software, Oracle Cloud, which went live during the third quarter of 2020. These costs are recorded within other assets in the condensed consolidated balance sheets and amortized on a straight-line basis over its useful life.

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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to ASC 740. This standard is effective for fiscal periods beginning after December 15, 2021. The Company is currently evaluating this standard and the impact it may have on the Company’s condensed consolidated financial statements.
3.    Asset Acquisition
On August 21, 2020, the Company purchased all of the outstanding shares of CartaNA AB (“CartaNA”), a privately held company based in Stockholm, Sweden, for $41.8 million, inclusive of $0.6 million of transaction costs and net of cash acquired of $1.5 million. CartaNA is developing In Situ RNA analysis technology, consisting of a suite of proprietary reagents, which aims to enable researchers to visualize spatially resolved RNA expression profiles with sub-cellular resolution throughout fresh frozen or formalin-fixed, paraffin-embedded tissue sections.
The transaction was accounted for as an asset acquisition. In connection with this acquisition, the Company acquired an in-process research and development intangible asset of $40.6 million which did not have alternative future use and therefore was recognized as an expense during the three months ended September 30, 2020 and included as a component of in-process research and development in the consolidated statements of operations and comprehensive loss. The Company also acquired $0.8 million in intangible assets related to customer relationships and assembled workforce which are included in other assets in the condensed consolidated balance sheets.
The following table summarizes the value of assets acquired and liabilities assumed (in thousands):
Assets Acquired and Liabilities Assumed
In-process research and development$40,637 
Intangible assets801 
Other assets and liabilities, net348 
Total net assets acquired$41,786 
4.    Other Financial Statement Information
Inventory
Inventory was comprised of the following as of the dates indicated (in thousands):
September 30,
2020		December 31,
2019
Purchased materials$7,733 $6,436 
Work in progress8,475 3,996 
Finished goods8,910 4,838 
Inventory$25,118 $15,270 






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Notes to Unaudited Condensed Consolidated Financial Statements
Intangible Assets, Net
Intangible assets, net, which are recorded within other assets in the condensed consolidated balance sheets, consisted of the following (dollars in thousands):
September 30, 2020December 31, 2019
Remaining Useful Life in YearsGross
Carrying
Amount		Accumulated
Amortization		Intangibles,
Net		Remaining Useful Life in YearsGross
Carrying
Amount		Accumulated
Amortization		Intangibles,
Net
Technology licenses14.0$22,504 $(1,590)$20,914 14.7$22,504 $(440)$22,064 
Customer relationships4.1805 (66)739 5.9204 (32)172 
Trademarks1.1204 (125)79 1.9204 (74)130 
Assembled workforce4.9200 (3)197 — — — 
Total intangible assets, net$23,713 $(1,784)$21,929 $22,912 $(546)$22,366 
The estimated annual amortization of intangible assets for the next five years is shown below (in thousands):
Estimated
Annual
Amortization
2020 (excluding the nine months ended September 30, 2020)$455 
20211,815 
20221,753 
20231,723 
20241,642 
Thereafter14,541 
Total$21,929 
Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures and asset impairments, among other factors.
Accrued Compensation and Related Benefits
Accrued compensation and related benefits were comprised of the following as of the dates indicated (in thousands):
September 30,
2020		December 31,
2019
Accrued payroll and related costs$1,146 $470 
Employee stock purchase program liability2,614 1,862 
Accrued bonus2,174 6,154 
Accrued commissions2,412 2,473 
Accrued acquisition-related compensation1,481 818 
Other1,362 617 
Accrued compensation and related benefits$11,189 $12,394 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were comprised of the following as of the dates indicated (in thousands):
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Notes to Unaudited Condensed Consolidated Financial Statements
September 30,
2020		December 31,
2019
Accrued legal expenses$9,984 $4,375 
Accrued license fee5,884 6,183 
Accrued royalties for licensed technologies1,811 2,025 
Accrued property and equipment11,874 3,885 
Accrued consulting2,364 1,173 
Product warranties337 467 
Customer deposits1,100 1,304 
Taxes payable1,788 1,087 
Other3,441 3,949 
Accrued expenses and other current liabilities$38,583 $24,448 
Product Warranties
Changes in the reserve for product warranties were as follows for the periods indicated (in thousands):
September 30,
2020		December 31,
2019
Beginning of period$467 $804 
Amounts charged to cost of revenue438 741 
Repairs and replacements(568)(1,078)
End of period$337 $467 
Revenue and Deferred Revenue
As of September 30, 2020, the aggregate amount of remaining performance obligations related to separately sold extended warranty service agreements, or allocated amounts for extended warranty service agreements bundled with sales of Chromium instruments, was $5.0 million, of which approximately 75% is expected to be recognized to revenue in the next 12 months, with the remainder thereafter. The contract liabilities of $5.0 million and $4.1 million as of September 30, 2020 and December 31, 2019, respectively, consisted of deferred revenue related to extended warranty service agreements, and as of September 30, 2020, the short-term portion was $3.8 million. Revenue recorded during the three and nine months ended September 30, 2020 included $0.7 million and $2.8 million, respectively, of previously deferred revenue that was included in contract liabilities as of December 31, 2019. Contract assets as of September 30, 2020 and December 31, 2019 were not material.
The following table represents revenue by source for the periods indicated (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Instruments$9,676 $10,377 $26,108 $25,527 
Consumables60,557 49,745 156,149 142,134 
Services1,584 1,085 4,370 2,943 
Total revenue$71,817 $61,207 $186,627 $170,604 
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents revenue by geography based on the location of the customer for the periods indicated (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
North America$42,363 $35,838 $102,356 $97,293 
Europe, Middle East and Africa15,497 12,136 40,370 36,634 
China8,689 7,046 27,314 22,453 
Asia-Pacific1
5,268 6,187 16,587 14,224 
Total revenue$71,817 $61,207 $186,627 $170,604 
1 Asia-Pacific excludes China which is disclosed separately.
Revenue for the United States, which is included in North America in the table above, was 57% and 57% of consolidated revenue for the three months ended September 30, 2020 and 2019, respectively, and 53% and 55% of consolidated revenue for the nine months ended September 30, 2020 and 2019, respectively.
5.    Debt
In September 2016, the Company entered into a Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank (as amended and restated in February 2018 and as further amended, restated or supplemented from time to time, the “Loan and Security Agreement”), which included a term loan and revolving line of credit. On February 20, 2020, the Company prepaid the remaining balance of the term loan and all associated costs. The final payment of $30.5 million included $28.3 million for the outstanding principal balance of the term loan, $1.8 million for an end of term payment, $0.3 million for early termination fees and $0.1 million for interest. The prepayment resulted in a loss on extinguishment of debt of $1.5 million. The non-accreted portion of the end of term payment, unamortized discounts and early termination fees were included in the calculation of the loss on extinguishment of debt.
The revolving line of credit continued to be in effect until its termination at the election of the Company on June 18, 2020. Prior to its termination, the revolving line of credit provided the Company with credit of up to $25.0 million through December 2022. The amount available on the revolving line of credit was based on 80% of eligible receivables and was subject to a borrowing base calculation. Principal amounts outstanding under the revolving line of credit accrued interest at a floating per annum rate equal to the greater of The Wall Street Journal prime rate plus 0.25% or 4.5% and were repayable monthly. Upon termination of the revolving line of credit and the Loan and Security Agreement on June 18, 2020, the Company incurred termination fees of $0.3 million. As of September 30, 2020 and December 31, 2019, there were no balances outstanding under the revolving line of credit.
6.    Commitments and Contingencies
Lease Agreements
The Company leases office, laboratory, manufacturing, distribution and server space with lease terms ranging from 2 to 11 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.
The Company performed evaluations of these contracts and determined them to be operating leases. For the three and nine months ended September 30, 2020, the Company incurred $2.1 million and $6.1 million, respectively, of operating lease costs. The Company also incurred $19 thousand and $0.2 million, respectively, of variable lease costs for the three and nine months ended September 30, 2020. The variable lease cost is comprised primarily of the Company’s proportionate share of operating expenses, property taxes and insurance and is classified as lease cost due to the Company’s election to not separate lease and non-lease components.
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Notes to Unaudited Condensed Consolidated Financial Statements
Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2020 was $5.1 million and was included in net cash used in operating activities in the Company’s condensed consolidated statements of cash flows.
The maturity of the Company’s operating lease liabilities as of September 30, 2020 is as follows (in thousands):
Operating Leases
2020 (excluding the nine months ended September 30, 2020)$1,285 
20219,106 
20228,136 
20238,262 
20248,015 
Thereafter42,681 
Total lease payments$77,485 
Less: imputed interest(15,987)
Present value of operating lease liabilities$61,498 
Operating lease liabilities, current$4,955 
Operating lease liabilities, noncurrent$56,543 
The following table summarizes additional information related to operating leases as of September 30, 2020:
Weighted-average remaining lease term:
Operating leases8.7 years
Weighted-average discount rate:
Operating leases5.2 %
The Company’s future undiscounted lease payments under operating leases (as defined by prior guidance) as of December 31, 2019 are as follow (in thousands):
Rent Payments
2020$6,247 
20217,581 
20226,794 
20236,947 
20247,064 
Thereafter38,346 
Total minimum lease payments$72,979 
Purchase of Land
On August 10, 2020, the Company entered into an Agreement for Purchase and Sale (the “Purchase Agreement”) with Equity One (West Coast Portfolio) LLC, a Florida limited liability company (“Seller”), for the potential acquisition of certain real property located in Pleasanton, California (the “Property”) for an aggregate cash purchase price of $29.8 million. The Company had 74 days following the execution of the Purchase Agreement to conduct due diligence on the property (the “Contingency Period”) during which time the Company could have delivered a notice of termination to the Seller if the Company had determined through its due diligence that the Property was not suitable for purchase by the Company. On October 15, 2020, the Contingency Period was extended by 14 days. Prior to the expiration of the extended Contingency Period, the Company sent a Notice of Satisfaction to the Seller waiving the contingencies and provided an additional deposit of $0.8 million to the Seller. Subject to the conditions of the Purchase Agreement, the closing of the sale will occur within 31 days after the expiration of the Contingency Period, unless the Company provides written notice to the Seller and provides a deposit to extend the date of closing for an additional 30 days. The Company intends to utilize this site to accommodate its future growth requirements.

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Notes to Unaudited Condensed Consolidated Financial Statements
Litigation
The Company is regularly subject to lawsuits, claims, arbitration proceedings, administrative actions and other legal and regulatory proceedings involving intellectual property disputes, commercial disputes, competition and other matters, and the Company may become subject to additional types of lawsuits, claims, arbitration proceedings, administrative actions, government investigations and legal and regulatory proceedings in the future. Amongst other matters, the Company is currently a defendant in the lawsuits and proceedings described below. In these matters, the plaintiffs are seeking damages and injunctions of sales of the Company's products amongst other remedies. Other than with respect to the 2015 Delaware Action, losses are not probable or estimable for the lawsuits and proceedings described below.
The 2015 Delaware Action
In February 2015, Raindance Technologies, Inc. (“Raindance”) and the University of Chicago filed suit against the Company in the U.S. District Court for the District of Delaware (the “Delaware Court”), accusing the Company’s legacy GEM products of infringing certain U.S. patents owned by or exclusively licensed to Raindance (the “2015 Delaware Action”). In May 2017, Bio-Rad Laboratories, Inc. (“Bio-Rad”) was substituted as the plaintiff following its acquisition of Raindance. A jury trial was held in November 2018. The jury found that the accused legacy GEM products infringed U.S. Patent Nos. 8,304,193, 8,329,407 and 8,889,083. The jury also concluded that the Company's infringement was willful and awarded Bio-Rad approximately $24 million in damages through June 30, 2018. The Company appealed the jury verdict. Post-trial, Bio-Rad moved for a permanent injunction, treble damages for willful infringement, attorneys’ fees, supplemental damages for the period from the second quarter of 2018 through the end of the trial as well as pre- and post-judgment interest.
In response to the jury award, the Company established an accrual of $30.6 million as of December 31, 2018, which was recorded as an operating expense on the condensed consolidated statement of operations for the year ended December 31, 2018. Additionally, beginning in the fourth quarter of 2018, the Company also began recording an accrual for estimated royalties to Bio-Rad as a cost of revenue on the condensed consolidated statements of operations based on an estimated royalty rate of 15% of sales of the Company’s Chromium instruments operating its legacy GEM microfluidic chips and associated consumables. As a result, the Company recorded $7.4 million of royalties for the fourth quarter of 2018. As of December 31, 2018, the Company recorded a total accrual of $38 million related to this matter which represented the jury award plus the Company’s estimate of additional damages for the period from June 30, 2018 to the trial date in November 2018 and the royalties accrued in the fourth quarter of 2018.
In July 2019, the Court awarded supplemental damages for the period from June 30, 2018 through the end of the trial in November 2018 and established the interest rates for pre- and post-judgment interest, which when combined with the original award, resulted in a $35 million preliminary judgment in favor of Bio-Rad for damages through November 2018 and interest. During the three and nine months ended September 30, 2020 and 2019, the Company recorded royalties of $2.0 million and $7.9 million, and $7.2 million and $23.1 million respectively, as a cost of revenue and an additional $0.3 million and $0.9 million, and zero and $1.4 million, respectively, during the three and nine months ended September 30, 2020 and 2019, as an operating expense for estimated pre- and post-judgment interest. The Company’s accrual of $77.6 million as of September 30, 2020 is comprised of the preliminary judgment, along with the Company’s estimate of additional royalties and interest for the period from November 2018 through September 30, 2020. To date the Company has not made any payments related to the judgment or royalties. In July 2019, the Court denied Bio-Rad’s other post-trial requests such as attorneys’ fees and enhanced damages for willful infringement.
In July 2019, the Court also granted Bio-Rad a permanent injunction against the Company’s legacy GEM microfluidic chips and associated consumables that were found to infringe the Bio-Rad patents, which historically constituted a significant amount of the Company’s product sales. However, under the injunction, the Company is permitted to continue to sell its legacy GEM microfluidic chips and associated consumables for use with its historical installed base of instruments provided that the Company pay into escrow a royalty of 15% of the Company’s net revenue related to such sales occurring after August 28, 2019. The amounts will be held in escrow until after the conclusion of the Company’s Federal Circuit appeal and the Delaware Court addresses anticipated motions regarding post-judgment royalties.
In August 2019, the Court ordered that the Company may post a bond in the amount of $52 million in lieu of payment of the final judgment. Bio-Rad subsequently asked the Court to increase the amount of the bond to approximately $61 million. The Company also asked the Court to reconsider its ruling and decrease the potential bond to approximately $35 million. On September 13, 2019, the Company posted a $52 million bond (the “Bond”) in lieu of payment of the judgment pending the
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Notes to Unaudited Condensed Consolidated Financial Statements
Company’s ongoing appeal. In connection with the Bond, the Company deposited $45 million as collateral in a segregated cash account.
On October 10, 2019, the Court denied the Company’s motion to decrease the bond amount, and, without addressing Bio-Rad’s request to increase the bond amount, stayed any execution or enforcement of the judgment until the completion of appeal, and for thirty days thereafter. The Company appealed the Court's judgment including the injunction to the Federal Circuit.
In August 2020, the Federal Circuit issued its opinion in the Company's appeal of the 2015 Delaware Action. The Federal Circuit (1) affirmed the judgment of the lower Court with respect to infringement of the '083 patent by the Company's legacy GEM products and (2) vacated the judgment with respect to infringement of the '193 and '407 patents, which are remanded to the lower Court for a new trial on infringement. The Federal Circuit affirmed the damages award including the 15% royalty with respect to the Company's legacy GEM products. The Federal Circuit vacated the injunction with respect to the Company's Single Cell CNV and Linked-Read products but affirmed the injunction with respect to the Company's other legacy GEM products. In October 2020, the Company filed a petition for en banc rehearing with the Federal Circuit. The Federal Circuit denied the Company's petition for en banc rehearing on November 4, 2020 and is expected to issue a mandate in November 2020. The Company expects the $34.5 million judgment, plus approximately $0.8 million in post-judgment interest, to be payable to Bio-Rad in December 2020. The Company further expects the case will be remanded to the Delaware Court for a determination of post-judgment royalties or other amounts, which the Company expects to be made in the first half of 2021. The Company has accrued $77.6 million as of September 30, 2020 related to this matter which is classified within current liabilities in its condensed consolidated balance sheets as of this date. Restricted cash of $59.4 million, classified within current assets in the Company's condensed consolidated balance sheets as of September 30, 2020 serves as collateral for a bond and royalties in connection with the Bio-Rad litigation and would be used to partially satisfy this payment.
The ITC 1068 Action
On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC filed a complaint against the Company in the U.S. International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act of 1930, accusing substantially all of the Company’s Chromium products of infringing certain asserted patents (the “ITC 1068 Action”). In September 2018, the judge found that the Company’s legacy GEM microfluidic chips infringe certain of the asserted patents, but also that the Company’s gel bead manufacturing microfluidic chip and Next GEM microfluidic chip do not infringe any claim asserted against them (the “Initial Determination”). The judge recommended entry of an exclusion order preventing the Company from importing its legacy GEM microfluidic chips and a cease and desist order that would prevent the Company from selling such imported chips.
On December 18, 2019, the ITC issued its final determination in the ITC 1068 Action (the “Final Determination”). The Final Determination affirmed the Initial Determination that the Company’s Next GEM microfluidic chips and gel bead manufacturing microfluidic chips do not infringe any of the claims asserted against them. The Final Determination also affirmed the ruling that the Company’s legacy GEM microfluidic chips infringe the ‘664, ‘682 and ‘635 patents but not the ‘160 patent. The ITC issued (1) a limited exclusion order prohibiting the unlicensed importation of the legacy GEM microfluidic chips into the United States and (2) a cease and desist order preventing the Company from selling such imported legacy GEM microfluidic chips in the United States. The ITC expressly allowed the importation and sale of the legacy GEM microfluidic chips for use by researchers who were using such chips as of December 18, 2019, and who have a documented need to continue receiving such chips for a specific current ongoing research project for which that need cannot be met by any alternative product. The Final Determination was subject to a 60-day presidential review period. During the presidential review period, the Company was permitted to continue importation and sales of the legacy GEM microfluidic chips subject to payment of a bond of three (3) percent of the entered value of the accused microfluidic chips.
The Company and Bio-Rad have appealed the Final Determination to the Court of Appeals for the Federal Circuit. Bio-Rad has appealed the Final Determination with respect to non-infringement of the Company's gel bead manufacturing chips, but not with respect to non-infringement of the Company's Next GEM microfluidic chips. The Company has appealed the Final Determination with respect to infringement of the Company's legacy GEM microfluidic chips. The Company expects oral arguments to be held around the first quarter of 2021 and a decision around mid-2021.
The Northern District of California Action
On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC also filed suit against the Company in the U.S. District Court for the Northern District of California, alleging that the Company’s legacy GEM products infringe certain
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
patents in addition to the patents asserted in the ITC 1068 Action. The complaint seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees. This litigation has been stayed pending resolution of the Federal Circuit appeal of the ITC 1068 Action. In July 2020, Bio-Rad moved to lift the stay with respect to the '059 patent and consolidate the '059 patent with the '115 patent transferred from the District of Massachusetts which is being asserted against the Company's Next GEM products. In August 2020, the Court denied Bio-Rad's motion to lift the stay with respect to both the '059 and '115 patents. In October 2020, we filed two petitions for inter partes review (“IPR”) challenging the validity of the ‘115 patent. We expect the Patent Trials and Appeals Board (“PTAB”) to issue a decision on institution of these IPR petitions in the second quarter of 2021. The Company believes that this lawsuit is without merit and intends to vigorously defend itself.
The Germany Action
On July 31, 2017, Bio-Rad filed suit against the Company in Germany in the Munich Region Court alleging that the Company infringed a European patent. Bio-Rad dismissed this action in August 2018.
On February 13, 2018, Bio-Rad filed suit against the Company in Germany in the Munich Region Court alleging that its Chromium instruments, legacy GEM microfluidic chips and certain accessories infringe a German utility model. Bio-Rad seeks unspecified damages and an injunction prohibiting sales of these products in Germany and requiring the Company to recall these products sold in Germany subsequent to February 11, 2018. An initial hearing was held on November 27, 2018, and a subsequent hearing was held on May 15, 2019. The Court issued a ruling on November 20, 2019. The Court ruled that the Company’s legacy GEM microfluidic chips, as well as certain Chromium instruments and accessories used with legacy GEM microfluidic chips, infringed the German Utility Model. The Court issued an injunction with respect to such legacy GEM microfluidic chips, Chromium instruments and accessories used with such systems, prohibiting among other things the sale of these products in Germany and the importation of such products into Germany. The Court found that the Company is obligated to compensate Bio-Rad for unspecified damages and required that these products be recalled from distribution channels in Germany. The Court further found that the Company has to bear the statutory costs of the legal dispute in a minimum amount of at least 61,000 Euros. The Company has accrued the 61,000 Euros for statutory costs in the condensed consolidated balance sheet as of September 30, 2020. The Company is unable to estimate any additional potential exposure related to the matter beyond the statutory costs that have been accrued. The Court’s ruling did not address the Company’s Next GEM products, which were not accused in this action and which constitute substantially all of the Company’s Chromium sales in Germany. The Company appealed the Court’s ruling.
On April 6, 2020, the Munich Higher Regional Court (the “Higher Court”) issued a ruling staying enforcement of the ruling of the lower Court, including the injunction, subject to the payment of a bond by the Company. The Higher Court found that the lower Court’s claim construction was not justifiable and that the facts did not provide a basis for a finding of infringement. On April 16, 2020, the Company paid a 2.8 million Euro bond to the Higher Court to completely stay enforcement of the ruling. The bond is refundable upon a favorable ruling on the merits by the Higher Court. The Company expects the Higher Court to rule on the merits in 2021. In August 2020, Bio-Rad filed its appeal response arguing for the first time that the Company's Next GEM microfluidic chips and certain accessories infringe the utility model. In its appeal response, Bio-Rad also attempted to add infringement allegations with respect to a new patent, European Patent No. 3 132 844, against the Company's Chromium instruments and Next GEM microfluidic chips. The Company believes it is procedurally improper to attempt to add these new claims at this stage, that the Company's Next GEM products are not covered by the lower court's judgment and are not admissible in the appeal, and that the newly asserted '844 patent is not admissible in the appeal. The Higher Court is not expected to rule on whether Next GEM products or the '844 patent are admissible in the appeal until 2021.
The 2018 Delaware Action
On October 25, 2018, Bio-Rad filed suit against the Company in the U.S. District Court for the District of Delaware alleging that substantially all of the Company’s Chromium products, including our legacy GEM products and Next GEM products, infringe U.S. Patent Nos. 9,562,837 and 9,896,722. Bio-Rad seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees.
In October 2019, the Company filed four petitions for IPR challenging the validity of both asserted patents. On April 27, 2020, the PTAB instituted review on all four of these petitions. A final written decision is expected from the PTAB in April 2021.
In June 2020, the Court completely stayed the District of Delaware litigation pending resolution of the IPRs before the PTAB.
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The Massachusetts Action
On September 11, 2019, Bio-Rad filed suit against the Company in the U.S. District Court for the District of Delaware alleging that the Company’s Next GEM products infringe certain claims of U.S. Patent No. 8,871,444. On November 5, 2019, Bio-Rad amended the complaint to additionally allege that the Company’s Next GEM products infringe certain claims of U.S. Patent Nos. 9,919,277 and 10,190,115. The ‘444 and ‘277 patents are exclusively licensed by Bio-Rad from Harvard University, which subsequently joined the suit as a party plaintiff. Bio-Rad is seeking damages and an injunction against the Company's Next GEM products amongst other remedies. The ‘444 and ‘277 patents are projected to expire in October 2024.
On December 18, 2019, Bio-Rad dismissed this action in the District of Delaware and refiled it in the U.S. District Court for the District of Massachusetts. The case was assigned to Judge William G. Young. On January 14, 2020, the Court consolidated this case with a separate action, Bio-Rad Laboratories Inc. et al. v. Stilla Technologies, Inc. (“Stilla”), in which Bio-Rad is asserting the ‘444 patent (among other patents) against Stilla’s droplet digital PCR product. On January 23, 2020, the Company filed a motion to dismiss the case and to transfer the ‘115 patent to the Northern District of California, where the related ‘059 patent is stayed.
On January 24, 2020, the Company filed antitrust counterclaims against Bio-Rad alleging violations of (a) Section 7 of the Clayton Act, (b) Section 2 of the Sherman Act and (c) California unfair competition laws, for illegally acquiring Raindance and illegally monopolizing or attempting to monopolize markets relating to droplet digital PCR products, droplet single cell products and droplet genetic analysis technology. On February 19, 2020, Bio-Rad moved to dismiss, or alternatively to stay and sever, the Company’s antitrust claims.
On February 5, 2020, the Company filed additional counterclaims against Bio-Rad alleging that Bio-Rad’s single cell ATAC-seq products infringe U.S. Patent No. 9,029,085 and 9,850,526 that are exclusively licensed to the Company from Harvard University. On February 26, 2020, Bio-Rad moved to sever and stay the patent counterclaims. On March 6, 2020, the Court denied the motion to stay and deferred the motion to sever until prior to trial.
On March 25, 2020, the Court held a hearing with respect to (a) the Company’s motion to dismiss Bio-Rad’s patent claims, (b) the Company’s motion to transfer the ‘115 patent and (c) Bio-Rad’s motion to dismiss the Company’s antitrust counterclaims. On April 30, 2020, the Court denied the Company’s motion to dismiss with respect to Bio-Rad’s patent claims and granted the Company’s motion to transfer the ‘115 patent to the Northern District of California.  In August 2020, the Court granted Bio-Rad’s motion to dismiss (i) the Company's Sherman Act and Clayton Act counterclaims with respect to droplet single cell products and (ii) the Company's Sherman Act counterclaims with respect to droplet genetic analysis technology. The Court denied Bio-Rad’s motion to dismiss (i) the Company's Clayton Act counterclaims with respect to droplet genetic analysis technology; (ii) the Company's Sherman Act and Clayton Act counterclaims with respect to droplet digital PCR products; and (iii) the Company's California unfair competition counterclaims.
Discovery is ongoing. A Markman hearing was conducted in September 2020. In July 2020, the Court set a trial date for Bio-Rad's patent claims and the Company's patent counterclaims in April 2021 and set a trial date for the Company's antitrust counterclaims in July 2021.
In June 2020, the Company filed two petitions for IPR challenging the validity of the '444 patent. In August 2020, the Company filed two petitions for IPR challenging the validity of the '277 patent. The Company expects the PTAB to issue a decision on institution of these IPR petitions in the first quarter of 2021.
2019 Becton Dickinson Settlement and Patent Cross License Agreement
On November 15, 2018, Becton, Dickinson and Company (“BD”) and Cellular Research, Inc. filed suit against the Company in the U.S. District Court for the District of Delaware, alleging that the Company infringed certain patents. In September 2019, the Company filed counterclaims alleging that BD and Cellular Research, Inc. (together, the “BD Entities”) infringed a number of the Company’s patents.
In October 2019, the Company entered into a settlement and patent cross license agreement (the “BD Agreement”) with the BD Entities. The BD Agreement resolved all outstanding patent litigation between the parties (the “BD Litigation”), which was dismissed with prejudice on October 21, 2019. Under the terms of the BD Agreement, the BD Entities granted the Company and its affiliates, and the Company granted BD and its affiliates, a worldwide, royalty-free, non-exclusive, fully paid-up license to certain patents and patent applications relating to molecular barcoding and single cell analysis, including to all the patents asserted
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
in the BD Litigation. The Company is required to make an aggregate payment of $25.0 million to BD in annual amounts of $6.25 million over four years beginning in January 2020 in connection with the BD Agreement. Upon execution of the BD Agreement, the fair value of these payments was recognized as a liability and is classified as accrued expenses and other current liabilities and accrued license fee, noncurrent on the Company’s condensed consolidated balance sheet as of September 30, 2020. As part of the BD Agreement, each party, on behalf of itself and its affiliates, has also entered into a covenant not to sue in certain fields related to each company’s products. The companies have also agreed on behalf of themselves and their affiliates to refrain from challenging the patents and patent applications licensed under the BD Agreement. The Company considers this matter closed.
For certain of the Company’s litigation matters, the Company is required to make milestone payments to the Company’s legal counsel based on certain litigation outcomes. Based on the occurrence in the first quarter of 2020 of one such milestone in one of the Company’s litigation matters, a milestone payment to the Company’s legal counsel in the amount of $5 million was triggered in the first quarter of 2020. The Company expects to trigger additional such milestone payments during the pendency of litigation, though the timing and amounts of such payments is uncertain.
7.    Capital Stock
As of September 30, 2020, Class A common stock and Class B common stock issued and outstanding was 77,888,613 shares and 27,710,713 shares, respectively. During the three and nine months ended 2020, 2,153,783 and 47,558,717, respectively, shares of Class B common stock were converted to shares of Class A common stock upon the election of the holders of such shares.
8.    Equity Incentive Plans
Amended and Restated 2012 Stock Plan
As of September 30, 2020, the number of shares of Class A common stock issuable under the Amended and Restated 2012 Stock Plan which includes shares issuable upon the exercise of outstanding awards was 10,510,200. Following the adoption of the 2019 Omnibus Incentive Plan in September 2019, any awards outstanding under the Amended and Restated 2012 Stock Plan continue to be governed by their existing terms but no further awards may be granted under the Amended and Restated 2012 Stock Plan.
2019 Omnibus Incentive Plan
A total of 11,000,000 shares of Class A common stock was reserved for issuance under the 2019 Omnibus Incentive Plan at the time the 2019 Omnibus Incentive Plan was adopted in 2019. As of September 30, 2020, the number of shares of Class A common stock available for issuance under the 2019 Omnibus Incentive Plan was 3,086,238 shares issuable in connection with outstanding awards and 8,294,784 shares reserved for issuance in connection with grants of future awards.
2019 Employee Stock Purchase Plan
A total of 2,000,000 shares of Class A common stock was reserved for issuance under the ESPP at the time the ESPP was adopted in 2019. The price at which Class A common stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower. Shares purchased under the ESPP are subject to a one-year holding period following the purchase date.
During the nine months ended September 30, 2020, 118,218 shares of Class A common stock were issued under the ESPP. No shares of Class A common stock were issued under the ESPP during 2019 or during the three months ended September 30, 2020. As of September 30, 2020, there were 1,881,782 shares available for issuance in connection with the current and future offering periods under the ESPP.
The assumptions used and the resulting weighted-average fair value per share for stock purchased under the ESPP during the nine months ended September 30, 2020 were as follows:
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Risk-free interest rate1.85 %
Expected volatility52.18 %
Expected term (years)0.67
Expected dividends0 %
Weighted average grant-date fair value per share$12.60

Stock-based Compensation
The Company recorded stock-based compensation expense in the condensed consolidated statement of operations for the periods presented as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Cost of revenue$398 $81 $1,108 $171 
Research and development5,467 1,650 14,398 3,448 
Selling, general and administrative7,919 2,143 18,851 4,639 
Total stock-based compensation expense$13,784 $3,874 $34,357 $8,258 
Restricted Stock Units
The Company began granting restricted stock unit awards (“RSUs”) to employees and other service providers during the first quarter of 2020. RSU activity for the nine months ended September 30, 2020 is as follows:
Restricted Stock
Units		Weighted-Average
Grant Date Fair Value
(per share)
Outstanding as of December 31, 2019— $— 
Granted871,863 70.49 
Vested(81,876)65.91 
Cancelled(10,691)64.97 
Outstanding as of September 30, 2020779,296 $71.05 
Stock Options
Stock options activity for the nine months ended September 30, 2020 is as follows:
Stock OptionsWeighted-Average
Exercise Price
Outstanding as of December 31, 201915,918,243 $6.82 
Granted1,772,153 78.53 
Exercised(4,558,286)2.48 
Cancelled(314,968)20.30 
Outstanding as of September 30, 202012,817,142 $17.95 
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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
9.    Income Tax
The Company’s provision for income taxes was $0.6 million and $1.3 million, respectively, for the three and nine months ended September 30, 2020 and $8 thousand and $0.1 million, respectively, for the three and nine months ended September 30, 2019. The Company's effective tax rate was 0.9% and 1.0%, respectively, for the three and nine months ended September 30, 2020 and 0.1% and 0.5%, respectively, for the three and nine months ended September 30, 2019. The provision for income taxes for the three and nine months ended September 30, 2020 consists primarily of foreign taxes. Deferred tax assets generated from the Company’s domestic net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. These provisions are not expected to have a material impact on the Company’s condensed consolidated financial statements.
10.    Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except share and per share data):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Net loss$(65,848)$(9,603)$(127,158)$(24,117)
Weighted average shares used in computing net loss per share, basic and diluted101,341,945 29,184,218 99,058,139 19,904,184 
Net loss per share, basic and diluted$(0.65)$(0.33)$(1.28)$(1.21)
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Stock-options to purchase common stock12,817,142 15,952,177 12,817,142 15,952,177 
Shares subject to repurchase84,375 164,375 84,375 164,375 
Restricted stock units779,296 — 779,296 — 
Shares committed under ESPP39,449 2,438 39,449 2,438 
Total13,720,262 16,118,990 13,720,262 16,118,990 
11.    Subsequent Events
Acquisition of ReadCoor Inc.
On October 13, 2020 (the “Closing Date”), the Company completed its acquisition of ReadCoor, Inc., a Delaware corporation (“ReadCoor”), pursuant to the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of October 5, 2020 for a total consideration of $350.0 million in exchange for all outstanding equity interests of ReadCoor, subject to customary purchase price adjustments and holdback arrangements in accordance with the Merger Agreement (the “Merger Consideration”). The Merger Consideration to be paid to the former equity holders of ReadCoor consists, in the aggregate, of $100.0 million in cash (reduced by the amount of any transaction-related expenses, indebtedness and any working capital shortfall of ReadCoor at the Closing Date) and the balance in shares (the “Stock Consideration”) of the Company’s Class A common stock, par value $0.00001 per share (the “Company Common Stock”). The Company issued 1,901,402 shares of Company Common Stock in connection with the Stock Consideration, which were registered for resale in a registration statement on Form S-3 which was automatically effective upon its filing on October 16, 2020. The Merger Agreement contains representations, warranties, covenants, closing conditions and indemnities customary for acquisitions of this type.

Lease Agreement

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10x Genomics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
On November 6, 2020, the Company entered into a lease agreement with 6200 Stoneridge Mall Road Investors LLC, a Delaware limited liability company, to lease additional office building space near the Company's Pleasanton, California headquarters. The Company intends to utilize the leased space of approximately 145,000 square feet to accommodate its future growth requirements. The lease term will commence on January 1, 2021 and is expected to terminate on June 30, 2033 and total lease payments over the lease term are expected to amount to approximately $60.8 million. Upon lease commencement, the Company expects to recognize a right-of-use lease asset and corresponding lease liability in accordance with ASU No. 2016-2, Leases (Topic 842).
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and our audited consolidated financial statements and notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 27, 2020. As discussed in the section titled “Special Note Regarding Forward Looking Statements,” the following discussion and analysis, in addition to historical financial information, contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
We operate on a fiscal year that ends on December 31.
Overview
We are a life sciences technology company focused on building innovative products and solutions to interrogate, understand and master biological systems at resolution and scale that matches the complexity of biology. Our expanding suite of offerings leverages our cross-functional expertise across biology, chemistry, software and hardware to provide a comprehensive, dynamic and high-resolution view of complex biological systems. We have launched multiple products that enable researchers to understand and interrogate biological analytes in their full biological context. Our commercial product portfolio leverages our Chromium and Chromium Connect instruments, which we refer to as “Chromium instruments” or “instruments,” and our proprietary microfluidic chips, slides, reagents and other consumables for both our Visium and Chromium solutions, which we refer to as “consumables.” We bundle our software with these products to guide customers through the workflow, from sample preparation through analysis and visualization.
Our products cover a wide variety of applications and allow researchers to analyze biological systems at fundamental resolutions and on massive scales, such as at the single cell level for millions of cells. Our Chromium instruments and Chromium consumables are designed to work together exclusively. After buying a Chromium instrument, customers purchase consumables from us for use in their experiments. Accordingly, as the installed base of our instruments grows, we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results. As such, our revenue growth is expected to outpace growth in our instrument placements as our business develops. In addition to instrument and consumable sales, we derive revenue from post-warranty service contracts for our Chromium instruments. For the three and nine months ended September 30, 2020, sales of our Chromium instruments accounted for 13% and 14% of our revenue, sales of our consumables accounted for 84% and 84% of our revenue and sales of services accounted for 2% and 2% of our revenue, respectively. For the three and nine months ended September 30, 2019, sales of our Chromium instruments accounted for 17% and 15% of our revenue, sales of our consumables accounted for 81% and 83% of our revenue and sales of services accounted for 2% and 2% of our revenue, respectively.
On September 16, 2019, we completed an initial public offering (“IPO”), in which we sold 11,500,000 shares of Class A common stock (which included 1,500,000 shares that were offered and sold pursuant to the full exercise of the IPO underwriters’ option to purchase additional shares) at a price to the public of $39.00 per share. We received aggregate net proceeds of $410.8 million after deducting offering costs, underwriting discounts and commissions of $37.7 million.
On September 15, 2020, we completed an underwritten follow-on public offering, in which we issued and sold 4,600,000 shares of Class A common stock (which included 600,000 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $110.00 per share. We received aggregate net proceeds of $482.2 million, after deducting offering costs, underwriting discounts and commissions of $23.8 million.
Since our inception in 2012, we have incurred net losses in each year. Our net losses were $65.8 million and $127.2 million for the three and nine months ended September 30, 2020 and $9.6 million and $24.1 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $389.5 million and cash and cash equivalents totaling $768.8 million. We expect to continue to incur significant expenses for the foreseeable future and to incur
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operating losses in the near term. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
•attract, hire and retain qualified personnel;
•scale our technology platforms and introduce new products and services;
•protect and defend our intellectual property;
•acquire businesses or technologies; and
•invest in processes, tools and infrastructure to support the growth of our business.
Operational Effectiveness in the COVID-19 Environment
In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic. Since then, COVID-19 has continued to spread throughout much of the United States and the world causing uncertainty and disruption to business activities. We continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19. Despite the impacts of the global COVID-19 pandemic, we have endeavored to successfully maintain operational effectiveness and continue providing researchers with our solutions as described below:
•During this pandemic, we moved quickly to place instruments and to provide reagents to clinicians and researchers around the world working to understand COVID-19 and develop cures for the disease. We were designated an essential business because our products are a critical tool for infectious disease research as they allow for a detailed understanding of how the virus causing COVID-19 impacts infected people, how the immune system is mobilized, which immune cells react to pathogens and many other aspects of the disease and potential therapies. Many of our customers have moved our Chromium Controller instruments into Biosafety Level 2 Plus (BSL2+) and 3 (BSL3) facilities, where they can be as close as possible to the front lines of this battle against COVID-19;
•Beginning in March, we required the majority of our personnel to work remotely while we designed and implemented measures to maintain a safe workplace. Given the importance of maintaining continuity of our business and continued access to instruments and consumables by our customers, including researchers engaged in the fight against COVID-19, we implemented protocols and safety measures at our facilities including social distancing, symptom screening, regular deep cleaning and 10x-provided personal protective equipment to support and safeguard the health and safety of the team which remained onsite in March to support essential operations. Among other efforts, as we looked to regain our pre-COVID-19 levels of manufacturing and research and development activities by bringing additional personnel back onsite, in April we created a testing site for SARS-CoV-2 (the virus which causes COVID-19) at our Pleasanton headquarters. On a weekly basis, we test all employees who access our facilities, and no employee is allowed to access our facilities without a negative test. After having completed thousands of tests to date, our testing program has uncovered only a few, isolated test results indicating the presence of SARS-CoV-2. We believe we were able to successfully isolate these individuals and prevent the spread of the virus within our workforce, but we will continue to monitor and track these developments. As an additional safeguard against SARS-CoV-2 transmission among our onsite employee base, in the second quarter of 2020 we introduced the use of Controlled Air Purifying Respiratory Systems (“CAPRS”) by certain of our onsite employees who need to work in close proximity to each other. CAPRS work to protect 10x personnel by filtering out potentially harmful or infectious materials including SARS-CoV-2 particles. These and other safety measures have facilitated the safe return to work of most of our research and development, manufacturing and other operations personnel;
•Our sales and marketing teams have leveraged increased digital marketing and sales activities since the broad emergence of social distancing measures globally, including virtual sales seminars, virtual market development activities, online product training utilizing our library of on-demand tools and literature and an increase in one-on-one communications via emails, phone and video conferencing;
•With the implementation of our protocols and safety measures, our production, shipping and customer service functions have been operational and we have been able to maintain a continuous supply of products to our customers. We are communicating regularly with our suppliers, our supply chain remains intact and we have not yet experienced any material supply issues. With respect to raw material supply, we have secured sufficient critical raw materials to meet anticipated future demand and do not anticipate any material negative impact due to potential future shortages or price increases from suppliers in the near term. Our customer service teams around the world are operating remotely and remain available to assist our customers and partners as needed;
•Due to the measures taken to ensure the safety of 10x personnel described above, we have been able to materially increase our research and development capacity in the second and third quarters of 2020 relative to the height of the
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COVID-19 shutdown. To date in 2020, we have launched four new products for our customers: (1) Our Targeted Gene Expression solution will allow researchers to target the genes most relevant for their research, validate their hypotheses faster and reduce sequencing costs; (2) Our Single Cell Multiome ATAC+Gene Expression solution is designed to allow researchers to read both gene expression and epigenetic programming in the same cells across thousands to tens of thousands of cells in a single experiment; (3) Our Visium Spatial Gene Expression solution with Immunofluorescence allows whole transcriptome spatial analysis and protein detection in the same tissue section; and (4) A new version of our Single Cell Immune Profiling solution offers increased sensitivity, reduced sequencing costs and access to rare gene signatures;
•Despite the impacts of the COVID-19 pandemic, including that the majority of 10x personnel worldwide continue to work remotely, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting and disclosure controls and procedures. We implemented a cloud-based enterprise resource planning (“ERP”) system, Oracle Cloud, to automate our business processes including our forecasting, accounts receivable, inventory and vendor management processes which went live during the third quarter of 2020. We were also able to complete the underwritten public follow-on offering and the acquisition of CartaNA during the third quarter of 2020 and the acquisition of ReadCoor in October 2020; and
•We continue to actively review and manage costs to navigate the current environment and to allow 10x to remain in a strong financial and operating position until the pandemic is brought under control.
While the disruption is currently expected to be temporary, there is considerable uncertainty around its duration. We expect these disruptions to continue to impact our operating results, however, the extent of the financial impact and duration cannot be reasonably estimated at this time. For further discussion of the risks relating to the impacts of the COVID-19 pandemic, see the section titled “Risk Factors,” generally, and “Risk Factors—The impacts and potential impacts of the COVID-19 pandemic continues to create significant uncertainty for our business, financial condition and results of operations,” specifically, under Part II, Item 1A.
Results of Operations
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)
2020201920202019
Revenue$71,817 $61,207 $186,627 $170,604 
Cost of revenue14,411 15,480 39,571 44,451 
Gross profit57,406 45,727 147,056 126,153 
Operating expenses:
Research and development30,143 22,209 83,670 55,208 
In-process research and development40,637 — 40,637 — 
Selling, general and administrative51,549 32,614 146,352 92,078 
Accrued contingent liabilities332 — 956 1,360 
Total operating expenses122,661 54,823 271,615 148,646 
Loss from operations(65,255)(9,096)(124,559)(22,493)
Other income (expense):
Interest income28 481 1,471 986 
Interest expense(397)(708)(1,365)(2,087)
Other expense (income), net361 (272)121 (413)
Loss on extinguishment of debt— — (1,521)— 
Total other expense(8)(499)(1,294)(1,514)
Loss before provision for income taxes(65,263)(9,595)(125,853)(24,007)
Provision for income taxes585 8 1,305 110 
Net loss$(65,848)$(9,603)$(127,158)$(24,117)

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The following table sets forth our condensed consolidated results of operations data as a percentage of revenue for the periods presented.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Revenue100.0 %100.0 %100.0 %100.0 %
Cost of revenue20.1 %25.3 %21.2 %26.1 %
Gross profit79.9 %74.7 %78.8 %73.9 %
Operating expenses:
Research and development42.0 %36.3 %44.8 %32.4 %
In-process research and development56.6 %— %21.8 %— %
Selling, general and administrative71.7 %53.3 %78.4 %53.9 %
Accrued contingent liabilities0.5 %— %0.5 %0.8 %
Total operating expenses170.8 %89.6 %145.5 %87.0 %
Loss from operations(90.9)%(14.9)%(66.7)%(13.1)%
Other income (expense):
Interest income— %0.8 %0.8 %0.5 %
Interest expense(0.6)%(1.2)%(0.7)%(1.2)%
Other expense (income), net0.5 %(0.4)%0.1 %(0.2)%
Loss on extinguishment of debt— %— %(0.8)%— %
Total other expense(0.1)%(0.8)%(0.6)%(0.9)%
Loss before provision for income taxes(91.0)%(15.7)%(67.3)%(14.1)%
Provision for income taxes0.8 %— %0.7 %0.1 %
Net loss(91.8)%(15.7)%(68.0)%(14.2)%
Comparison of the Three and Nine Months Ended September 30, 2020 and 2019
Revenue
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
(dollars in thousands)20202019$%20202019$%
Revenue$71,817 $61,207 $10,610 17 %$186,627 $170,604 $16,023 9 %
Revenue increased $10.6 million, or 17%, to $71.8 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, driven primarily by an increase in consumables revenue. Consumables revenue increased $10.8 million, or 22%, to $60.6 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. The increase in consumables revenue was primarily driven by growth in the instrument installed base partially offset by decreased demand due to closures of some of our customers' facilities arising from the continued impact of the COVID-19 pandemic. Instrument revenue decreased $0.7 million, or 7%, to $9.7 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 due to a decrease in number of units sold partially offset by higher average selling prices driven by Chromium Connect.
Revenue increased $16.0 million, or 9%, to $186.6 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, driven primarily by an increase in consumables and instruments revenue. Consumables revenue increased $14.0 million, or 10%, to $156.1 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The increase in consumables revenue was driven by the growth in the instrument installed base partially offset by decreased demand due to closures of some of our customers' facilities arising from the continued impact of the COVID-19 pandemic. Instrument revenue increased $0.6 million, or 2%, to $26.1 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 due to higher volume of instruments sold, partially offset by lower average selling prices. Revenue for the nine months ended September 30, 2020 include sales of our newly introduced Chromium Connect which have substantially higher selling prices.
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We largely rely on research activities in both academic institutions and government laboratories for our revenue. In March 2020, as the impact of the global COVID-19 pandemic intensified, we saw a significant reduction in customer activity other than research related to the virus. By the end of the first quarter of 2020, the vast majority of academic and government labs around the world had suspended or severely reduced operations in compliance with stay-at-home, shelter-in-place and similar orders. These closures and reduced operations significantly impacted our business towards the latter part of the first quarter and throughout a majority of second quarter of 2020 resulting in lower revenues when compared to the three months ended June 30, 2019. However, beginning in June 2020, we observed a modest re-opening of labs for general research resulting in an uptick in our sales activity during this period. As of June 30, 2020, we estimated that approximately 60% of our customer labs were open for general research in some capacity, and labs continued to reopen throughout the third quarter. As of September 30, 2020, we estimated that approximately 80% of our customer labs were open for general research in some capacity. We further estimate that as of the end of the first week of November 2020, approximately 85% of our customer labs were open to general research in some capacity. Not all labs are able to operate at full capacity even if open and we may encounter delays before labs are able to fully resume their research and we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall demand in the fourth quarter of 2020 and beyond. Once labs re-open and are able to resume normal levels of research activities, we expect to continue to see increased demand for our products.
Cost of revenue, gross profit and gross margin
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
(dollars in thousands)
20202019$%20202019$%
Cost of revenue
$14,411 $15,480 $(1,069)(7)%$39,571 $44,451 $(4,880)(11)%
Gross profit
$57,406 $45,727 $11,679 26 %$147,056 $126,153 $20,903 17 %
Gross margin
80 %75 %79 %74 %
Cost of revenue decreased $1.1 million, or 7%, to $14.4 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. The decrease was primarily due to a decrease of $5.2 million in royalties related to the 2015 Delaware Action discussed in Part II, Item 1 below, partially offset by an increase of $2.4 million due to higher volume and average cost of revenue for newly introduced products, $1.0 million of costs related to our development of a second manufacturing facility, $0.4 million of license fees and $0.4 million of inventory scrap and excess and obsolete inventory charges.
Cost of revenue decreased $4.9 million, or 11%, to $39.6 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The decrease was primarily due to lower accrued royalties of $15.2 million related to the 2015 Delaware Action, partially offset by an increase of $5.1 million from increased sales including newly introduced products, $1.9 million of costs related to our development of a second manufacturing facility, inventory scrap and excess and obsolete inventory charges of $1.4 million, $1.1 million of license fees, and idle manufacturing capacity charges of $0.8 million.

Gross profit increased $11.7 million, or 26%, to $57.4 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to higher revenue and lower accrued royalties related to the 2015 Delaware Action. Gross margin increased by 5%, to 80% for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to a lower accrued royalties of $5.2 million related to the 2015 Delaware Action, partially offset by an increase of $2.4 million due to higher volume and average cost of sales associated with higher revenue and newly introduced products, $1.0 million of costs related to our development of a second manufacturing facility, $0.4 million of license fees and $0.4 million of inventory scrap and excess and obsolete inventory charges.

Gross profit increased $20.9 million, or 17%, to $147.1 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily due to higher revenue and lower accrued royalties related to the 2015 Delaware Action. Gross margin increased by 5%, to 79% for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, due to a decrease in accrued royalties of $15.2 million related to the 2015 Delaware Action, partially offset by an increase of $5.1 million due to higher volume and average cost of sales associated with higher revenue and newly introduced products, $1.9 million of costs related to our development of a second manufacturing facility, inventory scrap and excess and obsolete inventory charges of $1.4 million, $1.1 million of license fees, and idle manufacturing capacity charges of $0.8 million.
Towards the end of the first quarter of 2020, the vast majority of academic and government labs around the world suspended or severely reduced operations in compliance with stay-at-home, shelter-in-place and similar orders and which extended into the second quarter of 2020 resulting in a decrease in overall demand during this period and also resulting in our
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production facilities running at less than normal capacity which negatively impacted our gross margins. While we experienced higher demand for our products during the third quarter of 2020 due to partial reopening of our customer's businesses, until and unless demand for our solutions normalizes, our gross profits and gross margins will be negatively impacted. While we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall gross profit and gross margins in the fourth quarter of 2020 and beyond, we plan to continue to invest in our manufacturing facilities and production efforts and manage our supply chain to ensure the delivery of products to our customers.
Operating expenses
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
(dollars in thousands)
20202019$%20202019$%
Research and development$30,143 $22,209 $7,934 36 %$83,670 $55,208 $28,462 52 %
In-process research and development40,637 — 40,637 100 %40,637 — 40,637 100 %
Selling, general and administrative51,549 32,614 18,935 58 %146,352 92,078 54,274 59 %
Accrued contingent liabilities332 — 332 100 %956 1,360 (404)(30)%
Total operating expenses$122,661 $54,823 $67,838 124 %$271,615 $148,646 $122,969 83 %
Research and development expenses increased $7.9 million, or 36%, to $30.1 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. The increase was primarily driven by increased personnel expenses of $5.5 million including $3.8 million in stock-based compensation expense, laboratory materials, supplies and expensed equipment of $1.6 million used to support our research and development efforts and $0.7 million of higher allocated costs for facilities and information technology to support the general expansion of our operations.
In-process research and development expense for the three months ended September 30, 2020 relates to intellectual property we purchased in connection with our acquisition of CartaNA. In connection with this acquisition, we recognized an in-process research and development intangible asset of $40.6 million which did not have alternative future use and therefore was recognized as an expense during this period. See Note 5 to the condensed consolidated financial statements for further details. There were no similar purchases in the three and nine months ended September 30, 2019.
Research and development expenses increased $28.5 million, or 52%, to $83.7 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The increase was primarily driven by increased personnel expenses of $20.0 million including $11.0 million in stock-based compensation expense, laboratory materials, supplies and expensed equipment of $4.8 million used to support our research and development efforts and $3.7 million of higher allocated costs for facilities and information technology to support the general expansion of our operations.
Beginning in March 2020 and throughout the second quarter of 2020, the COVID-19 pandemic resulted in a decrease in certain research laboratory activities, and as a result we incurred lower materials spending. While our research and development activities have increased relative to the height of the COVID-19 shutdown earlier in 2020, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall research activities or expenditures in the fourth quarter and beyond.
Selling, general and administrative expenses increased $18.9 million, or 58%, to $51.5 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. The increase was primarily driven by increased personnel expenses of $9.6 million, including $5.8 million in stock-based compensation expense, outside legal expenses of $7.6 million (including $1.5 million of success fees), $1.3 million of costs related to COVID-19 screening, safety equipment purchases and cleaning and $0.7 million of higher allocated costs for facilities and information technology to support the general expansion of our operations.
Selling, general and administrative expenses increased $54.3 million, or 59%, to $146.4 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The increase in expenses was primarily driven by increased personnel expenses of $27.8 million including $14.2 million in stock-based compensation expense, outside legal expenses of $20.6 million, $2.2 million of higher allocated costs for facilities and information technology to support the general expansion of our operations, $1.9 million of insurance costs and $1.7 million of costs related to COVID-19 screening, safety equipment purchases and cleaning.
While certain costs will decline as the underlying activities are restricted by the COVID-19 pandemic, including travel and related expenses, conferences and events, we are taking certain measures to manage our spending while continuing to incur expenses that we believe will further our strategic initiatives.
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Other income (expense), net
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
(dollars in thousands)
20202019$%20202019$%
Interest income
$28 $481 $(453)(94)%$1,471 $986 $485 49 %
Interest expense
(397)(708)311 (44)%(1,365)(2,087)722 (35)%
Other expense
361 (272)633 (233)%121 (413)534 (129)%
Loss on extinguishment of debt
— — — N/M(1,521)— (1,521)N/M
Total other expense, net
$(8)$(499)$491 (98)%$(1,294)$(1,514)$220 (15)%
N/M: result not meaningful.
Interest income decreased by $0.5 million to $28 thousand for the three months ended September 30, 2020 from $0.5 million for the three months ended September 30, 2019 primarily due to lower interest rates in the third quarter of 2020. While we earned interest on the net proceeds from the IPO completed in September 2019, interest income was lower for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 primarily due to lower interest rates in the third quarter of 2020. Interest income increased by $0.5 million to $1.5 million for the nine months ended September 30, 2020 from $1.0 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020 interest income increased due to the IPO proceeds partially offset by the lower interest rates in September 30, 2019.
Interest expense decreased for the three and nine months ended September 30, 2020 from the three and nine months ended September 30, 2019. The decrease was driven primarily by the voluntary prepayment of our term loan on February 20, 2020 and lower interest rates partially offset by additional interest expense recognized on accrued license fees.
The change in other expense for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 was driven by realized and unrealized losses from foreign currency rate measurement fluctuations.
Loss on extinguishment of debt was $1.5 million for the nine months ended September 30, 2020. In February 2020, we prepaid the remaining balance on our term loan, an end-of-term payment and prepayment fees.
Provision for Income Taxes
The Company’s provision for income taxes was $0.6 million and $1.3 million, respectively, for the three and nine months ended September 30, 2020 and $8 thousand and $0.1 million, respectively, for the three and nine months ended September 30, 2019. The Company's effective tax rate was 0.9% and 1.0%, respectively, for the three and nine months ended September 30, 2020 and 0.1% and 0.5%, respectively, for the three and nine months ended September 30, 2019. The provision for income taxes for the three and nine months ended September 30, 2020 consists primarily of foreign taxes. Deferred tax assets generated from the Company’s domestic net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. These provisions are not expected to have a material impact on the Company’s condensed consolidated financial statements.
Liquidity and Capital Resources
As of September 30, 2020, we had approximately $768.8 million in cash and cash equivalents which were primarily held in U.S. bank deposit accounts and money market funds, $36.0 million in accounts receivable and an accumulated deficit of $389.5 million. Our cash and cash equivalents as of September 30, 2020 include net proceeds of $482.2 million after deducting offering costs, underwriting discounts and commissions arising from the sale of 4,600,000 shares of the Company's Class A common stock on September 10, 2020. Restricted cash of $59.4 million, classified within current assets in our condensed consolidated balance sheets serves as collateral for a bond and royalties in connection with the Bio-Rad litigation. Restricted cash of $5.5 million, classified within noncurrent assets in our condensed consolidated balance sheets serves as collateral for outstanding letters of credit for facilities. We have generated negative cumulative cash flows from operations since inception through the three months
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ended September 30, 2020, and we have generated losses from operations since inception as reflected in our accumulated deficit of $389.5 million. We expect to continue to incur operating losses for the foreseeable future due to decreased revenue arising from closures of our customers' facilities as a result of the COVID-19 pandemic and investments we intend to make and as a result we may require additional capital resources to execute strategic initiatives to grow our business. On October 13, 2020, we completed our acquisition of ReadCoor Inc. for a total consideration of $350.0 million including $250.0 million in our Class A common stock and $100.0 million in cash. See Note 11 to the condensed consolidated financial statements for further details.
In August 2020, the Federal Circuit issued its opinion in our appeal of the 2015 Delaware Action. The Federal Circuit (1) affirmed the judgment of the lower Court with respect to infringement of the '083 patent by our legacy GEM products and (2) vacated the judgment with respect to infringement of the '193 and '407 patents, which are remanded to the lower Court for a new trial on infringement. The Federal Circuit affirmed the damage award including the 15% royalty with respect to our legacy GEM products. The Federal Circuit vacated the injunction with respect to our Single Cell CNV and Linked-Read products but affirmed the injunction with respect to our other legacy GEM products. In October 2020, we filed a petition for en banc rehearing with the Federal Circuit. The Federal Circuit denied our petition for en banc rehearing on November 4, 2020 and is expected to issue a mandate in November 2020. We expect the $34.5 million judgment, plus approximately $0.8 million in post-judgment interest, to be payable to Bio-Rad in December 2020. We further expect the case will be remanded to the Delaware Court for a determination of post-judgment royalties or other amounts, which we expect to be made in the first half of 2021. We have accrued $77.6 million as of September 30, 2020 related to this matter which is classified within current liabilities in our condensed consolidated balance sheets as of this date. The restricted cash of $59.4 million would be used to partially satisfy this payment.
We currently anticipate making aggregate capital expenditures of between approximately $80 million and $100 million during the next 12 months, which includes a $29.8 million real estate acquisition (see Note 6, “Purchase of Land” in our Notes to unaudited condensed consolidated financial statements for further details), the construction costs of our global expansion and equipment to be used for manufacturing and research and development. Our future capital requirements will depend on many factors including our revenue growth rate, research and development efforts, the impacts of the COVID-19 pandemic, the timing and extent of additional capital expenditures to invest in existing and new facilities, the expansion of sales and marketing and international activities, the timing of capital expenditures relating to our planned implementation of a new enterprise resource planning system and the introduction of new products. We take a long term view in growing and scaling our business and we regularly review acquisition and investment opportunities, and we may in the future enter into arrangements to acquire or invest in businesses, real estate, services and technologies, including intellectual property rights, and any such acquisitions or investments could significantly increase our capital needs. We are continuing to review opportunities that meet our long-term growth objectives.
We believe that our existing cash and cash equivalents and cash generated from sales of our products will be sufficient to meet our anticipated cash needs for at least the next 12 months, and this assessment of our liquidity position is informed by our evaluation of a wide range of COVID-19 pandemic recovery scenarios. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We intend to continue to evaluate market conditions and may in the future pursue various funding alternatives to further enhance our financial position and to help fund our strategic initiatives. In addition, should prevailing economic, financial, business or other factors adversely affect our ability to meet our operating cash requirements, we could be required to obtain funding though traditional or alternative sources of financing. We cannot be certain that additional funds would be available to us on favorable terms when required, or at all.
The COVID-19 pandemic has negatively impacted the global economy, resulted in the closure of many of our customers’ facilities, disrupted global supply chains and created significant volatility and disruption of financial markets. While certain of our customers' labs began to re-open in June 2020 and continued to re-open during the quarter ended September 30, 2020, many of those labs are not yet fully operational and an extended period of economic disruption and closure, on-going limitations on operations at customer facilities or re-closure of our customers’ labs could materially affect our business, results of operations, financial condition and access to sources of liquidity. We will continue to monitor the development and control of the COVID-19 pandemic and we believe there will be an increase in business activity upon the loosening of pandemic-related restrictions, including a resurgence in activity levels at laboratories which were temporarily closed, barring a renewed increase in COVID-19 cases which may lead to further business closures. Although we are currently uncertain as to when this resurgence will occur, we intend to invest in research and development activities and other initiatives while the COVID-19 pandemic is brought under control including accelerated investments in product development and intellectual property to launch new products and continue improving existing 10x solutions. Additionally, we plan to continue to build our commercial organization across key geographies around the world and invest in capabilities to address the interest we are seeing from the pharmaceutical and translational markets.
Sources of liquidity
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Since our inception, we have financed our operations and capital expenditures primarily through sales of convertible preferred stock and common stock, revenue from sales and issuances of debt. In September 2019, we completed our IPO for aggregate proceeds of $410.8 million, net of offering costs, underwriter discounts and commissions of $37.7 million. In September 2020, we completed our follow-on public offering for aggregate proceeds of $482.2 million, after deducting offering costs, underwriting discounts and commissions of $23.8 million.
Silicon Valley Bank Loan and Security Agreement
We were a party to the Loan and Security Agreement, under which (i) borrowings under the term loan were prepaid on February 20, 2020 and (ii) the revolving line of credit was terminated, at our election, on June 18, 2020 and which, prior to its termination, provided us with a revolving line of credit of up to $25.0 million through December 2022. The amount available on the revolving line of credit was based on 80% of eligible receivables and was subject to a borrowing base calculation. Principal amounts outstanding under the revolving line of credit accrued interest at a floating per annum rate equal to the greater of The Wall Street Journal prime rate plus 0.25% or 4.5% and were repayable monthly. Additionally, the revolving line of credit had a nonrefundable annual commitment fee of $62.5 thousand payable on each anniversary date. Upon termination of the revolving line of credit and the Loan and Security Agreement on June 18, 2020, we incurred termination fees of $0.3 million. We terminated the Loan and Security Agreement, which we entered into while we were a private company with more limited access to financing alternatives, as it was not in line with our current business strategy and as we continue to explore alternative financing modes to support our long-term growth. As of June 18, 2020 and December 31, 2019, there were no balances outstanding under the revolving line of credit and we were in compliance with all covenants under the Loan and Security Agreement through its termination on June 18, 2020.
Cash flow summary
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
(in thousands)
20202019
Net cash (used in) provided by:
Operating activities
$(87,723)$27,927 
Investing activities
(16,128)(36,186)
Financing activities
461,200 415,697 
Effect of exchange rates on changes in cash, cash equivalents, and restricted cash(144)(37)
Net increase in cash, cash equivalents, and restricted cash$357,205 $407,401 
Operating activities
The net cash used in operating activities of $87.7 million for the nine months ended September 30, 2020 was due primarily to a net loss of $127.2 million, net cash outflow from changes in operating assets and liabilities of $10.1 million, partially offset by adjustments for stock-based compensation expense of $34.4 million, depreciation and amortization of $10.1 million, loss on extinguishment of debt of $1.5 million and amortization of leased right-of-use assets of $3.5 million. The net cash outflow from operating assets and liabilities was primarily due to an increase in inventory of $9.8 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand, an increase in prepaid expenses and other current assets of $3.4 million, a decrease in accounts payable of $3.3 million due to timing of vendor payments, a decrease in other noncurrent liabilities of $3.2 million, a decrease of $3.1 million in payment of operating lease expenses, an increase in accounts receivable of $2.7 million due to timing of collections, an increase in other assets of $2.6 million and a decrease in accrued compensation and other related benefits of $1.3 million. The net cash outflow from operating assets and liabilities was partially offset by an increase in accrued expenses and other current liabilities of $9.5 million consistent with the growth of our business and an increase in accrued contingent liabilities of $8.9 million.
The net cash provided by operating activities of $27.9 million for the nine months ended September 30, 2019 was due primarily to a net loss of $24.1 million, offset by net cash inflow from changes in operating assets and liabilities of $38.9 million, with adjustments for stock-based compensation expense of $8.3 million, depreciation and amortization of $4.2 million and loss on disposal of property and equipment of $0.6 million. The net cash inflow from changes in operating assets and liabilities was primarily due to an increase in accrued contingent liabilities of $24.5 million, an increase in deferred rent, noncurrent of $12.8 million, an increase in accrued expenses and other current liabilities of $2.6 million, an increase in accounts payable of $2.7
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million and a decrease in accounts receivable of $1.9 million, partially offset by an increase in inventory of $4.7 million and an increase in prepaid expenses and other current assets of $2.8 million.
Investing activities
The net cash used in investing activities of $16.1 million in the nine months ended September 30, 2020 was due to purchases of property and equipment of $15.3 million and purchases of intangible assets of $0.8 million.
The net cash used in investing activities of $36.2 million in the nine months ended September 30, 2019 was due to purchases of property and equipment.
Financing activities
The net cash provided by financing activities of $461.2 million in the nine months ended September 30, 2020 was primarily from proceeds of $483.0 million from the issuance of Class A common stock after deducting offering costs, underwriting discounts and commissions, and proceeds of $15.3 million from the issuance of common stock from the exercise of stock options, partially offset by the use of $31.3 million in connection with loan principal payments including the early repayment of the term loan under the Loan and Security Agreement (including fees in connection with the early repayment of the term loan) and payments on financing arrangements of $5.8 million.
The net cash provided by financing activities of $415.7 million in the nine months ended September 30, 2019 was primarily from proceeds of $412.7 million from issuance of Class A common stock in our IPO, net of issuance costs and proceeds of $3.0 million from the issuance of common stock from the exercise of stock options.
Contractual Obligations and Commitments
On February 20, 2020, the Company prepaid the remaining balance of the term loan and all associated costs. See Note 5 to the condensed consolidated financial statements for further details.
On November 6, 2020, the Company entered into a lease agreement with 6200 Stoneridge Mall Road Investors LLC, a Delaware limited liability company, to lease additional office building space near our Pleasanton, California headquarters. The Company intends to utilize the leased space of approximately 145,000 square feet to accommodate its future growth requirements. The lease term will commence on January 1, 2021 and is expected to terminate on June 30, 2033 and total lease payments over the lease term are expected to amount to approximately $60.8 million. Upon lease commencement, the Company expects to recognize a right-of-use lease asset and corresponding lease liability in accordance with ASU No. 2016-2, Leases (Topic 842).
There have been no other material changes to our contractual obligations as of September 30, 2020, as compared to those disclosed in the Annual Form 10-K as of December 31, 2019.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our most recent Annual Report on Form 10-K filed with the SEC on February 27, 2020. For
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additional information, please refer to Note 2 to our unaudited condensed consolidated financial statements in this Quarterly Report.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” in our Notes to unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Because (i) the aggregate worldwide market value of our voting common stock held by non-affiliates (or “public float”) exceeded $700 million on June 30, 2020, (ii) we will have been subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act for at least twelve calendar months, (iii) we have previously filed an annual report under Section 13(a) or 15(d) of the Exchange Act and (iv) we are not eligible for smaller reporting company status because we do not meet the revenues requirement for such status, we will qualify as a “large acceleration filer” under Rule 12b-2 of the Exchange Act as of the end of the current fiscal year. As a large accelerated filer, we will no longer qualify as an emerging growth company as of January 1, 2021.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk. 
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates.
Interest Rate Risk

We have exposure to interest rate risk that relates primarily to our cash and cash equivalents held in bank deposit and money market funds. While we were previously exposed to interest risk due to variable interest rates under our previously outstanding credit facility, we are no longer exposed to such risk during the quarter ended September 30, 2020 due to the termination of such credit facility in June 2020. We maintain our portfolio of cash equivalents in money market funds. All of our cash equivalents are carried at fair market value.

The primary objective of our investment activities is to preserve principal while at the same time improving yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents in asset types including bank deposits and money market funds. Declines in interest rates during the nine months ended September 30, 2020 have reduced our interest income and additional declines would further reduce our future interest income. While historical fluctuations in interest income have not been significant, in a financial environment with extremely low or negative interest rates, we have experienced and could continue to experience a reduction in the interest earned from such investment activities. A 10% decline in interest rates, occurring on January 1, 2020, and sustained throughout the period ending December 31, 2020, would not significantly impact interest income.

Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar and the functional currency of each of our subsidiaries is either its local currency or the U.S. dollar depending on the circumstances. Historically, most of our revenue has been denominated in U.S. dollars, although we have sold our products and services in local currency outside of the United States, principally the Euro. For the nine months ended September 30, 2020 and twelve months ended December 31, 2019, approximately 14% and 15%, respectively, of our sales were denominated in currencies other than U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States. As our operations in countries outside of the United States grow, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. For example, if the value of U.S. dollar increases relative to foreign currencies,
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in the absence of a corresponding change in local currency prices, our revenue could be adversely affected as we convert revenue from local currencies to U.S. dollars. In addition, because we conduct business in currencies other than U.S. dollars, but report our results of operations in U.S. dollars, we also face remeasurement exposure to fluctuations in currency exchanges rates, which could hinder our ability to predict our future results and earning and could materially impact our results of operations. We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies. We believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results.
Item 4.    Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2020.
Changes in Internal Control over Financial Reporting
There was not any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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10x Genomics, Inc.
PART II—OTHER INFORMATION
Item 1.    Legal Proceedings.
We are regularly subject to claims, lawsuits, arbitration proceedings, administrative actions and other legal and regulatory proceedings involving commercial disputes, competition, intellectual property disputes and other matters, and we may become subject to additional types of claims, lawsuits, arbitration proceedings, administrative actions, government investigations and legal and regulatory proceedings in the future and as our business grows, including proceedings related to product liability or our acquisitions, securities issuances or our business practices, including public disclosures about our business. Our success depends in part on our non-infringement of the patents or proprietary rights of third parties. Third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization. We have been involved in multiple patent litigation matters in the past several years and we expect that given the litigious history of our industry and the high profile of operating as a public company, other third parties, in addition to the parties identified herein, may claim that our products infringe their intellectual property rights. There are inherent uncertainties in these legal matters, some of which are beyond management’s control, making the ultimate outcomes difficult to predict. Amongst other matters, we are currently involved in the following litigation matters:
The 2015 Delaware Action
In February 2015, Raindance Technologies, Inc. (“Raindance”) and the University of Chicago filed suit against us in the U.S. District Court for the District of Delaware (the “Delaware Court”), accusing the Company's legacy GEM products of infringing certain U.S. patents owned by or exclusively licensed to Raindance (the “2015 Delaware Action”). In May 2017, Bio-Rad Laboratories, Inc. (“Bio-Rad”) was substituted as the plaintiff following its acquisition of Raindance. A jury trial was held in November 2018. The jury found that the accused legacy GEM products infringed U.S. Patent Nos. 8,304,193, 8,329,407 and 8,889,083. The jury also concluded that our infringement was willful and awarded Bio-Rad approximately $24 million in damages through June 30, 2018. We appealed the jury verdict. Post-trial, Bio-Rad moved for a permanent injunction, treble damages for willful infringement, attorneys’ fees, supplemental damages for the period from the second quarter of 2018 through the end of the trial as well as pre- and post-judgment interest.
The Court denied Bio-Rad’s request for attorneys’ fees and enhanced damages for willful infringement. The Court awarded supplemental damages for the period from the second quarter of 2018 through the end of trial as well as pre- and post-judgment interest. The Court entered final judgment against us in the amount of approximately $35 million in August 2019.
In the fourth quarter of 2018, we began recording an accrual for estimated royalties as a cost of revenue. This accrual is based on an estimated royalty rate of 15% of worldwide sales of our Chromium instruments operating our legacy GEM microfluidic chips and associated consumables. As of September 30, 2020, we had accrued a total of $77.6 million relating to this matter which includes the $35 million judgment and our estimated 15% royalty for subsequent sales through that date.
In July 2019, the Court also granted Bio-Rad a permanent injunction against our legacy GEM microfluidic chips and associated consumables that were found to infringe the Bio-Rad patents, which historically constituted a significant amount of our product sales. However, under the injunction, we are permitted to continue to sell our legacy GEM microfluidic chips and associated consumables for use with our historical installed base of instruments provided that we pay into escrow a royalty of 15% of our net revenue related to such sales occurring after August 28, 2019. We appealed the Court's judgment including the injunction to the Federal Circuit.
In August 2020, the Federal Circuit issued its opinion in our appeal of the 2015 Delaware Action. The Federal Circuit (1) affirmed the judgment of the lower Court with respect to infringement of the '083 patent by our legacy GEM products and (2) vacated the judgment with respect to infringement of the '193 and '407 patents, which are remanded to the lower Court for a new trial on infringement. The Federal Circuit affirmed the damages award including the 15% royalty with respect to our legacy GEM products. The Federal Circuit vacated the injunction with respect to our Single Cell CNV and Linked-Read products but affirmed the injunction with respect to our other legacy GEM products. In October 2020, we filed a petition for en banc rehearing with the Federal Circuit. The Federal Circuit denied our petition for en banc rehearing on November 4, 2020 and is expected to issue a mandate in November 2020. We expect the $34.5 million judgment, plus approximately $0.8 million in post-judgment interest, to be payable to Bio-Rad in December 2020. We further expect the case will be remanded to the Delaware Court for a determination of post-judgment royalties or other amounts, which we expect to be made in the first half of 2021.
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Neither the lower Court judgment nor the Federal Circuit opinion in the 2015 Delaware Action implicate our Next GEM products. We have dedicated significant resources to designing and manufacturing our Next GEM microfluidic chips which use fundamentally different physics from our legacy GEM microfluidic chips. Neither the jury verdict nor the injunction relate to our Next GEM microfluidic chips based on our new proprietary design and associated consumables which we launched in May 2019 for three of our single cell solutions – Single Cell Gene Expression, Single Cell Immune Profiling and Single Cell ATAC. Since August 28, 2019, all Chromium instruments that we sell and have sold operate exclusively with our Next GEM solutions and we currently expect that our Chromium products utilizing our Next GEM microfluidic chips will constitute substantially all of our Chromium consumables sales by the end of 2020.
The ITC 1068 Action
On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC filed a complaint against us in the U.S. International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act of 1930, alleging that substantially all of our Chromium products infringe U.S. Patents Nos. 9,089,844, 9,126,160, 9,500,664, 9,636,682 and 9,649,635 (the “ITC 1068 Action”). Bio-Rad is seeking an exclusion order preventing us from importing the accused microfluidic chips, including (1) our legacy GEM microfluidic chip, (2) our gel bead manufacturing microfluidic chip and (3) our Next GEM microfluidic chip, into the United States and a cease and desist order preventing us from selling such imported chips. An evidentiary hearing for the ITC 1068 Action was held in May 2018 and the presiding judge issued an Initial Determination in September 2018, finding that our legacy GEM microfluidic chips infringe the ‘664, ‘682 and ‘635 patents but not the ‘160 patent. The judge further found that our gel bead manufacturing microfluidic chip and Next GEM microfluidic chip do not infringe any claim asserted against them (the “Initial Determination”). The judge recommended entry of an exclusion order preventing us from importing our legacy GEM microfluidic chips and a cease and desist order that would prevent us from selling such imported chips.
On December 18, 2019, the ITC issued its final determination in the ITC 1068 Action (the “Final Determination”). The Final Determination affirmed the Initial Determination that our Next GEM microfluidic chips and gel bead manufacturing microfluidic chips do not infringe any of the claims asserted against them. The Final Determination also affirmed the ruling that our legacy GEM microfluidic chips infringe the ‘664, ‘682 and ‘635 patents but not the ‘160 patent. The ITC issued (1) a limited exclusion order prohibiting the unlicensed importation of the legacy GEM microfluidic chips into the United States and (2) a cease and desist order preventing us from selling such imported legacy GEM microfluidic chips in the United States. The ITC expressly allowed the importation and sale of the legacy GEM microfluidic chips for use by researchers who were using such chips as of December 18, 2019, and who have a documented need to continue receiving such chips for a specific current ongoing research project for which that need cannot be met by any alternative product. The Final Determination was subject to a 60-day presidential review period. During the presidential review period, we were permitted to continue importation and sales of the legacy GEM microfluidic chips subject to payment of a bond of three (3) percent of the entered value of the accused microfluidic chips.
We and Bio-Rad have appealed the Final Determination to the Court of Appeals for the Federal Circuit. Bio-Rad has appealed the Final Determination with respect to non-infringement of our gel bead manufacturing chips, but not with respect to non-infringement of our Next GEM microfluidic chips. We have appealed the Final Determination with respect to infringement of our legacy GEM microfluidic chips. We expect oral arguments to be held around the first quarter of 2021 and a decision around mid-2021.
In order to allow our customers to continue their important research, we have dedicated significant resources to developing the capabilities to manufacture our microfluidic chips in the United States prior to the entry of the exclusion order or cease and desist order which took effect in February 2020. Prior to the second quarter of 2019, all of our microfluidic chips were manufactured outside of the United States. Our United States manufacturing facilities achieved volume production of certain of our legacy GEM microfluidic chips beginning in the third quarter of 2019.
The Northern District of California Action
On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC also filed suit against us in the U.S. District Court for the Northern District of California, alleging that the Company’s legacy GEM products infringe U.S. Patents Nos. 9,216,392, 9,347,059 and the five patents asserted in the ITC 1068 Action. The complaint seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees. This litigation has been stayed pending resolution of the Federal Circuit appeal of the ITC 1068 Action. In July 2020, Bio-Rad moved to lift the stay with respect to the '059 patent and consolidate the '059 patent with the '115 patent transferred from the District of Massachusetts which is being asserted against our Next GEM products. In August 2020, the Court denied Bio-Rad's motion to lift the stay with respect to both the '059 and '115 patents. In October 2020, the
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Company filed two petitions for inter partes review (“IPR”) challenging the validity of the ‘115 patent. The Company expects the Patent Trials and Appeals Board (“PTAB”) to issue a decision on institution of these IPR petitions in the second quarter of 2021.
The Germany Action
On February 13, 2018, Bio-Rad filed suit against us in Germany in the Munich Region Court alleging that our Chromium instruments, legacy GEM microfluidic chips and certain accessories infringe German Utility Model No. DE 20 2011 110 979. Bio-Rad seeks unspecified damages and an injunction prohibiting sales of these products in Germany and requiring us to recall these products sold in Germany subsequent to February 11, 2018. An initial hearing was held on November 27, 2018, and a subsequent hearing was held on May 15, 2019. The Court issued a ruling on November 20, 2019. The Court ruled that our legacy GEM microfluidic chips, as well as certain Chromium instruments and accessories used with legacy GEM microfluidic chips, infringed the German Utility Model. The Court issued an injunction with respect to such legacy GEM microfluidic chips, Chromium instruments and accessories used with such systems, prohibiting among other things the sale of these products in Germany and the importation of such products into Germany. The Court found that we are obligated to compensate Bio-Rad for unspecified damages and required that these products be recalled from distribution channels in Germany. The Court further found that we have to bear the statutory costs of the legal dispute in a minimum amount of at least 61,000 Euros. The Court’s ruling did not address our Next GEM products, which were not accused in this action and which constitute substantially all of our Chromium sales in Germany. The Company appealed the Court's ruling.
On April 6, 2020, the Munich Higher Regional Court (the “Higher Court”) issued a ruling staying enforcement of the ruling of the lower Court, including the injunction, subject to the payment of a bond by the Company. The Higher Court found that the lower Court’s claim construction was not justifiable and that the facts did not provide a basis for a finding of infringement. On April 16, 2020, we paid a 2.8 million Euro bond to the Higher Court to completely stay enforcement of the ruling. The bond is refundable upon a favorable ruling on the merits by the Higher Court. We expect the Higher Court to rule on the merits in 2021. In August 2020, Bio-Rad filed its appeal response arguing for the first time that our Next GEM microfluidic chips and certain accessories infringe the utility model. In its appeal response, Bio-Rad also attempted to add infringement allegations with respect to a new patent, European Patent No. 3 132 844, against our Chromium instruments and Next GEM microfluidic chips. We believe it is procedurally improper to attempt to add these new claims at this stage, that our Next GEM products are not covered by the lower court's judgment and are not admissible in the appeal, and that the newly asserted '844 patent is not admissible in the appeal. The Higher Court is not expected to rule on whether Next GEM products or the '844 patent are admissible in the appeal until 2021.
The 2018 Delaware Action
On October 25, 2018, Bio-Rad filed suit against us in the U.S. District Court for the District of Delaware, alleging that substantially all of our Chromium products, including our legacy GEM products and Next GEM products, infringe U.S. Patent Nos. 9,562,837 and 9,896,722. Bio-Rad seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees.
In October 2019, we filed four petitions for IPR challenging the validity of both asserted patents. On April 27, 2020, the PTAB instituted review on all four of these petitions. A final written decision is expected from the PTAB in April 2021.
In June 2020, the Court completely stayed the District of Delaware litigation pending resolution of the IPRs before the PTAB.
The Massachusetts Action
On September 11, 2019, Bio-Rad filed suit against us in the U.S. District Court for the District of Delaware, alleging that our Next GEM products infringe certain claims of U.S. Patent No. 8,871,444. On November 5, 2019, Bio-Rad amended the complaint to additionally allege that our Next GEM products infringe certain claims of U.S. Patent Nos. 9,919,277 and 10,190,115. The ‘444 and ‘277 patents are exclusively licensed by Bio-Rad from Harvard University, which subsequently joined the suit as a party plaintiff. Bio-Rad is seeking damages and an injunction against our Next GEM products amongst other remedies. The ‘444 and ‘277 patents are projected to expire in October 2024.
On December 18, 2019, Bio-Rad dismissed this action in the District of Delaware and refiled it in the U.S. District Court for the District of Massachusetts. The case was assigned to Judge William G. Young. On January 14, 2020, the Court consolidated this case with a separate action, Bio-Rad Laboratories Inc. et al. v. Stilla Technologies, Inc. (“Stilla”), in which Bio-Rad is asserting the ‘444 patent (among other patents) against Stilla’s droplet digital PCR product. On January 23, 2020, we filed a motion to dismiss the case and to transfer the ‘115 patent to the Northern District of California, where the related ‘059 patent is stayed.
On January 24, 2020, we filed antitrust counterclaims against Bio-Rad alleging violations of (a) Section 7 of the Clayton Act, (b) Section 2 of the Sherman Act and (c) California unfair competition laws, for illegally acquiring Raindance and illegally
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monopolizing or attempting to monopolize markets relating to droplet digital PCR products, droplet single cell products and droplet genetic analysis technology. On February 19, 2020, Bio-Rad moved to dismiss, or alternatively to stay and sever, our antitrust claims.
On February 5, 2020, we filed additional counterclaims against Bio-Rad alleging that Bio-Rad’s single cell ATAC-seq products infringe U.S. Patent No. 9,029,085 and 9,850,526 that are exclusively licensed to us from Harvard University. On February 26, 2020, Bio-Rad moved to sever and stay the patent counterclaims. On March 6, 2020, the Court denied the motion to stay and deferred the motion to sever until prior to trial.
On March 25, 2020, the Court held a hearing with respect to (a) our motion to dismiss Bio-Rad’s patent claims, (b) our motion to transfer the ‘115 patent and (c) Bio-Rad’s motion to dismiss our antitrust counterclaims. On April 30, 2020, the Court denied our motion to dismiss with respect to Bio-Rad’s patent claims and granted our motion to transfer the ‘115 patent to the Northern District of California. In August 2020, the Court granted Bio-Rad’s motion to dismiss (i) our Sherman Act and Clayton Act counterclaims with respect to droplet single cell products and (ii) our Sherman Act counterclaims with respect to droplet genetic analysis technology. The Court denied Bio-Rad’s motion to dismiss (i) our Clayton Act counterclaims with respect to droplet genetic analysis technology; (ii) our Sherman Act and Clayton Act counterclaims with respect to droplet digital PCR products; and (iii) our California unfair competition counterclaims.
Discovery is ongoing. A Markman hearing was conducted in September 2020. In July 2020, the Court set a trial date for Bio-Rad’s patent claims and our patent counterclaims in April 2021 and set a trial date for our antitrust counterclaims in July 2021.
In June 2020, we filed two petitions for IPR challenging the validity of the '444 patent. In August 2020, we filed two petitions for IPR challenging the validity of the '277 patent. We expect the PTAB to issue a decision on institution of these IPR petitions in the first quarter of 2021.
The ITC 1100 Action
On January 11, 2018, we filed a complaint against Bio-Rad at the ITC pursuant to Section 337 of the Tariff Act of 1930 alleging that Bio-Rad infringes our U.S. Patent Nos. 9,644,204, 9,689,024, 9,695,468 and 9,856,530 (the “ITC 1100 Action”). The judge issued an Initial Determination on July 12, 2019 finding that Bio-Rad’s ddSEQ products infringe the ‘024, ‘468 and ‘530 patents. The judge also found all of our asserted patents to be valid and rejected Bio-Rad’s claim of ownership in all of the asserted patents.
On February 12, 2020, the ITC issued its Final Determination affirming the judge’s findings with respect to Bio-Rad’s violation of the ‘024, ‘468 and ‘530 patents, including the judge’s findings for those patents with respect to infringement, validity and ownership. The ITC issued an exclusion order prohibiting Bio-Rad from importing into the United States infringing microfluidic devices, components thereof and products containing same, including the ddSEQ products. The ITC also issued a cease and desist order preventing Bio-Rad from selling such imported products in the United States. The ITC’s remedial orders do not identify any ddSEQ assay as exempted from their potential scope. The ITC orders do not prohibit the importation or sale of microfluidic consumables imported into the U.S. for use by researchers who are using such consumables as of February 12, 2020, and who have a documented need to continue receiving such consumables for a specific current ongoing research project for which that need cannot be met by any alternative product. On April 29, 2020, Bio-Rad appealed the Final Determination to the Court of Appeals for the Federal Circuit. We expect appeals to be completed in mid-2021.
For further discussion of the risks relating to intellectual property and our pending litigation, see the section titled “Risk Factors—Risks related to litigation and our intellectual property” under Item 1A below.
Item 1A.    Risk Factors.
There have been no material changes to our risk factors that we believe are material to our business, results of operations and financial condition from the risk factors previously disclosed in our prospectus filed with the SEC on September 11, 2020, and any documents incorporated by reference therein, which is accessible on the SEC's website at www.sec.gov.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Unregistered Securities
None during the three months ended September 30, 2020.
Use of Proceeds
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On September 11, 2019, our Registration Statement on Form S-1 (File No. 333-233361) relating to the IPO of our Class A common stock was declared effective by the SEC. Pursuant to such Registration Statement, we sold an aggregate of 11,500,000 shares of our common stock, including 1,500,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a price of $39.00 per share. Including the underwriters’ option exercise, the aggregate gross proceeds from the offering were $448.5 million, before deducting underwriting discounts and commissions and estimated offering expenses. J.P. Morgan LLC, Goldman Sachs & Co. LLC and BofA Merrill Lynch acted as lead joint book-running managers for the offering. Cowen acted as lead manager for the offering. On September 16, 2019, we closed the sale of such shares, resulting in aggregate cash proceeds to us of approximately $410.8 million, net of underwriting discounts, commissions and offering expenses paid or payable by us. No offering expenses were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities or to any of our affiliates.
There has been no material change in the expected use of the net proceeds from our IPO, as described in our Annual Report on Form 10-K filed with the SEC on February 27, 2020.
Item 3.    Defaults Upon Senior Securities.
Not applicable.
Item 4.    Mine Safety Disclosures.
Not applicable.
Item 5.    Other Information.
None.
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Item 6.    Exhibits.
Exhibit
Number
Incorporated by Reference
Exhibit Title
Form
File No.
Exhibit
Filing Date
3.1
8-K
001-39035
3.1
9/16/2019
3.2
8-K
001-39035
3.1
3/26/2020
4.1
S-1/A
333-233361
4.1
8/19/2019
4.2
S-1
333-233361
4.2
8/19/2019
10.1
10-Q
001-39035
10.68/12/2020
10.2
10-Q
001-39035
10.78/12/2020
10.3
10.4
31.1
31.2
32.1*
32.2*
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
*    This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
10x Genomics, Inc.
Date: November 12, 2020
By:
/s/ Serge Saxonov
Serge Saxonov
Chief Executive Officer and Director
(Principal Executive Officer)
Date: November 12, 2020
By:
/s/ Justin J. McAnear
Justin J. McAnear
Chief Financial Officer
(Principal Financial and Accounting Officer)
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