Despite a year of uneven sales growth, a falling stock market and inflationary pressures, the laboratory tool industry maintained its track record of increasing R&D spending in 2022, as measured by the performance of its largest held public companies. Worth more than $80 billion, according to Strategy Directions International (SDi), the laboratory tool industry excludes diagnostic testing and consists of 10 categories of technologies: atomic spectroscopy, chromatography, laboratory automation, life science techniques, laboratory equipment, sample preparation techniques, mass spectrometry, molecular spectroscopy, materials testing equipment and surface science techniques.
Increases in R&D expenditures by lab tool companies are a given as customers expect technology advances addressing factors such as speed, sensitivity, accuracy and/or cost effectiveness, among other needs, as well as breakthrough innovation. New technologies such as DNA sequencing, cryo–scanning electron microscopy and high-resolution mass spectrometry have impacted the progress of science and business. For example, advances in laboratory tools have been behind major advances in cancer research, food safety and battery development.
New product introduction is especially important to growth companies. This is evident by the rapid rise in R&D spending for three companies last year. Increases in R&D spending at 10x Genomics, Pacific Biosciences (PacBio) and 908 Devices handily surpassed revenue growth in 2022. This increase in R&D spending came at a time when growth companies in general were under pressure due to falling stock prices and lack of profitability. 10x Genomics, PacBio and 908 Devices’ investments in R&D in 2022 illustrated the lab tools industry’s reliance on innovation and the priority placed on major new product introductions by each company.
10x Genomics, best known for its Chromium single-cell gene expression analysis solution, generated sales of $516.4 million last year, which were up 5%. But the company’s R&D spending rose must faster, jumping 26% to $265.7 million. Among the company’s 2022 releases were the first commercial shipments at year’s end of its new Xenium in situ platform for sub-cellular mapping of RNA targets in tissues. Xenium is the company’s third major product platform, following the Chromium and the Visium spatial analyzer for spatial gene expression and proteogenomics.
However,10x Genomics had to balance R&D with other investments. Operating loss more than doubled in 2022, going from $52.3 million to $167.9 million. The company also saw its stock price decline 75.5% in contrast to the Nasdaq in total which declined 33.1%. In response to the market environment and organizational adjustments, the company announced cost reductions in August, including an 8% decrease in headcount.
Xenium is expected to play a role in driving future sales this year and the company has already announced a product roadmap for the years ahead. According to 10x Genomics CEO Serge Saxonov, PhD, Xenium has been well-received. He told shareholders in May, “Overall, we feel good about our early progress and momentum. There’s tremendous potential ahead with Xenium, and we’re bringing the whole-of-company effort to capture it.” The company updated its annual revenue guidance at that time, forecasting 2023 sales growth of 14%–18% driven by all three platforms. In the first quarter, 10x Genomics’ R&D expenses rose just 4.7% to $67.1 million. The company is aiming to be cash flow positive this year.
DNA sequencer maker PacBio raised its 2022 R&D spending even faster than 10x Genomics, increasing it 71% to $193.0 million even as company revenues dove 2% to $128.3 million. The R&D increase likely contributed to company’s announcement last fall of two major product introductions: the Revio, its next generation system for the company’s mainstay long-read sequencing business; and the Onso platform, its first short-read sequencing system. Revio began shipping in March. Onso shipments are also scheduled to begin this year.
The product introductions are expected to provide a lift to company financial results. In 2022, PacBio’s operating loss increased from $210.4 million to $307.2 million, and its stock price tumbled 60%. In January, perhaps in a sign of the potential impact of the new products, the company closed a public offering of common stock resulting in net proceeds of approximately $189.2 million.
In May, PacBio announced the shipment of 32 Revio systems during the first quarter (Revio’s list price is $779,000). In May, recognizing the impact of the system on the company, Christian Henry, PacBio President and CEO, stated, “One-third of the Revio systems ordered in the first quarter were from brand new customers, and over one-third of the systems in our sales pipeline for the remainder of 2023 consist of new customers.” The company forecasts total company sales to increase 33%-44% in 2023. First quarter R&D spending fell 7.5% to $48.9 million. The company plans to become cash flow positive during 2026.
908 Devices, a mass spectrometry (MS) and capillary electrophoresis technology firm, grew its R&D spending 34.1% last year to $17.5 million as revenues increased 11.0% to $46.9 million. Earlier this year, the company debuted the MAVEN, its first on-line device for bioprocess monitoring and its second device specifically for bioprocess applications following the launch of the at-line REBEL desktop system in 2019. The MAVEN measures glucose and lactate in cell culture in bioreactors. The majority of the company’s revenue comes from its handheld MS devices for non–life science applications, such as explosives detection.
Like PacBio and 10x Genomics, 908 Devices’ step up in R&D investments came at a time when its stock price was falling and operating loss was increasing. In 2022, company share price declined 70.5%, and operating loss rose from $22.1 million to $35.4 million.
In May, 908 Devices reported it shipped six MAVEN systems during the first quarter, though the company noted continued pressure on customers’ bioprocess spending. At that time, 908 Devices CEO Kevin J. Knopp, PhD, commented, “MAVEN is a complement to our REBEL device and a precursor to REBEL on-line.” R&D spending rose 38.2% in the first quarter to $5.4 million.
In May, the company forecasted full-year sales to grow 2% to 11% with growth driven by the company’s handheld MS product line for forensics applications. In March, the company announced plans to grow operating expenses less than 10% this year.
10x Genomics, PacBio and 908 Devices prioritized investments in R&D in 2022, broadening their product portfolios and introducing differentiated systems into new market segments. Building sales for the new products will be measured by steady progress and uptake by key customers, positioning the companies for lasting growth. The companies’ second quarter financial results will be released on August 3, August 2 and August 8, respectively.
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