European Court Denies Latest 10x Genomics Injunction Against NanoString

Bottom-Up Insights
  • 10x Genomics has been ruthlessly protecting its intellectual property in recent years, a wise move as it significantly expands offerings of proprietary hardware and chemistry.
  • A string of legal wins against NanoString Technologies was interrupted by a court's decision to deny a preliminary injunction request. It shouldn't materially impact the business.
  • Margin of Safety: As of market close October 10, 2023 ($40.97 per share), shares of 10x Genomics needed to decrease by 17% to reach our modeled fair valuation, which prices in 5% dilution.

Investors can certainly say 10x Genomics learned its lesson.

Shortly after its initial public offering (IPO) years ago, the company was successfully sued for patent infringement involving its flagship Chromium platform. The business ended up paying hefty royalties on revenue as a result. It channeled that pain into an accelerated development of proprietary hardware and chemistry, propelling the business to significant and impressive growth in recent years.

It's now eager to keep competitors at bay.

10x Genomics had won a series of legal battles against competitors such as NanoString Technologies and Vizgen, which sell and offer similar benchtop systems and consumables in single-cell analysis and spatial biology, for using their platforms in RNA detection applications. The European Unified Patent Court (UPC) granted preliminary injunctions in the company's favor in May and September 2023, which applied to all 17 countries under the court's jurisdiction.

However, the UPC today denied the request for a preliminary injunction for a separate European patent pertaining to RNA detection. Although not a best-case scenario, the decision shouldn't have much of an impact on the business. Consider some nuances:

  • The injunctions granted in May and September 2023 remain in effect. They aren't impacted by the October 2023 decision. Specifically, NanoString is prevented from selling instruments, consumables, or services for its CosMx Spatial Molecular Imager (SMI) in RNA detection applications. That's an increasingly important market for researchers, so barring a competitor reduces friction for 10x Genomics' Visium and Xenium platforms.
  • The injunction denied in October 2023 covers a patent that's only in affect in Germany, France, and Belgium. Then again, those three countries represent most of the biotech R&D opportunity across the 17-nation jurisdiction.
  • 10x Genomics expects to continue pursuing an injunction for this specific patent through more permanent legal action. The keyword for injunctions granted to date is "preliminary."

Nonetheless, investors will be paying close attention to the company's patent estate in Europe. The Europe, Middle East, and Africa (EMEA) region generated 23% of total revenue in the 12 months ended June 30, 2023. That makes the combined region the second-largest for the business, behind the United States (57%) and China (10%).

Margin of Safety & Allocation

(No change.)

10x Genomics is considered a Growth (Quality) position. The current modeled fair valuation for the company based on our 2024 model is below:

  • Market close October 10: $40.97 per share
  • Margin of Safety: $34.00 per share
  • Allocation Range: Up to 5%

10x Genomics reported 117.418 million shares outstanding (combining all Classes) as of July 31, 2023. The Margin of Safety range above assumes 123.289 million shares outstanding, which prices in 5% dilution.

Further Reading

  • October 2023 press release announcing denied injunction
  • September 2023 press release announcing granted injunction
  • October 2022 research note (eerily written exactly one year ago) detailing the company's technology platform in simple-to-understand language. This will soon be available in Base Research.
  • A website detailing the company's European IP disputes. Keep in mind it's operated by 10x Genomics, so it's not entirely neutral.