By Josh Nathan-Kazis

Shares of 10x Genomics, which sells tools scientists use to precisely analyze cells, took a dive on Thursday as investors grapple with uncertainty unleashed by the Trump administration's proposed cuts to the National Institutes of Health.

The stock was down 8.8% Thursday morning after a Wednesday night earnings report that left big questions about how the NIH spending reductions would affect the company. A Leerink Partners analyst, Puneet Souda, downgraded the stock to Market Perform from Outperform early Thursday, citing the uncertainties over funding.

Proposed changes to the NIH grants that fund scientific research across the U.S. have sown confusion and fear across academic medicine, which is 10x Genomics' core market. The company said late Wednesday that fear alone could blunt its revenue in 2025.

"We have to acknowledge the collective and heightened uncertainty around funding is going to have an additional impact on the confidence of our customers," the company's chief financial officer, Adam Taich, said on an investor call Wednesday night. "This can further impact customer spending patterns, their ability to make purchases and the timing of their purchases.

The company says that between 20% and 25% of its revenue derive from NIH grants. When 10x Genomics reported its fourth quarter earnings on Wednesday night, it said it expected little to no revenue growth in 2025, citing "previously anticipated weakness in NIH-funded research."

The guidance, however, doesn't take into account a major proposed pullback in NIH funding announced last Friday, under which the NIH would impose a new, low cap on the overhead costs its grants can cover. The NIH said Friday the cut would save $4 billion a year, and it sent academic medicine into a panic. Federal courts have paused the cuts, but their future is uncertain.

Academic institutions use the overhead built into NIH grants to cover lots of costs, including the purchase of tools sold by 10x Genomics and its peers.

The guidance now calls for 2025 revenue of between $610 million and $630 million, slightly up or flat compared with the company's $610 million of revenue in 2024. The company said that the current guidance includes a roughly $7 million effect from NIH cuts.

Taich said on the Wednesday night call that if the overhead cap is fully implemented, it would pull down 10x Genomics' 2025 revenue by another $10 million to $15 million.

At worst, that would drag 10x Genomics' 2025 revenue down to a range with a midpoint of $605 million, well below the $618 million FactSet consensus estimate.

In a note on Thursday, William Blair analyst Matt Larew wrote that he was surprised the company hadn't taken into account that worst-case scenario in its forecasts.

"While over the long term we think it is unlikely that actual research dollars...will be meaningfully impacted, we acknowledge that in the near term there is likely to be significant disruption and to that end we are somewhat surprised that some version of this worst-case scenario was not incorporated into the company's guidance," he wrote.

The company reported revenue of $165 million for the fourth quarter of 2024, in line with a preannouncement it made in January. It lost 40 cents per share, slightly worse than the FactSet consensus estimate of a loss of 30 cents a share.

Shares of 10x Genomics have plummeted since NIH announced the cap on overhead costs. The stock was down 18% between the close of trading last Thursday, Feb. 6, and the close of trading on Wednesday. Shares of 10x Genomics peers like Illumina were also down.

Thursday's selloff reflects the growing uncertainty set off by the changes to NIH, and the murkier future for 10x Genomics.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

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February 13, 2025 09:42 ET (14:42 GMT)

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