But now I’m confident, like we have the right thing to grow, right? If you were around the clock 2 years and I just threw on a ton of folks to try to sell into biopharma, we didn’t have the reps that we do now in terms of knowing what it takes to get deals, what are the right kind of people to hire and all that sort of stuff. I feel much more confident about that now. So it’s the right time to scale that team.
Poon Mah: Okay. Got it. And then with regards to any particular partner class being harder or easier to get over the goal line? Can you give any color on that?
Jason Kelly: I think start of industrial biotech. It was one, I think that used to be like a real strength for us just because we had good reputation, a lot of good examples of stuff there. It’s just a market that is like kind of in shellshock right now because a lot of the venture funding is right up there. So that’s one, I think, that has been tough. Now I like it in the long term. It’s one of the more interesting markets. Remember, our mission here is just to make it easier to engineer biology. And so what’s exciting about industrial biotech is unlike a therapeutic that ends up in a human, a microbe or yeast or whatever that you’re going to do for industrial biotech ends up in a steel tank. So the path to predictability in industrial biotech is more obvious.
In therapeutics, I think we’ll get better at designing drugs. But at the end of the day, there’s still a fundamental unpredictability, putting something inside a human. That’s going to be hard to muscle through. Industrial biotech is going to get to engineering a lot faster. So that’s exciting to me, but it’s still like — we still have to deal with the ebbs and flows of capital market interest.
Poon Mah: Okay. Cool. And then maybe a quick one on biosecurity. Mark, on the gross margins, we’ve noticed that they ticked up as you’re exiting and the mix shift goes away from the K-12 testing. But how should we think about the go-forward run rate ex K-12 testing?
Mark Dmytruk: The go-forward run rate on margin or on revenue?
Poon Mah: Gross margin?
Mark Dmytruk: Yes. So I would more or less ignore what happened in Q3 as you think about go forward. So we benefited on both revenue and gross margin from the closeout of some legacy K-12 contracts. And so there was some, what I would just call, like onetime revenue, and some of that came through a good gross margin that hit in the first half of the quarter. And so that’s why you saw the pop in Q3. It’s not because the newer business, the new federal and international business is sort of a higher portion of the mix and is somehow higher gross margin. It isn’t. So just to kind of reiterate what I’ve said in the past, we don’t know how the gross margin will evolve, but we’re certainly targeting something around that 40% range once we get to kind of an appropriate scale.
But as you saw, when we were building the business to begin with, the gross margin did fluctuate quite a bit until we got to the right sort of scale. But we certainly think about our target margin in that 40% kind of plus or minus range. We’ll see sort of how it evolves over time.
Megan LeDuc: Thanks, Steve. Next up, we have Derik De Bruin from Bank of America.
Derik De Bruin: So, Jason, you’ve added a number of new programs considerably. I guess how should we think about, 2 points, like, one, what’s your related party revenues exiting this year? And I’m sure it’s down quite a bit, I’m sure. Just a little bit clarity on that. And any preliminary color on sort of like cash burn, particularly as you sort of like get rid of the legacy Zymergen? Just how should we sort of thinking about cash burn metrics from here?
Jason Kelly: Yes. I might kick that to — those to Mark and then pick it up at the end and give a little extra color on it because I think, Mark, will have the numbers.
Mark Dmytruk: So the exit rate on related party revenues is going to be like a substantial decrease from anything you’ve seen in prior years. It fluctuates a bit. If you were to look at it this year, quarter-to-quarter, and we disclosed those figures, so you’ve got them. You’ll see it moves around a little bit. But in the aggregate, it’s certainly much less than it was last year. And I would expect — yes, I mean, that mix shift has largely at this place or at this time taken place.
Jason Kelly: Do we have the percent this quarter? It was on….
Mark Dmytruk: Yes.
Jason Kelly: We’ll pull it up for you, Derik, but sorry. But keep going, Mark, and we’ll get it back.
Mark Dmytruk: In the appendix to the earnings deck.
Jason Kelly: Okay.
Mark Dmytruk: The related party mix, I mean it was still sort of in the — yes, it was about 25% of revenues in the third quarter. So you can see compared to the past, 70% or something, it’s gone down quite a bit. I would expect it to even be less than that. So yes. So — and then — sorry, the second question on cash burn, if you could maybe just restate the question.
Derik De Bruin: No. Just sort of wondering, you’ve added a lot of programs. Just wondering what the — how are you sort of thinking about cash burn? I mean, you’ve got your cash balance and just sort of thinking about R&D expenses and things evolving next year? Yes.
Mark Dmytruk: So if you think about how we think we’ll finish this year, we don’t guide to cash burn. But I think if you take the Q3 year-to-date cash flow statement and just extrapolate it and then there is going to be some stuff that happens with the deconsolidation of Zymergen cash. So you’re going to get — the extrapolation add a little bit more burn on top of that. That will get you to a number in the range of $400 million this year if you just do that extrapolation plus. And we would expect to improve on that next year.
