Schrodinger Inc (SDGR) 2022 Q3 法說會逐字稿

Everyone, thank you for standing by. Welcome to the Schrödinger conference call to review third quarter 2022 financial results. My name is Chris, and I'll be your operator for today's call. (Operator Instructions) Please be advised that this call is being recorded at the company's request. Now I'd like to introduce your host for today's conference, Ms. Jaren Madden, Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to today's call during which we will provide an update on the company and review our third-quarter 2022 financial results. Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at Schrödinger .com. Here with me on our call today are Ramy Farid, Chief Executive Officer; Geoff Porges, Chief Financial Officer; and Karen Akinsanya, President of R&D Therapeutics. Following our prepared remarks, we'll open the call for Q&A.

I'd like to remind you that during today's call, management will make statements related to our business that are forward-looking under made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to our outlook for the full year 2022 and for the fourth quarter ending December 31, 2022, our strategic plans to accelerate the growth of our software business and advance our collaborative and proprietary drug discovery programs, the timing of potential IND submissions and the initiation of clinical trials for our proprietary drug discovery programs, the clinical potential and favorable properties of our compounds, our expectations related to the use of our cash resources as well as our future operating expenses.

These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from what we project today due to a number of important factors, including the considerations described in the Risk Factors section and elsewhere in the filings we make with the SEC, including our Form 10-Q for the period ended September 30, 2022. These forward-looking statements represent our views only as of today, and we caution you that we may not update them in the future, whether as a result of new information, future events or otherwise. With that, I'd like to turn the call over to Ramy.

Thanks, Jared, and thank you, everyone, for joining us today. We have developed a computational platform that is transforming the way therapeutics and materials are discovered. Our platform has enabled us to create a balanced business model with each component of our business providing a distinct risk-reward profile. We licensed our software to biopharma and materials companies as well as government and academic institutions around the world. Software licensing is continuing to provide a growing source of revenue that enables continued investment in innovation.

Additionally, we work on collaborative projects that are contributing to our inflecting drug discovery revenue. And we have an expanding portfolio of 18 proprietary drug discovery programs with first-in-class or best-in-class potential. Today, we reported total revenue for the third quarter of $37 million, a 24% increase over the prior year. The strong growth was driven primarily by approximately $12 million in drug discovery revenue. Third-quarter software revenue was $24.7 million, which was in line with our expectations. As we look out to the remainder of the year, we have tightened our 2022 financial guidance and are pleased to remain within the original total revenue range even in a challenging economic environment. In a moment, Geoff will review our third-quarter financial results and provide more detail on our fourth-quarter and full-year 2022 financial guidance.

As you'll hear shortly from Karen, we are also continuing to make progress across our pipeline of collaborative projects and proprietary programs. Today, we announced that our Phase I study of our MALT1 inhibitor SGR-1505 is open for patient enrollment. We also reported that in December, we will present new preclinical data for our CDC7 inhibitor, SGR-2921 at the ASH Annual Meeting. We are also continuing to expand our drug discovery portfolio and recently announced a partnership with Lilly for the discovery of small molecule compounds for an undisclosed target. Under the agreement, we received an upfront payment and are eligible to receive up to $425 million in discovery, development and commercial milestone payments as well as royalties on net sales. We are pleased with the progress we have made so far this year, particularly in a challenging macroeconomic environment.

The fundamentals of our business are strong, and we have a solid cash position, having ended the third quarter with approximately $479 million. We are continuing to focus on executing across all aspects of our business to generate value as we advance our vision of transforming drug discovery and materials design. I will now turn the call over to Geoff to review our third-quarter financial results and financial guidance.

Thank you, Ramy, and hello, everyone. It's an and to be here with the team today for my first financial results call Schrödinger's CFO. As I hope you heard at Platform Day, we have a deep and broad computational platform that is creating value through technology licensing, collaborations, and the development of our proprietary programs. We delivered a strong third quarter, driven by better-than-expected drug discovery revenue. The increasing contribution from drug discovery reflects the positive returns we are seeing from the investments we have made in that business over the last 4 years.

The underlying trends in the software business are strong, and the reported growth reflects the effect of significant multiyear contract revenue recognized in Q3 2021. Adjusting for those large prepurchases in the prior year, software revenue growth in Q3 would have been consistent with the growth reported in Q1 and Q2 this year. Total revenue was $37 million for the quarter, up 24% compared to the third quarter of 2021. Software revenue was $24.7 million, in line with our expectations and similar to the $24.3 million reported for the third quarter of last year.

Drug Discovery revenue was $12.3 million for the third quarter of 2022 compared to $5.6 million in the third quarter of 2021. Drug Discovery revenue for the quarter included $9.9 million in revenue recognized from our ongoing collaboration with Bristol Myers Squibb as well as revenue from milestones related to other collaborative and proprietary programs. During the quarter, the rights to one of our collaboration programs reverted to us after BMS elected not to proceed with further development. And this resulted in increased revenue recognition due to accelerated completion of our obligations related to the program during the period.

Gross profit was $17.2 million in the third quarter compared to $11.1 million for the third quarter of 2021, representing a 55% increase year-over-year. Software gross margin was 72% in the third quarter of 2022, which is similar to the third quarter last year and consistent with our expectations. Operating expenses were $63.4 million compared to $45.8 million for the same quarter last year. The increased expenses reflect growth in headcount, continued investment in our platform and the progress of our proprietary and collaborative programs. We recorded a net loss of $39.9 million for the third quarter of 2022 compared to a net loss of $35 million for the same period in the prior year. We ended the quarter with cash, cash equivalents, marketable securities and restricted cash balances of approximately $479 million compared to approximately $513 million on June 30, 2022.

I'll now turn to our financial guidance for 2022. With 1 quarter remaining in the year, we are updating our full-year financial guidance. We have narrowed our range for total revenue guidance for the year. We now expect total revenue for 2022 to be in the range of $167 million to $175 million compared to our prior range of $161 million to $181 million. The midpoint of our range is $171 million, which is the same midpoint as our prior guidance. A new range corresponds to 21% to 27% growth over 2021. We now expect software revenue to range from $122 million to $127 million compared to $126 million to $136 million previously. The reduced range is based on several factors that have emerged in the last 3 months and having a continuing effect in Q4.

These factors include a modest impact from foreign currency, lower-than-anticipated adoption scale-up by smaller biotech companies impacted by the capital markets environment and uncertainty about the timing of increases in adoption of our technology among our largest customers. Those increases typically occur in Q4, and our new guidance reflects remaining uncertainty about our customers' year-end purchase decisions. The implied Q4 revenue range of $34 million to $39 million reflects the potential for significant contracts to still be completed in Q4, which are excluded from the lower end of the guidance range.

We are increasing the range of our expected drug discovery revenue for 2022 to $45 million to $48 million compared to our prior expectation of $35 million to $45 million. Our greater-than-anticipated drug discovery revenue for the year is driven by BMS' strategic decision not to advance one collaboration program and by meeting milestones in our other drug discovery collaborations and partnered programs.

The remaining uncertainty for the year relates to the timing of completion and revenue recognition for certain other outstanding collaboration projects. Finally, we now expect that operating expense growth for the year will be approximately 40% compared to our prior expectation of just under 42% growth. The lower growth in expenses reflects our latest expectations for the timing of hiring and other expense drivers. We continue to expect our software gross margins to be in the mid-70s. We are very encouraged that in a challenging macroeconomic environment, our revenue continues to grow strongly.

We are committed to delivering continued growth in software licensing revenue and to building increasing value in our collaborations and proprietary programs. Our balance sheet is strong, and our technology platform is becoming more and more validated and differentiated. With technology licenses in place across the biopharmaceutical industry, partnered programs and collaborations with some of the largest and most innovative companies in the industry and 18 proprietary programs advancing through development, we are very confident that we will deliver continued growth and increasing value in the coming quarters. I'll now turn the call over to Karen for an update on our drug discovery programs.

Thank you, Geoff, and good afternoon, everyone. We are continuing to make important progress across our portfolio. Within our collaborative pipeline, there are 9 programs currently in the clinic and 12 projects are advancing through the discovery phases. Additionally, over the last 5 years, we have continued to increase the number of proprietary programs our therapeutics group is working on. Today, our proprietary portfolio includes 18 programs, some of which are partnered and some of which are wholly owned. As we discussed at Platform Day, cumulative technical success rates, we and our collaborators are achieving across the growing number of completed and ongoing programs signals meaningful improvements relative to published industry averages.

We believe this is a very promising trend that highlights the power of our computational platform. As programs complete discovery and move into the clinic, we are able to initiate new programs. As you heard from Ramy, we recently entered into a new relationship with Lilly to advance the discovery of small molecules for an undisclosed target. Lilly will be responsible for disease model studies, completion of preclinical and clinical development as well as commercialization of the products. Notably, the program handoff to Lilly occurs earlier than in our collaborations with BMS and Takeda. In addition to an upfront payment, we are eligible to receive up to $425 million in discovery, development, and commercial milestone payments and royalties on future sales in all geographies. This new program is the 15th for which we are eligible to receive royalties on commercial sales.

As Geoff mentioned, BMS made a strategic decision to deprioritize one of our partnered programs. Given the progress we have made on this genetically validated target, we have elected to continue to invest in the program internally. We expect to be able to share more information about this and other proprietary programs in 2023. We are also exploring an alternative target of mutual interest with BMS. Turning to our wholly-owned pipeline. Today, I will review our 3 most advanced programs. MART-1 has emerged as a potential therapeutic target for the treatment of B-cell malignancies, including relapsed or resistant ABC DLBCL and mantle cell lymphoma with initial clinical signs already described by others in CLL and SLL.

While our current focus is on B-cell malignancies, there is emerging literature suggesting that AT1 inhibition could also have potential in solid tumors and autoimmune disease. Today, we announced that the Phase I study of our MART-1 inhibitor SGR-1505 is open to patient enrollment. This dose escalation trial will evaluate the safety, pharmacokinetics, pharmacodynamics, and early signals of antitumor activity of SGR-1505 as monotherapy. Once the recommended dose is determined, an expansion cohort is planned to evaluate SGR 1505 in combination with other therapies, such as BTK and BCL2 inhibitors. This is the first clinical study emerging from our proprietary pipeline and marks an important milestone for our company.

Moving to our WEE1 program, clinical data from other companies' WEE1 programs has provided evidence of clinical activity in several forms of cancer with high unmet need, including proof-of-concept in nutrient and ovarian cancers. Data from other WEE1 programs have also underscored the importance of identifying highly selective molecules with optimized properties that can help avoid drug-drug interactions and off-target effects that have been observed with WEE1 inhibitors.

We have already identified compounds from multiple lead series that are potent, selective and demonstrate antitumor activity with desirable admins, pharmacokinetics and pharmacodynamic properties. We are continuing preclinical studies and now expect to select a development candidate in the first half of 2023 and submit an IND in the first half of 2024. We believe taking additional time to characterize and benchmark our molecules will afford us the opportunity to advance the potential best-in-class V1 inhibitor for use in combinations.

Now I will turn to our CDC7 program, a target in the DNA damage repair pathway. Today, we announced that we will present new preclinical data for our CDC7 inhibitor, SGR-2921 at the American Society of Hematology or ASH Annual Meeting next month. In the abstracts published today, we report that SGR-2921 demonstrated strong antitumor activity in vitro in AML cell models and in vivo in AML xenograft models. SGR-2921 also shows strong antitumor activity in AML cell lines resistant to FLT3 inhibitors, venetoclax and other standard of care agents, suggesting that CDC7 inhibition is a potential therapeutic strategy for treating patients with relapsed or refractory AML. We look forward to presenting the full poster on December 11. We are also making progress towards our IND submission for this program and continue to expect to submit an IND to the FDA in the first half of 2023. Subject to regulatory clearance, we expect to initiate a Phase I study in the second half of 2023.

In summary, our diverse portfolio of discovery and development programs is advancing. Activities to expand our wholly-owned programs in oncology and immunology are progressing. We are pleased with the value we have already generated from our portfolio and are excited about the value-creation opportunities ahead. We look forward to updating you on our R&D progress over the coming months. I will now turn it back over to Ramy.

Thanks, Karen. We are really pleased with our third quarter results and the progress we are making this year. We have a strong balanced business model based on a highly validated software platform, and we remain focused on the key objectives that we believe will generate value and position us for continued success. At this time, we'd be happy to take your questions. Operator?

(Operator Instructions) Our first question will come from Do Kim of Piper Sandler.

Congrats on the progress. First, on guidance, Geoff, I was wondering if you could quantify the impact to the software guidance from each of those components you talked about, the FX, the smaller biotech customers and the larger customers. Did one of those groups influence more than the other? And you said that the impact from FX was small. How small was it?

Sure. Thanks for the question, Do. So you're right. Those are the 3 buckets that I alluded to, but let me give you a little bit more color on each of those. First, on FX, our business is largely conducted in U.S. dollars, our contracts are priced in U.S. dollars. So we're relatively insulated against direct impact of exchange rate fluctuations. There is a modest impact in terms of our receivables and our cash balances that are held in other currencies, but that's relatively small.

However, there's an effect that probably isn't fully anticipated, which is that because our contracts are priced in U.S. dollars for our customers who tend to have relatively fixed budgets in local currencies, they are running up against the top end of their budgets earlier in the year at a point that is yielding less revenue for us in U.S. dollars than we in some cases anticipated. Now we're also finding that because of the higher value of our software in their local currencies, there are less opportunities to step up their revenue to a higher level than we had anticipated. That's particularly having an effect on the 40%, obviously, of our revenue that comes outside the U.S.

The second effect is the uncertainty in the biopharma capital markets. We're seeing a handful of customers who are scaling back their software purchases as those small biopharma companies are either consolidated or to conserve cash, they're focusing on 1 or 2 of their priority clinical programs and not investing in further discovery. So we're seeing a little bit of effect of that. But I think, again, the bigger hidden effect is that we aren't seeing new companies created by the capital markets that become the growth contributors to our software for this year in the near term in the future because capital markets just haven't been susceptible to new and emerging companies. So there's new companies that showed up in '20 and 2021 haven't shown up this year in the same numbers.

Lastly, I mentioned the large customers typically towards the end of the year. We see step-ups in adoption by our largest customers. We still believe there are opportunities for those step ups towards the end of the year, but there is more uncertainty about when those step-ups will occur and also about the magnitude of them, and that uncertainty is both reflected in the range of our guidance, but also the change we've made to the overall guidance. In terms of the answer to your direct question, 3 effects probably roughly equal in terms of the magnitude of the impact and the contribution to the change in the guidance. I hope that answers the question for you, Do.

And a question for Karen. On the MALT1 trial, you're ready to start enrolling patients. Can you talk about how many clinical sites you plan to activate? And if you have other geographic locations. You said the U.S. that you plan to open up the clinical fact for?

Hi, Do. Yes, we have been working very hard on initiating this study. As you know, this was an important goal for us this year, and we're pleased with the progress. We are reaching out broadly to sites in the U.S. As you know, lymphoma is a very active space right now. We have a handful of sites that we're working with very actively, and we continue to evaluate the opportunity to consider sites obviously, broadly across the U.S., but also globally, we haven't taken that off the table at this point. And so that's something we continue to discuss and monitor as this trial continues to move forward.

Our next question will come from David Lebowitz of Citi.

I guess moving on to the guidance for the Drug Discovery business, which got moved slightly above the prior guidance. Could you just elaborate more on where that might have come from this year? And how this increase might or might not affect the previously provided number of $100 million for 2023.

I'll just comment really quickly. This is Ramy on the comment you made or the question about the $100 million. So if you remember, that was a strategic objective that we provided at the beginning of '22, we still believe that we can achieve that goal of $100 million in drug discovery revenue. And February, we'll actually provide formal guidance on that number. Karen or Geoff. Geoff, I think you were going to respond to the first part of the question.

Sure. Hi, David. So you're right, we've raised the revenue guidance for the year for Drug Discovery. Part of the raise came from the recognition of the revenue from one of the BMS programs, the program that we alluded to, that was returned to us and that we're continuing to invest in internally. But it also came from a number of other collaborations where we've successfully advanced programs to a point where we think it's reasonable to recognize some of that revenue that had previously been held in the deferred account. And so that's flowed through as recognized revenue or we expect it to, in some cases, has. Fully, we were above the lower end of our guidance after.

Our next question will come from Michael Yee of Jefferies.

This is (inaudible) for Mike. 2 questions on our end. The first, just digging in a little deeper on drug discovery. So you've a part into the raised guidance for the remainder of this year. If you could give some more color on that, that would be great. And second question on the BMS discontinuation, if you could just provide some more color as to why they chose to discontinue that collaboration?

Geoff, do you want to answer the first part, and then we can hand over to Karen.

Sure. Yes. Sure. for you that we recognize across multiple programs and collaborations. So we've advanced the revenue recognition on one of the programs, as I alluded to in the BMS collaboration, but the target for next year includes a host of different programs and opportunities. So as Ramy alluded to, we still see that as achievable until we see it as being highly achievable. So the fact that has occurred and we recognized it during this period doesn't necessarily mean that we were assuming that it was going to occur in its entirety next year. Our forecasts are actually a probability-weighted basket of different slices. So nothing is assumed for the 100% probability until we recognize it.

The joint steering committee jointly looked at the progress on the discovery phase of this program. We also work looking forward at the clinical phase. And while we both agree that we've made exceptional progress on advancing compounds during discovery, BMS made the strategic decision that they no longer expect to invest in development. And as we mentioned earlier, we also sharing more about it in 2023, along with the update on the rest of our portfolio. I want to also say, of course, that the JSE continues to look for opportunities on the horizon. We jointly do that. And so we are continuing to discuss the potential for a new program with BMS.

Our next question will come from Gary Nachman of BMO Capital Markets.

Geoff, just following up on the 3 effects to the software revenue. So how much of that is a near-term issue versus a year? And I don't understand exactly how you're thinking about the low end of the guidance at this point. So how much conservatism is in there for the larger customers? And Ramy, just maybe your broader comments on economic challenges of the academic environment, how that's impacting the software business. Just talk more about those dynamics and how that's being weaved into the situation that you're seeing.

Ramy, do you want me to jump in and I'll address the first part of Gary's...

Yes, please, Geoff. Thank you.

Okay. So I certainly think a lot about this -- your question, Gary, what's likely to persist versus what is transient. I don't think that the currency effect that I alluded to is going to post the same headwind for us next year that it's been in the second half of this year, particularly. We all know what exchange rates have done and how that sort of caused disruptions. So I think that we'll rebase those contracts. And I think those international customers will be much better positioned to be our solid foundation to deliver growth next year. In terms of the large customers, the sense I get from talking to our account managers is that it's a question of timing, not it's when, not if, and then what's the magnitude of those opportunities is, but we just do have to recognize that we're getting close to the end of the year, and I don't want to have firmly committed to finalize those transactions.

So that's what's encompassed in the range of the remaining guidance there. And then the third factor that I alluded to, which is the capital markets environment in biotech. Gary, if either of us can predict what's going to happen in biotech capital markets, then we probably are in the wrong situations. I think that most people think that the problem -- the current difficulties in raising money in biotech will persist well into next year. So I don't expect there to be a host of new biotech customers small biotech customers that are formed with ambitious drug discovery goals and lots of capital, at least for the next few months. So that's something that we anticipate there will be some sort of tail-off well into next year. I hope that gives you some color.

And then with regard to the academic environment, I'm sorry, can you just clarify what you were referring to? Is that what you said? You said academic?

Yes. I thought you had like comments in the prepared remarks, just about the economic challenges. And I thought I heard you say in the academic environment in general, maybe I misheard that, but just in terms of how that's impacting the overall software business, like in terms of your academic customer. I mean everything that Geoff is describing feels like it's more on just the corporate level, but you do have customers in the academic environment, I'm assuming they have budgets as well, and…

That's right. We happen not to mention anything about academic environment, but it's fine. It's still a good question. So happy to address it. Yes, yes. As you know, and it's right -- we really value the academic part of our business, not only for the revenue generation, and obviously, it's a smaller fraction relative to the commercial component. But of course, this is, in a sense, feeding the market, right? It's training the future scientists, and it's very important. And as far as all of our analysis to date looking at it, we're not seeing a significant impact there from funding. It continues to grow at very similar rates that we've seen over the years. And we continue to see more and more of these -- more and more universities are actually focusing on computation and training.

And we play a role in that, by the way, we have now provided courses, online courses, and curriculum to provide to professors who are increasingly interested in teaching computation. Our platform has really increased and the success of the platform has increased the demand for people to learn computation. And then those students are then going off and becoming customers at company. So that's all going really well.

Okay. That's helpful. And then..

Hearing Yes, that was good.

Yes. I don't know why I heard it. It's been a long day, but anyway thank you for that. And then one other question, which I know you did not address, but I do think it's important. So how do you think the inflation Reduction Act will impact your business over time? How will biopharma companies reevaluate their drug discovery strategies, especially with small molecule development? We know some of the potential challenges there. So do you think this will help you or hurt you? How are you guys thinking about that?

Yes. Yes, here's how we're thinking about it. It's an important question. And of course, it's on a lot of people's minds. So the trend that we've really been seeing for a while of a shift from small molecule to biologics in pharma that started a number of years ago is certainly continuing. And it's likely that the inflation reduction active is contributing to that. Now the exciting thing is that we have been -- again like I said, this is a trend that started before this Act, and we've actually been focused on advancing our physics-based platform to address biologics and protein therapeutics. And remember, the platform is completely agnostic to modality. Physics is physics and predicting the potency of a small molecule to a protein actually is the exact same physics as predicting the potency of a large molecule to a protein.

So this is an area we've been working on, and we've actually already demonstrated in a number of important projects, including our collaboration with AstraZeneca that our platform can actually be used very efficaciously in the design of biologics. So we're continuing -- so the answer to your question is, yes, we're engaging more and more in conversations around either our customers using our platform to advance their own programs or even potential partnerships, obviously, building on what we started a number of years ago. Remember, it was 2.5 years ago, the AstraZeneca collaboration. So -- and we're continuing to invest in advancing the computational platform to address a broader range of challenges in the design of biologics.

Yes. And maybe we can just add that, obviously, with a greater emphasis on speed to get to a development candidate and to develop molecules. Obviously, our small molecule platform has an important impact on the speed of programs, and we think that will be important for companies as they approach targets that can't be addressed by biologics. So we hope to help in some way.

Thanks, Karen. That's a really important point. Yes.

Our next question will come from Vikram Purohit of Morgan Stanley.

So just one quick one from our side. On the MALT1 program, now that you have sites open for enrollment, I just wanted to see if you could share some color about what you expect the initial pace of enrollment to be here and what types of patient profiles and tumor types you're looking to enroll initially and you think will be quick enroll? And then looking forward, at what point do you think it's reasonable to expect some timeline to data to be possible to communicate?

es. So in terms of the design and the patients that we're enrolling in this trial, this is a relapsed-resistant lymphoma trial. It does enroll all comers with that profile. The focus of this trial is really a dose escalation to determine safety tolerability to gather data on pharmacokinetics and pharmacodynamics. We will, though, be collecting scan information from patients, which will allow us to determine if there are any initial signs of activity. And so while our focus is obviously on the safety tolerability, we remain open to assessing any signs of activity as the trial proceeds. In terms of timing, we obviously have just begun our enrollment here. And we're obviously moving as quickly as we can. We don't necessarily, at this point, have specific timelines we can share with you when we'll be able to disclose data. Obviously, as we make progress, we'll be updating our view on that and sharing information as and when we are in a good position to do so. As the dose escalation trial proceeds, obviously, that can take some months while you're studying patient populations as opposed to healthy volunteers as you might know.

Understood. And then a quick follow-up then. Maybe I catch up question on business development. Then looking to 2023, what's your appetite for partnerships? And if there's appetite, what forms of partnerships could be interesting to you?

Well, I can start. As you know, we've been really focused on improving the opportunities we have in the business development space over the last 5 to 10 years. That essentially has taken 2 sort of different forms. The first is the De Novo collaborations. As you know, we have a lot of equity relationships that were established around a decade ago. We've moved forward now into these De Novo collaborations, where we are collaborating with companies like Lilly and BMS to discover molecules that they will then develop. Last year, you saw us do the XILab deal, where we have co-development co-commercialization opt-in rights. And so all of those types of conversations continue. We, though, will also be focusing, obviously, a lot more as time moves on, on the partnering and collaborations around our wholly owned assets. And that will obviously be a new set of business development relationships for us where, again, we will be looking to, in some cases, retain rights to programs.

But in other cases, as we've said before, where it makes sense for a partner to accelerate the access to patients, the access to combination agents, we may well be out-licensing those products over time. But no line of sight to that right now. We're really excited about the move into the clinic for our assets and gathering data that will be obviously sharing more as more -- there's more to share over the next years or so.

(Operator Instructions). And our next question will come from Gaurav Goparaju of Berenberg Capital Markets.

Just 2 quick ones for me. On the first side, on the software business -- are you working on introducing any new software products to maybe expand the scope of your portfolio for customers? Or are you just more so committed to reinvesting in the development of your existing solutions? Just thinking about different ways to bolster growth in this segment? And then secondly, just what should we expect on annual cash burn over the near term as internal clinical development cost scale?

So on the first question, did you say energy or did you just say, in general, just the whole platform, I wasn't sure if I missed one of the words you said.

I said in general just working on... Yes, new software solutions, it could be elsewhere in the discovery development cycle, just more on that.

es. Yes. Perfect. Yes. Thanks. That's a really important question. So as you know, we really see ourselves as a science innovation company. That's been a long history of ours, and it continues, we're really committed to continuing to make breakthroughs in the science, and they fall into a number of categories. Obviously, I won't spend a huge amount of time, but let me give you the high points. One of the areas that we're really excited about that we think will have a big impact on growth in the future is in target enablement. The number of targets for which we have structures and are there formidable to these physics-based methods is a very small fraction of the human genome. But there are now experimental and computational methods that are promising to be really -- have the promise to be really transformational.

And we think in the future, in the foreseeable future, we can enable nearly all targets. That's obviously incredibly exciting. The other area that we're focused on is, of course, advancing those programs. So as we said many times, a number of the properties that we can compute with essentially experimental accuracy is sufficient to have a profound impact on projects, but there's a lot more to be done. There are a number of properties that we can't yet calculate with experimental level of accuracy, and we're putting a lot of effort into that. And with every property we add, it has that much more of an impact on projects.

Now on the material sign side, this is an area we're very, very excited about. One of the areas that we've talked a lot about is in battery research. So at the moment, batteries are essentially designed by trial and error, and we see the impact of that. We have batteries that are frustratingly long. It takes long to charge, they get passivated, -- some of them are flammable, as we all know. And we believe that at the core of all of those challenges is molecular design and physics-based methods. So we're putting a pretty significant effort into advancing the science that sort of underlies the complex chemistry that's occurring inside batteries at the electro-electrode interface. And we think with progress in this area that can have a really profound impact on the demand for the technology and the impact that it can have. Those are just a few examples.

Ramy, shall I jump in on cash burn.

Please, yes.

Sorry. Go -- your second question. And you saw that we reported cash burn of approximately $34 million this quarter compared to $16 million last quarter. If you look over the year, I think that it's roughly been in the range of about $30 million per quarter. At the end of Q3, we had $479 million on the balance sheet. So approximately, we have 4 years of cash. I think that what we expect is that our software business will continue to grow, but we're in the point now where we can start to see some operating leverage. And we've invested pretty heavily over the last few years, and we should see the revenue continue to grow but the expenses plate. So we think that the overall cash burn should moderate and we still have a lot of opportunities from -- it seems like equity investments in some of the programs that Karen alluded to, but are really even included in that balance sheet right now.

So I see a lot of opportunities for additional cash to come in and also a moderation of our cash burn. As you know, Gaurav we haven't committed to profitability. We haven't set a timeline for that. And I think you can see we're starting to see a really nice return from the investments we have been making in our discovery portfolio. And as Ramy described, we just see lots and lots of runway to create tremendous value from continuing to invest in our core platform. So it's a sort of long answer to the question. We have a great balance sheet. I think you'll see operating leverage on both sides of the business going forward, but equally terrific opportunities to continue to invest, and we plan to prosecute those opportunities to the fullest.

I'm showing no further questions at this time. This will conclude today's call. You may all now disconnect and have a pleasant day.