10q10k10q10k.net

What changed in Schrodinger, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Schrodinger, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+905 added−737 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Schrodinger, Inc.'s 2023 10-K

905 paragraphs added · 737 removed · 583 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

260 edited+192 added−58 removed362 unchanged
Biggest changeWhen considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational product for the requested treatment will not interfere with the initiation, conduct or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.
Biggest changeWhen considering an IND for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational product for the requested treatment will not interfere with the initiation, conduct or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product. 42 Table of Contents There is no obligation for a sponsor to make its investigational products available for expanded access; however, as required by amendments to the FDCA included in the 21st Century Cures Act passed in 2016, if a sponsor has a policy regarding how it responds to expanded access requests with respect to product candidates in development to treat serious diseases or conditions, it must make that policy publicly available.
Beyond ABC-DLBCL disease models, as shown in the figures below, SGR-1505 also demonstrated single agent anti-tumor activity in an in vivo mantle cell lymphoma REC-1 CDX model. 20 Table of Contents SGR-1505 also showed strong combination effects with venetoclax (an inhibitor of the anti-apoptotic protein B-cell lymphoma 2 (BCL2)) on inhibition of cancer cell viability in the OCI-LY10 CDX model.
Beyond ABC-DLBCL disease models, as shown in the figures below, SGR-1505 also demonstrated single agent anti-tumor activity in an in vivo mantle cell lymphoma REC-1 CDX model. SGR-1505 also 20 Table of Contents showed strong combination effects with venetoclax (an inhibitor of the anti-apoptotic protein B-cell lymphoma 2 (BCL2)) on inhibition of cancer cell viability in the OCI-LY10 CDX model.
In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to us. In December 2022, we and BMS entered into an amendment to the agreement to include an additional target in neurology on terms similar to the original agreement.
In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to us. In December 2022, we and BMS entered into an amendment to the agreement to include an additional target in neurology on terms similar to the original agreement.
Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the U.S. Patent and Trademark Office may be significantly narrowed before issuance, if issued at all. We expect this may be the case with respect to some of our pending patent applications.
Patent prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the U.S. Patent and Trademark Office may be significantly narrowed before issuance, if issued at all. We expect this may be the case with respect to some of our pending patent applications.
Part I is assessed by the competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (Member States concerned). Part II is assessed separately by each Member State concerned. Strict deadlines have been established for the assessment of clinical trial applications.
Part I is assessed by the competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (EU Member States concerned). Part II is assessed separately by each EU Member State concerned. Strict deadlines have been established for the assessment of clinical trial applications.
Combining multi-parameter optimization, FEP+, and machine learning, we were able to prioritize tight-binding compounds with drug-like properties, and identified multiple novel and distinct chemical series which showed strong anti-tumor activity, ultimately enabling us to select SGR-1505 as our development candidate in under two years. 19 Table of Contents As shown in the figures below, in preclinical studies, SGR-1505 showed anti-tumor activity in a MALT1 enzymatic assay and strong anti-proliferative effect in cell viability in a Bruton's tyrosine kinase, or BTK, inhibitor resistant OCI-LY3 B-cell non-Hodgkin’s lymphoma cell line, when compared to ibrutinib, a covalent BTK inhibitor.
Combining multi-parameter optimization, FEP+, and machine learning, we were able to prioritize tight-binding compounds with drug-like properties, and identified multiple novel and distinct chemical series which showed strong anti-tumor activity, ultimately enabling us to select SGR-1505 as our development candidate in under two years. 19 Table of Contents Preclinical Development of SGR-1505 As shown in the figures below, in preclinical studies, SGR-1505 showed anti-tumor activity in a MALT1 enzymatic assay and strong anti-proliferative effect on cell viability in a Bruton's tyrosine kinase, or BTK, inhibitor resistant OCI-LY3 B-cell non-Hodgkin’s lymphoma cell line, when compared to ibrutinib, a covalent BTK inhibitor.
Restrictions under applicable federal and state healthcare laws and regulations, including certain laws and regulations applicable only if we have marketed products, include the following: • federal false claims, false statements and civil monetary penalties laws prohibiting, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment of government funds or knowingly making, or causing to be made, a false statement to get a false claim paid; 45 Table of Contents • federal healthcare program anti-kickback law, which prohibits, among other things, persons from offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for, or the purchasing or ordering of, a good or service for which payment may be made under federal healthcare programs such as Medicare and Medicaid; • the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, in addition to privacy protections applicable to healthcare providers and other entities, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs; • federal Open Payments (or federal “sunshine” law), which requires pharmaceutical and medical device companies to monitor and report certain financial interactions with certain healthcare providers to the Center for Medicare & Medicaid Services, or CMS, within the U.S.
Restrictions under applicable federal and state healthcare laws and regulations, including certain laws and regulations applicable only if we have marketed products, include the following: • federal false claims, false statements and civil monetary penalties laws prohibiting, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment of government funds or knowingly making, or causing to be made, a false statement to get a false claim paid; • federal healthcare program anti-kickback law, which prohibits, among other things, persons from offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for, or the purchasing or ordering of, a good or service for which payment may be made under federal healthcare programs such as Medicare and Medicaid; • the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, in addition to privacy protections applicable to healthcare providers and other entities, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; 51 Table of Contents • federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs; • federal Open Payments (or federal “sunshine” law), which requires pharmaceutical and medical device companies to monitor and report certain financial interactions with certain healthcare providers to the Center for Medicare & Medicaid Services, or CMS, within the U.S.
This list may be updated from time to time. • For information concerning our software, drug discovery programs, computational platform, please visit: https://www.schrodinger.com. • For information provided to the investment community, including news releases, events and presentations, and filings with the SEC, please visit https://ir.schrodinger.com. • For additional information, please follow us on LinkedIn and Instagram, or visit our blog, Extrapolations.com.
This list may be updated from time to time. • For information concerning our software, drug discovery programs, computational platform, please visit: www.schrodinger.com. • For information provided to the investment community, including news releases, events and presentations, and filings with the SEC, please visit ir.schrodinger.com. • For additional information, please follow us on LinkedIn and Instagram, or visit our blog, Extrapolations.com.
In November 2020, we entered into an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.
For example, in November 2020, we entered into an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.
Available Information We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Available Information We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
We evaluate industry and commercial interest as well as the clinical utility with the aim of prioritizing programs with high commercial and therapeutic potential. Using this comprehensive analysis, we have identified a large number of protein targets that we believe are amenable to our technology. We continue to evaluate a number of additional targets using this analysis methodology.
We evaluate industry and commercial interest as well as the clinical utility with the aim of prioritizing programs with high commercial and therapeutic potential. Using this comprehensive analysis, we have identified a large number of protein targets that we believe are amenable to our technology. We continue to evaluate a number of additional targets using this analysis.
Traditional drug discovery involves experimental screening of existing libraries of molecules to find molecules with detectable activity, or “hit molecules,” followed by many iterations of chemical synthesis to attempt to optimize those hit molecules to a development candidate that can be advanced into human clinical trials.
Traditional drug discovery involves experimental screening of existing libraries of molecules to find molecules with detectable activity, or “hit molecules,” followed by many iterations of chemical synthesis to optimize those hit molecules to a development candidate that can be advanced into human clinical trials.
As part of our ongoing efforts to further advance our software solutions for materials science applications, in June 2020, we entered into a three-year agreement with Gates Ventures, LLC to develop and apply atomistic simulations methods to improve battery performance.
As part of our ongoing efforts to further advance our software solutions for materials science applications, in June 2020, we entered into a three-year agreement with Gates Ventures, LLC, or Gates Ventures, to develop and apply atomistic simulations methods to improve battery performance.
Beyond streamlining the process, the new Regulation includes a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors, and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts.
Beyond streamlining the process, the Clinical Trials Regulation includes a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors, and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts.
Clinical Trial Approval On January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 became effective in the European Union and replaced the prior Clinical Trials Directive 2001/20/EC. The new regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the European Union.
Clinical Trial Approval On January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014, or the Clinical Trials Regulation, became effective in the European Union and replaced the prior Clinical Trials Directive 2001/20/EC, or the Clinical Trials Directive. The Clinical Trials Regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the European Union.
When PathFinder is deployed in conjunction with multiparameter optimization, machine learning, and FEP+ simulations, it provides a streamlined approach to create and evaluate large sets of synthetically tractable, lead-like, potent ligands. • Software Solutions Used Throughout the Drug Discovery Process: ◦ LiveDesign is our user-friendly enterprise informatics solution that enables interactive and collaborative molecule design, aggregation and sharing of data, and end-to-end discovery project coordination between chemists, modelers, and biologists. ◦ Maestro is our user-friendly modeling environment, which allows expert modelers to utilize our advanced modeling solutions.
When AutoDesigner is deployed in conjunction with multiparameter optimization, machine learning, and FEP+ simulations, it provides a streamlined approach to create and evaluate large sets of synthetically tractable, lead-like, potent ligands. • Software Solutions Used Throughout the Drug Discovery Process: ◦ LiveDesign is our user-friendly enterprise informatics solution that enables interactive and collaborative molecule design, aggregation and sharing of data, and end-to-end discovery project coordination between chemists, modelers, and biologists. ◦ Maestro is our user-friendly modeling environment, which allows expert modelers to utilize our advanced modeling solutions.
TPGS = D-alpha-tocopheryl polyethylene glycol succinate, a solvent used in co-administration for drug dosing in animals; TID = three times a day dosing; SDD = spray dried dispersion; SEM = scanning electron microscopy, a method used to measure cell volume In addition, as shown in the figures below, SGR-1505 demonstrated strong anti-tumor activities in combination with ibrutinib in the BTK inhibitor sensitive in viv o models, such as the ABC-DLBCL patient-derived xenograft (PDX) model LY2298 and the OCI-LY10 CDX model.
TPGS = D-alpha-tocopheryl polyethylene glycol succinate, a solvent used in co-administration for drug dosing in animals; TID = three times a day dosing; SDD = spray dried dispersion; SEM = scanning electron microscopy, a method used to measure cell volume In addition, as shown in the figures below, SGR-1505 demonstrated strong anti-tumor activity in combination with ibrutinib in BTK inhibitor sensitive in viv o models, such as the ABC-DLBCL patient-derived xenograft (PDX) model LY2298 and the OCI-LY10 CDX model.
In life sciences, the most prominent academic simulation packages include AMBER, CHARMm, GROMACS, GROMOS, OpenMM, and OpenFF. These packages are primarily maintained and developed by graduate students and post-doctoral researchers, often without the intent of commercialization.
In the life sciences industry, the most prominent academic simulation packages include AMBER, CHARMm, GROMACS, GROMOS, OpenMM, and OpenFF. These packages are primarily maintained and developed by graduate students and post-doctoral researchers, often without the intent of commercialization.
Similarly, the physics underlying the properties of materials is no different than the physics underlying the properties of drug molecules. Therefore, we have successfully applied our computational platform to materials science applications, including in the fields of aerospace, energy, semiconductors, and electronic displays.
Similarly, the physics underlying the properties of materials is no different than the physics underlying the properties of drug molecules. Therefore, we have applied our computational platform to materials science applications, including in the fields of aerospace, energy, semiconductors, and electronic displays.
We are actively pursuing strategic alliances with collaborators, as well as progressing internal initiatives, that enable us to generate high-quality protein structures for these targets, which will enable us to initiate discovery efforts.
We are actively pursuing strategic alliances with collaborators, as well as progressing internal initiatives, that enable us to generate high-quality protein structures for these targets, which will enable us to initiate additional discovery efforts.
This allows more accurate methods, such as FEP+, to be applied at a much greater scale but with less accuracy to much larger sets of molecules than would otherwise be possible and enables predictive QSAR models of other properties to be developed and deployed on drug discovery projects. ◦ PathFinder is an enumeration tool that enables the rapid exploration of synthetically tractable ligands.
This allows more accurate methods, such as FEP+, to be applied at a much greater scale but with less accuracy to much larger sets of molecules than would otherwise be possible and enables predictive QSAR models of other properties to be developed and deployed on drug discovery projects. ◦ AutoDesigner is an enumeration tool that enables the rapid exploration of synthetically tractable ligands.
Consequently, marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following: • the sponsor must complete an identified program of studies within a time period specified by the competent authority, the results of which form the basis of a reassessment of the benefit/risk profile; • the medicinal product in question may be supplied on medical prescription only and may in certain cases be administered only under strict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and 50 Table of Contents • the package leaflet and any medical information must draw the attention of the medical practitioner to the fact that the particulars available concerning the medicinal product in question are as yet inadequate in certain specified respects.
Consequently, marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following: • the sponsor must complete an identified program of studies within a time period specified by the competent authority, the results of which form the basis of a reassessment of the benefit/risk profile; • the medicinal product in question may be supplied on medical prescription only and may in certain cases be administered only under strict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and • the package leaflet and any medical information must draw the attention of the medical practitioner to the fact that the particulars available concerning the medicinal product in question are as yet inadequate in certain specified respects.
Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products including those that we are our collaborators may develop. Coverage policies and third-party reimbursement rates may change at any time.
Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products including those that we or our collaborators may develop. Coverage policies and third-party reimbursement rates may change at any time.
In our hit-finding campaigns, we and our software customers typically utilize: • modern machine learning models trained to the two-dimensional structures of known active molecules using our software solution, AutoQSAR/DeepChem; • shape-based methods trained to the known or computationally deduced three-dimensional bioactive conformations of known active molecules using our software solution, Shape; • structure-based docking methods that evaluate the number and kind of interactions possible utilizing a static atomistic representation of the experimentally determined three-dimensional structure of the target protein receptor using our software solutions, Glide and WScore; and • free energy calculations using our software solution FEP+, which provides a fully dynamic atomistic representation of the target protein receptor.
In our hit-finding campaigns, we and our software customers typically utilize: • modern machine learning models trained to the two-dimensional structures of known active molecules using our software solution, DeepAutoQSAR; • shape-based methods trained to the known or computationally deduced three-dimensional bioactive conformations of known active molecules using our software solution, Shape; • structure-based docking methods that evaluate the number and kind of interactions possible utilizing a static atomistic representation of the experimentally determined three-dimensional structure of the target protein receptor using our software solutions, Glide and WScore; and • free energy calculations using our software solution FEP+, which provides a fully dynamic atomistic representation of the target protein receptor.
Our initial programs are focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers. Genomic instability of malignant cells leads to genetic mutations that can drive resistance to kinase inhibitors, creating the need for second and third generation drugs targeting the same disease.
Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers. Genomic instability of malignant cells leads to genetic mutations that can drive resistance to kinase inhibitors, creating the need for second and third generation drugs targeting the same disease.
From this analysis, one can infer the druggability of a protein, as well as uncover opportunities to significantly increase binding affinity by exploiting the water structure in the binding site. ◦ SiteMap allows binding site identification and evaluation to help locate potential protein binding sites, including allosteric sites, and predict the approximate druggability of those sites. ◦ GlideEM, PrimeX and Phenix/OPLS4 enable optimization of intermediate quality experimental protein structures to a quality sufficient to drive structure-based drug discovery. • Hit Discovery : the identification of hit molecules. ◦ FEP+ is our free energy calculation software.
From this analysis, one can infer the druggability of a protein, 12 Table of Contents as well as uncover opportunities to significantly increase binding affinity by exploiting the water structure in the binding site. ◦ SiteMap allows binding site identification and evaluation to help locate potential protein binding sites, including allosteric sites, and predict the approximate druggability of those sites. ◦ GlideEM, PrimeX and Phenix/OPLS4 enable optimization of intermediate quality experimental protein structures to a quality sufficient to drive structure-based drug discovery. • Hit Discovery : the identification of hit molecules. ◦ FEP+ is our free energy calculation software.
Our Proprietary Drug Discovery Programs In 2018, we began to develop a pipeline of wholly-owned drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics. Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.
Our Proprietary Drug Discovery Programs In 2018, we began to develop a pipeline of proprietary drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics. Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.
Table 3 In Vitro Cell Based Viability IC 50 Values of SGR-2921 Cell line COLO205 [IC 50 (nM)] MV-4-11 [IC 50 (nM)] MOLM-16 [IC 50 (nM)] Cell viability 9.90±3.72 107.55±12.42 20.81±7.29 22 Table of Contents Furthermore, as shown in the figures below, SGR-2921 showed tumor growth inhibition resulting in tumor regression in the COLO205 colorectal cancer CDX model, which is a colorectal cancer cell line derived xenograft model, at doses that did not result in significant body weight loss.
Table 3 In Vitro Cell Based Viability IC 50 Values of SGR-2921 Cell line COLO205 [IC 50 (nM)] MV-4-11 [IC 50 (nM)] MOLM-16 [IC 50 (nM)] Cell viability 9.90±3.72 107.55±12.42 20.81±7.29 23 Table of Contents As shown in the figures below, SGR-2921 showed tumor growth inhibition resulting in tumor regression in the COLO205 colorectal cancer CDX model, which is a colorectal cancer cell line derived xenograft model, at doses that did not result in significant body weight loss.
FDA regulations allow access to investigational products under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the investigational product under a treatment protocol or Treatment IND Application.
FDA regulations allow access to investigational products under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient INDs for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the investigational product under a treatment protocol or Treatment IND Application.
These contributions include the deformation and/or rigidification of the small molecule into the bound conformation (ΔG(1) in the figure below) and the rigidification of the protein in the bound conformation (ΔG(2)), the removal of waters surrounding the molecule (ΔG(3)) and the removal of 25 Table of Contents waters within the protein binding site (ΔG(4)), and finally the interactions achieved between the molecule and protein when binding to form the protein-molecule complex (ΔG(5)).
These contributions include the deformation and/or rigidification of the small molecule into the bound conformation (ΔG(1) in the figure below) and the rigidification of the protein in the bound conformation (ΔG(2)), the removal of waters surrounding the molecule (ΔG(3)) and the removal of 28 Table of Contents waters within the protein binding site (ΔG(4)), and finally the interactions achieved between the molecule and protein when binding to form the protein-molecule complex (ΔG(5)).
The 2003 Columbia Agreement grants us a worldwide, exclusive license to the protein local optimization program software code, or the PLOP Code, developed at Columbia University and the University of California and all software code comprising improvements to the PLOP Code that are developed by Columbia University or the University of California, or the PLOP Improvements, in each case, to reproduce, use, execute, copy, compile, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.
The 2003 Columbia Agreement grants us a worldwide, exclusive license to the protein local optimization program software code, or the PLOP Code, developed at Columbia University and the University of California and all software code comprising improvements to the PLOP Code 36 Table of Contents that are developed by Columbia University or the University of California, or the PLOP Improvements, in each case, to reproduce, use, execute, copy, compile, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.
We found that FEP+ succeeded in prioritizing the synthesis of molecules with improved 26 Table of Contents binding affinity with eight times greater success than any other technique tested. This evidence supports the essential role that FEP+ can play in advancing drug discovery programs.
We found that FEP+ succeeded in prioritizing the synthesis of molecules with improved 29 Table of Contents binding affinity with eight times greater success than any other technique tested. This evidence supports the essential role that FEP+ can play in advancing drug discovery programs.
Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. Specifically, however, the process governing approval of medicinal products in the European Union generally follows the same lines as in the United States.
Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. The process governing approval of medicinal products in the European Union generally follows the same lines as in the United States.
Another 8 Table of Contents factor preventing computational chemistry from realizing its promise has been limited compute speed. However, despite all of these challenges, physics-based methods have a significant advantage over machine learning in that they do not require a training set and can, in principle, compute properties of molecules that are well beyond existing industry experience and data.
Another factor preventing computational chemistry from realizing its promise has been limited compute speed. However, despite all of these challenges, physics-based methods have a significant advantage over machine learning in that they do not require a training set and can, in principle, compute properties of molecules that are well beyond existing industry experience and data.
Active Learning FEP+ is depicted in the figure below. 27 Table of Contents FEP+ is used to build a local model for a large library of molecules instead of relying on experimental data to provide the training set for the machine learning model.
Active Learning FEP+ is depicted in the figure below. 30 Table of Contents FEP+ is used to build a local model for a large library of molecules instead of relying on experimental data to provide the training set for the machine learning model.
Generally, our collaborators are not contractually required to provide us with, nor do we expect generally to receive, access to nonpublic information regarding key developments related to the advancement of these collaboration programs, such as clinical trial results, including safety and efficacy data, regulatory communications, or commercialization plans and 16 Table of Contents strategies.
Generally, our collaborators are not contractually required to provide us with, nor do we expect generally to receive, access to nonpublic information regarding key developments related to the advancement of these collaboration programs, such as clinical trial results, including safety and efficacy data, regulatory communications, or commercialization plans and strategies.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the European Economic Area (i.e. the European Union as well as Iceland, Liechtenstein and Norway).
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the European Economic Area (i.e. the European Union as well as Iceland, Liechtenstein and Norway), or the EEA.
The United Kingdom has already determined that it considers all of the European Union and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the European and EEA remain unaffected.
The UK government has already determined that it considers all European Union and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the European Union/EEA remain unaffected.
Pediatric Studies Under the Pediatric Research Equity Act, or PREA, applications and certain types of supplements to applications must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the 41 Table of Contents product is safe and effective.
Pediatric Studies Under the Pediatric Research Equity Act, or PREA, applications and certain types of supplements to applications must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.
FEP+ can also be used to calculate the binding selectivity, solubility, and mutational resistance profiles of molecules, which are key properties for the optimization of bioavailability, toxicology, and efficacy. ◦ AutoQSAR/DeepChem uses modern machine-learning methods to produce predictive quantitative structure-activity relationship, or QSAR, models.
FEP+ can also be used to calculate the binding selectivity, solubility, and mutational resistance profiles of molecules, which are key properties for the optimization of bioavailability, toxicology, and efficacy. ◦ DeepAutoQSAR uses modern machine-learning methods to produce predictive quantitative structure-activity relationship, or QSAR, models.
FEP+ calculations are much more accurate than either conventional machine learning or modern machine learning when scoring molecules structurally distinct from the training set data. In addition, by integrating FEP+ with our machine learning implementation, which we refer to as AutoQSAR/DeepChem, we developed a solution that we refer to as Active Learning FEP+.
FEP+ calculations are much more accurate than either conventional machine learning or modern machine learning when scoring molecules structurally distinct from the training set data. In addition, by integrating FEP+ with our machine learning implementation, which we refer to as DeepAutoQSAR, we developed a solution that we refer to as Active Learning FEP+.
These agreements may not provide meaningful protection. These agreements may also be breached, and we may not have an adequate remedy for any such breach. In addition, our trade secrets and/or confidential know-how may become known or be independently developed by a third party, or misused by any collaborator to whom we disclose such information.
These agreements may also be breached, and we may not have an adequate remedy for any such breach. In addition, our trade secrets and/or confidential know-how may become known or be independently developed by a third party, or misused by any collaborator to whom we disclose such information.
Under the terms of this collaboration, we received an equity stake in Eonix, and will be eligible to receive additional equity upon the successful completion of certain technical milestones. 13 Table of Contents Drug Discovery Business Overview We are using our computational platform in both our collaborative and proprietary drug discovery programs.
Under the terms of this collaboration, we received an equity stake in Eonix, and will be eligible to receive additional equity upon the successful completion of certain technical milestones. Drug Discovery Business Overview We are using our computational platform in both our collaborative and proprietary drug discovery programs.
Collaboration Agreements We have entered into a number of collaborations with biopharmaceutical companies under which our collaborators are pursuing research in a number of therapeutics areas, including without limitation, various programs in oncology, antifungal diseases, fibrosis, inflammatory bowel disease, metabolic disease, autoimmune disease, immuno-oncology, cardiopulmonary disease and tuberculosis.
We have entered into a number of collaborations with leading biopharmaceutical companies under which our collaborators are pursuing research in a number of therapeutics areas, including without limitation, various programs in oncology, antifungal diseases, fibrosis, inflammatory bowel disease, metabolic disease, autoimmune disease, immuno-oncology, cardiopulmonary disease and tuberculosis.
We also cannot ensure that patents will issue with respect to any patent applications that we or our licensors may file in the future, nor can we ensure that any of our owned or licensed patents or future patents will be commercially useful in protecting our software, technology, computational platform, and any product candidates we develop.
We also cannot ensure that patents will issue with respect to any patent applications that we or our licensors may file in the future, nor can we ensure that any of our owned or licensed patents or future patents will be commercially 38 Table of Contents useful in protecting our software, technology, computational platform, and any product candidates we develop.
As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law whereas Northern Ireland continues to be subject to EU rules under the Northern Ireland Protocol.
As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law whereas Northern Ireland continues to be subject to European Union rules under the Northern Ireland Protocol.
In addition, with predictive computational methods, better selections of molecules would be synthesized through exploration of larger portions of chemical space, leading to higher-quality molecules that would in turn have a higher probability of progressing through clinical development and obtaining regulatory approval for commercial sale.
In addition, with predictive computational methods, better selections of molecules would be synthesized 8 Table of Contents through exploration of larger portions of chemical space, leading to higher-quality molecules that would in turn have a higher probability of progressing through clinical development and obtaining regulatory approval for commercial sale.
ABC-DLBCL is associated with a number of mutations that trigger a constitutively active NF-κB signaling pathway, which often is mediated by increased MALT1 protease activity. Among these mutations is a gain of function mutation or amplification of MALT1, which has also been identified in ABC-DLBCL patients.
ABC-DLBCL is associated with a number of mutations that trigger a constitutively active NF-κB signaling pathway, which often is mediated by increased MALT1 protease activity. Among 18 Table of Contents these mutations is a gain of function mutation or amplification of MALT1, which has also been identified in ABC-DLBCL patients.
If the FDA approves a new product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, or require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval.
If the FDA approves a new product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, or require that post-approval studies, including post-marketing clinical trials, be conducted to further assess the drug’s safety after approval.
This draft decision must take the opinion and any relevant provisions of European Union law into account. Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on Medicinal Products for Human Use, or the Standing Committee.
This draft decision must take the opinion and any relevant provisions of European Union law into account. Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on 57 Table of Contents Medicinal Products for Human Use, or the Standing Committee.
The chemical enumeration technology we have developed incorporates the most commonly used chemical reactions and can, in a fully automated fashion, computationally explore billions of alterations of a molecule of interest.
The chemical enumeration technology we have developed incorporates the most commonly used chemical reactions and can, in a fully automated fashion, computationally explore billions of variations of a molecule of interest.
Our rights and obligations under, and the terms and conditions of, the Columbia License Agreements that we consider material to the operation of our business are described more fully below. On November 1, 2008, we entered into an amendment, or the Royalty Amendment, to certain Columbia License Agreements, including each of the agreements described below.
Our rights and obligations under, and the terms and 34 Table of Contents conditions of, the Columbia License Agreements that we consider material to the operation of our business are described more fully below. On November 1, 2008, we entered into an amendment, or the Royalty Amendment, to certain Columbia License Agreements, including each of the agreements described below.
With passage of FDORA, Congress clarified FDA’s authority to conduct inspections by expressly permitting inspection of facilities involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to FDA as well as other persons holding study records or involved in the study process.
With passage of FDORA, Congress clarified FDA’s authority to conduct inspections by expressly permitting inspection of facilities involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to FDA as well as other persons holding study records or involved in 48 Table of Contents the study process.
Given our financial resources, our industry-leading position in the field of physics-based computational drug discovery and materials science research and our developing proprietary drug discovery programs, we believe that we will continue to be able to fill positions and grow our headcount in support of our software, drug discovery and materials science businesses.
Given our financial resources, our industry-leading position in the field of physics-based computational drug discovery and materials science research and our developing proprietary drug discovery programs, we believe that we will continue to be able to fill open positions in support of our software, drug discovery and materials science businesses.
Our direct sales operations span across the United States, Europe, Japan, India, and South Korea, and we have sales distributors in other important markets, including China. We have a diverse and large existing customer base, ranging from startup biotechnology companies to the largest global pharmaceutical companies as well as an increasing number of materials science customers.
Our direct sales operations span across the United States, the European Union, United Kingdom, Japan, India, and South Korea, and we have sales distributors in other important markets, including China. We have a diverse and large existing customer base, ranging from startup biotechnology companies to the largest global pharmaceutical companies as well as an increasing number of materials science customers.
Our Water Site Products include our WaterMap Core program, which we market and distribute as part of our physics-based computational platform. We are restricted from 34 Table of Contents distributing the Water Site Software source code without the prior written consent of Columbia University.
Our Water Site Products include our WaterMap Core program, which we market and distribute as part of our physics-based computational platform. We are restricted from distributing the Water Site Software source code without the prior written consent of Columbia University.
The reference EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and related materials.
The reference EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and 58 Table of Contents related materials.
During an additional two-year period of market exclusivity, a generic marketing 51 Table of Contents authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the European Union market until the expiration of the market exclusivity.
During an additional two-year period of market exclusivity, a generic marketing authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the European Union market until the expiration of the market exclusivity.
Additionally, in an effort to advance our DEI aspirations, we have partnered with the Neuroleadership Institute on a learning program to better equip our employees with critical tools and language to talk about inclusion, bias, and leveraging a growth mindset in the workplace.
Additionally, in an effort to advance our DEI aspirations, we have partnered with the Neuroleadership Institute on a learning program to better equip our employees with critical tools and language to talk about inclusion, bias, and how to leverage a growth mindset in the workplace.
As shown in the figure below, we have benchmarked SGR-3515 against AZD1775, a WEE1 inhibitor from AstraZeneca, and Zn-C3, a WEE1 inhibitor being advanced by Zentalis Pharmaceuticals, and SGR-3515 demonstrated an improved kinase selectivity profile and we believe has lower potential for drug-drug interaction, or DDI, liabilities associated with liver enzyme inactivation.
As shown in the table below, we have benchmarked SGR-3515 against AZD1775, a WEE1 inhibitor from AstraZeneca, and ZN-c3, a WEE1 inhibitor being advanced by Zentalis Pharmaceuticals, Inc., or Zentalis, and SGR-3515 demonstrated an improved selectivity profile. We believe SGR-3515 has lower potential for drug-drug interaction, or DDI, liabilities associated with liver enzyme inactivation.
Such milestones consist of up to $585.0 million in total milestones per oncology target, including $360.0 million in the aggregate for certain specified research, development and regulatory milestones and $225.0 million in the aggregate for certain specified commercial milestones, as well as up to $489.0 million in total milestones per neurology and immunology target, including $264.0 million in the aggregate for certain specified research, development and regulatory milestones and $225.0 million in the aggregate for certain specified commercial milestones.
Such milestones consist of up to $585.0 million in total milestones per oncology target, including $360.0 million in the aggregate for certain specified research, development and regulatory milestones and $225.0 million in the aggregate for certain specified commercial milestones, as well as up to $489.0 million in total milestones per neurology and immunology target, 33 Table of Contents including $264.0 million in the aggregate for certain specified research, development and regulatory milestones and $225.0 million in the aggregate for certain specified commercial milestones.
Upon 32 Table of Contents termination, any third party that has licensed the Licensed PS-GVB Software from us will retain the right to use such software, and we will have the perpetual right to continue to provide support to any such third parties in connection with their use of such software.
Upon termination, any third party that has licensed the Licensed PS-GVB Software from us will retain the right to use such software, and we will have the perpetual right to continue to provide support to any such third parties in connection with their use of such software.
In September 2022, we entered into a collaboration with Lilly, under which we are responsible for the discovery and optimization of small molecule compounds addressing a specific target. Lilly will be responsible for the completion of preclinical development, clinical development and commercialization.
In September 2022, we entered into a collaboration with Lilly, under which we are responsible for the discovery and optimization of small molecule compounds addressing an immunology target. Lilly will be responsible for the completion of preclinical development, clinical development and commercialization.
Importantly, a dedicated agency contact and rapporteur from the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee 49 Table of Contents level.
Importantly, a dedicated agency contact and rapporteur from the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s committee level.
Traditional drug discovery and development efforts have become increasingly complex, lengthy and capital-intensive, and are prone to high failure rates. Traditional drug discovery relies upon many iterations of costly and time-consuming manual molecule design, chemical synthesis, and experimental testing.
Traditional drug discovery and development efforts are complex, lengthy and capital-intensive, and are prone to high failure rates. Traditional drug discovery relies upon many iterations of costly and time-consuming manual molecule design, chemical synthesis, and experimental testing.
While we believe that our computational platform, technology, knowledge, experience, and scientific resources provide us with competitive advantages, our drug discovery business faces potential competition from many sources, including major pharmaceutical, specialty biopharmaceutical companies, technology companies, academic institutions and government agencies, and public and 29 Table of Contents private research institutions.
While we believe that our computational platform, technology, knowledge, experience, and scientific resources provide us with competitive advantages, our drug discovery business faces potential competition from many sources, including major pharmaceutical companies, specialty biopharmaceutical companies, technology companies, academic institutions and government agencies, and public and private research institutions.
The 30 Table of Contents research term will end on the earlier of four years or until we have delivered a candidate for each specified target. We may elect to extend the research term for a limited period of time to deliver a candidate for a given target.
The research term will end on the earlier of four years or until we have delivered a candidate for each specified target. We may elect to extend the research term for a limited period of time to deliver a candidate for a given target.
Such Phase 3 studies are referred to as “pivotal.” 40 Table of Contents A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate.
Such Phase 3 studies are referred to as “pivotal.” A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate.
A sponsor seeking approval to market and distribute a new drug in the United States generally must satisfactorily complete each of the following steps before the product candidate will be approved by the FDA: • preclinical testing including laboratory tests, animal studies, and formulation studies, which must be performed in accordance with the FDA’s good laboratory practice, or GLP, regulations and standards; • design of a clinical protocol and submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin; • approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated; • performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication, in accordance with current good clinical practices, or GCP; • preparation and submission to the FDA of a new drug application, or NDA, for a drug product which includes not only the results of the clinical trials, but also detailed information on the chemistry, manufacture and quality controls for the product candidate and proposed labeling for one or more proposed indication(s); • review of the product candidate by an FDA advisory committee, where appropriate or if applicable; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product candidate or components thereof are manufactured to assess compliance with current good manufacturing practices, or cGMP, requirements and to assure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity; • satisfactory completion of any FDA audits of the non-clinical and clinical trial sites to assure compliance with GCP and the integrity of clinical data in support of the NDA; • payment of user fees and securing FDA approval of the NDA to allow marketing of the new drug product; and • compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct any post- approval studies required by the FDA.
The failure of a sponsor to comply with the applicable regulatory requirements at any time during the product development process, including non-clinical testing, clinical testing, the approval process or post-approval process, may result in delays to the conduct of a study, regulatory review and approval, and/or administrative or judicial sanctions. 40 Table of Contents A sponsor seeking approval to market and distribute a new drug in the United States generally must satisfactorily complete each of the following steps before the product candidate will be approved by the FDA: • preclinical testing including laboratory tests, animal studies, and formulation studies, which must be performed in accordance with the FDA’s good laboratory practice, or GLP, regulations and standards; • design of a clinical protocol and submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin; • approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated; • performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication, in accordance with current good clinical practices, or GCP; • preparation and submission to the FDA of a new drug application, or NDA, for a drug product which includes not only the results of the clinical trials, but also detailed information on the chemistry, manufacture and quality controls for the product candidate and proposed labeling for one or more proposed indication(s); • review of the product candidate by an FDA advisory committee, where appropriate or if applicable; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product candidate or components thereof are manufactured to assess compliance with current good manufacturing practices, or cGMP, requirements and to assure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity; • satisfactory completion of any FDA audits of the non-clinical and clinical trial sites to assure compliance with GCP and the integrity of clinical data in support of the NDA; • payment of user fees and securing FDA approval of the NDA to allow marketing of the new drug product; and • compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct any post- approval studies required by the FDA.
Under the agreement, during a limited research term, we will be responsible, at our own cost and expense, for the discovery of small molecule compounds (other than protein-degrader compounds) directed to five specified biological targets pursuant to a mutually agreed research plan for each such target.
Under the agreement, during a limited research term, we were initially responsible, at our own cost and expense, for the discovery of small molecule compounds (other than protein-degrader compounds) directed to five specified biological targets pursuant to a mutually agreed research plan for each such target.
The Agreement focuses primarily on free trade by ensuring no tariffs or quotas on trade in goods, including healthcare products such as medicinal products. Thereafter, the European Union and the United Kingdom will form two separate markets governed by two distinct regulatory and legal regimes.
The Agreement focuses primarily on free trade by ensuring no tariffs or quotas on trade in goods, including healthcare products such as medicinal products. Thereafter, the European Union and the United Kingdom will form two 60 Table of Contents separate markets governed by two distinct regulatory and legal regimes.
Our Software Solutions for Materials Science We also sell software licenses to customers engaged in molecule design for industrial purposes. The software solutions for our materials science customers leverage much of the same technology as our software for biopharmaceutical companies.
Our Software Solutions for Materials Science We also sell software licenses to customers engaged in molecule design for industrial purposes. The software solutions for our materials science customers leverage much of the same technology as our software for biopharmaceutical 13 Table of Contents companies.
As part of this strategy, in November 2020, we entered into an exclusive, worldwide collaboration and license agreement with BMS pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.
In November 2020, we entered into an exclusive, worldwide collaboration and license agreement with BMS pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.
Following issuance of a clinical hold or partial clinical hold, a clinical trial may only resume after the FDA has so notified the sponsor. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the clinical trial can proceed.
Following issuance of a clinical hold or partial clinical hold, a clinical trial may only resume after the FDA has so notified the sponsor of its decision to lift the hold. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the clinical trial can proceed.
National Institutes of Health. In particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial.
In particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial.
Any authorization which is not followed by the actual placing of the medicinal product on the European Union market (in case of centralized procedure) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid (the so-called sunset clause).
Any authorization which is not followed by the actual placing of the medicinal product on the European Union market (in case of centralized procedure) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid.
Many of our collaborative programs are currently still in the discovery stages. Generally, the size of the payments we are eligible to receive from a collaborative program increases as the program advances.
Many of our collaborative programs are currently still in the discovery and preclinical development stages. Generally, the size of the payments we are eligible to receive from a collaborative program increases as the program advances.
Enumeration of extremely large libraries of molecules We have developed methods to enumerate extremely large libraries of molecules with our PathFinder software solution, thereby allowing our software customers, our drug discovery collaborators, and the Schrödinger Therapeutics Group to explore a much larger portion of chemical space than is possible through manual design.
Enumeration of extremely large libraries of molecules We have developed methods to enumerate extremely large libraries of molecules of interest with our AutoDesigner software solution, thereby allowing our software customers, our drug discovery collaborators, and the Schrödinger therapeutics group to explore a much larger portion of project-relevant chemical space than is possible through manual design.
We believe that physics-based simulation is at an inflection point as a result of the increased availability of massive computing power, combined with a more sophisticated understanding of models and algorithms and the growing availability of high-resolution protein structures.
We believe that physics-based simulation has reached an inflection point as a result of the increased availability of massive computing power, combined with a more sophisticated understanding of models and algorithms and the growing availability of high-resolution protein structures.
SGR-2921 also showed a dose-dependent increase in plasma drug concentration and a dose-dependent decrease in intratumoral pMCM2 in the COLO205 CDX model. In mouse models of acute myeloid leukemia, SGR-2921 also showed strong anti-tumor activity at doses that were tolerated.
SGR-2921 also showed a dose-dependent increase in plasma drug concentration and a dose-dependent decrease in intratumoral pMCM2 in the COLO205 CDX model. In mouse models of AML, SGR-2921 also showed strong anti-tumor activity at doses that were tolerated.

… 430 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

194 edited+102 added−48 removed472 unchanged
Biggest changeOn February 13, 2023, on account of our equity stake in Nimbus, we received a $111.3 million cash distribution from Nimbus in connection with Takeda's acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its TYK2 inhibitor NDI-034858.
Biggest changeThe net income we generated in the year ended December 31, 2023 was primarily due to the $147.2 million cash distributions we received from Nimbus Therapeutics, LLC, or Nimbus, on account of our equity stake in Nimbus, following the acquisition by Takeda Pharmaceuticals Company, Limited, or Takeda, of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its TYK2 inhibitor NDI-034858 and the non-cash gain on our investment in Structure Therapeutics Inc., or Structure Therapeutics, which, following Structure Therapeutics’ initial public offering in February 2023, we valued based on the closing price of its American Depositary Shares as of December 31, 2023.
We may never realize return on our investment of resources and cash in our drug discovery collaborations. Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Our drug discovery collaborators may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates.
We may never realize a return on our investment of resources and cash in our drug discovery collaborations. Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Our drug discovery collaborators may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates.
We cannot assure you a given regulatory authority will determine that any of our clinical trials comply with cGCP regulations. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a U.S. government-sponsored database, clinicaltrials.gov, within certain timeframes.
We cannot assure you that a given regulatory authority will determine that any of our clinical trials comply with cGCP regulations. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a U.S. government-sponsored database, clinicaltrials.gov, within certain timeframes.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, the market price of shares of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities.
If we are unable to conclude in the future that our internal control over financial reporting is effective, or if we or our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, the market price of shares of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities.
We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors and other contractors and consultants who have access to our confidential information. 92 Table of Contents Despite the implementation of security measures, given the size and complexity of our internal information technology systems and those of our third-party vendors and other contractors and consultants, and the increasing amounts of confidential information that they maintain, our information technology systems are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war, and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, third-party vendors, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information), which may compromise our system infrastructure, or that of our third-party vendors and other contractors and consultants or lead to data leakage.
We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors and other contractors and consultants who have access to our confidential information. 106 Table of Contents Despite the implementation of security measures, given the size and complexity of our internal information technology systems and those of our third-party vendors and other contractors and consultants, and the increasing amounts of confidential information that they maintain, our information technology systems are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war, and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, third-party vendors, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information), which may compromise our system infrastructure, or that of our third-party vendors and other contractors and consultants or lead to data leakage.
Relative to our and our collaborators’ drug discovery programs, the COVID-19 pandemic has resulted in, and may in the future result in, disruptions in current and future IND-enabling studies and clinical trials, manufacturing disruptions, trial site disruptions and impact the ability to obtain necessary institutional review board, institutional biosafety committee, or other necessary site approvals.
Relative to our and our collaborators’ drug discovery programs, the recent COVID-19 pandemic has resulted in, and may in the future result in, disruptions in current and future IND-enabling studies and clinical trials, manufacturing disruptions, trial site disruptions and impact the ability to obtain necessary institutional review board, institutional biosafety committee, or other necessary site approvals.
Moreover, if disputes over intellectual property that we have owned, co-owned, or in-licensed under the collaboration agreements prevent or impair our ability to maintain our current collaboration arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected technology or product candidates, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 80 Table of Contents If we are unable to obtain, maintain, enforce, and protect patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.
Moreover, if disputes over intellectual property that we have owned, co-owned, or in-licensed under the collaboration agreements prevent or impair our ability to maintain our current collaboration arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected technology or product candidates, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 91 Table of Contents If we are unable to obtain, maintain, enforce, and protect patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.
Further, any predictions you make about the future success or viability of our proprietary drug discovery programs may not be as accurate as they could be if we had a history of conducting clinical trials and developing our own product candidates.
Further, any predictions you make about the future success or viability of our proprietary drug discovery programs may not be as accurate as they could be if we had a history of conducting and completing clinical trials and developing our own product candidates.
In life sciences, the most prominent academic simulation packages include AMBER, CHARMm, GROMACS, GROMOS, OpenMM, and OpenFF. These packages are primarily maintained and developed by graduate students and post-doctoral researchers, often without the intent of commercialization.
In the life sciences industry, the most prominent academic simulation packages include AMBER, CHARMm, GROMACS, GROMOS, OpenMM, and OpenFF. These packages are primarily maintained and developed by graduate students and post-doctoral researchers, often without the intent of commercialization.
Among other things, these provisions: • establish a classified board of directors such that only one of three classes of directors is elected each year; • allow the authorized number of our directors to be changed only by resolution of our board of directors; • limit the manner in which stockholders can remove directors from our board of directors; 99 Table of Contents • establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors; • require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; • limit who may call stockholder meetings to the board of directors or to the secretary at the request of the holders of at least 25% of the outstanding shares of our common stock and limited common stock; and • authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors.
Among other things, these provisions: • establish a classified board of directors such that only one of three classes of directors is elected each year; • allow the authorized number of our directors to be changed only by resolution of our board of directors; • limit the manner in which stockholders can remove directors from our board of directors; • establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors; • require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; • limit who may call stockholder meetings to the board of directors or to the secretary at the request of the holders of at least 25% of the outstanding shares of our common stock and limited common stock; and • authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors.
We do not anticipate receiving significant milestone payments from many of our drug discovery collaborators for several years, if at all, and our drug discovery collaborators may never achieve milestones that result in significant cash payments to us.
We do not anticipate receiving significant milestone payments from many of our drug discovery collaborators for several years, if at all, and our drug discovery collaborators may never achieve milestones that would result in significant cash payments to us.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may experience delays in the development and commercialization of new software solutions and in our ability to market and sell existing software solutions, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 79 Table of Contents Our obligations under our existing or future drug discovery collaboration agreements may limit our intellectual property rights that are important to our business.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may experience delays in the development and commercialization of new software solutions and in our ability to market and sell existing software solutions, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 90 Table of Contents Our obligations under our existing or future drug discovery collaboration agreements may limit our intellectual property rights that are important to our business.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2022, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting.
For example, in connection with the audit of our consolidated financial statements for the year ended December 31, 2022, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting.
In addition, our ability to realize return from our drug discovery collaborations is subject to the following risks: • drug discovery collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to our collaborations and may not perform their obligations as expected; • drug discovery collaborators may not pursue development or commercialization of any product candidates for which we are entitled to option fees, milestone payments, or royalties or may elect not to continue or renew development or commercialization programs based on results of clinical trials or other studies, changes in the collaborator’s strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; • drug discovery collaborators may delay clinical trials for which we are entitled to milestone payments; • we may not have access to, or may be restricted from disclosing, certain information regarding our collaborators’ product candidates being developed or commercialized and, consequently, may have limited ability to inform our stockholders about the status of, and likelihood of achieving, milestone payments or royalties under such collaborations; • drug discovery collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with any product candidates and products for which we are entitled to milestone payments or royalties if the collaborator believes that the competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive; • product candidates discovered in drug discovery collaborations with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause our collaborators to cease to devote resources to the commercialization of any such product candidates; • existing drug discovery collaborators and potential future drug discovery collaborators may begin to perceive us to be a competitor more generally, particularly as we advance our proprietary drug discovery programs, and therefore may be unwilling to continue existing collaborations with us or to enter into new collaborations with us; • a drug discovery collaborator may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution, or marketing of a product candidate or product, which may impact our ability to receive milestone payments; • disagreements with drug discovery collaborators, including disagreements over intellectual property or proprietary rights, contract interpretation, or the preferred course of development, might cause delays or terminations of the research, development, or commercialization of product candidates for which we are eligible to receive milestone payments, or might result in litigation or arbitration; • drug discovery collaborators may not properly obtain, maintain, enforce, defend or protect our intellectual property or proprietary rights or may use our proprietary information in such a way as to potentially lead to disputes or legal proceedings that could jeopardize or invalidate our or their intellectual property or proprietary information or expose us and them to potential litigation; • drug discovery collaborators may infringe, misappropriate, or otherwise violate the intellectual property or proprietary rights of third parties, which may expose us to litigation and potential liability; 65 Table of Contents • drug discovery collaborators could suffer from operational delays as a result of global health impacts, such as the COVID-19 pandemic; and • drug discovery collaborations may be terminated prior to our receipt of any significant value from the collaboration.
In addition, our ability to realize return from our drug discovery collaborations is subject to the following risks: • drug discovery collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to our collaborations and may not perform their obligations as expected; • drug discovery collaborators may not pursue development or commercialization of any product candidates for which we are entitled to option fees, milestone payments, or royalties or may elect not to continue or renew development or commercialization programs based on results of clinical trials or other studies, changes in the collaborator’s strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; • drug discovery collaborators may delay clinical trials for which we are entitled to milestone payments; • we may not have access to, or may be restricted from disclosing, certain information regarding our collaborators’ product candidates being developed or commercialized and, consequently, may have limited ability to inform our stockholders about the status of, and likelihood of achieving, milestone payments or royalties under such collaborations; • drug discovery collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with any product candidates and products for which we are entitled to milestone payments or royalties if the collaborator believes that the competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive; • product candidates discovered in drug discovery collaborations with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause our collaborators to cease to devote resources to the commercialization of any such product candidates; • existing drug discovery collaborators and potential future drug discovery collaborators may begin to perceive us to be a competitor more generally, particularly as we advance our proprietary drug discovery programs, and therefore may be unwilling to continue existing collaborations with us or to enter into new collaborations with us; • a drug discovery collaborator may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution, or marketing of a product candidate or product, which may impact our ability to receive milestone payments; 73 Table of Contents • disagreements with drug discovery collaborators, including disagreements over intellectual property or proprietary rights, contract interpretation, or the preferred course of development, might cause delays or terminations of the research, development, or commercialization of product candidates for which we are eligible to receive milestone payments, or might result in litigation or arbitration; • drug discovery collaborators may not properly obtain, maintain, enforce, defend or protect our intellectual property or proprietary rights or may use our proprietary information in such a way as to potentially lead to disputes or legal proceedings that could jeopardize or invalidate our or their intellectual property or proprietary information or expose us and them to potential litigation; • drug discovery collaborators may infringe, misappropriate, or otherwise violate the intellectual property or proprietary rights of third parties, which may expose us to litigation and potential liability; • drug discovery collaborators could suffer from operational delays as a result of global health impacts, such as the recent COVID-19 pandemic; and • drug discovery collaborations may be terminated prior to our receipt of any significant value from the collaboration, which has happened to us in the past and may happen to us again in the future.
Demand for our software solutions may be affected by a number of factors, including continued market acceptance by the biopharmaceutical industry, market adoption of our software solutions beyond the biopharmaceutical industry including for material science applications, the ability of our platform to identify more promising molecules and accelerate and lower the costs of discovery as compared to traditional methods, timing of development and release of new offerings by our competitors, technological change, and the rate of growth in our target markets.
Demand for our software solutions may be affected by a number of factors, including continued market acceptance by the biopharmaceutical industry, market adoption of our software solutions beyond the biopharmaceutical industry including for materials science applications, the ability of our platform to identify more promising molecules and accelerate and lower the costs of discovery as compared to traditional methods, timing of development and release of new offerings by our competitors, technological change, and the rate of growth in our target markets.
In addition, we face risks in doing business internationally that could adversely affect our business, including: • the need to localize and adapt our solutions for specific countries, including translation into foreign languages; • data privacy laws which require that customer data be stored and processed in a designated territory or handled in a manner that differs significantly from how we typically handle customer data; • difficulties in staffing and managing foreign operations, including employee laws and regulations; • different pricing environments, longer sales cycles, and longer accounts receivable payment cycles and collections issues; • differences in healthcare systems, drug regulation and reimbursement, and drug discovery and development practices and technologies; • new and different sources of competition; • weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States; • laws and business practices favoring local competitors; • compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment, tax, reimbursement and pricing, privacy and data protection, and anti-bribery laws and regulations; • increased financial accounting and reporting burdens and complexities; • restrictions on the transfer of funds; • changes in diplomatic and trade relationships, including new tariffs, trade protection measures, import or export licensing requirements, trade embargoes, and other trade barriers; • changes in social, political, and economic conditions or in laws, regulations, and policies governing foreign trade, manufacturing, development, and investment both domestically as well as in the other countries and jurisdictions; • adverse tax consequences, including the potential for required withholding taxes; • global health pandemics, such as COVID-19; and • unstable regional, economic and political conditions.
In addition, we face risks in doing business internationally that could adversely affect our business, including: • the need to localize and adapt our solutions for specific countries, including translation into foreign languages; • data privacy laws which require that customer data be stored and processed in a designated territory or handled in a manner that differs significantly from how we typically handle customer data; • difficulties in staffing and managing foreign operations, including employee laws and regulations; • different pricing environments, longer sales cycles, and longer accounts receivable payment cycles and collections issues; • differences in healthcare systems, drug regulation and reimbursement, and drug discovery and development practices and technologies; • new and different sources of competition; • weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States; • laws and business practices favoring local competitors; • compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment, tax, reimbursement and pricing, privacy and data protection, and anti-bribery laws and regulations; • increased financial accounting and reporting burdens and complexities; • restrictions on the transfer of funds; • changes in diplomatic and trade relationships, including new tariffs, trade protection measures, import or export licensing requirements, trade embargoes, and other trade barriers; 85 Table of Contents • changes in social, political, and economic conditions or in laws, regulations, and policies governing foreign trade, manufacturing, development, and investment both domestically as well as in the other countries and jurisdictions; • adverse tax consequences, including the potential for required withholding taxes; • global health pandemics or epidemics, such as the recent COVID-19 pandemic; and • unstable regional, economic and political conditions.
Our limited experience in designing and conducting clinical development activities may adversely impact the likelihood that we will be successful in advancing our programs.
Our limited experience in designing, conducting and completing clinical development activities may adversely impact the likelihood that we will be successful in advancing our programs.
The market price for our common stock may be influenced by many factors, including: • our investment in, and the success of, our software solutions; • the success of our research and development efforts for our proprietary drug discovery programs; • initiation and progress of preclinical studies and clinical trials for any product candidates that we may develop; • results of or developments in preclinical studies and clinical trials of any product candidates we may develop or those of our competitors or potential collaborators; • the success of our drug discovery collaborators and any milestone or other payments we receive from such collaborators; • the success of competitive products or technologies; • regulatory or legal developments in the United States and other countries; • the recruitment or departure of key personnel; • variations in our financial results or the financial results of companies that are perceived to be similar to us; • guidance or announcements by us with respect to our anticipated financial or operational performance; • sales of common stock by us, our executive officers, directors or principal stockholders, or others, or the anticipation of such sales; • market conditions in the biopharmaceutical sector; • general economic, industry, and market conditions; 95 Table of Contents • the societal and economic impact of public health epidemics, such as the ongoing COVID-19 pandemic; and • the other factors described in this “Risk Factors” section.
The market price for our common stock may be influenced by many factors, including: • our investment in, and the success of, our software solutions; • the success of our research and development efforts for our proprietary drug discovery programs; • initiation and progress of preclinical studies and clinical trials for any product candidates that we may develop; • results of or developments in preclinical studies and clinical trials of any product candidates we may develop or those of our competitors or potential collaborators; • the success of our drug discovery collaborators and any milestone or other payments we receive from such collaborators; • the success of competitive products or technologies; • regulatory or legal developments in the United States and other countries; • the recruitment or departure of key personnel; • variations in our financial results or the financial results of companies that are perceived to be similar to us; • guidance or announcements by us with respect to our anticipated financial or operational performance; • sales of common stock by us, our executive officers, directors or principal stockholders, or others, or the anticipation of such sales; • market conditions in the biopharmaceutical sector; • general economic, industry, and market conditions; • the societal and economic impact of public health epidemics, such as the recent COVID-19 pandemic; and • the other factors described in this “Risk Factors” section.
These disruptions have caused and may in the future cause delays in certain of our and our collaborators’ drug discovery programs. For example, our contract manufacturing organizations, or CMOs, and our contract research organizations, or CROs, have experienced reductions in the capacity to undertake research-scale production and have experienced delays in executing preclinical studies, including our IND-enabling studies for SGR-2921.
These disruptions have caused and may in the future cause delays in certain of our and our collaborators’ drug discovery programs. For example, our contract manufacturing organizations, or CMOs, and our CROs had experienced reductions in the capacity to undertake research-scale production and had experienced delays in executing preclinical studies, including our completed IND-enabling studies for SGR-2921.
We have performed an analysis through December 31, 2022 and determined that such an ownership change occurred on March 31, 2021. As a result of such ownership change or future ownership changes, our ability to use our NOLs and research and development tax credit carryforwards may be materially limited.
We have performed an analysis through December 31, 2023 and determined that such an ownership change occurred on March 31, 2021. As a result of such ownership change or future ownership changes, our ability to use our NOLs and research and development tax credit carryforwards may be materially limited.
These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. Specifically, actions plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them.
These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. Specifically, action plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them.
The success of our and any current or future collaborators’ development and commercialization programs will depend on several factors, including the following: • successful completion of necessary preclinical studies to enable the initiation of clinical trials; • successful enrollment of patients in, and the completion of, the clinical trials; • acceptance by the FDA or other regulatory agencies of regulatory filings for any product candidates we and our current or future collaborators may develop; • expanding and maintaining a workforce of experienced scientists and other technical specialists to continue to develop any product candidates; • obtaining and maintaining intellectual property protection and regulatory exclusivity for any product candidates we and our current or future collaborators may develop; • making arrangements with third-party manufacturers for, or establishing, clinical and commercial manufacturing capabilities; • establishing sales, marketing, and distribution capabilities for drug products and successfully launching commercial sales, if and when approved; • acceptance of any product candidates we and our current or future collaborators may develop, if and when approved, by patients, the medical community, and third-party payors; • effectively competing with other therapies; • obtaining and maintaining coverage, adequate pricing, and adequate reimbursement from third-party payors, including government payors; 72 Table of Contents • patients’ willingness to pay out-of-pocket in the absence of coverage and/or adequate reimbursement from third-party payors; • ongoing or future restrictions resulting from the COVID-19 pandemic and its collateral consequences may result in internal and external operational delays and limitations; and • maintaining a continued acceptable safety profile following receipt of any regulatory approvals.
The success of our and any current or future collaborators’ development and commercialization programs will depend on several factors, including the following: • successful completion of necessary preclinical studies to enable the initiation of clinical trials; • successful enrollment of patients in, and the completion of, the clinical trials; • acceptance by the FDA or other regulatory agencies of regulatory filings for any product candidates we and our current or future collaborators may develop; • expanding and maintaining a workforce of experienced scientists and other technical specialists to continue to develop any product candidates; • obtaining and maintaining intellectual property protection and regulatory exclusivity for any product candidates we and our current or future collaborators may develop; • making arrangements with third-party manufacturers for, or establishing, clinical and commercial manufacturing capabilities; • establishing sales, marketing, and distribution capabilities for drug products and successfully launching commercial sales, if and when approved; • acceptance of any product candidates we and our current or future collaborators may develop, if and when approved, by patients, the medical community, and third-party payors; • effectively competing with other therapies; • obtaining and maintaining coverage, adequate pricing, and adequate reimbursement from third-party payors, including government payors; • patients’ willingness to pay out-of-pocket in the absence of coverage and/or adequate reimbursement from third-party payors; 82 Table of Contents • any restrictions resulting from a health epidemic or pandemic and its collateral consequences may result in internal and external operational delays and limitations; and • maintaining a continued acceptable safety profile following receipt of any regulatory approvals.
Further, on November 20, 2020, HHS finalized a regulation that would eliminate the current safe harbor for Medicare drug rebates and create new safe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager, or PBM, service fees.
Further, on November 20, 2020, HHS finalized a regulation that would eliminate the current safe harbor for Medicare drug rebates and create new safe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager service fees.
Our future capital requirements will depend on many factors, including: • the growth of our software revenue; • the timing and extent of spending to support research and development efforts; • the continued expansion of software sales and marketing activities; • the timing and receipt of payments from our collaborations as well as spending to support, advance, and broaden our proprietary drug discovery programs; and • the timing and receipt of any distributions or proceeds we may receive from our equity stakes in our drug discovery collaborators and partners.
Our future capital requirements will depend on many factors, including: • the growth of our software revenue; • the timing and extent of spending to support research and development efforts; • the continued expansion of software sales and marketing activities; • the timing and receipt of payments from our drug discovery collaborations; • spending to support, advance, and broaden our proprietary drug discovery programs; and • the timing and receipt of any distributions or proceeds we may receive from our equity stakes in our drug discovery collaborators.
For example, in collaboration with us, Nimbus Therapeutics, LLC, or Nimbus, was able to identify a unique series of acetyl-CoA carboxylase, or ACC, allosteric protein-protein interaction inhibitors with favorable pharmaceutical properties that inhibit the activity of the ACC enzyme.
For example, in collaboration with us, Nimbus was able to identify a unique series of acetyl-CoA carboxylase, or ACC, allosteric protein-protein interaction inhibitors with favorable pharmaceutical properties that inhibit the activity of the ACC enzyme.
We have acquired, and we may again in the future acquire, companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.
We have acquired, and we may again in the future acquire, companies, businesses, solutions or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.
Certain of our customers also rely on us to troubleshoot problems with the performance of the software, introduce new features requested for specific customer projects, inform them about the best way to set up and analyze various types of simulations and illustrate our techniques for drug discovery 63 Table of Contents using examples from publicly available data sets.
Certain of our customers also rely on us to troubleshoot problems with the performance of the software, introduce new features requested for specific customer projects, inform them about the best way to set up and analyze various types of simulations and illustrate our techniques for drug discovery using examples from publicly available data sets.
Achieving success in drug development will require us or our current or future collaborators to be effective in a range of challenging activities, including completing preclinical testing and clinical trials of product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing, and selling any products for which we or 56 Table of Contents they may obtain regulatory approval.
Achieving success in drug development will require us or our current or future collaborators to be effective in a range of challenging activities, including completing preclinical testing and clinical trials of product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing, and selling any products for which we or they may obtain regulatory approval.
Any of these events could create liability for us and damage our reputation, which could have a material adverse effect on our revenue, business, results of operations, and financial condition and the market price of our shares. Risks Related to Drug Discovery We may never realize a return on our investment of resources and cash in our drug discovery collaborations.
Any of these events could create liability for us and damage our reputation, which could have a material adverse effect on our revenue, business, results of operations, and financial condition and the market price of our shares. 72 Table of Contents Risks Related to Drug Discovery We may never realize a return on our investment of resources and cash in our drug discovery collaborations.
In addition, if our employees fail to adhere to practices we have established to maintain a firewall between the Schrödinger Therapeutics Group and our teams that work with software customers, or if the technical solutions we have adopted to maintain the firewall malfunction, our customers and collaborators may lose confidence in our ability to maintain the confidentiality of their intellectual property, we may have trouble attracting new customers and collaborators, we may be subject to breach of contract claims by our customers and collaborators, and we may suffer reputational and other harm as a result.
In addition, if our employees fail to adhere to practices we have established to maintain a firewall between our drug discovery group, which we refer to as the Schrödinger therapeutics group, and our teams that work with software customers, or if the technical solutions we have adopted to maintain the firewall malfunction, our customers and collaborators may lose confidence in our ability to maintain the confidentiality of their intellectual property, we may have trouble attracting new customers and collaborators, we may be subject to breach of contract claims by our customers and collaborators, and we may suffer reputational and other harm as a result.
As a result of all of these factors, our competitors may succeed in obtaining approval from the FDA or other comparable foreign regulatory authorities or in discovering, developing and commercializing products in our field before we do. 73 Table of Contents Risks Related to Our Operations Doing business internationally creates operational and financial risks for our business.
As a result of all of these factors, our competitors may succeed in obtaining approval from the FDA or other comparable foreign regulatory authorities or in discovering, developing and commercializing products in our field before we do. Risks Related to Our Operations Doing business internationally creates operational and financial risks for our business.
In addition, we will need to ensure that our policies 90 Table of Contents recognize the rights granted to consumers (as that phrase is broadly defined in the CCPA and can include business contact information), including granting consumers the right to opt-out of the sale of their personal information. Many other states are considering similar legislation. .
In addition, we will need to ensure that our policies recognize the rights granted to consumers (as that phrase is broadly defined in the CCPA and can include business contact information), including granting consumers the right to opt-out of the sale of their personal information. Many other states are considering similar legislation.
However, we have received equity consideration in certain of our collaborators 64 Table of Contents and/or the right to receive option fees, cash milestone payments upon the achievement of specified development, regulatory, and commercial sales milestones for the drug discovery targets, and potential royalties. From time to time, we have also made additional equity investments in our drug discovery collaborators.
However, we have received equity consideration in certain of our collaborators and/or the right to receive option fees, cash milestone payments upon the achievement of specified development, regulatory, and commercial sales milestones for the drug discovery targets, and potential royalties. From time to time, we have also made additional equity investments in our drug discovery collaborators.
Thus, the excise tax could apply to certain transactions that are not traditional stock repurchases. Regulatory guidance under the 2017 Tax Act, the IRA, and such additional legislation is and continues to be forthcoming, and such guidance could ultimately increase or lessen the 76 Table of Contents impact of these laws on our business and financial condition.
Thus, the excise tax could apply to certain transactions that are not traditional stock repurchases. Regulatory guidance under the 2017 Tax Act, the IRA, and such additional legislation is and continues to be forthcoming, and such guidance could ultimately increase or lessen the impact of these laws on our business and financial condition.
Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the 77 Table of Contents valuation of deferred tax assets and liabilities, and changes in federal, state, or international tax laws and accounting principles.
Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities, and changes in federal, state, or international tax laws and accounting principles.
Such healthcare laws and regulations include, but are not limited to, the federal health care Anti-Kickback Statute; federal civil and criminal false claims laws, such as the federal False Claims Act; the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA; the Federal Food, Drug, and Cosmetic Act; the federal Physician Payments Sunshine Act; and analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency laws.
Such healthcare laws and regulations include, but are not limited to, the federal health care Anti-Kickback Statute; federal civil and criminal false 104 Table of Contents claims laws, such as the federal False Claims Act; the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA; the Federal Food, Drug, and Cosmetic Act; the federal Physician Payments Sunshine Act; and analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency laws.
Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the severity of disease; size of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability of clinical trial investigators with appropriate competencies and experience; support staff; the number of ongoing clinical trials in the same indication that compete for the same patients; proximity of patients to clinical sites; the number and availability of trial sites; the ability to comply with the eligibility and exclusion criteria for participation in the clinical trial; ability to obtain and maintain patient consents; patient compliance; the ability to monitor patients during and after treatment; and the impact of the ongoing COVID-19 pandemic.
Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the severity of disease; size of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability of clinical trial investigators with appropriate competencies and experience; support staff; the number of ongoing clinical trials in the same indication that compete for the same patients; proximity of patients to clinical sites; the number and availability of trial sites; the ability to comply with the eligibility and exclusion criteria for participation in the clinical trial; ability to obtain and maintain patient consents; patient compliance; the ability to monitor patients during and after treatment; and the impact of any health pandemic or epidemic.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Pursuant to Section 404, we are also required to have our independent registered public accounting firm issue an opinion on the effectiveness of our internal control over financial reporting on an annual basis.
This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Pursuant to Section 404, we are also required to have our independent registered public accounting firm issue an opinion on the effectiveness of our internal control over financial reporting on an annual basis.
If the breadth or strength of protection provided by our owned, co-owned, or in-licensed current or future patents and patent applications is threatened, regardless of the outcome, it could dissuade 81 Table of Contents companies from collaborating with us to license, develop, or commercialize current or future technology or product candidates.
If the breadth or strength of protection provided by our owned, co-owned, or in-licensed current or future patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop, or commercialize current or future technology or product candidates.
As a result, capital appreciation of our common stock, if any, will be the sole source of gain for our stockholders for the foreseeable future. Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop significantly, even if our business is doing well.
As a result, capital appreciation of our common stock, if any, will be the sole source of gain for our stockholders for the foreseeable future. 111 Table of Contents Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop significantly, even if our business is doing well.
If the steps we take do not remediate the material weakness in a timely manner, there could continue to be a reasonable possibility that this control deficiency or others could result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis.
If the steps we take do not remediate a future material weakness in a timely manner, there could be a reasonable possibility that this control deficiency or others could result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis.
Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and operating results. Item 1B. Unresolved Staff Comments. None.
Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and operating results. 114 Table of Contents Item 1B. Unresolved Staff Comments.
As a result of these factors, we believe that period-to-period comparisons of our operating results are not a good indication of our future performance and that our interim financial results are not necessarily indicative of results for a full year or for any subsequent interim period. We may require additional capital to fund our operations.
As a result of these factors, we believe that period-to-period comparisons of our operating results are not a good indication of our future performance and that our interim financial results are not necessarily indicative of results for a full year or for any subsequent interim period. We will likely require additional capital to fund our operations.
Additionally, sponsors may still choose to submit a CTA under either the Clinical Trials Directive or the CTR until January 31, 2023 and, if authorized, those will be governed by the Clinical Trials Directive until January 31, 2025. By that date, all ongoing trials will become subject to the provisions of the CTR.
Additionally, sponsors were still permitted to choose to submit a CTA under either the Clinical Trials Directive or the CTR until January 31, 2023 and, if authorized, those will be governed by the Clinical Trials Directive until January 31, 2025. By that date, all ongoing trials will become subject to the provisions of the CTR.
Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and employees. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.
Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and employees. 96 Table of Contents If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.
Significant assumptions and estimates used in preparing our consolidated financial statements include, with respect to revenue, determining the allocation of the transaction price and measurement of progress, including (1) the constraint on variable consideration, (2) the allocation of the transaction price to the performance obligations using their standalone selling price basis, and (3) the appropriate input or output based method to recognize collaboration revenue and the extent of progress to date.
Significant judgment, assumptions and estimates used in preparing our consolidated financial statements include, with respect to revenue, determining the allocation of the transaction price and measurement of progress, including (1) the constraint on variable consideration, (2) the allocation of the transaction price to the performance obligations using their standalone selling price 67 Table of Contents basis, and (3) the appropriate input or output based method to recognize collaboration revenue and the extent of progress to date.
In addition, while we have equity stakes in a number of our collaborators, the value of these equity stakes can vary significantly based on a number of factors beyond our control, and there can be no assurance that we can rely on such equity as capital to fund our operations.
In addition, while we have equity stakes in a number of our collaborators, the value of these equity stakes can vary significantly based on a number of factors beyond our control, and there can be no assurance that we can rely on such 66 Table of Contents equity as capital to fund our operations.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts 89 Table of Contents that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
However, we have based this estimate on assumptions that may prove to be wrong, and our operating plans may change as 58 Table of Contents a result of many factors currently unknown to us. As a result, we could deplete our capital resources sooner than we currently expect.
However, we have based this estimate on assumptions that may prove to be wrong, and our operating plans may change as a result of many factors currently unknown to us. As a result, we could deplete our capital resources sooner than we currently expect.
The risk of errors is particularly significant when a new software solution is first introduced or when new versions or enhancements of existing software solutions are released. We have from time to time found defects in our software, and new errors in our existing software may be detected in the future.
The risk of errors is particularly significant when a new software solution is first introduced or when new versions or enhancements of existing software solutions are 70 Table of Contents released. We have from time to time found defects in our software, and new errors in our existing software may be detected in the future.
In addition, if an acquired business fails to meet our expectations, our operating results, business, and financial position may suffer. 78 Table of Contents Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.
In addition, if an acquired business fails to meet our expectations, our operating results, business, and financial position may suffer. Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.
Supreme Court heard this case and in June 2021, dismissed this action after finding that the 87 Table of Contents plaintiffs do not have standing to challenge the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
Supreme Court heard this case and in June 2021, dismissed this action after finding that the plaintiffs do not have standing to challenge the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
We also have competitors in materials science, such as BIOVIA and Materials Design, Inc., and in enterprise software for the life sciences, such as BIOVIA, Certara USA, Inc., ChemAxon, PerkinElmer, Inc., and Dotmatics, Inc.
We also have competitors in materials science, such as BIOVIA and Materials Design, Inc., and in enterprise software for the life sciences, such as BIOVIA, Certara USA, Inc., Chemaxon, Revvity, Inc., and Dotmatics, Inc.
In many countries, including those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product.
In many countries, including those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, pricing negotiations with 102 Table of Contents governmental authorities can take considerable time after the receipt of marketing approval for a product.
The GDPR would increase our obligations with respect to any clinical trials conducted in the EEA by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators.
The GDPR increases our obligations with respect to any clinical trials conducted in the EEA by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators.
These facilities may also be affected by natural disasters, such as floods or fire, or geopolitical developments or public health pandemics, such as COVID-19, or such facilities could face production issues, such as contamination or regulatory concerns following a regulatory inspection of such facility.
The facilities of these third parties may also be affected by natural disasters, such as floods or fire, or geopolitical developments or public health pandemics, such as COVID-19, or such facilities could face production issues, such as contamination or regulatory concerns following a regulatory inspection of such facility.
If we need to enter into alternative arrangements, our product development activities might be delayed. Our reliance on third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities.
If we need to enter into alternative arrangements, our product development activities might be delayed. 78 Table of Contents Our reliance on third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities.
We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and product candidates, 83 Table of Contents including interference proceedings, post grant review, inter partes review, and derivation proceedings before the USPTO and similar proceedings in non-U.S. jurisdictions such as oppositions before the European Patent Office.
We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and product candidates, including interference proceedings, post grant review, inter partes review, and derivation proceedings before the USPTO and similar proceedings in non-U.S. jurisdictions such as oppositions before the European Patent Office.
Our product 85 Table of Contents candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates in the United States or in any other jurisdiction.
Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates in the United States or in any other jurisdiction.
Although we have entered into employment agreements 93 Table of Contents with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.
Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.
Factors that may cause fluctuations in our quarterly and annual financial results include, without limitation, those listed elsewhere in this “Risk Factors” section and those listed below: • customer renewal rates and the timing and terms of customer renewals, including the seasonality of customer renewals of our on-premise software arrangements, for which revenue historically has been recognized at a single point in time in the first and fourth quarter of each fiscal year; • our ability to attract new customers for our software; • the addition or loss of large customers, including through acquisitions or consolidations of such customers; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure; • network outages or security breaches; • general economic, industry, and market conditions, including within the life sciences industry; • our ability to collect receivables from our customers; • the amount of software purchased by our customers, including the mix of on-premise and hosted software sold during a period; • variations in the timing of the sales of our software, which may be difficult to predict; • changes in the pricing of our solutions and in our pricing policies or those of our competitors; • the timing and success of the introduction of new software solutions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic collaborators; 57 Table of Contents • changes in the fair value of or receipt of distributions or proceeds on account of the equity interests we hold in our drug discovery collaborators, such as Morphic Holding, Inc., or Morphic, and Structure Therapeutics Inc., or Structure Therapeutics; • the success of our drug discovery collaborators in developing and commercializing drug products for which we are entitled to receive milestone payments or royalties; • the timing of the recognition of milestones achieved under our collaborative and partnered programs; • variations in the number and size of milestones achieved under our collaborative and partnered programs; • the timing of recognition of revenue from any upfront payments from partnering or out-licensing our wholly-owned drug discovery programs, such as under our collaboration agreement with Bristol-Myers Squibb Company, or BMS; and • the timing of expenses related to our drug discovery programs, the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.
Factors that may cause fluctuations in our quarterly and annual financial results include, without limitation, those listed elsewhere in this “Risk Factors” section and those listed below: • customer renewal rates and the timing and terms of customer renewals, including the seasonality of customer renewals of our on-premise software arrangements, for which revenue historically has been recognized at a single point in time in the first and fourth quarter of each fiscal year; • our ability to attract new customers for our software; • the addition or loss of large customers, including through acquisitions or consolidations of such customers; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure; • network outages or security breaches; • industry and market conditions, including within the life sciences industry; • general economic conditions, including the impact of increasing or decreasing inflation and interest rates; 65 Table of Contents • our ability to collect receivables from our customers; • the amount of software purchased by our customers, including the mix of on-premise and hosted software sold during a period; • variations in the timing of the sales of our software, which may be difficult to predict; • changes in the pricing of our solutions and in our pricing policies or those of our competitors; • the timing and success of the introduction of new software solutions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic collaborators; • changes in the fair value of or receipt of distributions or proceeds on account of the equity interests we hold in our drug discovery collaborators, such as Morphic Holding, Inc., or Morphic, Structure Therapeutics, and Nimbus; • the success of our drug discovery collaborators in developing and commercializing drug products for which we are entitled to receive milestone payments or royalties; • the timing of the recognition of milestones achieved under our collaborative programs; • variations in the number and size of milestones achieved under our collaborative programs; • the timing of recognition of revenue from any payments from entering into collaborations or out-licensing our proprietary drug discovery programs, such as under our collaboration agreement with Bristol-Myers Squibb Company, or BMS; and • the timing of expenses related to our drug discovery programs, the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.
A widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively affect various aspects of our business and make it more difficult to meet our obligations to our customers, and could result in reduced demand from our customers as well as delays in our drug discovery and development programs.
A widespread outbreak of an illness or other public health pandemic or epidemic such as the recent COVID-19 pandemic, could negatively affect various aspects of our business and make it more difficult to meet our obligations to our customers, and could result in reduced demand from our customers as well as delays in our drug discovery and development programs.
Our license agreements with Columbia University and other licensors impose, and we expect that future licenses will impose, specified royalty and other obligations on us.
Business—License Agreements with Columbia University.” Our license agreements with Columbia University and other licensors impose, and we expect that future licenses will impose, specified royalty and other obligations on us.
All of our outstanding shares of common stock, including shares of common stock issuable upon the conversion of shares of our limited common stock, are available for sale in the public market, subject only to the restrictions of Rule 144 under the Securities Act in the case of our affiliates.
All of our outstanding shares of common stock, including shares of common stock issuable upon the conversion of shares of our limited common stock, are available for sale in the public market, subject only to the restrictions of Rule 144 under the Securities Act of 1933, as amended, in the case of our affiliates.
If our 61 Table of Contents competitors’ products, services, or technologies become more accepted than our solutions, if our competitors are successful in bringing their products or services to market earlier than ours, if our competitors are able to respond more quickly and effectively to new or changing opportunities, technologies, or customer requirements, or if their products or services are more technologically capable than ours, then our software revenues could be adversely affected.
If our competitors’ products, services, or technologies become more accepted than our solutions, if our competitors are successful in bringing their products or services to market earlier than ours, if our competitors are able to respond more quickly and effectively to new or changing opportunities, technologies, or customer requirements, or if their products or services are more technologically capable than ours, then our software revenues could be adversely affected.
The actual timing of these events can vary dramatically due to a number of factors such as delays or failures in our or our current and future collaborators’ drug discovery and development programs, including as a result of COVID-19, the amount of time, effort, and resources committed by us and our current and future collaborators, and the numerous uncertainties inherent in the development of drugs.
The actual timing of these events can vary dramatically due to a number of factors such as delays or failures in our or our current and future collaborators’ drug discovery and development programs, the amount of time, effort, and resources committed by us and our current and future collaborators, and the numerous uncertainties inherent in the development of drugs.
The collaborator may also consider 68 Table of Contents alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. Collaborations are complex and time-consuming to negotiate and document.
The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. Collaborations are complex and time-consuming to negotiate and document.
For the fiscal year ended December 31, 2022, sales to customers outside of the United States accounted for approximately 32% of our total revenues. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic, and political risks that are different from those in the United States.
For the fiscal year ended December 31, 2023, sales to customers outside of the United States accounted for approximately 25% of our total revenues. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic, and political risks that are different from those in the United States.
If we further expand our operations outside of the United States, we 91 Table of Contents will need to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate.
If we further expand our operations outside of the United States, we will need to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate.
We anticipate that our expenses will increase substantially as we: • continue to invest in and develop our computational platform and software solutions; • continue our research and development efforts for our proprietary drug discovery programs; • conduct preclinical studies and initiate and conduct clinical trials for any of our product candidates; • maintain, expand, enforce, defend, and protect our intellectual property; • hire additional software engineers, programmers, sales and marketing, and other personnel to support our software business; • hire additional clinical, quality control, and other scientific personnel; and • add operational, financial, and management information systems and personnel to support our operations as a public company.
We anticipate that our expenses will increase substantially as we: • continue to invest in and develop our computational platform and software solutions; • continue our research and development efforts for our proprietary drug discovery programs; • conduct preclinical studies and initiate and conduct clinical trials for any of our product candidates; • prepare and make regulatory submissions for any of our product candidates; • maintain, expand, enforce, defend, and protect our intellectual property; • hire additional software engineers, programmers, sales and marketing, and other personnel to support our software business and other commercial operations; • hire additional clinical, quality control, regulatory, chemical, manufacturing and control and other scientific personnel; and • add operational, financial, and management information systems and personnel to support our operations as a public company.
We currently generate revenues from the sales of our software solutions and from achieving milestones under our partnered and collaborative drug discovery programs, and we expect to continue to derive most of our revenue from sales of our software and from achieving such milestones until such time as our or our collaborators’ drug development and commercialization efforts are successful, if ever.
We currently generate revenues from the sales of our software solutions and from achieving milestones under our collaborative drug discovery programs, and we expect to continue to derive most of our revenue from sales of our software and from 64 Table of Contents achieving such milestones until such time as our or our collaborators’ drug development and commercialization efforts are successful, if ever.
Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our patent rights and our ability to protect, defend and enforce our patent rights in the future. A number of recent cases decided by the U.S.
Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our patent rights and our ability to protect, defend and enforce our patent rights in the future. 93 Table of Contents A number of cases decided by the U.S.
The Exchange Act, Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.
The Securities Exchange Act of 1934, as amended, or the Exchange Act, Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.
If our customers fail to renew their agreements, renew their agreements upon less favorable terms or at lower fee levels, or fail to purchase new software solutions and licenses from us, our revenues may decline and our future revenues may be constrained. Our software sales cycle can vary and be long and unpredictable.
If our customers fail to renew their agreements, renew their agreements upon less favorable terms or at lower fee levels, or fail to purchase new software solutions and licenses from us, our revenues may decline and our future revenues may be constrained. 68 Table of Contents Our software sales cycle can vary and be long and unpredictable.
This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result of becoming a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting.
This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. 112 Table of Contents As a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting.
These competitors include BIOVIA, a brand of Dassault Systèmes SE, or BIOVIA, Chemical Computing Group (US) Inc., Cresset Biomolecular Discovery Limited, Cadence Design Systems, Inc., Optibrium Limited, Cyrus Biotechnology, Inc., Molsoft LLC, Insilico Medicine, Inc., Iktos, XtalPi Inc., and Simulations Plus, Inc.
These competitors include BIOVIA, a brand of Dassault Systèmes SE, or BIOVIA, Chemical Computing Group (US) Inc., Cresset Biomolecular Discovery Limited, Cadence Design Systems, Inc., Optibrium Limited, Cyrus Biotechnology, Inc., Molsoft LLC, Insilico Medicine, Inc., Iktos, XtalPi Inc., Inductive Bio, Inc., Chemaxon, PerkinElmer, Inc., and Simulations Plus, Inc.
We have acquired, and we may again in the future seek to acquire or invest in, businesses, solutions, or technologies that we believe could complement or expand our solutions, enhance our technical capabilities, or otherwise offer growth opportunities.
We have acquired, and we may again in the future acquire, businesses, solutions, or technologies that we believe could complement or expand our solutions, enhance our technical capabilities, or otherwise offer growth opportunities.
A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. 86 Table of Contents These designations are within the discretion of the FDA.
A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. These designations are within the discretion of the FDA.
These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2031 under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.
These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through the first half of 2032 under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.
If we and any current or future collaborators are unable to successfully complete clinical development, obtain regulatory approval for, or commercialize any product candidates, or experience delays in doing so, our business may be materially harmed. We are early in our development efforts.
If we and any current or future collaborators are unable to successfully complete clinical development, obtain regulatory approval for, or commercialize any product candidates, or experience delays in doing so, our business may be materially harmed. We are early in our development efforts for our own drug discovery programs.

… 264 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−2 removed0 unchanged
Biggest changeItem 2. Properties. Our principal facilities consist of office space. We occupy approximately 136,047 square feet of office space in New York, New York under a lease that currently expires in December 2037.
Biggest changeWe occupy approximately 136,047 square feet of office space in New York, New York under a lease that currently expires in December 2037, 35,000 square feet of office space in Portland, Oregon under a lease that currently expires in September 2026, and 48,987 square feet of office space in Hyderabad, India under a lease that currently expires in April 2028.
We believe our facilities are adequate and suitable for our current needs and that should it be needed, suitable additional or alternative space will be available to accommodate our operations. 100 Table of Contents Item 3. Legal Proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business.
Additionally, we lease office space at our other office locations around the world. We believe our facilities are adequate and suitable for our current needs and that should it be needed, suitable additional or alternative space will be available to accommodate our operations.
Removed
We also occupy approximately 35,000 square feet of office space in Portland, Oregon under a lease that currently expires in September 2026, and we lease additional office space at our other office locations around the world.
Added
Item 2. Properties. Our principal facilities consist of office space.
Removed
We are not currently subject to any material legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. 101 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−1 removed5 unchanged
Biggest changeThe actual number of stockholders is greater than this number of holders of record and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Biggest changeThe actual number of stockholders is greater than this number of holders of record 117 Table of Contents and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Performance Graph The following performance graph related information shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, nor shall such information be incorporated by reference into any future filing under the Exchange Act or the Securities Act of 1933, as amended, or the Securities Act, except to the extent that we specifically incorporate it by reference into such filing.
Performance Graph The following performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, nor shall such information be incorporated by reference into any future filing under the Exchange Act or the Securities Act of 1933, as amended, or the Securities Act, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total return on our common stock with the cumulative total return of the Nasdaq composite and the Nasdaq Biotechnology Index from February 6, 2020 (the first date that shares of our common stock were publicly traded on the Nasdaq Global Select Market) through December 31, 2022.
The following graph compares the cumulative total return on our common stock with the cumulative total return of the Nasdaq composite and the Nasdaq Biotechnology Index from February 6, 2020 (the first date that shares of our common stock were publicly traded on the Nasdaq Global Select Market) through December 31, 2023.
The comparisons are not intended to forecast or be indicative of future performance of our common stock. Holders of Record As of February 21, 2023, there were approximately 112 holders of record of our common stock and one holder of record of our limited common stock.
The comparisons are not intended to forecast or be indicative of future performance of our common stock. Holders of Record As of February 21, 2024, there were approximately 104 holders of record of our common stock and one holder of record of our limited common stock.
We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
Dividends We have never declared or paid cash dividends on our common stock or our limited common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
Removed
This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. 102 Table of Contents Dividends We have never declared or paid cash dividends on our common stock or our limited common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

119 edited+27 added−43 removed60 unchanged
Biggest changeRevenues: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 (in thousands) Revenues: Software On-premise software $ 33,627 $ 12,579 $ 16,595 $ 21,686 $ 27,295 $ 15,496 $ 14,452 $ 17,355 Hosted software 4,125 3,914 3,596 3,255 3,088 2,684 2,704 2,600 Software maintenance 5,255 5,063 4,952 4,726 4,612 4,401 4,176 4,105 Professional services 4,812 3,111 3,868 3,414 3,569 1,699 1,720 2,280 Revenue from contracts with customers 47,819 24,667 29,011 33,081 38,564 24,280 23,052 26,340 Software contribution — — 1,000 — — — 1,000 — Total software products and services revenue 47,819 24,667 30,011 33,081 38,564 24,280 24,052 26,340 Drug discovery Drug discovery services 8,450 11,717 8,019 15,241 7,495 5,570 5,732 5,787 Drug discovery contribution 574 596 439 341 111 — — — Total drug discovery 9,024 12,313 8,458 15,582 7,606 5,570 5,732 5,787 Total revenues $ 56,843 $ 36,980 $ 38,469 $ 48,663 $ 46,170 $ 29,850 $ 29,784 $ 32,127 116 Table of Contents Deferred Revenue: As of December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 (in thousands) Deferred revenue $ 83,529 $ 65,897 $ 67,545 $ 78,353 $ 85,432 $ 76,318 $ 78,526 $ 78,115 Gross Margin: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 Software products and services gross margin 83 % 72 % 76 % 77 % 78 % 73 % 77 % 78 % Stock-Based Compensation: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 (in thousands) Stock-based compensation: Cost of revenues: Software products and services $ 580 $ 596 $ 584 $ 485 $ 389 $ 396 $ 382 $ 229 Drug discovery $ 626 $ 764 $ 944 $ 803 $ 626 $ 669 $ 738 $ 428 Research and development $ 3,231 $ 3,026 $ 2,977 $ 2,582 $ 2,157 $ 2,130 $ 1,925 $ 1,228 Sales and marketing $ 867 $ 728 $ 699 $ 524 $ 331 $ 370 $ 362 $ 218 General and administrative $ 4,902 $ 4,750 $ 5,223 $ 4,740 $ 3,953 $ 4,087 $ 3,609 $ 2,263 Total stock-based compensation expense $ 10,206 $ 9,864 $ 10,427 $ 9,134 $ 7,456 $ 7,652 $ 7,016 $ 4,366 Depreciation and Amortization: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 (in thousands) Depreciation and amortization: Cost of revenues: Software products and services $ 113 $ 106 $ 118 $ 99 $ 61 $ 56 $ 68 $ 86 Drug discovery $ 97 $ 117 $ 127 $ 112 $ 82 $ 106 $ 167 $ 232 Research and development $ 425 $ 384 $ 351 $ 308 $ 212 $ 163 $ 195 $ 247 Sales and marketing $ 114 $ 101 $ 118 $ 79 $ 65 $ 59 $ 57 $ 66 General and administrative $ 393 $ 399 $ 412 $ 371 $ 232 $ 197 $ 240 $ 256 Total depreciation and amortization expense $ 1,142 $ 1,107 $ 1,126 $ 969 $ 652 $ 581 $ 727 $ 887 Quarterly Revenue Trends On-premise software revenue is subject to seasonality that generally favors the first and fourth quarter of each year, primarily due to the timing of customer renewals for on-premise software arrangements, for which revenue is recognized at a single point in time.
Biggest changeThree Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 (in thousands) Revenues: Software products and services $ 68,655 $ 28,904 $ 29,352 $ 32,213 $ 47,819 $ 24,667 $ 30,011 $ 33,081 Drug discovery 5,471 13,665 5,837 32,569 9,024 12,313 8,458 15,582 Total revenues 74,126 42,569 35,189 64,782 56,843 36,980 38,469 48,663 Cost of revenues: Software products and services (1) 8,670 7,034 6,695 7,115 8,098 6,866 7,101 7,511 Drug discovery (1) 7,906 11,896 14,684 11,974 10,041 12,913 14,234 13,169 Total cost of revenues 16,576 18,930 21,379 19,089 18,139 19,779 21,335 20,680 Gross profit 57,550 23,639 13,810 45,693 38,704 17,201 17,134 27,983 Operating expenses: Research and development (1) 51,487 46,833 42,705 40,741 34,542 32,885 31,123 27,822 Sales and marketing (1) 9,950 9,109 9,022 9,145 9,382 7,161 7,428 6,671 General and administrative (1) 25,734 23,890 23,216 26,308 23,318 23,318 22,056 22,133 Total operating expenses 87,171 79,832 74,943 76,194 67,242 63,364 60,607 56,626 Loss from operations (29,621) (56,193) (61,133) (30,501) (28,538) (46,163) (43,473) (28,643) Other (expense) income: (Loss) gain on equity investments (109) — — 147,322 — (3) 11,828 — Change in fair value (8,408) (14,522) 40,654 35,737 (1,493) 5,273 (15,700) (6,164) Other income (expense) 6,626 5,804 4,326 2,937 2,687 1,231 (296) 328 Total other (expense) income (1,891) (8,718) 44,980 185,996 1,194 6,501 (4,168) (5,836) (Loss) income before income taxes (31,512) (64,911) (16,153) 155,495 (27,344) (39,662) (47,641) (34,479) Income tax (benefit) expense (842) (2,887) (20,431) 26,359 (136) 194 33 (28) Net (loss) income (30,670) (62,024) 4,278 129,136 (27,208) (39,856) (47,674) (34,451) Net (loss) income attributable to noncontrolling interest — — — — (1) (3) 12 (11) Net (loss) income attributable to Schrödinger stockholders $ (30,670) $ (62,024) $ 4,278 $ 129,136 $ (27,207) $ (39,853) $ (47,686) $ (34,440) (1) Includes stock-based compensation as indicated in the table located further below. 131 Table of Contents Revenues: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 (in thousands) Revenues: Software On-premise software $ 53,947 $ 13,806 $ 16,814 $ 19,944 $ 33,627 $ 12,579 $ 16,595 $ 21,686 Hosted software 6,016 5,463 4,451 4,451 4,125 3,914 3,596 3,255 Software maintenance 5,687 5,752 5,877 5,750 5,255 5,063 4,952 4,726 Professional services 3,005 2,083 2,210 2,068 4,812 3,111 3,868 3,414 Revenue from contracts with customers 68,655 27,104 29,352 32,213 47,819 24,667 29,011 33,081 Software contribution — 1,800 — — — — 1,000 — Total software products and services revenue 68,655 28,904 29,352 32,213 47,819 24,667 30,011 33,081 Drug discovery Drug discovery services 4,955 12,730 5,232 31,803 8,450 11,717 8,019 15,241 Drug discovery contribution 516 935 605 766 574 596 439 341 Total drug discovery revenue 5,471 13,665 5,837 32,569 9,024 12,313 8,458 15,582 Total revenues $ 74,126 $ 42,569 $ 35,189 $ 64,782 $ 56,843 $ 36,980 $ 38,469 $ 48,663 Deferred Revenue: As of December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 (in thousands) Deferred revenue $ 65,274 $ 55,415 $ 62,294 $ 71,926 $ 83,529 $ 65,897 $ 67,545 $ 78,353 Gross Margin: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 Software products and services gross margin 87 % 76 % 77 % 78 % 83 % 72 % 76 % 77 % Stock-Based Compensation: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 (in thousands) Stock-based compensation: Cost of revenues: Software products and services $ 671 $ 654 $ 625 $ 600 $ 580 $ 596 $ 584 $ 485 Drug discovery $ 585 $ 580 $ 765 $ 699 $ 626 $ 764 $ 944 $ 803 Research and development $ 4,070 $ 4,101 $ 3,807 $ 3,514 $ 3,231 $ 3,026 $ 2,977 $ 2,582 Sales and marketing $ 935 $ 914 $ 941 $ 851 $ 867 $ 728 $ 699 $ 524 General and administrative $ 6,272 $ 6,405 $ 5,635 $ 5,217 $ 4,902 $ 4,750 $ 5,223 $ 4,740 Total stock-based compensation expense $ 12,533 $ 12,654 $ 11,773 $ 10,881 $ 10,206 $ 9,864 $ 10,427 $ 9,134 132 Table of Contents Depreciation and Amortization: Three Months Ended December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 (in thousands) Depreciation and amortization: Cost of revenues: Software products and services $ 124 $ 109 $ 101 $ 112 $ 113 $ 106 $ 118 $ 99 Drug discovery $ 83 $ 110 $ 130 $ 116 $ 97 $ 117 $ 127 $ 112 Research and development $ 710 $ 591 $ 525 $ 518 $ 425 $ 384 $ 351 $ 308 Sales and marketing $ 151 $ 172 $ 141 $ 140 $ 114 $ 101 $ 118 $ 79 General and administrative $ 286 $ 291 $ 268 $ 874 $ 393 $ 399 $ 412 $ 371 Total depreciation and amortization expense $ 1,354 $ 1,273 $ 1,165 $ 1,760 $ 1,142 $ 1,107 $ 1,126 $ 969 Quarterly Revenue Trends On-premise software revenue is subject to seasonality that generally favors the first and fourth quarter of each year, primarily due to the timing of customer renewals for on-premise software arrangements, for which revenue is recognized at a single point in time.
Deferred revenue balances have fluctuated based on the timing of sales, shifts in product mix, fluctuations to the number and size of milestones that were deemed probable in advance of actual achievement, and the measurement of progress toward completion for service projects.
Deferred revenue balances have fluctuated based on the measurement of progress toward completion for service projects, the timing of sales, shifts in product mix, and fluctuations to the number and size of milestones that were deemed probable in advance of actual achievement.
Investing activities During the year ended December 31, 2022, investing activities provided approximately $90.0 million of cash, consisting of $93.2 million provided by marketable securities, net of purchases and $11.8 million in cash from a third party, who previously acquired a collaborator in which we held an equity stake, in exchange for the termination of our rights to receive potential earnouts under the acquisition agreement.
During the year ended December 31, 2022, investing activities provided approximately $90.0 million of cash, consisting of $93.2 million provided by marketable securities, net of purchases and $11.8 million in cash from a third party, who previously acquired a collaborator in which we held an equity stake, in exchange for the termination of our rights to receive potential earnouts under the acquisition agreement.
Research and development expense consists of drug discovery and development program costs and costs incurred for continuous development of the technology and science that supports our computational platform, primarily: • personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation for employees engaged in research and development functions; • expenses incurred under agreements with third-party CROs and consultants involved in our proprietary drug discovery and development programs; and • allocated compute capacity on our internal discovery and development programs and overhead (facilities and information technology support) costs.
Research and development expense consists of drug discovery and development program costs and costs incurred for continuous development of the technology and science that supports our computational platform, primarily: • personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation for employees engaged in research and development functions; • expenses incurred under agreements with third-party CROs and consultants involved in our proprietary drug discovery programs; and • allocated compute capacity on our proprietary drug discovery programs and overhead (facilities and information technology support) costs.
Lilly will be responsible for the completion of preclinical development, clinical development and commercialization. Under the terms of the agreement we received an upfront payment and we are eligible to receive up to $425 million in discovery, development and commercial milestone payments.
Lilly will be responsible for the completion of preclinical development, clinical development and commercialization. Under the terms of the agreement we received an upfront payment and we are eligible to receive up to $425.0 million in discovery, development and commercial milestone payments.
We currently generate drug discovery revenue from our collaborations, including upfront payments, research funding payments and discovery and development milestones. In the future, we may also derive drug discovery revenue from our collaborations from option fees, the achievement of commercial milestones, and royalties on commercial drug sales.
We currently generate drug discovery revenue from our collaborations, including upfront payments, research funding and discovery and development milestones. In the future, we may also derive drug discovery revenue from our collaborations from option fees, the achievement of regulatory and commercial milestones, and royalties on commercial drug sales.
To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation.
To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation.
Software performance obligations and transaction price allocation : At contract inception, we assess the goods or services promised within each contract that falls under the scope of ASC 606 to identify distinct performance obligations, which requires significant judgment based on the nature of each transaction. We allocate the transaction price to each distinct performance obligation on an SSP basis.
Software performance obligations and transaction price allocation : At contract inception, we assess the goods or services promised within each contract that falls under the scope of Topic 606 to identify distinct performance obligations, which requires significant judgment based on the nature of each transaction. We allocate the transaction price to each distinct performance obligation on an SSP basis.
Research and development, regulatory or commercial milestones in our collaboration agreements may include some, but not necessarily all, of the following types of events: • completion of preclinical research and development work leading to selection of product candidates; • initiation of Phase 1, Phase 2, and Phase 3 clinical trials; • filing of regulatory applications for marketing approval in the United States, Europe or Japan; • marketing approval in major markets, such as the United States, Europe, or Japan; • commercial milestones and/or commercial royalties; and • achievement of certain other technical, scientific, or development criteria.
Research and development, regulatory or commercial milestones in our collaboration agreements may include some, but not necessarily all, of the following types of events: • completion of preclinical research and development work leading to selection of product candidates; 137 Table of Contents • initiation of Phase 1, Phase 2, and Phase 3 clinical trials; • filing of regulatory applications for marketing approval in the United States, Europe or Japan; • marketing approval in major markets, such as the United States, Europe, or Japan; • commercial milestones and/or commercial royalties; and • achievement of certain other technical, scientific, or development criteria.
Contribution revenue during the year ended December 31, 2022 was due to services performed under an agreement with the Bill and Melinda Gates Foundation, aimed at accelerating drug discovery in women’s health, which began in November 2021.
Contribution revenue during the year ended December 31, 2023 was due to services performed under an agreement with the Bill and Melinda Gates Foundation aimed at accelerating drug discovery in women’s health, which began in November 2021.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.
These costs are incurred by both segments and, due to the integrated nature of our software and drug discovery segments, any allocation methodology would be arbitrary and provide no meaningful analysis. 118 Table of Contents Additionally, we report assets on a consolidated basis and do not allocate assets to our reportable segments for purposes of assessing segment performance or allocating resources.
These costs are incurred by both segments and, due to the integrated nature of our software and drug discovery segments, any allocation methodology would be arbitrary and provide no meaningful analysis. Additionally, we report assets on a consolidated basis and do not allocate assets to our reportable segments for purposes of assessing segment performance or allocating resources.
Contribution revenue consists of funds received under an agreement with the Bill and Melinda Gates Foundation on a cost reimbursement basis, to perform services aimed at accelerating drug discovery in women’s health. Revenue is recognized as conditions are met in accordance with ASC Topic 958, Not-for-Profit Entities . Cost of Revenues Software products and services.
Contribution revenue consists of funds received under agreements with the Bill and Melinda Gates Foundation on a cost reimbursement basis, to perform services aimed at accelerating drug discovery in women’s health. Revenue is recognized as conditions are met in accordance with ASC Topic 958, Not-for-Profit Entities . Cost of Revenues Software products and services.
We expect that our revenue will fluctuate from period to period due to the inherently uncertain nature of the timing of milestone achievement and our dependence on the program decisions of our collaborators. 112 Table of Contents Drug discovery contribution revenue.
We expect that our revenue will fluctuate from period to period due to the inherently uncertain nature of the timing of milestone achievement and our dependence on the program decisions of our collaborators. 126 Table of Contents Drug discovery contribution revenue.
In accordance with ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.
In accordance with Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.
Revenue We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers, except for contracts that are within the scope of other standards, such as contribution grants and certain collaboration arrangements.
Revenue We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or Topic 606, except for contracts that are within the scope of other standards, such as contribution grants and certain collaboration arrangements.
Pursuant to various third-party arrangements, we license technology that is used in our software. These arrangements require us to pay royalties based on sales volume, and such royalty payments represented 4.8% and 7.1% of software revenues in the years ended December 31, 2022 and 2021, respectively. Drug discovery.
Pursuant to various third-party arrangements, we license technology that is used in our software. These arrangements require us to pay royalties based on sales volume, and such royalty payments represented 4.1% and 4.8% of software revenues in the years ended December 31, 2023 and 2022, respectively. Drug discovery.
We have funded our operations to date principally from the sale of our equity securities, including our initial public offering and our follow-on public offering, and to a lesser extent, from sales of our software solutions and from upfront payments, research funding and milestone payments from our drug discovery collaborations, and from distributions on account of, or proceeds from the sale of, our equity stakes in our collaborators.
We have funded our operations to date principally from the sale of our equity securities, including our initial public offering and our follow-on public offering, and to a lesser extent, from sales of our software solutions and from upfront payments, research funding and milestone payments from our drug discovery collaborations, and from distributions 134 Table of Contents on account of, or proceeds from the sale of, our equity stakes in our collaborators.
Our future capital requirements will depend on many factors, including the growth of our software revenue, the timing and extent of spending to support research and development efforts, the continued expansion of software sales and marketing activities, the timing and receipt of milestone payments from our collaborations, as well as spending to support, advance, and broaden our 119 Table of Contents proprietary drug discovery programs.
Our future capital requirements will depend on many factors, including the growth of our software revenue, the timing and extent of spending to support research and development efforts, the continued expansion of software sales and marketing activities, the timing and receipt of milestone payments from our collaborations, as well as spending to support, advance, and broaden our proprietary drug discovery programs.
Professional services include training, technical setup, installation or assisting customers with modeling and structural biology services, where we use our software to perform tasks such as virtual screening and homology modeling on behalf of our customers. These services are generally not related to the core functionality of our software and are recognized as revenue when resources are consumed.
Professional services include training, technical setup, installation or assisting customers with modeling services, where we use our software to perform tasks such as virtual screening on behalf of our customers. These services are generally not related to the core functionality of our software and are recognized as revenue when resources are consumed.
If it is probable that a significant revenue reversal would not occur, 122 Table of Contents the associated milestone value is included in the transaction price. Milestone payments that are not within our control or that of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.
If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or that of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.
Discussions of fiscal 2020 items and year-over-year comparisons between fiscal 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that was filed with the SEC on February 24, 2022.
Discussions of fiscal 2021 items and year-over-year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that was filed with the SEC on February 28, 2023.
This data should be read in conjunction with our audited consolidated financial statements included elsewhere in this Annual Report. 115 Table of Contents Historical results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.
This data should be read in conjunction with our audited consolidated financial statements included elsewhere in this Annual Report. Historical results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.
When a 107 Table of Contents customer enters into a hosted arrangement for which revenue is recognized over time, the amount paid upfront that is not recognized in the current period is included in deferred revenue in our statement of financial position until the period in which it is recognized. Software maintenance.
When a customer enters into a hosted arrangement for which revenue is recognized over time, the amount paid upfront that is not recognized in the current period is included in deferred revenue in our statement of financial position until the period in which it is recognized. Software maintenance.
In addition, as a public company, we expect to continue to incur increased expenses such as insurance and 109 Table of Contents professional services. As a result, we expect the dollar amount of our general and administrative expense to increase for the foreseeable future.
In addition, as a public company, we expect to continue to incur increased expenses such as insurance and professional services. As a result, we expect the dollar amount of our general and administrative expense to increase for the foreseeable future.
The following discussion and analysis of our financial condition and results of operations covers fiscal 2022 and fiscal 2021 items and year-over-year comparisons between fiscal 2022 and fiscal 2021.
The following discussion and analysis of our financial condition and results of operations covers fiscal 2023 and fiscal 2022 items and year-over-year comparisons between fiscal 2023 and fiscal 2022.
We recognized revenue of $24.3 million and $14.6 million related to collaboration agreements with proportional performance measurement for the years ended December 31, 2022 and 2021, respectively. Recent Accounting Pronouncements See Note 2 – Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report for a discussion of recently issued accounting pronouncements.
We recognized revenue of $52.2 million and $24.3 million related to collaboration agreements with proportional performance measurement for the years ended December 31, 2023 and 2022, respectively. Recent Accounting Pronouncements See Note 2 – Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report for a discussion of recently issued accounting pronouncements.
The increase in revenues for on-premise software during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily attributable to growth from existing customers, new customer growth, and an increase in multi-year arrangements for which revenue was recognized ahead of annual billings during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The increase in revenues for on-premise software during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily attributable to an increase in multi-year arrangements for which revenue was recognized ahead of annual billings, as well as growth from existing and new customers during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
With respect to our wholly-owned programs, as part of our strategy we may choose to advance them into preclinical and clinical development ourselves, enter into collaborations to co-develop them with leading industry partners, or out-license them to maximize their clinical and commercial opportunities. We may be required to seek additional equity or debt financing.
With respect to our proprietary drug discovery programs, as part of our strategy we may choose to advance them into preclinical and clinical development ourselves, enter into collaborations to co-develop them with leading industry partners, or out-license them to maximize their clinical and commercial opportunities. We may be required to seek additional equity or debt financing.
Our software platform is licensed by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world. We are applying our computational platform to discover and advance a broad pipeline of development programs in collaboration with leading biopharmaceutical companies.
Our software platform is licensed by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world. We are applying our computational platform to advance a broad pipeline of drug discovery programs in collaboration with leading biopharmaceutical companies.
The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is a risk that we may not earn all of the milestone payments from each of our collaborators. We recognized $14.7 million and $6.3 million from drug discovery milestones for the years ended December 31, 2022 and 2021, respectively.
The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is a risk that we may not earn all of the milestone payments from each of our collaborators. We recognized $27.7 million and $14.7 million from drug discovery milestones for the years ended December 31, 2023 and 2022, respectively.
GAAP, on an annualized basis, as it is an operating metric that can be impacted by contract execution start and end dates and renewal rates. ACV is not intended to be a replacement for, or forecast of, revenue. Our ACV was $140.6 million and $112.1 million for the years ended December 31, 2022 and 2021, respectively.
GAAP, on an annualized basis, as it is an operating metric that can be impacted by contract execution start and end dates and renewal rates. ACV is not intended to be a replacement for, or forecast of, revenue. Our ACV was $154.2 million and $140.6 million for the years ended December 31, 2023 and 2022, respectively.
Management has determined that it is more likely than not that we will not realize the benefits of our federal and state deferred tax assets and, as a result, a valuation allowance of $138.0 million and $95.3 million has been established at December 31, 2022 and 2021, respectively.
Management has determined that it is more likely than not that we will not realize the benefits of our federal and state deferred tax assets and, as a result, a valuation allowance of $136.0 million and $138.0 million has been established at December 31, 2023 and 2022, respectively.
Contribution revenue during the year ended December 31, 2022 and the year ended December 31, 2021 was due to funds received under an agreement with Gates Ventures, LLC, which began in June 2020. Drug Discovery Revenue Drug discovery services.
Contribution revenue during the year ended December 31, 2023 and the year ended December 31, 2022 was due to funds received under an agreement with Gates Ventures, LLC, which began in June 2020 and was extended in August 2023. Drug Discovery Revenue Drug discovery services.
We expect our research and development expense to increase substantially in absolute dollars for the foreseeable future as we continue to invest in activities related to discovery and development of our proprietary drug discovery programs, in advancing our computational platform, and as we incur expenses associated with hiring additional personnel directly involved in such efforts.
We expect our research and development expense to increase in absolute dollars as we continue to invest in activities related to discovery and development of our proprietary drug discovery programs, in advancing our computational platform, and as we incur expenses associated with hiring additional personnel directly involved in such efforts.
As of December 31, 2022, no securities had been sold under the Form S-3.
As of December 31, 2023, no securities had been sold under the Form S-3.
In addition to revenue from our collaborations, we may also derive drug discovery revenue from collaborating on or out-licensing our wholly-owned drug discovery programs when we believe it will help maximize clinical and commercial opportunity for the program.
In addition to revenue from our collaborations, we may also derive drug discovery revenue from collaborating on or out-licensing our proprietary drug discovery programs when we believe it will help maximize our clinical and commercial opportunities for the program.
Since each professional services agreement represents a unique, ad hoc engagement, professional services revenue may fluctuate from period to period. Software contribution revenue . Software contribution revenue consists of funds received under a non-reciprocal agreement with Gates Ventures, LLC entered into in June 2020. The agreement is an unconditional non-exchange contribution without restrictions.
Since each professional services agreement represents a unique, ad hoc engagement, professional services revenue may fluctuate from period to period. Software contribution revenue . Software contribution revenue consists of funds received under a non-reciprocal agreement with Gates Ventures, LLC originally entered into in June 2020 and further extended through August 2026. The agreement is an unconditional non-exchange contribution without restrictions.
Hosted software. The increase in revenues for hosted software during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to increased spend from existing hosted customers, as well as growth in new customers purchasing hosted software subscriptions, for which revenue is recognized ratably over time. Software maintenance.
Hosted software. The increase in revenues for hosted software during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to increased spend from existing hosted customers, as well as growth in new customers purchasing hosted software subscriptions, for which revenue is recognized ratably over the period of the contract. Software maintenance.
Hosted software revenue grew more steadily over the periods presented, as existing 117 Table of Contents customers and new customers increased their spend on hosted solutions, for which revenue is recognized over time. As a result, a portion of the software products and services revenue we reported in each period was attributable to sales we made in prior periods.
Hosted software revenue grew more steadily over the periods presented, as existing customers and new customers increased their spend on hosted solutions, for which revenue is recognized ratably over the term of the contract. As a result, a portion of the software products and services revenue we reported in each period was attributable to sales we made in prior periods.
We track the aggregate number of collaborative and partnered programs for which we are eligible to receive any amount of royalties on sales and as of December 31, 2022, we had an aggregate of 15 collaborative and partnered programs for which we are eligible to receive future royalties compared to 13 collaborative and partnered programs as of December 31, 2021.
We track the aggregate number of collaborative programs for which we are eligible to receive any amount of royalties on sales and as of December 31, 2023, we had an aggregate of 12 collaborative programs for which we are eligible to receive future royalties compared to 15 collaborative programs as of December 31, 2022.
The increase in revenues for software maintenance during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to the increase in on-premise software sales in current and previous years. Software maintenance revenue is recognized ratably over time. Professional services.
The increase in revenues for software maintenance during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to the increase in on-premise software sales in current and previous years. Software maintenance revenue is recognized ratably over the period of the contract. Professional services.
As we progress these programs, we will strategically evaluate on a program-by-program basis advancing them into preclinical and clinical development ourselves, entering into collaborations to co-develop them with leading industry partners, or out-licensing them to maximize their probability of clinical and commercial success.
As we progress and expand our pipeline of proprietary programs, we will strategically evaluate on a program-by-program basis advancing them ourselves, entering into collaborations to co-develop them with leading industry partners, or out-licensing them to maximize their probability of clinical and commercial success.
We expect that fair value gains and losses will fluctuate significantly in future periods. Other Income Other income consists of interest earned on our cash equivalents and marketable securities, interest expense, and transactional foreign exchange gains and losses.
We remeasure our investments at each period end. We expect that fair value gains and losses will fluctuate significantly in future periods. Other Income Other income consists of interest earned on our cash equivalents and marketable securities, interest expense, and transactional foreign exchange gains and losses.
We continue to work with our current collaborators to advance existing programs through discovery research stages and initiate additional programs. However, we do not generally exercise control over the development programs of our collaborators and often rely on decisions of the management of such companies with respect to clinical development and commercialization.
We continue to work with our current collaborators to advance existing programs through discovery research stages and initiate additional programs. However, we do not generally exercise control over the development programs of our collaborators and depend on our collaborators' decisions with respect to clinical development and commercialization.
We calculate year-over-year customer retention for our customers with an ACV over $100,000 by starting with the number of such customers we had in the previous fiscal year. We then calculate how many of these customers were active customers in the current fiscal year.
We calculate year-over-year customer retention for our customers with an ACV of at least $100,000 or $500,000 by starting with the number of such customers we had in the previous fiscal year. We then calculate how many of these customers were active 120 Table of Contents customers in the current fiscal year.
Gain (Loss) on Equity Investments Year Ended December 31, 2022 2021 Change (in thousands) Gain (loss) on equity investments $ 11,825 $ (1,781) $ 13,606 The gain on equity investments during the year ended December 31, 2022 was due to cash received from a third party, who previously acquired a collaborator in which we held an equity stake, in exchange for the termination of our rights to receive potential earnouts under the acquisition agreement.
The gain on equity investments during the year ended December 31, 2022 was due to cash received from a third party, who previously acquired a collaborator in which we held an equity stake, in exchange for the termination of our rights to receive potential earnouts under the acquisition agreement.
We are also eligible to receive low single- to low double-digit royalties on net sales of any products emerging from the collaboration in all markets. We generated revenue of $181.0 million and $137.9 million in 2022 and 2021, respectively, representing year-over-year growth of 31%.
We are also eligible to receive low single- to low double-digit royalties on net sales of any products emerging from the collaboration in all markets. We generated revenue of $216.7 million and $181.0 million in 2023 and 2022, respectively, representing a year-over-year growth of 20%.
Milestone payments typically increase in magnitude as a program advances. Quarterly Deferred Revenue Trends Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy, as well as the unearned portion of unbilled collaboration milestones that are deemed probable in advance of actual achievement.
Quarterly Deferred Revenue Trends Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy, as well as the unearned portion of unbilled collaboration milestones that are deemed probable in advance of actual achievement.
Our software products and services gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of changes in sales mix between on-premise and hosted software solutions.
Gross margin is gross profit expressed as a percentage of revenue. Our software products and services gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of changes in sales mix between on-premise and hosted software solutions due to timing of recognition.
The agreement contains a minimum payment obligation, which totals $60 million over the five years after the date we entered into the agreement. There is no annual commitment.
The agreement contains a minimum payment obligation, which totals $60 million over the five years after the date we entered into the agreement.
We also enter into agreements in the normal course of business with CRO vendors for research, preclinical studies, and clinical trials, professional consultants for expert advice, and other vendors for various products and services.
There is no annual commitment. 135 Table of Contents We also enter into agreements in the normal course of business with CRO vendors for research, preclinical studies, and clinical trials, professional consultants for expert advice, and other vendors for various products and services.
The increase in cost of revenues for software products and services during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was attributable to increases of approximately $3.3 million in personnel-related expense and approximately $1.5 million in other expenses, offset by decreases of approximately $1.5 million in royalty expense and approximately $0.2 million in cloud computing expense.
The decrease in cost of revenues for software products and services during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was attributable to decreases of approximately $0.9 million in personnel-related expense and approximately $0.1 million in other expenses, offset by an increase of approximately $0.9 million in cloud computing expense.
Financing activities During the year ended December 31, 2022, financing activities provided approximately $2.1 million of cash, primarily attributable to proceeds from stock option exercises. During the year ended December 31, 2021, financing activities provided approximately $8.0 million of cash, primarily attributable to proceeds from stock option exercises.
Financing activities During the year ended December 31, 2023, financing activities provided approximately $9.0 million of cash, primarily attributable to proceeds from stock option exercises. 136 Table of Contents During the year ended December 31, 2022, financing activities provided approximately $2.1 million of cash, primarily attributable to proceeds from stock option exercises.
Our ability to continue to grow our customer base is dependent upon our ability to educate the market and support the business through investment in our sales and marketing efforts and the ongoing enhancement of our software solutions. Advancement of our collaborative programs We have entered into a number of collaborations with various biopharmaceutical companies to advance drug discovery.
Our ability to continue to grow our software revenue is dependent upon our ability to retain customers through the continued support and investment in our sales and marketing efforts and the ongoing enhancement of our software solutions. Advancement of our collaborative programs We have entered into a number of collaborations with leading biopharmaceutical companies to advance drug discovery.
Seasonality has been a less significant factor for our hosted software arrangements, for which revenue is recognized ratably over time. Seasonality has not been a factor for our drug discovery revenues.
Seasonality has been a less significant factor for our hosted software arrangements, for which revenue is recognized ratably over time. Seasonality has not been a factor for our drug discovery revenues. Historical seasonality may not be indicative of future periods.
Historical seasonality may not be indicative of future periods. 121 Table of Contents Critical Accounting Policies and Estimates Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Critical Accounting Policies and Estimates Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
See “Business Acquisition” in Note 5 to our consolidated financial statements for additional information relating to this acquisition. In September 2022, we entered into a collaboration with Eli Lilly and Company, or Lilly, under which we are responsible for the discovery and optimization of small molecule compounds addressing a specific target.
See “Collaboration and License Agreement” in Note 3 to our consolidated financial statements for additional information relating to this agreement. In September 2022, we entered into a collaboration with Eli Lilly and Company, or Lilly, under which we are responsible for the discovery and optimization of small molecule compounds addressing an immunology target.
Our professional services arrangements are typically project-based and, therefore, fluctuated based on individual customer needs and ongoing project support. Drug discovery revenue fluctuated from period to period based on the achievement of specific collaboration milestones, as well as advancements of collaborative services. The majority of our current collaborations are in the discovery stage.
Our professional services arrangements are typically project-based and, therefore, fluctuated based on individual customer needs and ongoing project support. Drug discovery revenue fluctuated from period to period based on the achievement of specific collaboration milestones, as well as advancements of collaborative services. Milestone payments typically increase in magnitude as a program advances.
We also had four customers with an ACV in excess of $5.0 million for the year ended December 31, 2022, compared to two such customers for the year ended December 31, 2021.
We also had four customers with an ACV of at least $5.0 million for the year ended December 31, 2023, compared to four and two such customers for the years ended December 31, 2022 and 2021, respectively.
Our ability to continue to derive value from our collaborations will be driven by both our capability to make progress in these programs as well as whether our collaborators successfully advance such programs beyond the discovery stage.
Our ability to continue to derive value from our collaborations will be driven by our capability to make progress in these programs, whether our collaborators successfully advance such programs beyond the discovery stage, and the strategic priorities of our collaboration partners.
The increase in revenues for drug discovery services during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to the progress of existing and new collaborations accomplished during the period, the timing and amount of collaboration milestones achieved, as well as research funding received during 2022 as compared to 2021.
The increase in revenues for drug discovery services during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to the timing and amount of collaboration milestones achieved, including $25.0 million received from BMS, and the progress of existing and new collaborations accomplished during 2023 as compared to 2022.
In 2018, we began to develop a pipeline of wholly-owned drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics. We submitted an investigational new drug 103 Table of Contents application, or IND, for our MALT1 inhibitor, which we refer to as SGR-1505, and the U.S.
In 2018, we began to develop a pipeline of proprietary drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics. In June 2022, the U.S. Food and Drug Administration, or FDA, cleared our first investigational new drug application, or IND, for our MALT1 inhibitor, which we refer to as SGR-1505.
We believe our existing cash, cash equivalents, and marketable securities as of December 31, 2022, together with the $111.3 million cash distribution received from Nimbus in February 2023, will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 24 months.
We believe our existing cash, cash equivalents, and marketable securities as of December 31, 2023 will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 24 months.
The change in fair value during the year ended December 31, 2021 was primarily due to a gain on our investment in Morphic.
The change in fair value during the year ended December 31, 2022 was primarily due to an unrealized loss on our investment in Morphic.
Hosted software revenue consists primarily of fees to provide our customers with hosted licenses, which allows these customers to access our cloud-based software solution on their own hardware without taking control of the licenses, and is recognized ratably over the term of the arrangement, which is typically one year.
Hosted software revenue consists primarily of fees to provide our customers with hosted licenses, which allows these customers to access our cloud-based software solution on their own hardware without taking control of the licenses, and is recognized ratably over the term of the arrangement, which is typically one year, though in recent years, we have entered into a small number of large multi-year hosted software license agreements.
Revenue was recognized upon execution of the agreement and on the first anniversary of the agreement when invoiced, in accordance with Accounting Standard Codification, or ASC Topic 958 , Not-for-Profit Entities as the agreement is not an exchange transaction. Drug Discovery Revenue Drug discovery services.
Revenue was recognized annually from June 2020 through June 2022 and upon extension of the agreement in August 2023, when invoiced, in accordance with Accounting Standard Codification, or ASC, Topic 958 , Not-for-Profit Entities as the agreement is not an exchange transaction. Drug Discovery Revenue Drug discovery services.
On February 13, 2023, on account of our equity stake in Nimbus, we received a $111.3 million cash distribution from Nimbus in connection with Takeda’s acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its TYK2 inhibitor NDI-034858.
On February 13, 2023, April 6, 2023, and November 9, 2023, on account of our equity stake in Nimbus Therapeutics, LLC, or Nimbus, we received cash distributions of $111.3 million, $35.8 million, and $0.1 million, respectively, from Nimbus in connection with Takeda’s acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its TYK2 inhibitor NDI-034858.
In addition, see Note 7 – Commitments and Contingencies to our consolidated financial statements appearing in Item 8 of this Annual Report for more information relating to our operating lease obligations. In December 2022, we entered into an agreement with a third-party to establish an exclusive integrated drug discovery dedicated facility.
In addition, see Note 7 – Commitments and Contingencies to our consolidated financial statements appearing in Item 8 of this Annual Report for more information relating to our operating lease obligations. In December 2020, we entered into a five-year agreement with a third-party cloud provider for compute power.
At this time, we do not know, nor can we reasonably estimate, the nature, timing, or costs of the efforts that will be necessary to complete the development of any of our proprietary drug discovery programs. Since our proprietary drug discovery efforts are in the early stages, currently we do not track research and development expense on a program-by-program basis.
At this time, we do not know, nor can we reasonably estimate, the nature, timing, or costs of the efforts that will be necessary to complete the development of any of our proprietary drug discovery programs.
The majority of our current collaborations are in the discovery stage. Milestone payments typically increase in magnitude as a program advances. In addition to revenue from our collaborations, we may also derive drug discovery revenue from out-licensing our wholly-owned drug discovery programs when we believe it will help maximize the probability of clinical and commercial success of the program.
In addition to revenue from our collaborations, we may also derive drug discovery revenue from out-licensing our proprietary drug discovery programs when we believe it will help maximize the probability of clinical and commercial success of the program.
For example, the cost of royalties due for sales of our hosted software arrangements are recognized upfront, whereas the associated revenue is recognized over the term of the underlying agreement. Currently, gross margin is less meaningful for measuring the operating results of our drug discovery business.
For example, the cost of royalties due for sales of our hosted software arrangements are recognized upfront, whereas the associated hosted software revenue for these arrangements is recognized over the term of the underlying agreement.
During the year ended December 31, 2021, operating activities used approximately $70.7 million in cash primarily resulting from net loss of $101.2 million, which included an $11.4 million non-cash gain from changes in fair value, $26.5 million in stock-based compensation costs and $9.0 million of other non-cash operating expenses included in net loss, including depreciation and investment accretion costs, and a $1.8 million loss on equity investment that is classified as an investing activity.
During the year ended December 31, 2022, operating activities used approximately $119.7 million in cash primarily resulting from net loss of $149.2 million, which included an $11.8 million gain from equity investments, partially offset by $5.0 million of non-cash operating expenses included in net loss, including depreciation and investment accretion costs, $39.6 million in stock-based compensation, and $18.1 million of non-cash loss on changes in fair value.
Under the terms of the agreement, as amended, we received an upfront payment of $55.0 million from BMS in November 2020 and an additional upfront payment in December 2022, and we are eligible to receive up to $2.7 billion in total milestone payments across all potential targets, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions.
We are eligible to receive up to $1.5 billion in total milestone payments across the potential targets currently subject to the collaboration, of which we have received $25.0 million as of December 31, 2023, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions.
While we have incurred costs associated with discovery efforts since late 2017, we have recognized and expect to continue to recognize revenues in the future if and when milestones are achieved.
While we have incurred costs associated with discovery efforts since late 2017, we have recognized and expect to continue to recognize 122 Table of Contents revenues in the future if and when milestones are deemed probable or achieved. Generally, drug discovery costs of revenue for collaborations are incurred in advance of the revenue milestone achievement.
General and Administrative Expense General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and stock-based compensation. General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.
General and Administrative Expense General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, 123 Table of Contents and stock-based compensation.
See Note 16 – Segment Reporting in our audited consolidated financial statements for additional information regarding our segments. Segment gross profit is derived by deducting operational expenditures, with the exception of research and development, sales and marketing, and general and administrative activities, from U.S. GAAP revenue. Operational expenditures are expenditures made that are directly attributable to the reportable segment.
Segment gross profit is derived by deducting operational expenditures, with the exception of research and development, sales and marketing, and general and administrative activities, from U.S. GAAP revenue. Operational expenditures are expenditures made that are directly attributable to the reportable segment. In many cases, these expenditures are allocated to the segments based on headcount.
Ability to progress our proprietary drug discovery programs We are advancing our pipeline of proprietary drug discovery programs through extensive application of our software platform. Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.
Ability to progress and expand our pipeline of proprietary drug discovery programs We are advancing our pipeline of proprietary programs through preclinical and clinical development. Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers. Since then, we have expanded into other therapeutic areas, including immunology and neurology.
As of December 31, 2022, we had an accumulated deficit of $379.1 million.
As of December 31, 2023, we had an accumulated deficit of $338.4 million.
Our operating cash flows are impacted by the magnitude and timing of our software sales and by the magnitude and timing of our drug discovery milestone achievements and research funding fees. As of December 31, 2022, we had cash, cash equivalents, restricted cash, and marketable securities of $456.3 million.
Our operating cash flows are impacted by the magnitude and timing of our software sales and by the magnitude and timing of our drug discovery milestone achievements and research funding fees.

… 109 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−2 removed2 unchanged
Biggest changeOur cash balances and outstanding vendor invoices denominated in foreign currencies were not material as of December 31, 2022 and 2021, and our market risk associated with foreign currency exchange rates was deemed insignificant.
Biggest changeOur cash balances and outstanding vendor invoices denominated in foreign currencies were not material as of December 31, 2023 and 2022, and our market risk associated with foreign currency exchange rates was deemed insignificant. An immediate 10% change in foreign exchange rates would not have a material effect on our consolidated financial statements. 139 Table of Contents
Treasury and corporate bonds and a money market fund that is invested in U.S. Treasury and corporate bonds. Due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of this investment portfolio.
Treasury and corporate bonds and a money market fund that is invested in U.S. Treasury and corporate bonds. 138 Table of Contents Due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of this investment portfolio.
We also contract with certain vendors that are located outside of the United States whose invoices are denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. We do not currently hedge our foreign currency exchange rate risk.
We also contract with certain vendors that are located outside of the United States whose invoices are denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. Our hedging activity related to our foreign currency exchange rate risk is immaterial.
Removed
An immediate 10% change in foreign exchange rates would not have a material effect on our consolidated financial statements. 123 Table of Contents Inflation generally affects us by increasing our cost of labor and target development costs.
Removed
We do not believe that inflation had a material effect on our business, financial condition, or results of operations for the years ended December 31, 2022 and 2021. 124 Table of Contents

Other SDGR 10-K year-over-year comparisons