Q4 2021 Schrodinger Inc Earnings Call

Thank you for standby welcome to <unk> conference call for the fourth quarter and full year 'twenty 'twenty. One financial results. My name is Charlie and I will be your operator for today's call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.

Thank you for standing by.

Welcome to Schrodinger's conference call for the fourth quarter and full year 2021 financial results.

My name is Charlie and I'll be your operator for today's call.

We had growth in both life sciences, life science and materials.

So, Gary, we'll be discussing the design of our Phase 1 study in more detail as we, progress through the year.

You will need to press star one on your telephone if you require any further assistance. Please press star zero. Please be advised that this call is being recorded at the company's request now I would like to introduce your host for today's conference call Ms. Jang Madden Senior Vice President Investor Relations and corporate Affairs. Please go ahead.

At this time, all participants are in listen-only mode.

If you look at our customers that are over $100,000 in ACV, we had 24% growth not just, in customer count but also in spend.

What I can tell you is that this study is focused on safety tolerability, as you can imagine, in all comers with B cell infirmers.

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone.

We clearly had broad-based growth leading to and culminating in the really strong fourth, quarter that we reported.

That's going to be the initial focus of the study.

Thank you and good afternoon, everyone welcome to today's call during which we will provide an update on the company and review our fourth quarter and full year 2021 financial results earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our web.

We are also, of course, thinking about the cohort expansion and how we'll be assessing, proof of target engagement, as well as proof of biology in this trial.

At <unk> Dot Com with me on our call today are Rami for Reed, Chief Executive Officer, Joe Lebowitz, Chief Financial Officer, and Karen a companion President of R&D Therapeutics. Following our prepared remarks, we'll open the call for Q&A I would like to remind you that during today's call management will make statements related to our <unk>.

If you require any further assistance, please press star 0. Please advise that this call is being recorded at the company's request.

Our forward looking and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095, including without limitation statements related to our future financial performance, including our outlook for the full year 2022, and the quarter ending March 31, 2022, our strategic goals for <unk>.

20% in 2023, the potential advantages of our platform our strategic plans to accelerate the growth of our software business and advance our collaborative and internal drug discovery program risks relating to the COVID-19 pandemic, our expectations related to the use of our cash cash equivalents and marketable securities as well.

As our future operating expenses. These forward looking statements reflect our current views about our plans intentions expectations strategies and prospects, which are based on the information currently available to us and on assumptions we have made.

Actual results may differ materially from those described in the forward looking statements and are subject to a variety of assumptions uncertainties risks and important factors that are beyond our control, including the demand for our software solutions, our ability to develop our computational platform our reliance upon our drug discovery collaborators and other.

Risks detailed under the caption risk factors and elsewhere in our most recent securities and Exchange Commission filings and reports, except as required by law, we undertake no duty or obligation to update any forward looking statements discussed on this call as a result of new information future events changes in expectations or otherwise.

Now, I would like to introduce your host for today's conference call, Mr. Jaren Madden, Senior Vice President of Investment Relations and Corporate Affairs.

These forward looking statements should not be relied upon as representing our views as of any date subsequent to today. During this call. We will also discuss certain financial and operating metrics, which are further described in our financial results press release, and SEC filings with that I'd like to turn the call over to Rami.

Please go ahead.

Thanks, Sharon and thank you everyone for joining US today, we are extremely pleased with our execution across all elements of the business. In 2021, we continue to drive scale up and adoption of our software both life Sciences and material science companies.

Thank you and good afternoon, everyone.

I'd also point out that that fourth quarter and the full year was on top of a base year, in 2020 that was also very strong, so really good performance, and we're really pleased about the momentum there.

But again, I think we'll reserve comments on the design of the Phase 1 until we're a, little bit further along at some point this year.

Welcome to today's call, during which we will provide an update on the company and review our fourth quarter and full year 2021 financial results. Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at schrodinger.com.

With regard to the timing aspect that you asked about, with regard to the customers, over a million, it happens to be a contract that was.., was renewed in late 2020, and then was renewed again in very early 2022.

Yeah.

And then just real quick – thanks, Karen – just really quick on the question about, South Korea.

So just by virtue of a couple of weeks slipped from that count.

We already had, actually, a few distributors in South Korea.

So, we've been there.

We also progressed our collaborative programs seven of which are in the clinic underscoring the impact of our platform.

We understand the opportunity, both in the life science and material science business. We saw the opportunity and recognized the obvious thing that if we established our own, operation there, we can capitalize on the significant opportunity there more effectively.

And we nominated two development candidates in our wholly owned programs.

Here with me on our call today are Rami Fareed, Chief Executive Officer, Joel Lebowitz, Chief Financial Officer, and Karen Akinsanya, President of R&D Therapeutics.

But it's still a customer and a significant customer.

Revenue was $137 9 million or 28% increase over the prior year and this was capped by fourth quarter software revenue of $38 6 million or 55% increase over the fourth quarter of 2020.

Following our prepared remarks, we'll open the call for Q&A.

Okay, got it.

I'd like to remind you that during today's call, management will make statements related to our business that are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to our future financial performance, including our outlook for the full year 2022 and the quarter ending March 31, 2022, our strategic goals for 2022 and 2023, the potential advantages of our platform, our strategic plans to accelerate the growth of our software business and advance our collaborative and internal drug discovery programs, risks relating to the COVID-19 pandemic, our expectations related to the use of our cash, cash equivalents, and marketable securities, as well as our future operating expenses.

These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those described in the forward-looking statements and are subject to a variety of assumptions, uncertainties, risks, and important factors that are beyond our control, including the demand for our software solutions, our ability to develop our computational platform, our reliance upon our drug discovery collaborators, and other risks detailed under the caption risk factors and elsewhere in our most recent Securities and Exchange Commission filings and reports.

And I also wanted to ask about the drug discovery revenue guidance for 2023 of at least $100, million.

We ended 2021 in a strong financial position with cash resources of approximately $579 million. These.

How confident are you on that number?

These achievements set us up for high value milestones in 2022, and a very bright future ahead.

And could you provide some details on the number of underlying programs that it accounts, for?

Sure.

As Youll hear from Karen We also made excellent progress on our internal pipeline.

Thanks, Joe.

Our first three internal programs continue to advance toward the clinic. The most advance of which is expected to enter the clinic later this year and we added two new programs to our pipeline in the areas of oncology and immunology.

So we're confident in any time we give guidance.

We are pretty thorough when we try to look at our business and forecast it out, both, in 2022 and 2023.

Obviously, there's a number of things that can vary, particularly as you go further out.

We now have five wholly owned programs and expect to initiate additional programs. This year to support our drug discovery efforts, we expanded our structural biology capabilities through the acquisition of Extell bio structures, a private company based in the greater Boston area that provides structural biology services to the pharmaceutical and biotechnology industries.

However, what I would say is we have a portfolio of collaboration programs. We have about 20 programs now, plus or minus.

And so the portfolio is pretty broad.

We also have seven that are now in the clinic, that's collaboration programs.

And then we have a host of programs behind that in the collaboration portfolio that are, approaching the clinic. So in general, the opportunity to earn larger and larger milestones comes as these programs, progress.

With this acquisition, we have access to more structures and we will leverage our protein structure refinement methods to scale up production of high resolution structures, which are starting points for our physics based computational platform. We've also expanded our global footprint to support multiple areas of our business in January we established operations in.

We already have operations in a number of other Asian countries.

We have a KK, of course.

We have distributors in China.

Seoul, South Korea to enhanced competitive positioning and support both life Sciences and material science customers in this region in December we expanded our operations in Hyderabad, India employees and hydro about our focus on a broad range of strategic initiatives across the company, including software development in support of our software platform.

We do have a pretty significant operation in India and other countries in that region, through distributors.

So, I hope that answers the question that South Korea was specific to the South Korean, market for now.

Okay.

And our drug discovery programs.

Just in general, when do you think we'll see more of an inflection, I guess, from, that overall region in general?

I'm also very pleased to announce <unk> promotion to president of R&D and therapeutics. The promotion reflects karen's extraordinary contributions to leading our drug discovery team as well as her strategic contributions to expanding and advancing our collaborative and wholly owned programs.

And we map out program by program what our opportunities are, and we risk adjust, and, we're providing an outlook that we believe that we will achieve.

Could that happen this year or will it take a couple of years?

We are excited by the many advances we've made over the past year and we expect continued progress across all aspects of our business, our internal pipeline, our collaborative and partnered programs and our software business to support both drug discovery and materials design. Looking ahead, we will continue to invest in our computational platform.

And it's really important to note that that's really the baseline for the collaboration, business, that goal, that it does not include any potential revenue from if we partner our three lead, any of our three lead internal programs.

Oh, yeah.

Okay.

You mean – yeah.

That's great.

So, it does take a little bit of time to establish your presence there and build up the team.

So, we're not guiding to any particular inflection in a certain region.

And we expect continued scale up and adoption of our software is our collaborators and customers continue to experience success in rapidly generating high quality molecules to advance the next generation of therapeutics and materials.

But we've seen, for example, what happened in Japan when we did the same thing a number, of years ago and we replaced, in some sense, the distributors we had there.

Before I turn the call over to Joel who recently announced his retirement at the end of February I want to thank him for his incredible commitment and service over the past three years during which time, we debuted as a public company secured additional financing and our follow on offering and strengthen our balance sheet to support continued investment across our business.

This was quite a while ago with our own operation there.

During his tenure Joel help create our strong financial profile contributed to the execution of our strategy continued to build out our strong finance team and establish the Investor Relations and corporate affairs function, we wish him the very best in his future endeavors. We are actively searching for Joel successor, and we're very pleased with the caliber of.

The candidates we have reviewed so far I will now turn the call over to Joel to review our financial results. Thank.

And we've seen that through investment over many years, we can see pretty significant, growth there.

Except as required by law, we undertake no duty or obligation to update any forward-looking statements discussed on this call as a result of new information, future events, changes in expectations, or otherwise.

And a question for Karen.

But it does take some time to build up the presence when you're entering into a new, Okay, great.

Thank you Rami Hello, everyone I'm very pleased to discuss our 2021 financial results and provide our outlook for 2022.

These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today.

What's left in the MOLT 1 IND filing before you get to that?

And I also wanted to wish the best of luck to Joe and also congrats to Karen.

During this call, we will also discuss certain financial and operating metrics, which are, further described in our financial results, press release, and SEC filings.

Have you done a pre-IND meeting with the FDA as one planned?

Thanks.

I'll start with a review of the fourth quarter total revenue was $46 2 million up 40% compared to the fourth quarter of 2020 software revenue was $38 6 million, representing 55% growth compared to the fourth quarter of 2020 as.

With that, I'd like to turn the call over to Ramy.

Thanks, Joe.

Thanks, Gary.

Thanks Jaren, and thank you everyone for joining us today.

We are complete with our GLP-TOC studies, and we are in that last phase of planning, for the IND submission.

Appreciate that.

We have actually had an opportunity to interact with the agency, as you're pointing out.

And so we think that gives us a lot of opportunity to submit a package that's well-considered, and we expect that to happen, as we said, in the first half of this year.

Great.

Thank you.

Thanks for taking my questions, and congrats on the quarter.

Thank you.

As was the case throughout the year the growth in software revenue was primarily driven by increased adoption of our solutions by large customers as well as the addition of new customers during the quarter.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced.

Thanks, Joe.

Your next question comes from the line of Derek DeBruin with Bank of America.

Thank you.

Please go ahead.

Drug discovery revenue was $7 6 million compared to $8 1 million in the fourth quarter of 2020.

Our next question comes from the line a bit from Furuhit with Morgan Stanley.

Hey, good evening, and thank you for taking my questions.

Please, go ahead.

Just to go back on the – I'm sorry to beat the 22 guide for software and circle back on that, but I'm just curious.

It's what do you think is the driver to get your customers to spend more and to, you know, to up – you know, how do you upsell them and how do they scale up with it, right?

Operating expense was $48 9 million compared to $35 6 million in the fourth quarter of 2020, reflecting our investment in R&D to advance the science underlying our platform and to progress our internal drug discovery programs as well as costs required to support our public company infrastructure, we recorded a net loss of $30 7 million.

Great.

I mean, you've got a number of programs currently in the clinic.

There's clear need – you know, there's clear use case for using structural biology.

Thanks for taking my questions.

The methods are getting better.

You've got, you know, you've got AlphaFold.

You've got other things out there.

So what is sort of that inflection point that drives your customers to say, okay, now we have to do this on a much larger scale?

Yeah, so there are a couple of things.

One thing is that we think we've really accomplished is what you were talking about, which is it's clear that the technology works and it's having the kind of – you know, the impact that we, I think, had always hoped that computational methods would have.

And you see that in our own programs.

Compared to a loss of $11 6 million in the fourth quarter of 2012 for the full year total revenue was $137 9 million a 28% increase over 2020 software revenue was $113 2 million up 22% over 2020 with strong growth in both life Sciences and material science.

We are extremely pleased with our execution across all elements of the business in 2021.

We continue to drive scale-up and adoption of our software, both life sciences and material, science companies.

So, the first one was on the software sales guidance for 2022. So, you guided to a range of an 11 percent to, I believe, a 20 percent increase over, 2021 at the bookends.

We also progressed our collaborative programs, seven of which are in the clinic, underscoring, the impact of our platform.

Could you just talk about what you think drives performance to either side of those bookends, of guidance, and then I have a follow-up.

Discovery revenue was $24 7 million compared to $15 6 million in 2020, primarily due to revenue recognized from our collaboration with BMS software gross margin was 77% in 2021 compared to 81% in 2020, reflecting our investment to expand capabilities to drive and support large scale adoption.

And we nominated two development candidates in our wholly-owned programs.

Sure, Vikram.

Total revenue was $137.9 million, a 28% increase over the prior year. And this was capped by fourth quarter software revenue of $38.6 million, a 55% increase over, the fourth quarter of 2020. We ended 2021 in a strong financial position, with cash resources of approximately $579, million.

These achievements set us up for high-value milestones in 2022 and a very bright future, ahead.

One of our solutions full year operating expense was $177 1 million versus $124 4 million in 2020, as we continue to invest in R&D and in the infrastructure to support our operations in 2021, we recorded other income of $10 6 million compared to $34 six.

In 2020, driven by changes in the Mark to market value of our strategic investments overall these results demonstrate the ongoing value creation opportunity of our collaboration strategy.

Net loss for the year was $101 2 million compared to a loss of $26 6 million in 2020.

And we ended 2021 with cash equivalents marketable securities and restricted cash balances of approximately $579 million compared to approximately $600 million on September 32021.

We can talk about that.

You see it in collaborative programs.

And customers are definitely starting to see it in their own projects.

In addition to the financial results. We just reviewed I'd like to report on our key software performance indicators for 2021.

So that's kind of, you know, check that box off.

So, again, we're coming off of a strong year.

Now what remains is a couple of things.

One is that you need people to run the software.

And this is software that a lot of it – and we're working hard to do this to make it as easy to use as possible, and I think we've made a lot of progress in that, but there's still – you still need experts. You need computational chemists to run the software.

Total software annual contract value or ACB reached $112 1 million in 2021 compared to $92 1 million in 2020, an increase of 22% year over year for comparison, we also saw 22% growth in 2020 and 18% growth in 2019 the number.

And so companies have to sort of scale up their computational chemistry grooves.

We see these underlying trends in both our large existing customers continuing to increase, adoption of our solutions.

So that's one thing.

And there's – you know, that's something that's going to take some time.

The other thing is what we've been, you know, sort of touching on, which is the availability of structures, and the prioritization of programs that are structurally enabled, you know, prioritizing those programs.

It doesn't happen overnight.

We're seeing, by the way, an interesting trend where more and more chemists are transitioning into that field, which is, I think, a really great sign.

So that, again, is something that takes time.

But we're seeing that trend occurring very clearly.

You see now essentially every pharma company investing in all sorts of structural biology technologies, including cryo-UEM, right?

Customers with <unk> of more than $1 million was <unk> 15, compared to <unk> 16 in 2020.

You know, pharma companies are buying their own electron microscopes to do cryo-UEM.

They're continuing to invest in methods, including, you know, methods that we provide, in structurally enabling projects.

But that obviously also takes time.

It's important to note that this change was driven by timing even with this change the total HCV in this category increased to $40 2 million in 2021 up from $35 5 million in 2020.

Got it.

I mean, that certainly makes sense.

The total <unk> of our top 10 customers was $34 1 million compared to $28 $5 million in 2020 for growth of 20% custom.

Customers with ATV over 100000 increased to 190 from $1 53 in 2020, a 24% increase we reported 98% customer retention in this cohort similar to the 99% retention rate we reported for 2020.

Finally, the number of total active customers those over $1000 in ECB in 2021 was 1647 compared to 1463 in 2020, a 13% increase year over year.

We are pleased with the performance across our business and as we look ahead to this year. We are focused on executing on our strategy and generating long term growth at this time I'll provide our financial outlook for 2022, we expect total annual revenue to be in the range of 161 to 181 million corresponding to 17, 31%.

I mean, based on some of the other technologies, that we cover.

So I have to, so as a CRO analyst as well, I have to ask the question about the delays and sort of like booking space and like that.

Could you just talk a little bit more about that?

I mean, this is something that you've seen.

Growth over 2021 software revenue is expected to range from 126% to $136 million, representing 11% to 20% growth over 2021, approximately 16% at the midpoint with regard to software. We are very pleased with our track record and excited about the opportunity for continued expansion.

We have had pretty steady addition of new customers for a long time now. And so we think we can continue growing at a strong pace over a multiple-year period. And in 2022, as you said, we've guided to a range that equates to 11% to 20% growth.

Is it with multiple clients that you're seeing?

And the bookends, as we've described before, really center around how much progress we, can make in getting our largest customers to really significantly commit fully and extensively to our approach to drug discovery.

It's just some sense of what's going on in that area right now in terms of like what really is, sort of like the underlying drive, maybe just not enough, not enough availability, people coming in on top of you, spending more, just a curiosity.

As we've talked about in the past, the gap between even our largest customers' deployment of our solutions, though they're getting larger and larger, but the gap between their deployment of our solutions and the level at which we deploy our solutions on our internal programs and our collaboration programs is still very large. And it's still at a fraction of what we think is optimal, that is the deployment by our customers. And so we're working continuously to move customers along that path.

Sorry, I'm not sure.

We're making great progress.

Were you asking about the delays that- Yes. Yes. Yes. The delays that Karen mentioned, right?

Consistent with prior years, we anticipate that revenue will vary from quarter to quarter similar to 2021, we expect the first and fourth quarters to be our largest two revenue quarters with a larger proportion of the annual revenue coming in the fourth quarter as was the case in each of the last two years. Accordingly, we expect the second and third quarters to be our lowest revenue quarters.

We showed a lot of that in the fourth quarter.

Consistent with previous seasonality patterns.

For the first quarter, specifically, we expect software revenue to range from $28 million to $30 million. The range reflects approximately 10% growth over the first quarter of 2021 at the midpoint, we expect drug discovery revenue to range from $35 million to $45 million, reflecting 42% to 82% growth over the last year a.

<unk> portion of this revenue is driven by the timing of collaboration programs achieving certain milestones and can therefore vary from period to period. We are pleased with the continued strong outlook anticipated this year, which reflects progress across our collaborative pipelines and our intention to progress our lead internal programs into phase one clinical development independently from <unk>.

And we're excited about the conversations we're having around that.

And we think there's a lot of opportunity there.

Obviously, the more that happens, the more towards the top end of the bookend you are.

But it's unpredictable.

'twenty two we expect the first two quarters to be at revenue levels similar to the first two quarters of 2021 with most of the growth coming in the second half of the year and in particular in the fourth quarter I would also like to comment on how we expect operating expense in software gross margin to trend for the year, we anticipate that operating expense growth will be.

So if, for whatever reason, those decisions take a little longer or the upsizing is not quite as extensive as we will be working towards, that sends you towards the bottom end.

So that's kind of the natural variation in the software outlook.

Okay.

<unk> to the 42% annual growth rate, we saw in 2021 as we invest in advancing our internal programs into the clinic. We also anticipate the software gross margin percentage to be in the mid seventies. Overall, we are very pleased with the progress we made last year, which we believe positions us for continued momentum as we look ahead.

In addition to the financial outlook for 2022 that we provided today, we have outlined key strategic goals for the next two years. This includes our expectation that we will see further adoption of our software platform with our goal of HCV growth of over 20% in 2023.

We also expect an inflection in our drug discovery business with 2023 revenue of at least $100 million, notably the drug discovery revenue goal excludes potential revenue from partnering any of our three lead internal programs.

I'd also add, Vikram, that we're very pleased with the track record of execution we've had, though, over the last two years.

You mentioned you're having- Yeah, yeah, yeah.

To wrap up on a personal note I will be retiring at the end of the month and I'm looking forward to spending more time with my family before deciding what's next.

It's been an absolute pleasure to be a member of the shredding your team over the past three years working with so many great people and to be a part of the company's IPO to help advance our strategy over this time and to build the capabilities required to support a global public company.

I've greatly appreciated the opportunity to work with all of you as well and the investment community and I look forward to tracking the company's continued success.

As you'll hear from Karen, we also made excellent progress on our internal pipeline. Our first three internal programs continue to advance toward the clinic, the most advanced, of which is expected to enter the clinic later this year.

Now I'll turn the call over to Karen for an update on our drug discovery programs. Thank you Joel and good morning, everyone.

Then we added two new programs to our pipeline in the areas of oncology and immunology. We now have five wholly-owned programs and expect to initiate additional programs this, year.

And I think we're confident that we can continue to have these discussions and succeed in getting them to move along that path, not just this year, in 2022, but over the longer term as well.

Yes, yes, yeah, yeah, yeah, yeah.

Great.

In 2021, we continue to make important advances on many fronts across our portfolio of collaborative programs and internal drug discovery pipeline. We are pleased to see multiple programs advance into preclinical and clinical development. A total of seven collaborative programs are in the clinic.

Understood.

That's helpful.

Nick which underscores the impact of our platform.

And then I had a follow-up on your wholly owned pipeline.

Cited about nimbus as recent announcements highlighting the initiation of the phase III <unk> study of the company's two inhibitor and initiation of a phase one two study and the HBK one profile our computational software relies upon high quality <unk> protein structures that are obtained from techniques such.

To support our drug discovery efforts, we expanded our structural biology capabilities, through the acquisition of Exdel Biostructures, a private company based in the greater Boston area that provides structural biology services to the pharmaceutical and biotechnology industries. With this acquisition, we have access to more structures and will leverage our protein, structure refinement methods to scale up production of high-resolution structures, which are starting points for our physics-based computational platform.

So you mentioned that there, were two molecules added recently, I think one in immunology, one in oncology.

We've also expanded our global footprint to support multiple areas of our business.

In January, we established operations in Seoul, South Korea to enhance competitive positioning, and support both life sciences and material science customers in this region.

As X Ray crystallography, and cry OEM because accurate structure is also core to our drug discovery business. Our strategy includes scaling up our structural biology capabilities and access to high quality targets Scott.

In December, we expanded our operations in Hyderabad, India. Employees in Hyderabad are focused on a broad range of strategic initiatives across the, company, including software development and support of our software platform and our drug discovery programs.

And I'd just be curious to get your thoughts on how you prioritize which mechanisms and which molecules you decide to add to your pipeline, and how you weigh kind of the mix of scientific rationale, development pathways, and commercial opportunity when making these decisions.

That's a fully enabled for our computational platform as part of the strategy last month, we acquired <unk> structures, a private company based in the Boston area that provides structural biology services to the biopharmaceutical industry.

I'm also very pleased to announce Karen's promotion to president of R&D and Therapeutics. The promotion reflects Karen's extraordinary contributions to leading our drug discovery, team, as well as her strategic contributions to expanding and advancing our collaborative and wholly-owned programs.

And on a related note, what is the cadence at which you think you could be expanding this pipeline further in 2022 and 2023?

We are excited by the many advances we've made over the past year, and we expect continued, progress across all aspects of our business, our internal pipeline, our collaborative and partnered programs, and our software business to support both drug discovery and materials design. Looking ahead, we will continue to invest in our computational platform, and we expect, continued scale-up and adoption of our software as our collaborators and customers continue to experience success in rapidly generating high-quality molecules to advance the next generation of therapeutics and materials.

Vikram, thanks for the question.

Structure based drug design continues to have a transformative impact on drug discovery and this acquisition provides a tremendous opportunity for shouting it to be at the forefront of this field by combining experimental and computational method. Additionally, this acquisition will augment <unk>.

Before I turn the call over to Joel, who recently announced his retirement at the end of February, I want to thank him for his incredible commitment and service over the past three years, during which time we debuted as a public company, secured additional financing and a follow-on offering, and strengthened our balance sheet to support continued investment across our business. During his tenure, Joel helped create our strong financial profile, contributed to the, execution of our strategy, continued to build out our strong finance team, and established the investor relations and corporate affairs function.

We wish him the very best in his future endeavors.

We are actively searching for Joel's successor, and we are very pleased with the caliber of, the candidates we have reviewed so far.

I will now turn the call over to Joel to review our financial results.

In terms of the selection of programs, we're really focused on, targets and mechanisms that we believe have preclinical and, more importantly, human evidence. That means some evidence from initial clinical studies for a particular mechanism or, indeed, human genetics or both.

<unk> to produce high quality target structures for our drug discovery programs and in the future expand our offerings to include an advanced and differentiated service that provides customers access to protein structures that have been computationally validated and already infrastructure based virtual.

Screening and lead optimization now I will highlight the progress made on our three most advanced internal programs <unk>.

Thank you, Ramy, and hello, everyone.

We don't think it's appropriate for us to take a lot of risk on the biology.

And so the targets that we select are both well-positioned for our platform in terms of our ability to solve specific design challenges.

<unk> <unk> seven and we won starting with Ala Moana inhibitor program. We have made significant progress in the last year, one of regulator of Nf Kappa B.

And we also look very closely at the clinical landscape, the biomarker opportunities, our ability to generate compelling clinical data in early trials, and obviously the longer-term potential of the mechanism as it relates to the broader landscape for the indication.

Extreme with BT K has emerged as a potential therapeutic strategy to treat certain relapsed or resistant b cell lymphomas and chronic lymphocytic leukemia in December we presented preclinical data from this program at the American Society of Hematology annual meeting the data.

So all of that goes into consideration.

And as I said, the key design challenges that we think we can solve with our platform.

Presented suggest that targeting more one may expand therapeutic options for patients with certain subtypes of non Hodgkin's b cell lymphomas, such as ABC DLP ECL with the possibility of expanding into other b cell lymphomas, such as mantle cell lymphoma. Furthermore, our preclinical data.

As shown Lasalle compounds have strong antitumor activity, both alone and in combination with <unk> inhibitors to overcome drug induced resistance in samples derived from patients with relapsed or resistant b cell lymphomas, we are unattractive submit the IND to the FDA for our <unk>.

I think your second question was regarding capacity and growth of the pipeline.

<unk> candidate in the first half of this year subject to regulatory clearance, we expect to initiate our first phase one clinical study of <unk>, one inhibitor in patients with relapsed and resistant lymphoma in the second half of 2022 as our wholly owned programs advance toward the clinic, we have enhanced our team.

We have added the two programs in immunology and oncology.

We're looking at a number of programs right now in feasibility that we believe will be replacements for the programs that are graduating out of the PAP pipeline or the discovery pipeline into IND enabling and clinical studies.

Key areas, including early clinical development.

Z and regulatory affairs, we have also initiated a search for a chief medical officer to support our clinical development strategy and activities now I'll turn to our <unk> program <unk> seven is a protein kinase that is required for DNA replication initiation CDC seven is also.

So that means that we'll be keeping a steady state of around five wholly-owned programs.

Over time, that may change, but for now, we think that's a good number for us in the discovery portfolio.

Understood.

To be linked to cancer cells, proliferative capacity and ability to bypass normal DNA damage responses targeting proteins that play important roles in DNA replication and replication stress is gaining momentum as a therapeutic approach for cancer last year, we selected a development candidate for our <unk>.

Thanks a lot.

Appreciate it.

<unk> seven program, we are very pleased with the profile of our molecule, which has demonstrated strong antitumor activity in preclinical models of AML in combination with Vanessa clocks and other marketed agents IMD, enabling studies are progressing.

Thank you.

Your next question comes from the, line of Michael Yee with Jeffries.

Please go ahead.

Is it the timing of some required toxicology studies that you outperformed by a CRO has been delayed due to COVID-19 related issues. We have secured slots to complete. These studies later this year and we now expect to submit behind data the FDA for our <unk> candidate in early 2020.

Okay.

Three and to initiate a phase one clinical study later that same year I'll now move onto our Wee one inhibitor program, which also targets cancer through replication stress in DNA repair mechanisms. We have identified multiple highly selective we want inhibitors with desirable drug like <unk>.

Thanks, everyone.

TS the show strong pharmacodynamic responses and antitumor activity in preclinical models.

We believe the profile of our pump pound supports evaluation in the clinic as monotherapy as well as in combination with other agents. We are on track to select a development candidate later this year and expect to submit an R&D to the FDA next year. We're also planning to present preclinical data from everyone.

Program in the first half of this year as our first three internal programs advance towards the clinic, we are adding new programs to our pipeline in 2021, we added two new programs one in oncology and the other in immunology. We now have five wholly owned programs and expect to.

She ate additional programs this year in summary, our diverse portfolio of collaborative and internal programs is rapidly advancing towards the clinic activities to support expansion of our pipeline into additional diseases areas are well underway and we have acquired internal structural biology capability.

<unk>, but will allow us to produce high quality target structures that are fully enabled for our computational platform.

I'm excited about the progress that we and our collaborators are making and look forward to updating you on our R&D activities throughout the year I will now turn the call back over to Rami.

This is, Andrew Tsai on from Michael Yee.

Go ahead, Karen, if you want to- Yeah, this has been an emerging story, I think, across all of biotech over the last six or so months.

We've been, along with everyone else, there's a couple of species that are required for GLP-TOP studies that are simply backlogged around the world. The supply of some of these species is limited and that's pushing a sort of queue, as it were, for access to a smaller cohort of animals for those studies. So we, and I think a lot of other companies, have been in queue and we're slowly getting access to those slots.

So as you can imagine, a lot of this work has been going on in China, for example, and some of the restrictions that have been imposed around COVID-19 have also had an impact.

I'm very pleased to discuss our 2021 financial results and provide our outlook for 2022.

First question is on the software guidance again for 2022.

But we feel we're on top of it and we, as I mentioned, have access to our slots for our current VC.

Thanks, Karen 2022 has the potential to be another strong year for Schrodinger, our long term strategy leverages synergies across our business and we have laid out several key objectives over the next few years that can generate value and position us for continued success.

I'll start with a review of the fourth quarter. Total revenue was $46.2 million, up 40% compared to the fourth quarter of 2020. Software revenue was $38.6 million, representing 55% growth compared to the fourth quarter, of 2020. As was the case throughout the year, the growth in software revenue was primarily driven by, increased adoption of our solutions by large customers, as well as the addition of new customers during the quarter.

I'm just trying to gauge whether you think your current guidance is conservative.

Thanks.

Drug discovery revenue was $7.6 million, compared to $8.1 million in the fourth quarter, of 2020.

Operating expense was $48.9 million, compared to $35.6 million in the fourth quarter of, 2020, reflecting our investment in R&D to advance the science underlying our platform and to progress our internal drug discovery programs, as well as costs required to support a public company infrastructure.

We recorded a net loss of $30.7 million, compared to a loss of $11.6 million in the fourth quarter, of 2020.

So, maybe talk about whether you think your business is fundamentally accelerating and maybe kind of discuss whether there's even more upside to what you've guided to or do you think the bookends that you provided is fair based on what you're seeing out there?

And then just one final question.

Thanks.

These objectives include ongoing growth in adoption and scale up of our software platform with ACB growth of over 20% in 2023.

That's my first question.

It's again on the $100 million in 23 target.

Inflection in our drug discovery business with 2023 drug discovery revenue of at least 100 million, which does not include potential revenue from partnering our three lead internal programs.

Thanks, Andrew.

IND submission for our <unk> program in the first half of 2022 and IND submissions for our CDC seven and we won programs in 2023.

Phase one clinical study initiation for our <unk> program in the second half of 2022 and phase one clinical study initiation of our CDC seven and we won programs in 2023.

Publication of data from internal programs and peer reviewed forums.

Initiation of multiple new internal programs that leverage our structural biology capabilities.

Initiation of material science collaborations in multiple verticals, such as clean energy and sustainable materials we.

For the full year, total revenue was $137.9 million, a 28% increase over 2020. Software revenue was $113.2 million, up 22% over 2020, with strong growth in both life, sciences and material science.

Yes, we establish our guidance based on what we believe our outlook is, and we're confident in our guidance.

We have an exceptional team committed to transforming the way therapeutics and materials are discovered and we look forward to providing updates on our progress throughout the year at this time, we'd be happy to take your questions operator.

I'd say that at the same time as we look at the business over a longer period of time and what we think is possible over a multi-year period, we think that, as I said, the pathway for our largest customers to continue to upsize their deployment is significant, and we have a lot of opportunity for growth there.

We have proven that we're able to attract new customers to the business pretty consistently, and we anticipate that both those trends is evidenced by the overall ACV growth of 22% in 2021.

Will has the opportunity to continue over a long period of time, and if you look at 2023, the strategic goal that we've outlined of greater than 20% ACV in 2023, that's an indicator that we are confident in strong continued growth in the business.

Discovery revenue was $24.7 million, compared to $15.6 million in 2020, primarily due to, revenue recognized from our collaboration with BMS.

Thanks.

I mean, is that a floor number for 23?

Our gross margin was 77% in 2021, compared to 81% in 2020, reflecting our investment, to expand capabilities to drive and support large-scale adoption of our solutions.

Full year operating expense was $177.1 million, versus $124.4 million in 2020, as we continue, to invest in R&D and in the infrastructure to support our operations.

Overall, these results demonstrate the ongoing value creation opportunity of our collaboration, strategy.

On the drug discovery, again, I know you expect that inflection there in 2023, which excludes, partnerships for your lead compounds.

Right.

In 2021, we recorded other income of $10.6 million, compared to $34.6 million in 2020, driven by changes in the mark-to-market value of our strategic investments.

Net loss for the year was $101.2 million, compared to a loss of $26.6 million in 2020.

As a reminder.

And we ended 2021 with cash equivalents, marketable securities, and restricted cash balances of, approximately $579 million, compared to approximately $600 million on September 30th, 2020.

In addition to the financial results we just reviewed, I'd like to report on our key software, performance indicators for 2021.

I mean, is it does, or it's basically, it's like, what's the bookend on your confidence level, around that?

If you have a question at this time. Please press star one on your telephone keypad. If your question has been answered or you wish to leave yourself from the queue press the pound key once again Thats star one to ask a question. Your first question comes from the line.

Total Software Annual Contract Value, or ACV, reached $112.1 million in 2021, compared, to $92.1 million in 2020, an increase of 22% year-over-year.

I'm curious what your latest thinking actually is for these lead compounds.

Yeah, well, the way we've described it, it is at least $100 million for our collaboration business.

With Piper Sandler. Please go ahead.

Great. Thanks for taking my questions.

For comparison, we also saw 22% growth in 2020 and 18% growth in 2019.

Do you have any intention to partner them out even in 2022, if not 2023?

So we see the portfolio continuing to advance.

First Karen congrats on the promotion and Joel I wanted to wish you well in your retirement.

On the.

Would you be considering a multi-target thing like the Bristol deal, or would you at this stage partner out a specific program?

And as I talked earlier, it's a pretty large portfolio now. So we have some diversification and can forecast out with some degree of confidence that we're going to hit that level that we said at least $100 million.

And then obviously have the opportunity, if we choose to do so, to capture additional value, throughout licensing or partnering any of our lead three internal programs, which is not included in that $100 million.

The fourth quarter earnings Joe is there anything specific that you can point to in the quarter that drove the strength in software revenue and.

Your latest thinking would be helpful.

As we look at the number of customers with over $1 million in HCV you said.

The number of customers with ACV of more than 1 million was 15 compared to 16 in 2020. It's important to note that this change was driven by timing.

Thank you.

The difference from 2000 22021 was timing.

Even with this change, the total ACV in this category increased to 40.2 million in 2021, up from 35.5 million in 2020. The total ACV of our top 10 customers was 34.1 million compared to 28.5 million in 2020, for growth of 20%.

What does that exactly mean.

Customers with ACV over 100,000 increased to 190 from 153 in 2020, a 24% increase.

We reported 98% customer retention in this cohort, similar to the 99% retention rate, we reported for 2020. Finally, the number of total active customers that was over $1,000 in ACV in 2021 was 1,647, compared to 1,463 in 2020, a 13% increase year-over-year.

Yeah, I can take that, Andrew.

Sure. Thanks, Joe and thanks for those comments are appreciated so with regard to software. We're obviously very pleased with the quarter of 55% growth a year, 22% growth in the fourth quarter in particular.

We are pleased with the performance across our business, and as we look ahead to this, year, we are focused on executing our strategy and generating long-term growth.

We continue speaking with potential companies who would, partner with us in the way that we did with BMS.

At this time, we'll provide our financial outlook for 2022.

We expect total annual revenue to be in the range of 161 to 181 million, corresponding, to 17 to 31% growth over 2021.

There's obviously a lot of interest in accessing this platform at scale, as we have done across our existing collaborative portfolio.

Thank you very much.

Thank you.

We continue to see the trends that we've been seeing all along which is.

Your next question comes from the line of Gaurab Gopalraju with Berenberg, Capital Markets.

Continued progress of our existing customers many of whom are our largest customers continuing to increase adoption of our solutions and in the fourth quarter. We saw some really good examples of that and some of them are pretty large and so that really did help drive the business, but I'd say the performance in the.

Please go ahead.

Hey, guys, how's it going?

Thanks for taking my question.

Just a quick one for me.

Miss in the quarter and the year was also broad based we had growth in both life Sciences life Science in materials, we had if you look at our.

Of the 190 customers that you guys recorded that had over $100K CV, how many of them are new customers versus customers who may increase their software consumption to exceed that $100K level?

I'm just really trying to get an idea of how many customers are actually increasing the consumption versus new customers that are acquiring licenses that are, I guess, exceeding that level.

Thanks, Gaurav.

Customers that are over 100000.

HCV, we had 24% growth not just in customer count, but also in spend.

So we clearly had broad based growth leading to the culminating in the really strong fourth quarter that.

Yes, good question.

So, we don't actually break that out, but I will say this, that, I mean, if you look at the total active customers, clearly the customer count continues to increase.

That we've reported and I'd also point out that that fourth quarter and the full year was.

On top of a base here in 2020 that was also very strong so really good performance and we're really pleased about the momentum there with regard to the timing aspect that you asked about with regard to the customers over $1 million.

I know, we certainly know the customer list that's included in that 190, and there are new customers.

There were a lot of biotech companies that were formed in 2021, and we definitely signed up some of those, and those are new customers.

And interestingly, we're seeing some of them come in at fairly sizable levels relative to levels that maybe new customers might have started at in the past.

It happens to be a contract that.

And certainly, that's the case on the material side as that's dominated by new customers, although our largest customers on the material side are getting pretty large as well.

Was <unk>.

<unk> and late.

2020, and then was renewed again in.

Very early 2022, so just by.

Virtue of a couple of weeks slipped from that count.

It's still a customer and a significant customer.

Okay got it.

And I also wanted to ask about the drug discovery revenue guidance for 2023 about at least 100 million. How confident are you on that number and.

Could you provide some details on.

The number of underlying program.

It accounts for.

Sure Thanks, though so.

Sure.

Confidence and any time, we gave guidance.

We are pretty.

Thorough when we try to look at our business and forecast it out both in 2022 and 2023 obviously.

Number of things that can vary, particularly as you go further out however.

As you know, for the BMS collaboration, we partnered some programs really early on in, the life cycle of those efforts.

What I would say is we have a portfolio of collaboration programs Thats about 20 programs now moral.

There's obviously potential for us to do similar partnerships.

With regard to our wholly owned advanced assets, we have intentions to take those into the, clinic, as you've heard today.

We do, though, continue to talk to companies who have synergistic agents, PARP inhibitors, BCL2 inhibitors, for example, that we think will combine well, or BTK inhibitors, for that matter, for MALT1.

Plus or minus and.

Our intentions, as I said, are to generate initial clinical data with these.

So the portfolio is pretty broad we also have seven.

But in the event that a partner that we think makes sense for us is interested in partnering earlier than that, we certainly have those conversations and make the right decision for the company at that time.

Seven that are now in the clinic that's collaboration programs.

And then we have a.

Thanks.

Very quick last question is just the inflection in 2023.

A host of programs behind that and the collaboration portfolio that are approaching the clinic. So.

Is that going to be like a one-off thing or is that like the new sustained level beyond 2023?

Thanks.

Yeah.

So, Andrew, we're not providing guidance beyond 2023 at this point, but what we'll say is that we do see, because of the business and the portfolio progressing, that there's a real opportunity to drive very strong revenue in the discovery business.

In general the opportunity to earn larger and larger milestones comes as these programs progress and we map out program by program, what our opportunities are and we risk adjust and we're providing an outlook that we believe that we will achieve and it's really important to note that.

We've indicated a level for you in 2023 to think about, and I think that shows you the kind of business that we think it can be, both in terms of the very strong growth rate that that would imply, but also just in terms of the size of that business as our portfolio continues to mature.

Remember, I said that we have seven collaboration programs that are already in the clinic and a whole slew that are right behind them. So, it's a robust business that is starting to emerge, and we're excited about the revenue growth opportunities going forward.

Okay.

That's really the baseline for the collaboration business that goal.

Thank you, everyone, for all the color.

Appreciate it.

That it does not include.

Any potential revenue from if we partner our three lead any of our three lead internal programs.

Okay, that's great and then a question for Karen.

What's left in the malt one IND filing.

<unk> filing before you get to that.

Have you done a pre IND meeting with the FDA as one planned.

Thanks.

We are complete with our GOP Tox studies and we are in that launch phase.

Planning for the IND submission.

We have actually.

Mark Trinity to interact with the agency as you're pointing out and so we think that gives us a lot of.

Opportunity to submit a package that well considered and we expect that to happen as we said in the first half of this year.

Great. Thanks for taking my questions and congrats on the quarter.

Thanks Bill.

Thank you. Your next question comes from the line of Big from for Heath Byrd Morgan Stanley . Please go ahead.

Congrats.

Great. Thanks for taking my questions so far.

Thank you.

Your next question comes from the line of Matt Hewitt with Craig Hallam Capital.

The first one was on the software sales guidance for 2022.

Annual revenue is expected to range from 126 to 136 million, representing 11 to 20% growth over 2021, approximately 16% at the midpoint.

So you guided to a range of 11% to I believe a 20% increase over 2021.

At the bookings could you just talk about what you think drives performance to either.

Right.

Those bookends of guidance and then I have a follow up.

With regard to software, we are very pleased with our track record and excited about the, opportunity for continued expansion.

Please go ahead.

Consistent with prior years, we anticipate that revenue will vary from quarter to quarter. Similar to 2021, we expect the first and fourth quarters to be our largest two revenue quarters, with a larger proportion of the annual revenue coming in the fourth quarter, as was the case in each of the last two years. Accordingly, we expect the second and third quarters to be our lowest revenue quarters, also consistent with previous seasonality patterns.

For the first quarter specifically, we expect software revenue to range from 28 to 30 million. The range reflects approximately 10% growth over the first quarter of 2021 at the midpoint.

Sure Vikram, we can talk about that so.

Again, we're coming off a strong year, we see these underlying trends.

Yeah.

So, really, it is both, but as I said, upsizing does play a large role among our largest customers and also in this broader group.

Got it.

In both our large existing customers continuing to increase adoption of our solutions. We have had pretty steady addition of new customers for a long time now and so we think we can continue growing at a strong pace over a multiple year period.

And then, I guess, just piggybacking off of that, right, just generally, are you seeing, you know, new customers come in, you know, regardless of size, just on average?

Are they coming in and, you know, I guess, coming in with a large ACV, or are they gradually increasing their ACV year to year?

You know, I mean, it really depends.

Oh, go ahead.

<unk>.

In 2022, as you said, we've guided to a range of.

Equates to 11% to 20% growth.

And the bookends as we've described before really center around how how how.

Oh, sorry.

Go ahead.

No, no, please.

How much progress we can make in getting our largest customers to really significantly commit fully and extensively to our approach to drug discovery.

Go ahead.

No, go ahead.

We expect drug discovery revenue to range from 35 to 45 million, reflecting 42 to 82% growth over the last year. A significant portion of this revenue is driven by the timing of collaboration programs achieving, certain milestones, and can therefore vary from period to period.

Okay.

We are pleased with the continued strong outlook anticipated this year, which reflects progress, across our collaborative pipeline and our intention to progress our lead internal programs into phase one clinical development independently.

I was just going to say that it really depends because I think we would have answered that question a couple of years ago that they start lower and then they start to gradually upsize.

In 2022, we expect the first two quarters to be at revenue level similar to the first, two quarters of 2021, with most of the growth coming in the second half of the year, and in particular, in the fourth quarter.

But as I said before, we've seen examples this year where there were new customers that came in at a much higher level than had been typically the case. Now, clearly, there are smaller companies with maybe one program or two programs that will come in at the lower end of the range, and as they achieve success and build out their discovery efforts, will continue to upsize.

But I think there's a broad understanding in the marketplace of the power of our technology.

And as people move around and as people form new companies, sometimes the initiation levels are higher than they have been in the past.

As we've talked about in the past the gap between even.

I don't know, Rami, if you had other things to add.

That's exactly what I was – yeah, exactly.

I would also like to comment on how we expect operating expense and software gross margin, to trend for this year.

Perfect.

We anticipate that operating expense growth will be similar to the 42% annual growth rate we saw in 2021 as we invest in advancing our internal programs into the clinic.

Thanks, guys, for the call.

Largest customers deployment of our solutions those are getting larger and larger but the gap between their deployment of our solutions and the level at which we deploy our solutions on our internal programs in our collaboration programs is still very large and it's still at a fraction of what we think is.

We also anticipate the software gross margin percentage to be in the mid-70s.

And, again, best of luck, Joel, and congrats, Karen.

Thanks, Laura.

Thank you.

Thank you.

© BF-WATCH TV 2021, අපි කිරීමට කරන්න.

I'm showing no further questions at this time.

, [music]

This concludes today's conference call. You may now disconnect.

Thank you.

The optimal if that is the deployment by our customers and so we're working continuously to.

Move customers.

Along that path, we're making great progress we showed a lot of that in the fourth quarter and we're excited about the conversations we're having around that and we think theres a lot of opportunity there.

Asleep.

More of that happens.

More towards the top end of the book and you are.

But it's unpredictable so.

For whatever reason those those.

The decision to take a little longer or the upsizing is not quite as.

Extensive as we will be working towards that.

Towards the bottom end, so that's kind of the natural variation in the software outlook.

Okay understood. Thanks, correct Vikram, therefore, sorry, I'd also add Vikram, we were very pleased with the.

Overall, we are very pleased with the progress we made last year, which we believe positions us for continued momentum as we look ahead.

With the track record of execution, we've had over the last two years and.

In addition to the financial outlook for 2022 that we provided today, we have outlined key strategic goals for the next two years. This includes our expectation that we will see further adoption of our software platform with our goal of ACV growth of over 20% in 2023.

I think we're confident that we can continue to have these discussions and succeed in getting them to move along that path not just this year in 2022, but over the longer term as well.

Great understood.

That's helpful. And then I had a follow up on your wholly owned pipeline. So you mentioned that there were two molecules added recently I think what in immunology oncology and I'd just be curious to get your thoughts on how you prioritize which mechanisms in which molecules you decided to add to your pipeline.

We also expect an inflection in our drug discovery business with 2023 revenue of at least $100 million. Notably, the drug discovery revenue goal excludes potential revenue from partnering any of our three lead internal programs.

And how you weigh kind of the mix of scientific rationale development pathways and <unk>.

Commercial opportunity when making these decisions and on a related note.

What is the cadence of what you think.

You could be expanding this pipeline further in 2022 and 2023.

I'd like to wrap up on a personal note.

I'll be retiring at the end of the month, and I'm looking forward to spending more time with my family before deciding what's next. It's been an absolute pleasure to be a member of the Schrodinger team over the past three years, working with so many great people, and to be a part of the company's IPO, to help advance our strategy over this time, and to build the capabilities required to support a global public company.

I've greatly appreciated the opportunity to work with all of you as well in the investment community, and I look forward to tracking the company's continued success.

Thanks, Thanks for the question.

I'll now turn the call over to Karen for an update on our drug discovery programs.

Thank you, Joel, and good morning, everyone.

In terms of the selection of program.

We focused on.

In 2021, we continue to make important advances on many fronts across our portfolio of collaborative programs and our internal drug discovery pipeline. We are pleased to see multiple programs advance into preclinical and clinical development. A total of seven collaborative programs are in the clinic, which underscores the impact of our platform.

We are excited about Nimbus's recent announcements highlighting the initiation of a Phase IIb study of the company's TIK2 inhibitor, and initiation of a Phase I-II study in their HBK1 program.

Target mechanism that we believe have pre.

Preclinical and more importantly, human evidence that means some evidence from initial clinical studies for a particular mechanism or indeed, human genetics or both.

We don't think it's appropriate for us to take a lot of risk on the biology.

And so the targets that we feel like.

Both well positioned for our platform in terms of our ability to solve specific design challenges.

And we also look very closely at the clinical landscape, the biomarker opportunity our ability to generate compelling clinical.

Data in early trials.

And obviously the longer term potential of the mechanism as it relates to the broader landscape. Both indications so all of that goes into consideration.

I think that the key design challenges, but we think we consult with our platform.

I think your second question was regarding capacity.

And the pipeline.

We have added the two programs in immunology and oncology.

Looking at a number of programs right now in feasibility, but we believe will be replacements for the programs that are graduating out of the pipeline or the discovery pipeline.

Into.

On G&A Bling and clinical study so that means that we'll be keeping a steady state of around five wholly owned program.

Time that may change, but for now we think that's a good number for us.

In the discovery portfolio.

Okay.

Understood.

Thanks, a lot appreciate it.

Thank you. Your next question comes from the line of Michael Yee with Jefferies. Please go ahead.

Okay. Thanks, everyone. This is Andrew Tsai on for Michael. Your first question is on the software guidance again for 2022 I'm just trying to gauge whether you think your current guidance is conservative so maybe talk about whether you.

Thank you business is fundamentally accelerating and maybe to kind of discuss whether there's even more upside to what you've guided to you or do you think the bookends that you provided is fair based on what Youre seeing out there. That's my first question.

Thanks, Andrew Yes, we establish our guidance based on what we believe our outlook is.

And we're confident in our guidance.

I'd say that at the same time as we look at it.

At the business over a longer period of time and what we think is possible over a multiyear period, we think that.

As I said the the.

Pathway for our largest customers to continue to upsize their deployment is significant.

And we have a lot of opportunity for growth there.

<unk> are.

We have proven that we're able to attract new customers to the business pretty consistently.

We anticipate that both those trends as evidenced by the overall ATV growth of 22% in 2021.

Will has.

The opportunity to continue over a long period of time and if you look at.

2023.

<unk> strategic goal that we've outlined of.

Greater than 20% ACB in 2023, that's an indicator that we are confident in the strong continued growth in the business.

Thanks and.

On the drug discovery again, I know you expect that inflection there in 2023, which excludes partnerships for our lead compound. So I'm curious what your latest thinking actually is for these lead compounds do you have any intention to partner them out even in 2022.

Chinese three and.

Would you be considering like a multi target thing like the Bristol deal or would you at this stage partner out a specific program just your latest thinking would be helpful. Thank you.

Yeah, I can take that Andrew.

We continue speaking with potential.

Company comp.

With us in the way that we did with BMS is obviously a lot of interest in accessing the platform at scale as we have done across our existing collaborative portfolio.

The BMS collaboration we continent programs really early on in the lifestyle.

But.

And so yeah, there's obviously potential for us to do similar partnerships.

With regard to our wholly owned advanced asset.

We have intention to take those into the clinic as you've heard today.

Do they continue to talk to companies who have.

Synergistic agent PARP inhibitors b.

<unk> inhibitors for example that we think will combine well Ob TK inhibitor. So that massive promote one our intention as I started to generate initial clinical data with these.

In the event that a continent that we think makes sense for us.

If interested in partnering.

We certainly have the conversation then make the right decision.

The company at that time.

Yeah.

Thanks very quick last question is just the inflection in 2023 is that going to be like a one off thing or is that like the new sustained level.

Beyond 2023.

Sure.

Yeah, So Andrew were.

We're not providing guidance beyond 2023 at this point, but.

What we'll say is that.

We do see because of the business and the portfolio progressing.

That.

Theres a real opportunity.

To drive.

Very strong revenue in the discovery business and we've indicated a level for you in 2023 to think about.

And I think that that shows you the kind of business that we think it can be.

Both in terms of the very strong growth rate that that would imply.

But also just in terms of the size of that business as our portfolio continues to mature and remember I said that we have seven programs that our collaboration programs that are already in the clinic and a whole slew that are right behind them. So.

Robust business that is starting to emerge and we are excited about the revenue growth opportunities going forward.

Okay. Thank you everyone for all the color I appreciate it congrats.

This is Lucas on for Matt Hewitt.

Thank you. Your next question comes from the line of Matt Hewitt with Craig Hallum Capital. Please go ahead.

I guess for my first question, when we look at the large expansions that were signed in Q4, did all of that revenue get recognized during the quarter, or do some of those licenses not switch on until January?

Yes. This is Lucas on for Matt Hewitt.

I guess for my first question.

When we look at the large expansions that were signed in Q4 did all of that revenue get recognized during the quarter or do some of those licenses not switch on until January .

Sure, Lucas.

Sure Lucas yes.

I will thanks, Thanks Rami.

Fourth quarter is our largest volume quarter in terms of renewals.

Yes.

And also we did have some large expansions as well this quarter. Some of those are for fourth quarter recognition in fourth quarter contract starts and some are for contract starts that flip over to the new year and therefore get the.

Yeah, I will.

Recorded in deferred revenue at the end of the year and you can see that our deferred revenue software balance increased by 22% year over year versus the fourth quarter of 2020. So that also shows.

Thanks, Rami.

Fourth quarter is our largest volume quarter in terms of renewals, and also we did have some large expansions as well this quarter. Some of those are for fourth quarter recognition and fourth quarter contract starts, and some are for contract starts that flip over to the new year and therefore get recorded in deferred revenue at the end of the year. And you can see that our deferred revenue software balance increased by 22% year over year versus the fourth quarter of 2020.

A large increase and thats reflective of the fact that some of the <unk>.

So, that also shows a large increase, and that's reflective of the fact that some of the bookings, that we have in the fourth quarter do, in fact, get recognized in the first quarter as revenue.

Bookings that we have in the fourth quarter do in fact get recognized in the first quarter as revenue.

Excellent.

Excellent that's helpful. And then for my second question historically customers have had to do some crystallography work on their own before adopting your software now that you've acquired X THL and can do that work for them do you foresee an increase in adoption for the software.

Yes, that's a really great questions as Rami I'll take I'll answer that so.

Our computational software relies upon high-quality 3D protein structures that are obtained from techniques such as X-ray crystallography and Cryo-EM. Because accurate structures are also core to our drug discovery business, our strategy includes scaling up our structural biology capabilities and our access to high-quality target structures that are fully enabled for our computational platform. As part of this strategy, last month we acquired Extal Biostructures, a private company based in the Boston area that provides structural biology services to the biopharmaceutical industry.

That's helpful.

That's a really great question absolutely.

Structure-based drug design continues to have a transformative impact on drug discovery, and this acquisition provides a tremendous opportunity for Schrodinger to be at the forefront of this field by combining experimental and computational methods. Additionally, this acquisition will augment our ability to produce high-quality target structures for our drug discovery programs and, in the future, expand our offerings to include an advanced and differentiated service that provides customers access to protein structures that have been computationally validated and are ready for structure-based virtual screening and lead optimization.

Now, I will highlight the progress made on our three most advanced internal programs, MORT1, CDC7, and WE1. Starting with our MORT1 inhibitor program, we have made significant progress in the last year. MORT1, a regulator of NF-kappa-B that is downstream of BTK, has emerged as a potential therapeutic strategy to treat certain relapsed or resistant B-cell lymphomas and chronic lymphocytic leukemia. In December, we presented preclinical data from this program at the American Society of Hematology annual meeting.

The data presented suggests that targeting MORT1 may expand therapeutic options for patients with certain subtypes of non-Hodgkin's B-cell lymphomas, such as ABCDLBCL, with the possibility of expanding into other B-cell lymphomas, such as mantle cell lymphoma. Furthermore, our preclinical data has shown that our compounds have strong anti-tumor activity, both alone and in combination with BTK inhibitors, to overcome drug-induced resistance in samples derived from patients with relapsed and resistant B-cell lymphomas.

That's a big part of the strategy that we saw when when acquiring the company that's not necessarily something that youll see right away of course, I mean that will take time, but our expectation is not just also from the.

We are on track to submit the IND to the FDA for our MORT1 development candidate in the first half of this year. Subject to regulatory clearance, we expect to initiate our first Phase I clinical study of our MORT1 inhibitor in patients with relapsed and resistant lymphoma in the second half of 2022.

As our wholly-owned programs advance toward the clinic, we have enhanced our team in key areas, including early clinical development, CMC, and regulatory affairs.

We have also initiated a search for a chief medical officer to support our clinical development strategy and activities.

Acquisition, but it is from.

Many efforts that we've undertaken and increasing the availability of high quality structures and as we succeeded in that endeavor. Then we will certainly see an increase in the demand for the software.

Now I'll turn to our CDC-7 program.

And then for my second question, historically customers have had to do some crystallography work on their own before adopting your software.

Thanks, that's all I had.

Thanks.

Thank you. Your next question comes from the line of Gary Nachman with BMO capital markets. Please go ahead.

CDC-7 is a protein kinase that is required for DNA replication initiation. CDC-7 is also thought to be linked to cancer cells' proliferative capacity and ability to bypass normal DNA damage responses. Targeting proteins that play important roles in DNA replication and replication stress is gaining momentum as a therapeutic approach for cancer.

Now that you've acquired XTAL and can do that work for them, do you foresee an increase in adoption for the software?

Last year, we selected a development candidate for our CDC-7 program. We are very pleased with the profile of our molecule, which has demonstrated strong antitumor activity in preclinical models of AML in combination with venetoclax and other marketed agents. IND-enabling studies are progressing. However, the timing of some required toxicology studies, which are performed by a CRO, have been delayed due to COVID-19-related issues. We have secured slots to complete these tox studies later this year, and we now expect to submit the IND to the FDA for our CDC-7 candidate in early 2023 and to initiate a Phase I clinical study later that same year.

Hi, good afternoon, and nice quarter guys.

I'll now move on to our WE-1 inhibitor program, which also targets cancer through replication stress and DNA repair mechanisms. We have identified multiple highly selective WE-1 inhibitors with desirable drug-like properties that show strong pharmacodynamic responses and antitumor activity in preclinical models. We believe the profile of our compound supports evaluation in the clinic as monotherapy as well as in combination with other agents.

We are on track to select a development candidate later this year and expect to submit an IND to the FDA next year.

We are also planning to present preclinical data from our WE-1 program in the first half of this year.

As our first three internal programs advance towards the clinic, we are adding new programs to our pipeline. In 2021, we added two new programs, one in oncology and the other in immunology. We now have five wholly owned programs and expect to initiate additional programs this year. In summary, our diverse portfolio of collaborative and internal programs is rapidly advancing towards the clinic.

On your software growth in 'twenty two.

Activities to support expansion of our pipeline into additional disease areas are well underway, and we have acquired internal structural biology capabilities that will allow us to produce high-quality target structures that are fully enabled for our computational platform.

We are excited about the progress that we and our collaborators are making and look forward to updating you on our R&D activities throughout the year.

And inflationary environment can you take price on your software programs is that baked in there at all to your guidance and the growth in the ECB I guess that we saw in 'twenty, one and maybe that would spill over into 'twenty two.

And how much of the growth should be from new business versus existing customers you're talking it up.

High level, maybe you could specify that a little bit more.

And how much in terms of the life sciences versus the materials.

How much of the materials really accelerating maybe over the next year or two.

Yeah.

I will now turn the call back over to Rami.

Yeah, that's a really great question.

Sure. Thanks, Gary I can take that so with regard to new versus existing business.

This is Rami.

Thanks, Karen.

I'll answer that.

2022 has the potential to be another strong year for Schrodinger.

So, that's a really great question.

Our long-term strategy leverages synergies across our business, and we have laid out several key objectives over the next two years that can generate value and position us for continued success. These objectives include ongoing growth in adoption and scale-up of our software platform, with ACV growth of over 20% in 2023, inflection in our drug discovery business with 2023 drug discovery revenue of at least $100 million, which does not include potential revenue from partnering our three lead internal programs, IND submission for our Malt 1 program in the first half of 2022, and IND submissions for our CDC-7 and WE-1 programs in 2023.

<unk>.

When we see these opportunities are really large.

Increases in a particular quarter or a year it tends to be more driven by the.

Absolutely.

Upsizing decisions of some of our largest customers.

That's a big part of the strategy that we saw when acquiring the company.

That's not necessarily something that you'll see right away, of course.

You can imagine a $1 million customer Ken Tripp.

Triple the size of the contract then obviously, that's a pretty big increase and it hasnt.

Outsized impact on the overall growth rate.

But that being and that has been.

Steady pattern for the last couple of years.

But.

But we shouldn't ignore the fact that we are attracting new customers and it's been really steady.

We.

We are seeing growth in both life science and materials in 2021 did attract.

Even though we have a lot of life science customers did attract new customers on that side of the business as new biotechs Reformed a lot of them are formed.

We're also focusing on <unk>.

Different geographic markets markets as well so we're growing both sides.

We're pursuing both strategies for growth, we havent really given out.

Haven't broken out the.

The two separately I would say that the opportunities for these real big jobs, though are primarily driven by existing customers.

Deploying our solutions at a much higher level.

I mean, that will take time.

And can you just remind me what your first question was Gary sorry, Yes, yes. It was on.

But our expectation is not just also from the acquisition, but it's from many efforts that we've undertaken in increasing the availability of high-quality structures.

Pricing.

And then in place rate environment like are you able to take price on your software programs and also their input costs, maybe that go up.

We hear other companies have been doing it.

And as we succeed in that endeavor, then we will certainly see an increase in the demand for the software.

Sure.

No.

We have a we have a product offering that is quite valued.

In the discovery activities and scientists really need it.

Thank you.

We're the largest player in our.

Our field and we certainly have.

Your next question comes from the line of Gary Nachman with BMO Capital Markets.

We were recognized for.

Being able to charge.

A fair price that reflects the value of our products, we do have the ability to increase price.

Please go ahead.

Hi.

Good afternoon and nice quarter, guys.

And we do marginal increases generally from.

From time to time, and we don't see that though as the primary strategy to drive growth because we really the ideas that we really want our customers to just to increase the number of licenses to the level that we believe they should and if they do that we will see.

On your software growth in 22, in an inflationary environment, can you take price on your software programs?

Is that baked in there at all to your guidance and the growth in the ECB, I guess, that we saw in 21 and maybe that would spill over into 22?

And how much of the growth should be from new business versus existing customers?

You're talking, you know, at a high level.

A multiple.

The effect on our revenue line and so that is really our strategy.

Okay, Great and then just a couple more for Karen can you talk about what the phase one will look like for malt one that youre going to start in the second half of the year you mentioned for relapse in resistant lymphoma, if he could.

Phase 1 clinical study initiation for our Malt 1 program in the second half of 2022, and phase 1 clinical study initiation of our CDC-7 and WE-1 programs in 2023.

Give some specifics on that if you have it.

And then just back to you Rami just on expanding operations into South Korea.

I'm, assuming that's to serve not just south Korea, but maybe the whole Asia Pac region. So maybe you could just talk a little bit about the type of opportunity that you're seeing there.

Yes, Karen you want to look at Tacoma won programs.

Publication of data from internal programs in peer-reviewed forums.

Yes, so Gary.

We'll be discussing the design of our phase one study in more detail as we progress through the year, what I can tell you is that this.

Initiation of multiple new internal programs that leverage our structural biology capabilities.

Initiation of material science collaborations in multiple verticals, such as clean energy, and sustainable materials.

We have an exceptional team committed to transforming the way therapeutics and materials are discovered, and we look forward to providing updates on our progress throughout the year.

This study is focused on safety Tolerability as you can imagine in.

All comers with B cell and panel that's going to be the initial focus of the study.

We are also thinking about the cohort expansion and how we'll be assessing proof of target engagement.

As well as proof of biology.

In this trial, but again I think we will reserve comment on the design of the phase one until we're a little bit further along at some.

This year.

Yes, and then just real quick thanks, Ken just really quick on the question about South Korea, we already had actually.

A few distributors in South Korea. So we've been there we understand the opportunity both on the life science in materials Science business, we saw the opportunity and recognize the obvious thing that if we established our own operation. There we can capitalize on the significant opportunity there more effectively we already have.

Operations in a number of other Asian countries, we have a K K of course.

<unk> in China, we do have a pretty significant operation in India and other countries.

That region through distributors. So we so I hope that answers. The question the South Korea was specific to the South Korean market for now.

Okay and just in general when do you think we'll see more of an inflection I guess from that overall region. In general is that could that happen this year or will take a couple of years.

Oh, yes, yes, so it does take a little bit of time to.

Establish your presence there and build up the team.

So we're not guiding to any particular inflection.

In a certain region.

We have seen for example, what happened in Japan. When we did the same thing a number of years ago when we.

Replaced in some sense the distributors we had there this was quite a while ago with with our own operation there and we've seen that through investment over many years, we can see pretty significant.

Growth there, but it does take some time to build up.

Presence someone when youre entering into a new country.

Okay, Great and I also wanted to.

I wish the best of luck to Joe and also congrats to Karen Thanks.

Thanks, Gary appreciate it.

At this time, we'd be happy to take your questions.

Maybe you could specify that a little bit more.

Thank you.

Thank you once again, if you would like to ask a question. Please press star one on your telephone keypad and wait for your name to be announced your next question comes from the line of Derik de Bruin The Bank of America. Please go ahead.

Operator?

And how much in terms of the life sciences versus the materials, how much is the materials really accelerating maybe over the next year or two?

Hey, good evening and thank you for taking my questions.

As a reminder, if you have a question at this time, please press star 1 on your telephone, keypad.

Sure.

If your question has been answered or you wish to remove yourself from the queue, press, the pound key.

Once again, that's star 1 to ask a question.

Your first question comes from the line of Joe Kim with Piper Sandler.

To go back on the I'm, sorry to beat the 'twenty two guide.

Please go ahead.

Great.

Thanks for taking my questions.

For software and circle back on that but I'm just curious.

What do you think is the driver to get your customers to spend more and two to ups.

Upsell them and how they scale up with it right. I mean, you have got a number of programs currently in clinic.

There is clear.

It was clear use case for using structural biology, the methods of getting better you've got.

You've got Alpha fold, you've got other things out there. So what is sort of that inflection point that drives your customers to say, okay. Now we have to do this on a much larger scale.

Yes. So there are a couple of things one thing is.

We think we've really.

Accomplished is what you were talking about which is it's clear that the technology works and it's having the kind of.

<unk>.

That we I think I always hope that computational methods would have and you see that in our own programs. We see it in a collaborative programs that customers are definitely starting to see it in their own in their own projects. So that's kind of check that box off now what remains is a couple of things one is that you.

Need people to run the software and this is software that a lot of it.

And we're working hard to do this to make it as easy to use as possible and I think we've made a lot of progress on that but theres still you still need expertise computational chemists to run the software.

And so companies have to sort of scale up their their computational chemistry groups.

And there is there.

There is.

That's something that's going to take some time it doesn't happen overnight.

By the way, an interesting trend, where more and more chemists are transitioning into that steel, which is I think a really great sign. So that's one thing the other thing is what we've been.

Sort of touching on which is the <unk>.

Our ability of structures.

And the prioritization of programs that are structurally enabled prioritizing those programs. So that again is something that takes time, but we're seeing that trend occurring very clearly you see now essentially every pharma company investing in all sorts of.

Structural biology techs.

<unk> technologies, including Cry OEM pharma companies are buying their own.

Electron microscopes to do cry OEM, they are continuing to invest in methods, including methods that we provide and structurally enabling projects.

Obviously also takes time.

Got it.

I mean that certainly makes sense I mean basis on the other technologies that recover.

So I have two.

As a zero analysts as well I have to ask the question about.

Delays from white booking space and like that could you just talk a little bit more about that and this is something that you've seen is that with multiple clients that youre seeing thats, just some sense of what's going on in that area right. Now in terms of like what really is sort of like the underlying driving but just not not not noted mobility people coming on top of that you're spending more.

Just a curiosity.

Okay.

Sorry, I'm not sure what you were asking about the delays that yes, Kerry yes, yes, yes, the delays that Karen mentioned right. You mentioned you are having.

Yes, yes, yes, yes, yes, yes go ahead.

Yeah. This is Ben.

There's been an emerging story I think across all of biotech over the last six months.

Bob.

We have been.

Along with everyone else does a couple of species that are acquired the GOP Tox studies.

Simply backlogged around the world the supply of some of these species.

Is limited in that pushing.

Sort of can you is it work or access to that.

Smaller cohort.

The animals for the study.

We and I think a lot of other companies.

Have been in Q, and we're slowly getting access to that slot. So.

As you can imagine.

A lot of work has been going on in China. For example, and some of the restrictions that have been imposed around COVID-19 has also had an impact but we feel we're on top of that and we as I mentioned have access to currency.

Thanks, and then just one final question.

It's again on the $100 million.

In 2003 target.

Okay.

Is that a floor number for 'twenty three right I mean is it does or it is basically it's like what's the bookend on your confidence level around that.

Well the way we've described it as at least 100 million for our collaboration business. So.

We.

We see the portfolio continuing to advance and as I talked earlier.

Pretty large portfolio now so we have some diversification and forecast out with some degree of confidence that we're going to hit that.

That level that we said at least $100 million.

And then obviously you have the opportunity if we choose to do so too.

To capture additional value through out licensing or partnering any of our lead internal programs, which is not included in that in that.

$100 million.

Great. Thank you very much.

Thank you. Your next question comes from the lineup of <unk> with <unk> capital markets. Please go ahead.

Thanks, Gary.

I can take that.

Hey, guys. Thanks for taking my question.

So, with regard to new versus existing business, when we see these opportunities for really large increases in a particular quarter or a year, it tends to be more driven by the subsizing decisions of some of our largest customers. You can imagine, you know, a million-dollar customer can, you know, if they triple the size of the contract, then obviously that's a pretty big increase and has an outsized impact on the overall growth rate.

But that being – and that has been a steady pattern for the last couple of years.

Just a quick one for me.

190 customers that you guys recorded that had over 100 K ACB.

How many of them are new customers versus customers, who may increase their software consumption to exceed that of 100 K level.

Really trying to get an idea of how many customers are actually increasing their consumption versus new customers that are requiring licenses that are.

Exceeding that level.

But we shouldn't ignore the fact that we are attracting new customers, and it's been really steady.

Thanks, Karl Yes. Good question. So we don't actually break that out, but I will say this that.

I mean, if you look at the total active customers clearly the customer count continues to increase I know, we certainly know the customer list. That's included in that 190, and there are new customers there were a lot of.

We are seeing growth in both life science and materials. And in 2021 did attract, even though we have a lot of life science customers, did attract new customers on that side of the business as new biotechs were formed.

A lot of them were formed.

We're also focusing on different geographic markets as well.

Biotech companies that were formed in 2021.

So, we're growing both sides.

We're pursuing both strategies for growth.

We haven't really given out – we haven't broken out the two separately.

And we definitely signed up some some of those and those are new customers.

And interestingly, we are seeing some of them come in at a fairly sizeable levels relative to levels that maybe new customers might've started out in the past.

With.

And certainly that's the case on the materials side as thats dominated by new customers, although our largest customers on the materials side.

Got it.

We're getting pretty large as well.

So really it is both.

As I said.

Upsizing does play.

A large role among our largest customers and also in this broader group.

Got it and then I guess, just piggybacking off of that rate. Just generally are you seeing new customers come in regardless of size just on average are they coming in.

I guess.

Coming in with a large <unk> are they gradually increasing their ATV year to year.

Yes.

Oh go ahead I'm sorry go ahead no no. Please go ahead no go ahead.

I would say that the opportunities for these real big jumps, though, are primarily driven by existing customers deploying our solutions at a much higher level.

I was just going to say that it really depends because.

And can you just remind me what your first question was, Gary?

Sorry.

Yeah, it was on pricing in an inflationary environment.

I think we would've answered that question a couple of years ago that they start lower and then they start to gradually upsize, but as I said before we've seen examples this year where are we there were new customers that came in at a much higher level than that had been typically the case.

Like, are you able to take price on your software programs?

And also, if there are input costs, maybe that go up.

We hear other companies that are doing it.

Sure.

Now clearly there are smaller companies with maybe one program or two programs that will come in at the lower end of the range and as they achieve success and build out their discovery efforts will continue to upsize.

So, you know, we have a product offering that is quite valued in the discovery activities, and scientists really need it.

But I think there is.

We're the largest player in our field, and we certainly have – we're recognized for being able to charge a fair price that reflects the value of our products. We do have the ability to increase price.

We do marginal increases generally from time to time, and we don't see that, though, as, the primary strategy to drive growth, because the idea is that we really want our customers to just increase the number of licenses to the level that we believe they should, and if they do that, we'll see a multiple effect on our revenue line.

That is really our strategy.

Broad understanding in the marketplace of the power of our technology.

Okay.

And as people move around and as people form new companies.

Sometimes the initiation levels are higher than they have been in the past I don't know Rami. If you had other things to add that's exactly what I was.

Yes.

Okay.

Great.

Perfect. Thanks, guys for the color and again best of luck, Joe and congrats Karen again thanks.

First, Karen, congrats on the promotion, and Joel, I wanted to wish you well on your retirement.

And then just a couple more for Karen.

On the fourth quarter earnings, Joel, is there anything specific that you could point to, in the quarter that drove the strength in software revenue?

Can you talk about what the Phase 1 will look like for Malt 1 that you're going to start, in the second half of the year?

You mentioned for relapse and resistant lymphoma, if you could give some specifics on that, if you have it.

As we look at the number of customers with over 1 million in ACV, you said the difference, from 2020 to 2021 was a timing.

And then just back to you, Ramy, just, you know, on expanding operations into South Korea, I'm assuming that's to serve not just South Korea, but maybe the whole Asia-Pac region.

Yep.

So, maybe you can just talk a little bit about the type of opportunity that you're seeing there.

Thanks Scott.

What does that exactly mean?

Thank you.

Sure.

Thank you I'm showing no further question at this time. This concludes today's conference call you may now disconnect.

Thanks, Joe, and thanks for those comments.

Thank you. Thank you.

We appreciate it.

With regard to software, we're obviously very pleased with the quarter of 55% growth, the, year of 22% growth, and in the fourth quarter in particular, we continue to see the trends that we've been seeing all along, which is continued progress of our existing customers, many of whom are our largest customers, continuing to increase adoption of our solutions. In the fourth quarter, we saw some really good examples of that, and some of them were, pretty large.

Okay.

[music].

Okay.

[music].

[music].

[music].

That really did help drive the business, but I'd say the performance in the business in, the quarter in the year was also broad-based.

Karen, you want to take the Malt 1 program?

Sure.

Yeah.

[music].