Q2 2022 Schrodinger Inc Earnings Call

August 4, 2022

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[music].

Operator: The conference will begin shortly.

Operator: My name is Dede, and I'll be your operator for today's call.

Okay.

Thank you for standing by welcome to Schroder Nurse Conference call to review second quarter 2022 financial results.

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

My name is Judy and I'll be your operator for today's call at this time all participants are in a listen only mode.

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Operator: After the speaker's presentation, there will be a question and answer session.

After the Speakers' presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

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Operator: To ask a question during the session, you will need to press star 11 on your telephone. Please be advised that this call is being recorded at the company's request.

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 Ms. Sharon Madden.

Operator: Welcome to Schrodinger's conference call.

Operator: Now, I would like to introduce your host for today's conference, Ms. Jaren Madden, Senior, Vice President of Investor Relations and Corporate Affairs.

Senior Vice President of Investor Relations and corporate Affairs. Please go ahead Sharon.

Operator: This is a call to review second quarter 2022 financial results.

Operator: Please go ahead, Jaren.

Thank you and good afternoon, everyone welcome to today's call during which we will provide an update on the company and review our second quarter 2022 financial results.

Operator: My name is Dede, and I'll be your operator for today's call.

Operator: Thank you, and good afternoon, everyone.

Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at www Dot Shredder Dot com.

With me on our call today are Rami for Reed, Chief Executive Officer, Jenny Hernan, Senior Vice President Finance and corporate controller inherent Arkansas President of R&D Therapeutics, following our prepared remarks, well open the call for Q&A.

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 our outlook for the full year 2022 and for the third quarter.

Ending September 32022, our strategic plan to accelerate the growth of our software business and advance our collaborative and internal drug discovery programs, the timing of potential A&D submissions and the initiation of clinical trials for our internal drug discovery programs.

Related 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 information currently available to us and on assumptions. We have made actual results may differ materially from what we project today due to a number of important factors, including the considerations described in the risk.

Factors section and elsewhere in the filings, we make with the SEC, including our Form 10-Q for the period ended June 32022.

These forward looking statements represent our views only as of today and we caution you that we may not update them in the future whether as a result of new information future events or otherwise with that I'd like to turn the call over to Rami. Thank you Sharon and thank you everyone for joining us today.

Operator: Welcome to today's call, during which we will provide an update on the company and review, our second quarter 2022 financial results. Earlier today, we issued a press release summarizing our financial results and progress across, the company, which is available on our website at www.schrodinger.com.

Operator: At this time, all participants are in a listen only mode.

Operator: Here with me on our call today are Rami Fareed, Chief Executive Officer, Jenny Herman, Senior, Vice President, Finance and Corporate Controller, and Karen Akinsanya, President of R&D Therapeutics.

Operator: 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 1 on your telephone. Please be advised that this call is being recorded at the company's request.

Schrodinger, we have developed the computational platform that is transforming the way therapeutics. Our materials are discovered we license our platform to biopharma and materials companies as well as government and academic institutions around the world today, We reported second quarter software revenue of $30 million or 25% increase over the prior year. We also.

Operator: Now, I would like to introduce your host for today's conference, Ms. Jaren Madden, Senior Vice President of Investor Relations and Corporate Affairs.

Jaren Madden: Please go ahead, Jaren.

Jaren Madden: Thank you, and good afternoon, everyone.

Jaren Madden: Welcome to today's call, during which we will provide an update on the company and review our second quarter 2022 financial results.

Recognize milestones from multiple collaborative programs during the second quarter, which helped drive drug discovery revenue of $8 $5 million with strong performance across both aspects of our business led to total revenue of $38 5 million for the second quarter and $87 1 million for the first half of 2022, representing 29% and 40.

Jaren Madden: Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at www.schrodinger.com.

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

Jaren Madden: Here with me on our call today are Rami Fareed, Chief Executive Officer, Jenny Herman, Senior Vice President, Finance and Corporate Controller, and Karen Akinsanya, President of R&D Therapeutics.

Operator: 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, our outlook for the full year 2022 and for the third quarter ending September 30th, 2022, our strategic plans to accelerate, the growth of our software business and advance our collaborative and internal drug discovery programs, the timings of potential IND submissions and the initiation of clinical trials for our internal drug discovery programs, risks related 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.

Operator: 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.

1% growth over the respective prior periods. We are very pleased with the performance. We've had in the first half of 2022, and we are maintaining our full year financial guidance.

Jaren Madden: Following our prepared remarks, we'll open the call for Q&A, our strategic plans to accelerate the growth of our software business and advance our collaborative and internal drug discovery programs, the timings of potential IND submissions and the initiation of clinical trials for our internal drug discovery programs, risks related 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.

Operator: Actual results may differ materially from what we project today due to a number of important, factors, including the considerations described in the risk factors section and elsewhere in the filings we make with the SEC, including our Form 10-Q for the period ended June 30, 2022.

Jaren Madden: These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from what we project today due to a number of important factors, including the considerations described in the risk factors section and elsewhere in the filings we make with the SEC, including our Form 10-Q for the period ended June 30, 2022.

Jaren Madden: These forward-looking statements represent our views only as of today, and we caution, you that we may not update them in the future, whether as a result of new information, future events, or otherwise.

We have built a highly differentiated company that we believe enables us to continue to innovate while providing a solid foundation for growing revenue.

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

We ended the quarter with approximately $513 million in cash we believe our strong financial position provides sufficient runway to fund our operations for the foreseeable future, including advancing our wholly owned programs into clinical studies. We are pleased that revenue growth from both our software business and drug discovery collaborations.

Operator: These forward-looking statements represent our views only as of today, and we caution, you that we may not update them in the future, whether as a result of new information, future events, or otherwise.

Operator: With that, I'd like to turn the call over to Rami.

<unk> enables us to make continued investments in our platform and pipeline, while also providing a path to profitability.

As you'll hear shortly from Karin we are also continuing to make progress across our wholly owned pipeline during the second quarter, we submitted the IND for our <unk> inhibitor <unk> five and we are now clear to proceed with our phase one clinical trial. This was our first internal IND submission and represents a tremendous achieved.

For Schrodinger, we're looking forward to initiating the phase one trial for <unk> five in patients with relapsed or refractory b cell lymphoma in the fourth quarter of this year.

We are continuing to invest in the science underlying our platform. For example, we broadened the applicability of our platform through an important advancement with our induce the docking methods to optimize homology models to enable predictive modeling of targets were experimental structures have been unavailable.

We have already successfully applied this method to advance our collaborative drug discovery program for a target that was not structurally enabled we were pleased to advance the project from early discovery to lead optimization entry nearly six months ahead of the originally targeted schedule. Our scientists continue to publish our independent and collaborative scientific advance.

<unk> and recently coauthored a manuscript with Nimbus therapeutics based on data from our ongoing collaboration describing how our predictive computational methods accelerated the discovery of Nimbus as potent selective <unk> inhibitors with activity in preclinical models of psoriasis we.

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

We are excited by the progress we have made and we expect continued achievements across all aspects of our business throughout the year as we advance our vision of transforming drug discovery and materials design I will now turn the call over to Jenny to review, our second quarter financial results. Thank you Rami and Hello, everyone I am.

Ramy Farid: At Schrodinger, we have developed a computational platform that is transforming the way therapeutics, and materials are discovered. We license our platform to biopharma and materials companies, as well as government and academic, institutions around the world.

Ramy Farid: Today, we reported second-quarter software revenue of $30 million, a 25 percent increase, over the prior year.

Operator: Thanks, Sharon, and thank you, everyone, for joining us today.

Ramy Farid: We also recognized milestones from multiple collaborative programs during the second quarter, which helped drive drug discovery revenue of $8.5 million.

Operator: At Schrodinger, we have developed a computational platform that is transforming the way therapeutics, and materials are discovered. We license our platform to biopharma and materials companies, as well as government and academic, institutions around the world.

Pleased to discuss our financial results for the second quarter of this year total revenue was $38 5 million for the quarter up 29% compared to the second quarter of 2021 software revenue was $30 million, representing 25% growth compared to the second quarter of 2021.

Ramy Farid: The strong performance across both aspects of our business led to total revenue of $38.5, million for the second quarter and $87.1 million for the first half of 2022, representing 29 percent and 41 percent growth over the respective prior periods.

Operator: Today, we reported second-quarter software revenue of $30 million, a 25 percent increase, over the prior year.

As in prior quarters the growth in software revenue was primarily driven by increased adoption of our software solutions by existing customers as well as the addition of new customers during the quarter drug discovery revenue was $8 5 million for the second quarter of 2022 compared to $5 7 million in the second quarter of 2021.

Operator: We also recognize milestones from multiple collaborative programs during the second quarter, which helped drive drug discovery revenue of $8.5 million.

Operator: The strong performance across both aspects of our business led to total revenue of $38.5, million for the second quarter and $87.1 million for the first half of 2022, representing 29 percent and 41 percent growth over the respective prior periods.

Drug discovery revenue for the quarter included $5 4 million in revenue recognized from our ongoing collaboration with Bristol Myers Squibb as well as revenue from preclinical milestones related to two of our collaborative programs gross profit was $17 1 million in the second quarter up 43 <unk>.

Sent over the second quarter of 2021 software gross margin was 76% in the second quarter of 2022 compared to 77% for the second quarter last year, we continue to make investments to support the rollout of large scale deployments of our platform operating expense was $60 6 million.

Paired to $42 3 million for the same quarter last year. This reflects our continued investment in R&D to advance the science underlying our platform and to progress our internal drug discovery programs as well as infrastructure costs and the addition of staff and G&A functions to support our business.

We recorded a net loss of $47 7 million for the second quarter of 2022 compared to a loss of $35 million for the same period in the prior year as we mark to market. The equity Stakes, we hold in our collaborators each quarter, we can experience significant fluctuations in the value of our holdings and included in our 47.

7 million net loss was a loss of $15 7 million on our equity holdings in the second quarter of 2022 compared to a loss of $4 9 million on our equity holdings in the second quarter of 2021.

We ended the quarter with cash equivalents marketable securities and restricted cash balances of approximately $513 million compared to approximately 529 million on March 31 2022.

Ramy Farid: We are very pleased with the performance we've had in the first half of 2022, and we are, maintaining our full-year financial guidance.

In February we provided our financial outlook for the full year and today. We are pleased to reaffirm our 2022 financial guidance before reviewing our financial outlook in detail I'll remind you that our software revenue fluctuates quarter to quarter due to the seasonality of our business with the second and third quarters historically been a quarter's worth.

The lowest software revenue for the third quarter of 2022, specifically, we expect software revenue to range from 23 to 25 million similar to software revenue for the third quarter of last year, which was $24 3 million.

Ramy Farid: We have built a highly differentiated company that we believe enables us to continue to, innovate while providing a solid foundation for growing revenue.

We have fewer customers up for renewal in the third quarter.

Ramy Farid: We ended the quarter with approximately $513 million in cash. We believe our strong financial position provides sufficient runway to fund our operations, for the foreseeable future, including advancing our wholly-owned programs into clinical studies.

Anticipated growth is expected to be offset by multiyear contracts executed over the past two years.

Fourth quarter is expected to be our largest quarter for software revenue, which was the case in the last two years, we have a high level of visibility into our existing accounts, which have been the primary driver of growth given our broad customer base. We are pleased with the level of engagement by software users as well as the heads of R&D and we are encouraged by the continued scale.

<unk> of adoption of our software platform, Let me now review, our 2022 financial outlook in more detail.

We continue to expect total annual revenue to be in the range of 161 to 181 million corresponding to 17% to 31% growth over 2021, we expect software revenue to range from $126 million to $136 million, representing 11% to <unk>.

20% growth over last year.

We continue to expect drug discovery revenue to range from $35 million to $45 million, representing 42% to 82% growth over last year drug discovery revenue fluctuate from quarter to quarter, largely based on the timing of achieving certain milestones within our collaborative programs.

Finally, we continue to anticipate that operating expense growth will be slightly lower than the 42% annual growth. We saw in 2021, we.

We expect our software gross margin percentage to be in the mid seventies.

Ramy Farid: We are pleased that revenue growth from both our software business and drug discovery collaboration, enables us to make continued investments in our platform and pipeline while also providing a path to profitability.

Operator: We are very pleased with the performance we've had in the first half of 2022, and we are, We have built a highly differentiated company that we believe enables us to continue to innovate while providing a solid foundation for growing revenue.

We're very pleased with the strong start to our year and we expect continued progress in the second half of this year.

Ramy Farid: As you'll hear shortly from Karen, we are also continuing to make progress across our, wholly-owned pipeline.

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

Ramy Farid: During the second quarter, we submitted the IND for our Malt-1 inhibitor, SGR-1505, and, we are now clear to proceed with our Phase I clinical trial. This was our first internal IND submission and represents a tremendous achievement for, Schrodinger.

Operator: We ended the quarter with approximately $513 million in cash. We believe our strong financial position provides sufficient runway to fund our operations for the foreseeable future, including advancing our wholly owned programs into clinical studies.

Thank you Jenny and good afternoon, everyone. We are continuing to make important advances on many fronts across our portfolio. We are pleased to see a growing number of our collaborative programs advance through discovery preclinical and clinical development.

Operator: We are pleased that revenue growth from both our software business and drug discovery collaboration enables us to make continued investments in our platform and pipeline while also providing a path to profitability.

With respect to our collaborations three programs are currently in phase II and five are in phase one clinical development.

It has also been significant progress of course, a collaborative discovery portfolio with several programs expected to reach development candidates over the next year.

You had from Rami and one program transitioning to lead optimization ahead of schedule was enabled by a modeled protein structure and our brain penetration predictions, which sounds exciting implications for future programs.

Ramy Farid: We are looking forward to initiating the Phase I trial for SGR-1505 in patients with relapsed, or refractory B-cell lymphoma in the fourth quarter of this year.

Operator: As you'll hear shortly from Karen, we are also continuing to make progress across our wholly owned pipeline. During the second quarter, we submitted the IND for our MALT1 inhibitor, SGR1505, and we are now clear to proceed with our Phase I clinical trial.

Today I will review our three most advanced totally on programs, starting with SGI <unk> five hour one inhibitor.

Ramy Farid: We are continuing to invest in the science underlying our platform. For example, we have broadened the applicability of our platform through an important advancement, with our induced fit docking methods to optimize homology models to enable predictive modeling of targets where experimental structures have been unavailable. We have already successfully applied this method to advance a collaborative drug discovery, program for a target that was not structurally enabled.

Ramy Farid: We were pleased to advance the project from early discovery to lead optimization entry, nearly six months ahead of the originally targeted schedule. Our scientists continue to publish our independent and collaborative scientific advancements, and recently co-authored a manuscript with Nimbus Therapeutics based on data from our ongoing collaboration describing how our predictive computational methods accelerated the discovery of Nimbus's potent, selective TIK2 inhibitors with activity in preclinical models of psoriasis.

<unk> is emerging as a potential therapeutic target for the treatment of certain b cell lymphomas, including relapsed or resistant DSO and mantle cell lymphoma.

One inhibition also has potential in solid tumors and autoimmune disease.

Ramy Farid: We are excited by the progress we have made, and we expect continued achievements across, all aspects of our business throughout the year as we advance our vision of transforming drug discovery and materials design.

Operator: This was our first internal IND submission and represents a tremendous achievement for Schrodinger.

During the second quarter, we submitted our IND for STL 55 to the FDA and we recently announced that we are cleared to proceed to phase one.

Operator: We are looking forward to initiating the Phase I trial for SGR1505 in patients with relapsed or refractory B-cell lymphoma in the fourth quarter of this year.

Operator: We are continuing to invest in the science underlying our platform. For example, we have broadened the applicability of our platform through an important advancement with our induced fit docking methods to optimize homology models to enable predictive modeling of targets where experimental structures have been unavailable. We have already successfully applied this method to advance a collaborative drug discovery program for a target that was not structurally enabled.

Operator: We were pleased to advance the project from early discovery to lead optimization entry nearly six months ahead of the originally targeted schedule.

Our early clinical development team is currently working through clinical site activation in preparation to begin dosing patients with relapsed or refractory b cell lymphomas and the fourth quarter of this year.

Operator: Our scientists continue to publish our independent and collaborative scientific advancements and recently co-authored a manuscript with Nimbus Therapeutics based on data from our ongoing collaboration describing how our predictive computational methods accelerated the discovery of Nimbus' potent, selective TIK2 inhibitors, with activity in preclinical models of psoriasis.

Operator: We are excited by the progress we have made, and we expect continued achievements across all aspects of our business throughout the year as we advance our vision of transforming drug discovery and materials design.

This will be the first clinical study emerging from our internal pipeline and we look forward to reaching this important milestone.

This multicenter dose escalation trial will evaluate the safety pharmacokinetics pharmacodynamics and early signals of antitumor activity of <unk> <unk> five as a monotherapy.

Once the recommended dose is determined an expansion cohort is plan to reevaluate STL 55 in combination with other therapies, such as BT Kay and Bcl two inhibitors.

Moving to our <unk> program, we share the enthusiasm of physicians and scientists studying we one inhibition in multiple solid tumor types.

We are encouraged by the clinical activity demonstrated to date and third party Wee one inhibitor trials.

We view the side effects and pharmacokinetic profile of <unk>, one inhibitors as <unk>.

Crucial to the therapeutic potential and the opportunity to be combined with chemotherapy and other anti cancer agents.

Using our computational platform to identify molecules that are highly selective with balanced properties, which we believe may help avoid some of the drug drug interactions and off target effects that have been observed with other wee one inhibitor.

We have already identified compounds for multiple if there is such a potent selective and demonstrated antitumor activity with desirable pharmacokinetic and pharmacodynamic properties in multiple preclinical models, including models of lung ovarian and breast cancer.

We are currently conducting additional preclinical studies to ensure we select a development candidate with the most desirable differentiated properties.

We believe conducting these additional studies gives us an opportunity to advance a potential best in class Wee one inhibitor into the clinic, we expect to selecting one development candidate by the end of this year and submit an IND at the end of 2023.

Now I'll turn to our <unk> seven program.

With CDC seven development candidate <unk> 2921 has demonstrated strong antitumor activity in preclinical models of AML in combination with Vanessa clocks and other marketed agents.

Our timelines for IND submission has been impacted by supply chain issues, including delays at the zero that is conducting certain required GOP toxicology studies.

Now expect to submit an <unk> for this program to the FDA in the first half of 2023 and subject to regulatory clearance and initiated a phase one study in the second half of 2023.

These shifts represent approximately a one quarter delay.

Our wholly owned programs progress, we are continuing to add new programs to our discovery pipeline in the first half of this year. We've added four new programs in precision oncology and immunology for a total of six early discovery programs.

Growing portfolio reflects our strategy to select and enable targets with substantial human validation and solve key design challenges within our platform positioning us to selectively advance first in class and differentiated programs.

We maintain a high bar for what we will progress beyond the lead optimization stage. Our focus is on projects with a strong line of sight to value inflicting data in discovery or in phase one to support potential partnering or the merit continued internal development in summary, our diverse portfolio.

Programs is advancing and activities to support expansion of our pipeline are well underway. We are pleased with the progress that we and our collaborators are making and look forward to providing updates on our R&D activities throughout the year.

Ramy Farid: I will now turn the call over to Jenny to review our second quarter financial results.

Operator: I will now turn the call over to Jenny to review our second quarter financial results.

I will now turn it back over to Rami. Thanks, Karen 2022 has the potential to be another strong year for Schrodinger. We are very pleased with the progress we have made across all aspects of our business in the first half of the year and we remain focused on the key objectives that we believe can generate value and position us for continue.

Jenny Herman: Thank you, Rami, and hello, everyone.

Operator: Thank you, Rami, and hello, everyone.

The success, we will be hosting a webcast on October six to provide a deeper dive into our computational platform and we hope you will join us to learn more about how we are solving grand challenges and drive discovery at this time, we'd be happy to take your questions operator.

Jenny Herman: I'm pleased to discuss our financial results for the second quarter of this year. Total revenue was $38.5 million for the quarter, up 29% compared to the second quarter of 2021. Software revenue was $30 million, representing 25% growth compared to the second quarter, of 2021. As in prior quarters, the growth in software revenue was primarily driven by increased, adoption of our software solutions by existing customers, as well as the addition of new customers during the quarter.

Okay.

Jenny Herman: Drug discovery revenue was $8.5 million for the second quarter of 2022, compared to $5.7, million in the second quarter of 2021. Drug discovery revenue for the quarter included $5.4 million in revenue recognized from our, ongoing collaboration with Bristol-Myers Squibb, as well as revenue from preclinical milestones related to two of our collaborative programs. Gross profit was $17.1 million in the second quarter, up 43% over the second quarter of, 2021.

Thank you as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Jenny Herman: Software gross margin was 76% in the second quarter of 2022, compared to 77% for the second, quarter last year. We continue to make investments to support the rollout of large-scale deployments of, our platform.

Jenny Herman: Marketing expense was $60.6 million, compared to $42.3 million for the same quarter last, year. This reflects our continued investment in R&D to advance the science underlying our, platform and to progress our internal drug discovery program, as well as infrastructure costs and the addition of staff and G&A functions to support our business.

Jenny Herman: We recorded a net loss of $47.7 million for the second quarter of 2022, compared to a, loss of $35 million for the same period in the prior year. As we mark-to-market the equity stakes we hold in our collaborators each quarter, we, can experience significant fluctuations in the value of our holdings, and included in our $47.7 million net loss was a loss of $15.7 million on our equity holdings in the second quarter of 2022, compared to a loss of $4.9 million on our equity holdings in the second quarter of 2021.

Jenny Herman: We ended the quarter with cash equivalents, marketable securities, and restricted cash, balances of approximately $513 million, compared to approximately $529 million on March 31, 2022.

Jenny Herman: In February, we provided our financial outlook for the full year, and today we are pleased, to reaffirm our 2022 financial guidance.

One moment.

And our first question comes from Michael Riskin of Bank of America. Please proceed.

Jenny Herman: Before reviewing our financial outlook in detail, I'll remind you that our software, revenue fluctuates quarter-to-quarter due to the seasonality of our business, with the second and third quarters historically being our quarters with the lowest software revenue. For the third quarter of 2022 specifically, we expect software revenue to range from $23, to $25 million, similar to software revenue for the third quarter of last year, which was $24.3 million.

Operator: I'm pleased to discuss our financial results for the second quarter of this year. Total revenue was $38.5 million for the quarter, up 29% compared to the second quarter of 2021. Software revenue was $30 million, representing 25% growth compared to the second quarter of 2021. As in prior quarters, the growth in software revenue was primarily driven by increased adoption of our software solutions by existing customers as well as the addition of new customers during the quarter.

Operator: Drug discovery revenue was $8.5 million for the second quarter of 2022, compared to $5.7 million in the second quarter of 2021. Drug discovery revenue for the quarter included $5.4 million in revenue recognized from our ongoing collaboration with Bristol Myers Squibb, as well as revenue from preclinical milestones related to two of our collaborative programs. Gross profit was $17.1 million in the second quarter, up 43% over the second quarter of, 2021. Software gross margin was 76% in the second quarter of 2022, compared to 77% for the second, quarter last year.

Great. Thanks for taking the question and congrats on the quarter.

My first question is going to come back to.

Software guide for the third quarter I want to make sure I have all the moving pieces down you have some comments about fewer customers up for renewal.

Jenny Herman: We have fewer customers up for renewal in the third quarter, and anticipated growth, is expected to be offset by multi-year contracts executed over the past two years.

Operator: We continue to make investments to support the rollout of large-scale deployments of, our platform.

Operator: Marketing expense was $60.6 million, compared to $42.3 million for the same quarter last, year. This reflects our continued investment in R&D to advance the science underlying our, platform and to progress our internal drug discovery programs, as well as infrastructure costs and the addition of staff and G&A functions to support our business.

Operator: We've recorded a net loss of $47.7 million for the second quarter of 2022, compared to, a loss of $35 million for the same period in the prior year. As we mark-to-market the equity stakes we hold in our collaborators each quarter, we, can experience significant fluctuations in the value of our holdings, and included in our $47.7 million net loss was a loss of $15.7 million on our equity holdings in the second quarter of 2022, compared to a loss of $4.9 million on our equity holdings in the second quarter of 2021. We ended the quarter with cash equivalents, marketable securities, and restricted cash, balances of approximately $513 million, compared to approximately $529 million on March 31, 2022.

And some multiyear contracts I'm just wondering if you could sort of Joe would've been more clarity on that sort of how much of that variability is specific to <unk>.

And just just looking at the year numbers, you get about 25% in the first half both in <unk> and <unk> software growth. So.

Is this really just a comp issue from last year.

How do we think about that variability going forward and then I've got a follow up.

Operator: In February, we provided our financial outlook for the full year, and today we are pleased, to reaffirm our 2022 financial guidance.

Thanks for the question Jenny you want to yes, I can take that.

Operator: Before reviewing our financial outlook in detail, I'll remind you that our software, revenue fluctuates quarter-to-quarter due to the seasonality of our business, with the second and third quarters historically being our quarters with the lowest software revenue. For the third quarter of 2022 specifically, we expect software revenue to range from $23, to $25 million, similar to software revenue for the third quarter of last year, which was $24.3 million.

Hello.

Keynote <unk> two specifically.

It is generally our lowest quarter second quarter and third quarter are our lowest quarters, we do not have any large customers up for renewal in Q3, It just historical timing and.

Jenny Herman: The fourth quarter is expected to be our largest quarter for software revenue, which was the, case in the last two years. We have a high level of visibility into our existing accounts, which have been the primary, driver of growth, given our broad customer base.

Jenny Herman: We are pleased with the level of engagement by software users, as well as the heads of, R&D, and we are encouraged by the continued scale-up of adoption of our software platform.

Jenny Herman: Let me now review our 2022 financial outlook in more detail. We continue to expect total annual revenue to be in the range of $161 to $181 million, corresponding to 17% to 31% growth over 2021. We expect software revenue to range from $126 to $136 million, representing 11% to 20% growth, over last year. We continue to expect drug discovery revenue to range from $35 to $45 million, representing, 42% to 82% growth over last year.

That is one of the large sources of growth. We see is our largest existing customers. We do have some growth in Q3.

Jenny Herman: Drug discovery revenue fluctuates from quarter to quarter, largely based on the timing of, achieving certain milestones within our collaborative program.

Operator: We have fewer customers up for renewal in the third quarter, and anticipated growth, is expected to be offset by multiyear contracts executed over the past two years.

Jenny Herman: Finally, we continue to anticipate that operating expense growth will be slightly lower than, the 42% annual growth we saw in 2021.

It was offset by some of your deals.

Signed in the last couple of years, but it really is a combination of it's just a lower revenue quarter and theres not a lot of a lot of large customers.

Jenny Herman: We expect our software gross margin percentage to be in the mid-70s.

Jenny Herman: We are very pleased with the strong start to our year, and we expect continued progress, in the second half of this year.

In Q3, which does create the same kind of opportunity for growth as we see in some of the other quarters.

Okay and then just.

Bob on that have you seen any weakness in general in terms of customers, indicating appetite for renewal and when you think about the broader market and balance sheets.

<unk> and sort of some of their willingness to spend versus cut back on some of their operating expenses are you seeing any change in order patterns renewables company, the customer expansion and sort of as a follow on of that you keep pointing to.

<unk> growth of over 20% in 2023.

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

Any way you can give us a sense of how thats trended. This year just so we can get a feel for how thats going just trying to get at the underlying demand among pharma biotech and sort of their willingness to spend.

Sure as far as the ECB it isn't something that we.

We guide to in the year, we will report that with the Q4 numbers.

We did directionally give that number for 2023, just as a as an indication of kind of the overall growth for the software business to expect in 2023.

Operator: The fourth quarter is expected to be our largest quarter for software revenue, which was the, case in the last two years. We have a high level of visibility into our existing accounts, which have been the primary, driver of growth, given our broad customer base.

As far as customers spending patterns.

Operator: We are pleased with the level of engagement by software users, as well as the heads of, R&D, and we are encouraged by the continued scale-up of adoption of our software platform.

We are not seeing any indication we do think that Q4 is going to be our largest quarter.

Operator: Let me now review our 2022 financial outlook in more detail. We continue to expect total annual revenue to be in the range of $161 to $181 million, corresponding to 17 to 31 percent growth over 2021. We expect software revenue to range from $126 to $136 million, representing 11 to 20 percent, growth over last year. We continue to expect drug discovery revenue to range from $35 to $45 million, representing, 42 to 82 percent growth over last year. Drug discovery revenue fluctuates from quarter to quarter, largely based on the timing of, achieving certain milestones within our collaborative program.

Operator: Finally, we continue to anticipate that operating expense growth will be slightly lower than, the 42% annual growth we saw in 2021.

The range that we that we extract skew for them.

Operator: We expect our software gross margin percentage to be in the mid-70s.

Operator: We are very pleased with the strong start to our year, and we expect continued progress, in the second half of this year.

Two we are maintaining our guidance in that range does.

Reflect.

The the.

The outcomes of what could happen with the entities that we have with our existing customers in Q4.

Okay, great. Thanks, I'll get back in the queue.

Yes.

Thank you one moment.

Yeah.

Karen Akinsanya: Thank you, Jenny, and good afternoon, everyone.

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

Our next question comes from Michael Yee of Jefferies. Please proceed.

Karen Akinsanya: We are continuing to make important advances on many fronts across our portfolio.

Karen Akinsanya: We are pleased to see a growing number of our collaborative programs advance through, discovery, preclinical, and clinical development.

Karen Akinsanya: With respect to our collaborations, three programs are currently in phase two, and five, are in phase one clinical development. There has also been significant progress across our collaborative discovery portfolio, with, several programs expected to reach development candidates over the next year. As you heard from Rami, in one program, transitioning to lead optimization ahead of schedule was, enabled by a modeled protein structure and our brain penetration predictions, which has exciting implications for future programs.

Karen Akinsanya: Today, I will review our three most advanced whole-year-end programs, starting with SGR, 1505, our MORT1 inhibitor. MORT1 is emerging as a potential therapeutic target for the treatment of certain B-cell, lymphomas, including relapsed or resistant B-cell and mantle cell lymphoma. MORT1 inhibition also has potential in solid tumors and autoimmune disease.

Operator: Thank you, Jenny, and good afternoon, everyone.

Hi, this is <unk> on for.

Operator: We are continuing to make important advances on many fronts across our portfolio.

Operator: We are pleased to see a growing number of our collaborative programs advance through, discovery, preclinical, and clinical development.

Operator: With respect to our collaborations, three programs are currently in phase two, and five, are in phase one clinical development. There has also been significant progress across our collaborative discovery portfolio, with, several programs expected to reach development candidates over the next year. As you heard from Rami, in one program, transitioning to lead optimization ahead of schedule was, enabled by a modeled protein structure and our brain penetration predictions, which has exciting implications for future programs.

Just wondering if you have more visibility into the 2023 discoveries guidance as previously guided to a $100 million wondering how confident you feel about that as far as are nearing 2023.

Operator: Today, I will review our three most advanced whole-yearn programs, starting with SGR 1505, our MORT1 inhibitor. MORT1 is emerging as a potential therapeutic target for the treatment of certain B-cell, lymphomas, including relapsed or resistant B-cell and mantle cell lymphoma.

Operator: MORT1 inhibition also has potential in solid tumors and autoimmune disease.

Karen Akinsanya: During the second quarter, we submitted our IND for SGR 1505 to the FDA, and we recently, announced that we are clear to proceed to phase one. Our early clinical development team is currently working through clinical site activation in, preparation to begin dosing patients with relapsed or refractory B-cell lymphomas in the fourth quarter of this year.

Operator: During the second quarter, we submitted our IND for SGR 1505 to the FDA, and we recently, announced that we are clear to proceed to phase one. Our early clinical development team is currently working through clinical site activation in, preparation to begin dosing patients with relapsed or refractory B-cell lymphomas in the fourth quarter of this year.

Yes, we're not changing that guidance, we're still feel as confident as we were when we first announced that we were expecting in 2023 100 million plus.

Revenue from the drug discovery business that excludes any revenue that may come from partnering of our internal programs and still maintaining that guidance.

Got it thank you.

Thank you.

Thank you one moment.

Okay.

Our next question comes from Gary Nachman of.

BMO capital markets. Please proceed.

Hi, good afternoon.

First one is the pastebin for new business wins.

<unk> Sciences and material Sciences, just if you could give some more color there rami.

Are you seeing a greater.

Nick.

With these new wins and trying to get a sense of what the funnel looks like to the extent that you have visibility on that.

And then I have a couple for carrying faster great. Yes, no. It's a good question.

Let me remind you first though that the majority of our growth does come from scaling up our existing customers. So that's a very important.

Point in that and that we continue we expect to continue to see that again to the extent that.

We have so many customers on life science side of course, all the pharma companies that really large number of biotech companies, that's where the growth comes from.

We are still seeing but it's still some of the growth does come from new customers and we're still seeing that happening in the last two quarters on the material that was on the life science.

On the materials side as we said before.

To the extent that that's an earlier business.

We still see a larger portion of the growth coming from new customers and we're not seeing any.

Impact of any sort of macro headwinds impacting that to date.

Karen Akinsanya: This will be the first clinical study emerging from our internal pipeline, and we look forward, to reaching this important milestone. This multicenter dose escalation trial will evaluate the safety, pharmacokinetics, pharmacodynamics, and early signals of antitumor activity of SGR 1505 as a monotherapy.

Operator: This will be the first clinical study emerging from our internal pipeline, and we look forward, to reaching this important milestone. This multicenter dose escalation trial will evaluate the safety, pharmacokinetics, pharmacodynamics, and early signals of antitumor activity of SGR 1505 as a monotherapy. Once the recommended dose is determined, an expansion cohort is planned to evaluate SGR, 1505 in combination with other therapies such as BTK and Bcl-2 inhibitors.

Karen Akinsanya: Once the recommended dose is determined, an expansion cohort is planned to evaluate SGR, 1505 in combination with other therapies, such as BTK and BCR2 inhibitors.

Okay, that's good to hear.

Karen Akinsanya: Moving to our WE1 program, we share the enthusiasm of physicians and scientists studying WE1, inhibition in multiple solid tumor types. We are encouraged by the clinical activity demonstrated to date in third-party WE1 inhibitor, trials. We view the side effects and pharmacokinetic profile of WE1 inhibitors as crucial to the, therapeutic potential and the opportunity to be combined with chemotherapy and other anticancer agents. We are using our computational platform to identify molecules that are highly selective, with balanced properties, which we believe may help avoid some of the drug-drug interactions and off-target effects that have been observed with other WE1 inhibitors. We have already identified compounds from multiple WE series that are potent, selective, and demonstrate antitumor activity with desirable pharmacokinetic and pharmacodynamic properties in multiple preclinical models, including models of lung, ovarian, and breast cancer.

And then for Karen.

As you are moving to the clinic with your lead internal candidates just talk about your capabilities internally just in terms of.

Drug development and have you hired some new people recently now that you're going to be starting a phase one pretty soon and then talk broadly about the four new oncology immunology early discovery programs.

We could have visibility on those and would they be similar to the three.

You talked about that are moving into the clinic and is that a typical cadence for you when we think about those new programs.

Karen Akinsanya: We are currently conducting additional preclinical studies to ensure we select a development candidate with the most desirable differentiated properties. We believe conducting these additional studies gives us an opportunity to advance a potential best-in-class WIH-1 inhibitor into the clinic. We expect to select a WIH-1 development candidate by the end of this year and submit an IND at the end of 2023.

Operator: Moving to our WE-1 program, we share the enthusiasm of physicians and scientists studying WE-1, inhibition in multiple solid tumor types.

Thanks, Gary.

So.

First question around the capability build.

We have continued over the last year actually to add additional experts to our team.

Very pleased with the early development team, we have obviously a physician working on the protocol who's a member of that team.

Well as clinical operations regulatory clinics.

Clinical science Biomarkers.

And clinical PK PD. So we have what we believe to be the right team.

To advance this first project, though we will over the next year be adding additional expertise to the team as we look to.

Expand the number of programs in the clinic and obviously advance.

The trials that we are going to be conducting.

With respect to the new programs, if I can turn to that.

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

Karen Akinsanya: Our CDC-7 development candidate, SGR2921, has demonstrated strong antitumor activity in preclinical models of AML in combination with venetoclax and other marketed agents.

Karen Akinsanya: Our timeline for IND submission has been impacted by supply chain issues, including delays at the CRO that is conducting certain required GLP toxicology studies. We now expect to submit an IND for this program to the FDA in the first half of 2023 and, subject to regulatory clearance, initiate a Phase I study in the second half of 2023. These shifts represent approximately a one-quarter delay.

Additionally, these programs is pretty exciting for us as you know we have spent time thinking very hard about the types of programs. We want to work on with our platform. This includes some opportunities that we think.

Karen Akinsanya: As our wholly earned programs progress, we are continuing to add new programs to our discovery pipeline. In the first half of this year, we've added four new programs in precision oncology and immunology for a total of six early discovery programs. Our growing portfolio reflects our strategy to select and enable targets with substantial human validation and solves key design challenges with our platform, positioning us to selectively advance first-in-class and differentiated programs.

Operator: We are encouraged by the clinical activity demonstrated to date in third-party WE-1 inhibitor, trials. We view the side effects and pharmacokinetic profile of WE-1 inhibitors as crucial to the, therapeutic potential and the opportunity to be combined with chemotherapy and other anticancer agents.

Operator: We are using our computational platform to identify molecules that are highly selective, with balanced properties, which we believe may help avoid some of the drug-drug interactions and off-target effects that have been observed with other WE-1 inhibitors. We have already identified compounds from multiple WE series that are potent selective, and demonstrate antitumor activity with desirable pharmacokinetic and pharmacodynamic properties in multiple preclinical models, including models of lung, ovarian, and breast cancer. We are currently conducting additional preclinical studies to ensure we select a development candidate with the most desirable differentiated properties. We believe conducting these additional studies gives us an opportunity to advance a potential best-in-class WI-1 inhibitor into the clinic.

Operator: We expect to select a WI-1 development candidate by the end of this year and submit an IND at the end of 2023.

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

Operator: Our CDC-7 development candidate, SGR2921, has demonstrated strong antitumor activity in preclinical models of AML in combination with venetoclax and other marketed agents.

Operator: Our timeline for IND submission has been impacted by supply chain issues, including delays at the CRO that is conducting certain required GLP toxicology studies. We now expect to submit an IND for this program to the FDA in the first half of 2023 and, subject to regulatory clearance, initiate a Phase I study in the second half of 2023. These shifts represent approximately a one-quarter delay.

Karen Akinsanya: We maintain a high bar for what we will progress beyond the lead optimization stage.

Again opportunities for differentiation on very well validated targets.

Karen Akinsanya: Our focus is on projects with a strong line of sight to value inflecting data in discovery or in Phase I to support potential partnering or that merit continued internal development.

Karen Akinsanya: In summary, our diverse portfolio of programs is advancing and activities to support expansion of our pipeline are well underway.

Whether we.

Operator: As our wholly earned programs progress, we are continuing to add new programs to our discovery pipeline. In the first half of this year, we've added four new programs in precision oncology and immunology for a total of six early discovery programs. Our growing portfolio reflects our strategy to select and enable targets with substantial human validation and solves key design challenges with our platform, positioning us to selectively advance first-in-class and differentiated programs.

We think really interesting chemistry challenges to solve but it also includes some first in class targets.

Operator: We maintain a high bar for what we will progress beyond the lead optimization stage.

Operator: Our focus is on projects with a strong line of sight to value inflecting data in discovery or in Phase I to support potential partnering or that merit continued internal development.

We think that we could be the first people in the world to have.

Operator: In summary, our diverse portfolio of programs is advancing and activities to support expansion of our pipeline are well underway.

Operator: We are pleased with the progress that we and our collaborators are making and look forward to providing updates on our R&D activities throughout the year.

Operator: I will now turn it back over to Rami.

Agents against targets that are particularly well considered in the biology.

And.

The genetics community so.

Karen Akinsanya: We are pleased with the progress that we and our collaborators are making and look forward to providing updates on our R&D activities throughout the year.

Very pleased with those projects, we still would describe them as precision oncology.

Some extent precision immunology.

That will.

We will be moving forward in terms of when you can we expect visibility we've got some work to do in terms of moving these to the stage, where we would feel comfortable sharing but as we have done over the last couple of years, we've been submitting obviously, it's a scientific meetings on our existing programs we plan to continue.

You're doing that as we have data packages that are appropriate.

Okay, and then just lastly on the cadence was that a particularly productive first half of the year to have four of these new programs.

Is that basically a reasonable assumption going forward what you can do.

Actually continue assumes a looking at targets and thinking about enablement of those targets both for the platform and more broadly to conduct those through discovery.

The team last year, we spent a lot of time building a fairly developed.

Early discovery team.

We expect as I think we've discussed in previous calls to have a steady state.

Programs in the lead up space, but we are expanding options and the early space. So that we can pick the very best programs.

To move forward into L. O. So yes.

To see.

A lot of new programs entering the pipeline and our strongest options moving forward into late stage discovery.

Ramy Farid: I will now turn it back over to Rami.

Operator: Thanks, Karen.

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

Okay, great. Thank you.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone one moment.

Ramy Farid: Thanks, Karen.

Yeah.

Our next question comes from Vikram <unk> of Morgan Stanley . Please proceed.

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

Operator: We are very pleased with the progress we have made across all aspects of our business in the first half of the year, and we remain focused on the key objectives that we believe can generate value and position us for continued success.

Operator: We will be hosting a webcast on October 6th to provide a deeper dive into our computational platform, and we hope you will join us to learn more about how we are solving grand challenges in drug discovery.

Great. Good afternoon. Thanks for taking my question. So I had two both on the proprietary pipeline. So first on the multiline inhibitor.

Ramy Farid: We are very pleased with the progress we have made across all aspects of our business in the first half of the year, and we remain focused on the key objectives that we believe can generate value and position us for continued success.

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

Ramy Farid: We will be hosting a webcast on October 6th to provide a deeper dive into our computational platform, and we hope you will join us to learn more about how we are solving grand challenges in drug discovery.

Operator: Operator?

Now that the RMB has been cleared and youre moving towards dosing patients in the <unk> 22, I just wanted to see if you had any more detail you can provide us about the design of the study timeline for initial data here and what the first.

Operator: Thank you.

Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone.

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

Operator: Please stand by while we compile the Q&A roster.

Set of data that we look at could tell us about the molecule.

Yes, thanks for the question.

So as you.

Operator: Operator?

Operator: One moment.

We're moving into dosing in this in the fourth quarter.

This study is really designed to establish the safety tolerability.

Operator: Thank you.

Operator: And our first question comes from Michael Ryskin of Bank of America.

Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone.

The molecule, but in addition, we will be collecting pharmacokinetic pharmacodynamic.

Operator: Please stand by while we compile the Q&A roster.

Operator: Please proceed.

So those are the primary endpoints that we're collecting and the whole point of this study is to identify a recommended dose for combination studies and future studies of our compound.

Operator: One moment.

Operator: Great.

Operator: And our first question comes from Michael Ryskin of Bank of America.

Operator: Thanks for taking the question and congrats on the quarter.

Operator: My first question is going to come back to the software guide for the third quarter.

In terms of when we would expect to see data.

It's a little bit too early to say.

Operator: Please proceed.

Operator: I want to make sure I have all the moving pieces down.

Michael Ryskin: Great.

We will be escalating through various.

Dose cohorts and at this point.

Michael Ryskin: Thanks for taking the question and congrats on the quarter.

Operator: You have some comments about fewer customers up for renewal and some multi-year contracts.

Michael Ryskin: My first question is going to come back to the software guide for the third quarter.

A bit hard to say, obviously, when we will have sufficient data to be able to share that publicly.

Michael Ryskin: I want to make sure I have all the moving pieces down.

Operator: I'm just wondering if you could sort of give a little bit more clarity on that, sort of how much of that variability is specific to 3Q and just looking at the year numbers, you did about 25% in the first half, both in 1Q and 2Q software growth.

Michael Ryskin: You have some comments about fewer customers up for renewal and some multi-year contracts.

Michael Ryskin: I'm just wondering if you could sort of give a little bit more clarity on that, sort of how much of that variability is specific to 3Q.

But.

I would say that this study is expected to run through next year and we'll keep you updated as we are getting more visibility on when we'll have data that we can share with them with you and the rest of the community.

Michael Ryskin: And just looking at the year numbers, you did about 25% in the first half, both in 1Q and 2Q software growth.

Operator: So, you know, is this really just a comp issue from last year?

Michael Ryskin: So, you know, is this really just a comp issue from last year?

Operator: How do we think about that variability going forward?

I think the answer to your question there was a second part sorry.

Operator: And then I got a follow-up.

No.

Is helpful. On the first question and my follow up was on.

Michael Ryskin: How do we think about that variability going forward?

Operator: Yeah, thanks for the question.

Another program in your pipeline. So as you likely know there was a discontinuation of a we wanted to better recently so we just wanted to get your thoughts on what you think the potential read through is here for your program and what the discontinuation might do for the opportunities that for your <unk> inhibitor.

Operator: Jen, do you want to?

Michael Ryskin: And then I got to follow up.

Operator: Yep, I can take that.

Michael Ryskin: Yeah, thanks for the question.

Operator: So, you know, looking at 3Q specifically, it is generally our lowest quarter, second quarter and third quarter are our lowest quarters.

Jenny Herman: Jenn, do you want to?

Operator: We do not have any large customers up for renewal in Q3. It's just historical timing.

Jenny Herman: Yep, I can take that.

Operator: And that is one of the large sources of growth we see is our largest existing customers.

Yeah.

As you noted we did see the news of the discontinuation of the most advanced I think of the <unk> inhibitors.

Jenny Herman: So, you know, looking at 3Q specifically, it is generally our lowest quarter, second quarter and third quarter are our lowest quarters.

Operator: We do have some growth in Q3.

Jenny Herman: We do not have any large customers up for renewal in Q3. It's just historical timing.

Operator: It is offset by some of your deals signed in the last couple of years, but it really is a combination of it's just a lower revenue quarter and there's not a lot of large customers in Q3, you know, which doesn't create the same kind of opportunity for growth as we see in some of the other quarters.

Astrazeneca said publicly they see.

Opportunity with we won in the clinical space.

Jenny Herman: And that is one of the large sources of growth we see is our largest existing customers.

Operator: Okay, and just follow up on that.

From what we can glean from the public announcement this was a prioritization of that portfolio.

Jenny Herman: We do have some growth in Q3.

Operator: Have you seen any weakness in general in terms of customers indicating appetite for renewal?

Jenny Herman: It is offset by some of your deals signed in the last couple of years, but it really is a combination of it's just a lower revenue quarter.

Activity from a.

So the perspective of our program and where it sits in the landscape. We maintain what we have said from the very beginning about the Wee one inhibitor does that.

Jenny Herman: And there's not a lot of large customers in Q3, you know, which doesn't create the same kind of opportunity for growth as we see in some of the other quarters.

Operator: You know, when we think about the broader market and, you know, balance sheets among biotechs and sort of some of their willingness to spend versus cut back on some of their operating expenses.

Michael Ryskin: Okay.

Operator: Are you seeing any change in order patterns, renewals, customer expansion?

The existing compounds, we think theres an opportunity to enhance the proxies of we want inhibitors are first and foremost as he got to selectivity.

Michael Ryskin: And just to follow up on that, have you seen any weakness in general in terms of customers indicating appetite for renewal?

Operator: And sort of as a follow on of that, you keep pointing to ACV growth of over 20% in 2023.

Michael Ryskin: You know, when we think about the broader market and, you know, balance sheets among biotechs and sort of some of their willingness to spend versus cut back on some of their operating expenses.

Michael Ryskin: Are you seeing any change in order patterns, renewals, customer expansion and sort of as a follow on of that, you keep pointing to ACV growth of over 20% in 2023.

Operator: Any way you can give us a sense of how that's trended this year, just so we can get a feel for how that's going?

Then secondly, the drug like properties.

Thank the compound with an optimized profile will allow for further study in the clinic of combinations and when I say that I'm, referring to the issues around drug drug interactions and how selectivity.

Operator: Just trying to get at the underlying demand among pharma and biotech and sort of their willingness to spend.

Operator: Thanks.

Operator: As far as customers' spending patterns, we are not seeing any indication.

Pat the safety profile of <unk> inhibitors.

Michael Ryskin: Any way you can give us a sense of how that's trended this year, just so we can get a feel for how that's going.

Operator: We do think that the Q4 is going to be our largest quarter. The range that we expect Q4 is going to be our largest quarter, to we are maintaining our guidance and that range does reflect the variety of outcomes that could happen with the opportunities that we have with our existing customers in Q4.

We are obviously still preclinical.

We're very excited about the molecules, we have published some of that work last year or earlier this year at <unk>.

Michael Ryskin: Just trying to get at the underlying demand among pharma and biotech and sort of their willingness to spend.

Operator: Okay, great.

Michael Ryskin: Thanks.

Operator: Thanks.

Scientific meeting and so we continue forward with this program.

Our optimism based on the clinical data for both monotherapy and some of the combination data that's already been studied and shown for this mechanism.

Jenny Herman: Sure.

Operator: I'll get back in the queue.

Operator: Thank you.

Okay got it thank you very much.

Thank you.

I'm showing no further questions at this time that concludes today's call and you may now disconnect.

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Thank you for standing by welcome to <unk> Conference call to review second quarter 2022 financial results. My name is <unk> and I'll be your operator for today's call. At this time all participants are in a listen only mode.

Jenny Herman: We'll report that with the Q4 numbers.

Operator: One moment.

Jenny Herman: We did directionally give that number for 2023, just as an indication of kind of the overall growth for the software business to expect in 2023.

Operator: Our next question comes from Michael Yee of Jeffreys.

Operator: Please proceed.

After the Speakers' presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.

Please be advised that this call is being recorded at the company's request.

Jenny Herman: As far as customers spending patterns, we are not seeing any indication.

Operator: Hi, this is Yiqi An for Mike.

Now I would like to introduce your host for today's conference Ms. Sharon Madden.

And your Vice President of Investor Relations and corporate Affairs. Please go ahead Sharon.

Jenny Herman: We do think that the Q4 is going to be our largest quarter.

Operator: Just wondering if you have more visibility into the 2023, drug discovery guidance, you know, it's previously dotted to 100 million.

Thank you and good afternoon, everyone welcome to today's call during which we will provide an update on the company and review our second quarter 2022 financial results.

Jenny Herman: The range that we expect Q4, to we are maintaining our guidance and that range does reflect the variety of outcomes that could happen with the communities that we have with our existing customers in Q4.

Operator: Wondering how confident you feel about that as we're as we're nearing 2023?

Michael Ryskin: Okay, great.

Operator: Yeah, we're not changing that guidance.

Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at www Dot Shredder Dot com here with me on our call today are Rami for Reed, Chief Executive Officer, Jenny Herman Senior Vice President Finance and corporate controller.

Michael Ryskin: Thanks.

Michael Ryskin: I'll get back in the queue.

Operator: We're still feel as confident as we were when we first, announced that we were expecting in 2023 100 million plus revenue from the drug discovery business that excludes any revenue that may come from partnering over internal programs. And yeah, still maintaining that guidance.

Operator: Got it.

Darren <unk> president of R&D Therapeutics.

Operator: Thank you.

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

Operator: Thank you.

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 995, including without limitation statements related to our future financial performance our outlook for the full year 2022 and for the third quarter.

Operator: Thank you.

Operator: One moment.

<unk> ending September 32022, our strategic plan to accelerate the growth of our software business and advance our collaborative and internal drug discovery programs, the timing of a potential IND submissions and the initiation of clinical trials for our internal drug discovery programs risks related to the COVID-19 pandemic or expect.

Patients related to the use of our cash cash equivalents and marketable securities as well as our future operating expenses.

Operator: Our next question comes from Gary Nachman of BMO Capital Markets.

Factors section and elsewhere in the filings, we make with the SEC, including our Form 10-Q for the period ended June 32022.

Operator: Please proceed.

Operator: Thank you.

I'd like to turn the call over to Rami, Thanks, Sharon and thank you everyone for joining us today at Schrodinger. We have developed the computational platform that is transforming the way therapeutics and materials are discovered we license our platform to biopharma and materials companies as well as government and academic institutions around the world today, We reported second.

Operator: One moment.

Operator: Hi, good afternoon.

Operator: Our next question comes from Michael Yee of Jeffreys.

Operator: First, what has the pace been for new business wins, both in life sciences and material sciences?

Operator: Please proceed.

Operator: Just if you could get some more color there, Rami.

Operator: Hi, this is Yuchi for Mike.

Operator: Where are you seeing a greater uptick with these new wins and, you know, trying to get a, sense of what the funnel looks like to the extent that you have visibility on that?

Quarter software revenue of $30 million or 25% increase over the prior year. We also recognize milestones from multiple collaborative programs during the second quarter, which helped drive drug discovery revenue of $8 $5 million with strong performance across both aspects of our business led to total revenue of $38 5 million for the second quarter.

Operator: Just wondering if you have more visibility into the 2023, drug discovery guidance, you know, it's previously dotted to 100 million.

Operator: And then I have a couple for Karen after.

Operator: Great.

$87 1 million for the first half of 2022, representing 29% and 41% growth over the respective prior periods. We are very pleased with the performance. We've had in the first half of 2022, and we are maintaining our full year financial guidance.

Operator: Wondering how confident you feel about that as we're as we're nearing 2023?

Operator: Yeah, no, it's a good question.

Operator: Yeah, we're not changing that guidance.

Operator: And let me remind you first, though, that the majority of our growth does come from scaling up our existing customers.

We have built a highly differentiated company that we believe enables us to continue to innovate while providing a solid foundation for growing revenue.

Operator: So that's that's a very important point in that.

<unk> enables us to make continued investments in our platform and pipeline, while also providing a path to profitability.

Operator: And that we continue, you know, we expect to continue to see that again to the extent that, you know, we have so many customers on life science side, of course, all the pharma companies, a really large number of biotech companies.

As you'll hear shortly from Karen we are also continuing to make progress across our wholly owned pipeline during the second quarter, we submitted the IND for our <unk> inhibitor <unk> five and we are now clear to proceed with our phase one clinical trial. This was our first internal IND submission and represents a tremendous achieved.

Operator: That's where the growth comes from.

Operator: We are still seeing, but it's still some of the growth does come from new customers.

For Schrodinger, we are looking forward to initiating the phase one trial for <unk> five in patients with relapsed or refractory b cell lymphoma in the fourth quarter of this year.

Operator: And we're still seeing that happening in the last two quarters on the material.

Operator: That was on the life science side.

We're continuing to invest in the science underlying our platform. For example, we've broadened the applicability of our platform through an important advancement with our induced with talking methods to optimize homology models to enable predictive modeling of targets were experimental structures have been unavailable. We have already successfully applied this method.

To advance a collaborative drug discovery program for a target that was not structurally enabled we were pleased to advance the project from early discovery to lead optimization entry nearly six months ahead of the originally targeted schedule. Our scientists continue to publish our independent and collaborative scientific advancements and recently coauthored a man.

Script with Nimbus Therapeutics based on data from our ongoing collaboration describing how our predictive computational methods accelerated the discovery of Nimbus as potent selective <unk> inhibitors with activity in preclinical models of psoriasis we.

Operator: On the material side, as we said before, to the extent that that's an earlier business, we still see a larger portion of the growth coming from new customers.

I'll now turn the call over to Jenny to review, our second quarter financial results. Thank you Rami and Hello, everyone I'm pleased to discuss our financial results for the second quarter of this year total revenue was $38 5 million for the quarter up 29% compared to the second quarter of 2021 software revenue.

Operator: Got it.

Operator: And we're not seeing any impact of any sort of macro headwinds impacting that to date.

Operator: Thank you.

Operator: OK, that's good to hear.

Operator: Thank you.

With $30 million, representing 25% growth compared to the second quarter of 2021.

Operator: One moment.

Operator: Our next question comes from Gary Nachman of BMO Capital Markets.

Operator: Please proceed.

Operator: Hi, good afternoon.

Operator: First, what is the pace been for new business wins, both in life sciences and, material sciences?

Sent over the second quarter of 2021.

Operator: Just if you could get some more color there, Rami.

Software gross margin was 76% in the second quarter of 2022 compared to 77% for the second quarter last year, we continue to make investments to support the rollout of large scale deployment of our platform.

Operating expense was $60 6 million compared to $42 3 million for the same quarter last year. This reflects our continued investment in R&D to advance the science underlying our platform and to progress our internal drug discovery programs as well as infrastructure costs and the addition of staff and G&A functions to support our business.

47, 7 million net loss was a loss of $15 7 million on our equity holdings in the second quarter of 2022 compared to a loss of $4 9 million on our equity holdings in the second quarter of 2021.

We ended the quarter with cash equivalents marketable securities and restricted cash balances of approximately $513 million compared to approximately $529 million on March 31, 2022 and.

Operator: Where are you seeing a greater uptick with these new wins and, you know, trying to get a sense of what the funnel looks like to the extent that you have visibility on that?

Operator: And then I have a couple for Karen after.

Operator: Great.

Lowest software revenue for the third quarter of 2022, specifically, we expect software revenue to range from 23% to 25 million similar to software revenue for the third quarter of last year, which was $24 3 million.

We have fewer customers up for renewal in the third quarter and anticipated growth is expected to be offset by multiyear contracts executed over the past two years.

Of adoption of our software platform, Let me now review, our 2022 financial outlook in more detail.

Operator: Yeah, no, it's a good question.

20% growth over last year.

We continue to expect drug discovery revenue to range from $35 million to $45 million, representing 42% to 82% growth over last year drug discovery revenue fluctuates from quarter to quarter, largely based on the timing of achieving certain milestones within our collaborative programs.

Finally, we continue to anticipate that operating expense growth will be slightly lower than the 42% annual growth we saw in 2021.

We expect our software gross margin percentage to be in the mid seventies.

Operator: And let me remind you first, though, that the majority of, our growth does come from scaling up our existing customers.

We are very pleased with the strong start to our year and we expect continued progress in the second half of this year I'll now turn the call over to Karen for an update on our drug discovery programs.

Operator: And then for Karen, you know, as you're moving to the clinic with, your lead internal candidates, just talk about your capabilities internally, just in terms of drug development.

Operator: So that's that's a very important point in that.

Operator: And, you know, have you hired some new people recently now that you're going to be starting a phase one pretty soon?

Operator: And then talk broadly about the four new oncology, immunology, early discovery programs, when we could have visibility on those and would they be similar to the three you talked about that are moving into the clinic?

Operator: That's where the growth comes from.

Operator: And is that a typical cadence for you when we think about those new programs?

Operator: We are still seeing, but it's still some of the growth does come from new customers.

Operator: Thanks Gary.

Operator: So your first question around the capability build, we have continued over the last, year actually to add additional experts to our team.

Operator: We're very pleased with the early development team.

And five are in phase one clinical development.

There has also been significant progressive Costa collaborative discovery portfolio with several programs expected to reach development candidates over the next year.

As you heard from Rami and one program transitioning to lead optimization ahead of schedule was enabled by our modeled protein structure and they'll have a brain penetration predictions, which has exciting implications for future programs.

Operator: And we're still seeing that happening in the last two quarters on the material that was on the life, science side, on the material side.

Operator: We have obviously a physician working on the protocol who's a member of our team as well as clinical operations, regulatory, clinical science, biomarkers, and clinical PK PD.

Today I will review, our three most advanced totally on programs.

With SGI 15, a five hour one inhibitor.

Operator: So we have what we believe to be the right team to advance this first protocol.

One is emerging as a potential therapeutic target for the treatment of certain b cell lymphomas, including relapsed or resistant DSO and mantle cell lymphoma.

And ambition also has potential in solid tumors and autoimmune disease.

During the second quarter, we submitted our IND for STL 55 to the FDA and we recently announced that we are cleared to proceed to phase one hour.

This will be the first clinical study emerging from our internal pipeline and we look forward to reaching this important milestone.

This multicenter dose escalation trial will evaluate the safety pharmacokinetics pharmacodynamics and early signals of antitumor activity of STL <unk> five as a monotherapy.

Once the recommended dose is determined an expansion cohort is planned to evaluate <unk> five in combination with other therapies, such as BT Kay and Bcl two inhibitors.

Moving to our <unk> one program, we share the enthusiasm of physicians and scientists studying we one inhibition in multiple solid tumor types.

We're encouraged by the clinical activity demonstrated to date and third party Wee one inhibitor trials.

We view the side effects and pharmacokinetic profile of we want inhibitors as crucial to the therapeutic potential and the opportunity to be combined with chemotherapy and other anti cancer agents.

We are using our computational platform to identify molecules that are highly selective with balanced properties, which we believe may help avoid some of the drug drug interactions and off target effects that have been observed with other <unk> inhibitors.

We have already identified compounds from multiple lead series with a potent selective and demonstrated antitumor activity with desirable pharmacokinetic and pharmacodynamic properties in multiple preclinical models, including models of lung ovarian and breast cancer.

We are currently conducting additional preclinical studies to ensure we select a development candidate with the most desirable differentiated properties.

Now I'll turn to our CVC seven program, our CDC seven development candidate <unk> 2921 has demonstrated strong antitumor activity in preclinical models of AML in combination with Vanessa clocks and other marketed agents.

Our timelines for IND submission has been impacted by supply chain issues, including delays at the zero that is conducting certain required GOP toxicology studies, we now expect to submit <unk> for this program to the FDA in the first half of 2023 and subject to regulatory clearer.

<unk> initiated a phase one study in the second half of 2023.

These shifts represent approximately a one quarter delay.

Operator: We will over the next year be adding additional expertise to the team as we look to expand the number of programs in the clinic and obviously advance the trials that we are going to be conducting.

As our wholly owned programs progress we are continuing to add new programs to our discovery pipeline in the first half of this year. We've added four new programs in precision oncology and immunology for a total of six early discovery programs.

Operator: With respect to the new programs, if I can turn to that, the addition of these programs is pretty exciting for us.

Operator: As you know, we have spent time thinking very hard about the types of programs we want to work on with our platform. This includes some opportunities that we think, again, opportunities for differentiation on very well validated targets where there are, we think, really interesting chemistry challenges to solve.

Our growing portfolio reflects our strategy to select and enable targets with substantial human validation and solve key design challenges within our platform positioning us to selectively advance first in class and differentiated program.

We maintain a high bar for what we will progress beyond the lead optimization stage.

Focus is on projects with a strong line of sight to value inflicting data and discovery or in phase one to support potential partnering.

Continued internal development in summary, our diverse portfolio of programs is advancing and activities to support expansion of our pipeline are well underway. We are pleased with the progress that we and our collaborators are making and look forward to providing updates on our R&D activities throughout the year.

Yeah.

I'll now turn it back over to Rami. Thanks, Karen 2022 has the potential to be another strong year for Schrodinger. We are very pleased with the progress we have made across all aspects of our business in the first half of the year and we remain focused on the key objectives that we believe can generate value and position us for continued.

Success, we will be hosting a webcast on October six to provide a deeper dive into our computational platform and we hope you will join us to learn more about how we are solving grand challenges in drug discovery at this time, we'd be happy to take your questions operator.

Yeah.

Thank you.

Reminder, to ask a question you will need to press star one one on your telephone.

Please standby, while we compile the Q&A roster.

One moment.

Okay.

And our first question comes from Michael Riskin of Bank of America. Please proceed.

Great. Thanks for taking the question and congrats on the quarter.

My first question is going to come back to.

Software guide for the third quarter I, just want make sure I have all the moving pieces down you have some comments about fewer customers up for renewal.

And some multiyear contracts I'm just wondering if you could sort of give a little bit more clarity on that sort of how much of that variability is specific to <unk>.

And just just looking at the year numbers you did about 25% in the first half both in <unk> and <unk> software growth. So.

Is this really just a comp issue from last year.

How do we think about that variability going forward and then I've got a follow up.

Thanks for the question Jenny you want to yes, I can take that.

No.

<unk> Q specifically.

It is generally our lowest quarter second quarter and third quarter are our lowest quarters. We do not have any large customers up for renewal in Q3, it's a historical timing and.

That is one of the large sources of growth. We see is our largest existing customers. We do have some growth in Q3.

This is offset by some of your deals.

Signed in the last couple of years, but it really is a combination of it's just a lower revenue quarter and theres not a lot of a lot of large customers.

In Q3, which doesn't create the same kind of opportunity for growth as we see in some of the other quarters.

Okay and then just.

Follow up on that have you seen any weakness in general in terms of customers, indicating appetite for renewal and when we think about the broader market.

Balance sheets, among biotech and sort of some of their willingness to spend versus cut back on some of their operating expenses are you seeing any change in order patterns renewables, coupled with customer expansion and sort of as a follow on of that you keep pointing to.

<unk> growth of over 20% in 2023.

Any way you can give us a sense of how that's trended. This year just so we can get a feel for how thats going just trying to get at the underlying demand among pharma biotech and sort of their willingness to spend.

Sure.

As far as the ECB.

Is it something that we we guide to in the year, We will report that with the Q4 numbers.

Did directionally give that number for 2023, just as a as an indication of kind of the overall growth for the software business to expect in 2023.

As far as.

Customers.

Spending patterns.

We are not seeing any indication we do think that Q4 is going to be our largest quarter.

The range that we that we expect Q4.

We are maintaining our guidance in that range does.

Reflect.

The.

Variety of outcomes that could happen with the entities that we have with our existing customers in Q4.

Okay, great. Thanks, I'll get back in the queue.

Thank you one moment.

Yeah.

Our next question comes from Michael Yee of Jefferies. Please proceed.

Okay.

Hi, this is <unk> on for.

Just wondering if you have more visibility into the 2023 drug discovery guidance as previously guided to 100 million wondering how confident you feel about that as far as are nearing 2023.

Yes, we're not changing that guidance, we're still feel as confident as we are.

When we first announced that we were expecting in 2023 100 million plus.

Revenue from the drug discovery business that excludes any revenue that may come from partnering of our internal programs and still maintaining that guidance.

Got it thank you.

Thank you.

Thank you one moment.

Yes.

Okay.

Our next question comes from Gary Nachman.

BMO capital markets. Please proceed.

Hi, good afternoon.

First what is the pastebin for new business wins.

Life Sciences and material Science is just if you could give some more color there rami.

Are you seeing a greater.

Check with.

With these new wins and trying to get a sense of what the funnel looks like to the extent that you have visibility on that.

And then I have a couple for carrying faster great. Yes, no. It's a good question and.

Let me remind you first though.

Majority of our growth does come from scaling up our existing customers. So that's a very important.

And that and that we continue we expect to continue to see that again to the extent that.

We have so many customers on life science side of course, all the pharma companies are really large number of biotech companies Thats, where the growth comes from.

We are still seeing but it's still some of the growth does come from new customers and we're still seeing that happening in the last two quarters on the material that was on the life science side.

Operator: As we said before, to the extent that that's an earlier business, we still see a larger portion of the growth coming from new customers.

On the materials side as.

We said before.

To the extent that that's an earlier business.

We still see a larger portion of the growth coming from new customers and we're not seeing any.

Operator: And we're not seeing any impact of any sort of macro headwinds impacting that to date.

Impact of any sort of macro headwinds impacting that to date.

Operator: OK, that's good to hear.

Okay, that's good to hear.

And then for Karen as you are.

Moving to the clinic with your lead internal candidates just talk about your capabilities internally just in terms of.

Operator: And then for Karen, you know, as you're moving to the clinic with your, lead internal candidates, just talk about your capabilities internally, just in terms of drug development.

Operator: And, you know, have you hired some new people recently now that you're going to be starting a phase one pretty soon?

Drug development and have you hired some new people recently now that youre going to be starting a phase one pretty soon and then talk broadly about the four new oncology immunology early discovery programs.

Operator: And then talk broadly about the four new oncology, immunology, early discovery programs, when we could have visibility on those, and would they be similar to the three you talked about that are moving into the clinic?

Operator: And is that a typical cadence for you when we think about those new programs?

When we could have visibility on those and would they be similar to the three.

You talked about that are moving into the clinic and is that a typical cadence for you when we think about those new programs.

Operator: Thanks Gary.

Thanks, Gary.

So.

Your first question around the capability build.

We have continued over the last year actually.

Operator: So your first question around the capability build, we have continued over the last, year actually to add additional experts to our team.

And additional expertise to our team we're very pleased with the early development team. We have obviously a physician working on the protocol who's a member of that team.

As well as clinical operations regulatory clinical.

Clinical science Biomarkers.

And clinical PK PD. So we have what we believe to be the right team.

Operator: We're very pleased with the early development team.

To advance this first protocol, we will over the next year be adding additional expertise to the team as we look to.

Expand the number of programs in the clinic and obviously advance.

Operator: We have obviously a physician working on the protocol who's a member of our team as well as clinical operations, regulatory, clinical science, biomarkers, and clinical PK PD.

The trials that we are going to be conducting.

Operator: So we have what we believe to be the right team to advance this first protocol.

With respect to the new programs, if I can turn to that.

Operator: With respect to the new programs, if I can turn to that, the addition of these programs is pretty exciting for us.

Operator: As you know, we have spent time thinking very hard about the types of programs we want to work on with our platform. This includes some opportunities that we think are, again, opportunities for differentiation on very well-validated targets where there are, we think, really interesting chemistry challenges to solve.

Again opportunities to differentiation on very well validated targets.

We.

Operator: But it also includes some first-in-class targets where we think that we could be the first people in the world to have agents against targets that are particularly well considered in the biology and sort of genetics community.

We think really interesting chemistry challenges to solve but it also includes some first in class targets, where we.

We think that we could be the first people in the world to have.

Agents against targets that are particularly well considered in the biology.

Operator: So we're very pleased with those projects.

And.

So the genetics community. So we're very pleased with those projects, we still would describe them as precision oncology.

Operator: We still would describe them as precision oncology and to some extent precision immunology targets that we'll be moving forward.

Operator: We still would describe them as precision oncology and to some extent precision immunology targets that will be moving forward.

To some extent precision immunology targets that.

Operator: In terms of when you can expect feasibility, we've got some work to do in terms of moving these to the stage where we would feel comfortable sharing.

We will be moving forward in terms of when you can we expect visibility.

We've got some work to do in terms of moving these to the stage, where we would feel comfortable.

Operator: But as we have done over the last couple of years, we've been submitting, obviously, to scientific meetings on our existing programs.

But as we have done over the last couple of years, we've been submitting obviously, it's a scientific meetings on our existing programs. We plan to continue doing that as we have data packages that are appropriate.

Operator: We plan to continue doing that as we have data packages that are appropriate.

Operator: Okay, and then just lastly on the cadence, was that a particularly productive first half of the year to have four of these new programs?

Okay, and then just lastly on the cadence was that a particularly productive first half of the year to have more of these new programs.

Operator: Or is that basically, you know, a reasonable assumption going forward of what you can do?

Is that basically a reasonable assumption going forward what you can do.

Operator: We actually are continuously looking at targets and thinking about enablement of those targets both for the platform and more broadly to conduct those through discovery.

We actually continue assume looking at targets and thinking about enablement of those targets both for the platform and more broadly to conduct those through discovery.

Operator: The team last year, we spent a lot of time building up our early discovery team.

The team last year, we spent a lot of time building a carefully developed early discovery team.

Operator: And we expect, as I think we've discussed in previous calls, to have a steady state of programs in the lead-up space.

We expect as I think we've discussed on previous calls to have a steady state.

Operator: But we are expanding options in the early space so that we can pick the very best programs to move forward into LO.

<unk> programs in the lead up space, but we are expanding.

<unk> and the early space, so that we can pick the very best programs.

To move forward into allo, so yes.

Great to see.

Operator: So yes, we expect to see a lot of new programs entering the pipeline and our strongest options moving forward into late-stage discovery.

A lot of new programs entering the pipeline and our strongest options moving forward into late stage discovery.

Operator: Okay.

Operator: Okay, great.

Operator: And then just lastly on the cadence, was that a particularly productive first half of the year to have four of these new programs?

Okay, great. Thank you.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone one moment.

Operator: Or is that basically a reasonable assumption going forward of what you can do?

Operator: Thank you.

Yeah.

Our next question comes from Vikram <unk> of Morgan Stanley . Please proceed.

Operator: We actually are continuously looking at targets and thinking about enablement of those targets, both for the platform and more broadly to conduct those through discovery.

Operator: Thank you.

Operator: The team, last year, we spent a lot of time building up our early discovery team.

Operator: And as a reminder, to ask a question, please press, star 11 on your telephone.

Great. Good afternoon. Thanks for taking my questions. So I had two both on the proprietary pipeline. So first on the multiline inhibitor.

Operator: And we expect, as I think we've discussed in previous calls, to have a steady state of programs in the lead-up space.

Operator: One moment.

Operator: But we are expanding our options in the early space so that we can pick the very best programs to move forward into LO.

Operator: So yes, we expect to see a lot of new programs entering the pipeline and our strongest options moving forward into late-stage discovery.

Operator: Our next question comes from Vikram Purohit of Morgan Stanley.

The IMD have been cleared and youre moving towards dosing patients in <unk> hundred 22, I just wanted to see if you had any more detail you can provide us about the design of the study timeline for initial data here.

Operator: Okay, great.

Operator: Please proceed.

Operator: Great.

And what's the first.

Operator: Thank you.

Operator: Good afternoon.

Set of data that we look at could tell us about the molecule.

Yes. Thanks for the question so as you.

As we stated we're moving into dosing in this in the fourth quarter.

Operator: Thank you.

Operator: Thanks for taking my, questions.

Operator: And as a reminder, to ask a question, please press, star 11 on your telephone.

This study is really designed to establish the safety and Tolerability of the molecule, but in addition, we will be collecting pharmacokinetic pharmacodynamic.

Operator: One moment.

Operator: So, I have two, both on the proprietary pipeline.

Operator: Our next question comes from Vikram Purohit of Morgan Stanley.

Operator: So, first on the MULTI1 inhibitor, now that the IMD has been cleared and you're moving towards dosing patients in 4Q22, I just wanted to see if you had any more detail you could provide us about the design of the study, the timelines to initial data here, and what the first set of data that we'll get could tell us about the molecule.

Data. So those are the primary endpoints that we're collecting and the whole point of this study is to identify a recommended dose for combination studies in future studies of our compound.

Operator: Please proceed.

Operator: Yes, thanks for the question.

Operator: So, as you stated, we're moving into dosing in the fourth quarter.

In terms of when we would expect to see data.

It's a little bit too early to say.

Operator: This study is really designed to establish the safety tolerability of the molecule. But in addition, we will be collecting pharmacokinetic, pharmacodynamic data. So, those are the primary endpoints that we're collecting. And the whole point of this study is to identify recommended dose for combination studies and future study of a compound.

We will be escalating through various.

Those cohorts and at this point.

Operator: In terms of when we would expect to see data, it's a little bit too early to say.

A bit hard to say, obviously, when we will have sufficient data to be able to share that publicly.

But.

Operator: We will be escalating through various dose cohorts.

I would say that this study is expected to run through next year and we will keep you updated as we are getting more visibility on when we'll have data that we can share with you and the rest of the community.

Operator: And at this point, it's a bit hard to, say, obviously, when we will have sufficient data to be able to share that publicly. But I would say that this study is expected to run through next year and we'll keep you updated as we are getting more visibility on when we'll have data that we can share with you and the rest of the community.

Operator: I think that answers your question.

Operator: I don't know if there was a second part, sorry.

I think the answer to your question there was a second part sorry.

Operator: No, that's helpful on the first question.

No.

Is helpful. On the first question and my follow up was on.

Another program in your pipeline. So as you likely know there was a discontinuation of a wee one inhibitor recently so we just wanted to get your thoughts on what you think the potential read through is here for your program and what the discontinuation might do for the opportunities that for your <unk> inhibitor.

Operator: And my follow-up was on another program in your pipeline.

Operator: So, as you likely know, there was a discontinuation of a WE-1 inhibitor recently.

Yeah.

As you noted we did see the news of the discontinuation of the most advanced I think is that we want inhibitors as <unk>.

Operator: So, we just wanted, to get your thoughts on what you think the potential read-through is here for your program and what the discontinuation might do for the opportunities that's for your WE-1 inhibitor.

Astrazeneca said publicly they say.

Opportunity with we won in the clinical space.

Operator: Yeah, as you noted, we did see the news of the discontinuation of the most advanced, I think, of the WE-1 inhibitors.

From what we can glean from the public announcement this was a prioritization of that portfolio.

Activity.

So the perspective of our program and where it sits in the landscape. We maintain what we have said from the very beginning about the Wee one inhibitor does that.

Operator: As AstraZeneca said publicly, they see opportunity with WE-1 in the clinical space.

Operator: From what we can glean from the public announcement, this was a prioritization of their portfolio activity from a sort of perspective of our program and where it sits in the landscape.

The existing compounds, we think theres an opportunity to enhance the proxies of we Wanna inhibitors.

Operator: We maintain what we have said from the very beginning about the WE-1 inhibitors that are the existing compounds.

First and foremost as regard to selectivity.

Operator: We think there's an opportunity to enhance the properties of WE-1 inhibitors, first and foremost with regard to selectivity, and then secondly, the drug-like properties.

And then secondly, the drug like properties and we think the compound with an optimized profile will allow for further study in the clinic of combinations and when I say that I'm, referring to the issues around drug drug interactions and how selectivity.

Operator: We think that a compound with an optimized profile will allow for further study in the clinic of combinations.

Operator: And when I say that, I'm referring to the issues around drug-drug interactions and how selectivity may impact the safety profile of WE-1 inhibitors.

Operator: We are obviously still preclinical, but we're very excited about the molecules we have and published some of that work last year, earlier this year at a scientific meeting.

Impact the safety profile of <unk> inhibitors.

Obviously still preclinical.

We're very excited about the molecules, we have published some of that work last year or earlier this year at <unk>.

Operator: And so we continue forward with this program with optimism based on the clinical data for both myotherapy and some of the combination data that's already been studied and shown for this mechanism.

Operator: Okay, got it.

Operator: Thank you very much.

The scientific meeting and so we continue forward with this program.

Operator: Thank you.

With optimism based on the clinical data for both monotherapy and some of the combination data that's already been asked.

Studies have shown for this mechanism.

Operator: Great.

Operator: I'm showing no further questions at this time.

Operator: Good afternoon.

Operator: Thanks for taking my, questions.

Operator: So, I have two, both on the proprietary pipeline.

Okay got it thank you very much.

Operator: So, first, on the MOLT1 inhibitor, now that the IND has been cleared and you're moving towards dosing patients in 4Q22, I just wanted to see if you had any more detail you could provide us about the design of the study, the timelines to initial data here, and what the first set of data that we'll get could tell us about the molecule.

Operator: Yes, thanks for the question.

Operator: So, as you stated, we're moving into dosing in the fourth quarter. This study is really designed to establish the safety, tolerability of the molecule, but in addition, we will be collecting pharmacokinetic, pharmacodynamic data.

Operator: So, those are the primary endpoints that we're collecting, and the whole point of this study is to identify a recommended dose for combination studies and future study of a compound.

Thank you.

Operator: In terms of when we would expect to see data, it's a little bit too early to say. We will be escalating through various dose cohorts, and at this point, it's a bit hard to say, obviously, when we will have sufficient data to be able to share that publicly. But I would say that this study is expected to run through next year, and we'll keep you updated as we are getting more visibility on when we'll have data that we can share with you and the rest of the community.

Operator: I think that answers your question.

Im showing no further questions at this time that concludes today's call and you may now disconnect.

Operator: I don't know if there was a second part.

Operator: That concludes today's call and you may now disconnect.

Operator: Sorry.

Operator: , Thank you for standing by.

Operator: No, that's helpful on the first question, and my follow-up was on another program in your pipeline.

Operator: Welcome to Schrodinger's conference call to review second quarter 2022 financial results.

Operator: So, as you likely know, there was a discontinuation of a WE-1 inhibitor recently.

Operator: So, we just wanted to get your thoughts on what you think the potential read-through is here for your program and what the discontinuation might do for the opportunities set for your WE-1 inhibitor.

Operator: Yeah.

Operator: As you noted, we did see the news of the discontinuation of the most advanced, I think, of the WE-1 inhibitors.

Operator: As AstraZeneca said publicly, they see opportunity with WE-1, in the clinical space.

Operator: From what we can glean from the public announcement, this was a prioritization of their portfolio activity.

Operator: From a sort of perspective of our program and where it sits in the landscape, we maintain what we have said from the very beginning about the WE-1 inhibitors that are the existing compounds.

Operator: We think there's an opportunity to enhance the properties of WE-1 inhibitors, first and foremost with regard to selectivity, and then secondly, the drug-like properties.

Operator: We think that a compound with an optimized profile will allow for further study in the clinic of combinations.

Operator: And when I say that, I'm referring to the issues around drug-drug interactions and how selectivity may impact the safety profile of WE-1 inhibitors.

Operator: We are obviously still preclinical, but we're very excited about the molecules we have and published some of that work last year or earlier this year at a scientific meeting.

Operator: And so we continue forward with this program with optimism based on the clinical data for both monotherapy and some of the combination data that's already been studied and shown for this mechanism.

Operator: Okay.

Operator: Got it.

Operator: Thank you very much.

Operator: Thank you.

Operator: I'm showing no further questions at this time.

Q2 2022 Schrodinger Inc Earnings Call

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