Q2 2023 Schrödinger Inc Earnings Call
Thank you for standing by welcome to shortage Schrodinger 's Conference call to review second quarter 2023 financial results. My name is Christian I'll be your operator for today's call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Please be advised that this call is being recorded at the company's request.
Now I'd like to introduce your host for today's conference Mr. Jared Madden Senior Vice President Investor Relations and corporate Affairs. Please go ahead.
Thank you and good afternoon, everyone welcome to today's call during which we will provide an update on the company I review, our second quarter. It's Lucky Lucky three 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 trading or dotcom here with me on our call today.
Rami three Chief Executive Officer, Geoff Porges, Chief Financial Officer, and carrying a consortium president of R&D Therapeutics.
In our prepared remarks, we'll open the call for Q&A.
During today's call management will make statements that are forward looking and made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including without limitation statements related to our outlook for the full year 2023.
Ending September 30th 2023, our plans to accelerate the growth of our software business and events, our collaborative and proprietary drug discovery program. The timing of initiation of Readouts from our clinical trials the clinical potential in properties of our compounds do use of our cash resources as well other future expenses.
These forward looking statements reflect our current views about our plans intentions expectations strategies and prospects, which are based on the information currently available to us and on assumptions. We have made actual results may differ materially 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.
D C, including our Form 10-Q for the quarter ended June 32023. These forward looking statements represent our views only as of today and we caution you that except as required by law, we may not update them in the future whether as a result of new information future events or otherwise.
So could the today's call are certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not a substitute for or superior to GAAP measures. Please refer to the tables at the end of our press release, which is available on our website for reconciliations of these non-GAAP measures.
To the most directly comparable GAAP measures with that I'd like to turn the call over to Rami. Thanks, Sharon and thank you everyone for joining US today. This is an incredibly exciting and pivotal time for computationally driven drug discovery.
Heightened interest in this field is undoubtedly driven by the promise that computers and in particular artificial intelligence can increase efficiency across the R&D continuum and deliver more drugs to patients faster.
It's short and here, we have developed powerful physics based methods and integrated them with the most advanced machine learning methods of artificial intelligence to accelerate discovery of higher quality molecules for both therapeutics and materials are a leading platform is used by thousands of companies and research institutes worldwide.
Then simply publish our underlying scientific advances and we now have numerous success stories that have convincingly validated our approach 11 of the molecules. We have discovered with our collaborators or independently are currently in the clinic, which includes two wholly owned molecules. We continue to heavily invest in advancing our competition.
<unk> platform to solve Grand challenge problems in drug discovery and materials design, we have made excellent progress during the first half of the year for the second quarter. We reported total revenue of $35 2 million, which was in line with our expectations with respect to software revenue. We are in active discussions with more than a dozen global.
Pharma software customers about multiyear multimillion dollar contracts, we are confident about our software revenue outlook for the year given the stage of these discussions the number of them and the enthusiasm we are seeing from our customers to deploy our platform on their discovery programs at scale in fact, our content.
Since then these opportunities has led us to increase our software revenue growth guidance for the year to 15% to 18% as.
As Jeff will describe shortly we are reducing our 2023 outlook for drug discovery revenue. This adjustment primarily reflects expectations that some milestone previously anticipated in 2023 has shifted to 2024 as you will hear from Karen We continued to make significant progress on our proprietary pipeline our two phase one studies for our <unk>.
One inhibitor STR <unk> five are ongoing and today, we announced FDA clearance of our IND for our CDC seven inhibitor STR 29, 21, with our proprietary pipeline advancing we have expanded our leadership team with the addition of Margaret Dougan as Chief Medical Officer.
Margaret brings more than 25 years of pharma experience and will be responsible for clinical development and regulatory strategy for our pipeline of wholly owned programs and we look forward to her contributions.
We've made considerable progress in the first half of the year and we are very excited about the opportunities that lie ahead in the second half of the year I greatly appreciate the dedication and hard work of all our employees who are critical to achieving our mission I will now turn the call over to Jeff.
Thank you Ron good afternoon, everyone.
Shortly we had a solid quarter in Q2 that met our expectations.
Our pipeline has been significantly and we continued building the breadth and capabilities of our organization.
We managed our expenses and capital carefully and are very well positioned to invest in the active development of our computational platform.
Exploration of the full potential of our proprietary pipeline.
Our company is central for evolution and the capabilities of computation to discover novel medicines.
With our largest customers with partners and technology companies are new entrepreneur.
To capitalize on the opportunities presented by that Revolution.
Our Q2 software revenue was in line with our expectations.
And our results reflect the relatively limited renewal opportunities among our largest accounts in the period.
Coupled with stable trends in other market segments.
Our drug discovery efforts continue to evolve from mainly collaborations to about between collaboration projects and our proprietary portfolio.
We have increased our software revenue guidance based on the prospects for new or increased large scale technology deployments.
Checked to contribute meaningfully to revenue in the second half the year.
We have lowered our drug discovery revenue guidance for the year, reflecting our new expectations for the timing of milestones and so the contribution of new business development activity.
Not including any revenue contributions from partnering any of our most advanced programs in that guidance we continue.
To advance discussions about new collaborations with some of the largest and most innovative companies in the industry and those collaborations could contribute significant near and long term value if successful.
Let me turn to the financial results for the quarter.
Software revenue for the quarter was $29 4 million, which was 2% below Q2 2022.
There were several services contracts the contributed revenue to Q2.
Turning to including our Gates Battery research project with had lower contributions in Q2 2023.
We expect the <unk> expenses contract to be renewed and increased level in Q3.
Posted software group possible non prime during the quarter driven by new contracts with hosted licenses implemented in prior periods are provided continuing revenue this quarter.
Drug discovery revenue for the quarter was $5 8 million compared to $8 5 million in the same period in Q2 2022.
With drug discovery revenue result was affected by the expected timing for achievement of development milestones and collaborations.
Timelines and cost to the achievement of certain milestones in our collaborations are exceeding our prior estimates which resulted in a reduction in the amount of deferred revenue we recognized this quarter for those programs.
Total revenue was $35 2 million compared to $38 5 million in the same period, a year ago, mainly due to lower drug discovery revenue in the quarter.
Cost of revenue was $21 4 million for the quarter and was similar to the cost of revenue from the same period in 2022.
Software gross margin was 77% and is consistent with our expectations.
The cost of our drug discovery activities with similar to the prior year as increased compared to the prior quarter driven by royalty payments and higher CRO expenses for partnered programs.
Gross profit decreased from $17 1 million in Q2, 2022 to $13 8 million in Q2 2023 based on lower drug discovery revenue and our gross margin declined from 45% to 39% for the quarter.
Total operating expenses were $75 million compared to 61 million in the same quarter, a year ago and $76 million in Q1 2023.
<unk> was $42 7 million increased by 37% from $31 million in Q2 2022.
5% higher than the 41 million, we reported in Q1 2023.
The increase was driven by increased head count to support the development of our platform. The redeployment of our discovery organization towards proprietary programs and building the capabilities and scale of that product development organization.
<unk> expenses increased significantly year over year.
Driven by the progress of our existing programs and the addition of new programs to our portfolio technology.
Technology spending also increased as our discovery portfolio broadened.
We expect R&D expenses to increase through the year.
The most advanced program snap portfolio into clinical development and increase our investment in early stage molecules and programs.
We intend to outline the progress and potential of the most advanced programs and also discuss the earlier programs at our first writing good pipeline later this year.
During the quarter, our sales and marketing expense was $9 million and increased by 21% compared to the prior year Q2 and was flat compared to Q1 this year.
The year over year increase was mainly due to increased staffing to support our geographic expansion to commercialize into new industry verticals and to support our growing number of global accounts.
We foresee a sales and marketing expenses offering significant operating leverage from these levels.
G&A expense was $23 million in Q2, which is an increase of 5% compared to Q2 2022. This increase was due to high head count in lease expense was offset by savings in certain external services.
G&A was lower in Q2 compared to Q1 due to lower onetime costs associated with the Nimbus distribution in Q2.
We expect quarterly G&A to be relatively stable through the balance of 2023.
Overall, our loss from operations was $61 1 million in Q2 compared to $43 5 million in Q2, two and $30 5 million in Q1 2023.
Other income items was significant during the quarter, reflecting changes in the value of our equity investments in structure therapeutics multi <unk>.
Adjustments to estimated tax liabilities from prior periods and interest income.
Turning to fair value of equity investments was $40 7 million other income, including interest was $4 $3 million and we reported a tax benefit of $20 4 million as an adjustment to the full year tax estimate that was applied in Q1.
Overall total other income was $45 million compared to a loss of $4 2 million in the same period in 2022.
As a result of these items, we reported GAAP net income of $4 3 million for Q2 compared to a net loss of $47 7 million in the same period a year ago.
This translated into net earnings of <unk> <unk> per basic and diluted share compared to a loss of <unk> 67 in Q2 2022.
Our non-GAAP net loss for the quarter was $56 8 million in cash used in operating activities. During the quarter was $18 4 million compared to cash used in operations in Q2 last year of $24 7 million yes.
Year to date, our cash used in operating activities was $49 5 million.
As of June 32023, we reported cash and marketable securities of $554 million compared to $532 million at the end of March 2023.
Our accounts receivable declined significantly as we collected on milestone payments software contracts and other receivables during the quarter.
As I mentioned earlier, we are updating our revenue guidance for the year.
Raising our software revenue guidance for the year from 13% to 17% close to 15% to 18% growth. This.
This increase is based on the number and value of the large renewals, we expect in the second half of the year, particularly in Q4.
For Q3, our software revenue guidance is 27% to $31 million based.
Based on the timing of milestones anticipated business development activity, we are lowering our drug discovery revenue guidance from $70 million to $90 million to $50 million to $70 million.
While there are scenarios in which our realized discovery revenue was higher than the new range.
We now believe that the probability of those highest scenario is being realized as low.
We anticipate that most of the milestones associated with this change in guidance will now be achieved in 2024.
We continue to expect operating expense growth this year to be significantly lower than operating expense growth last year and anticipate that our operating cash burn. This year will also be lower than last year.
We continue to expect our cash position at year end to be above our cash position at the start of the year.
I'll now turn the call over to Ken. Thank you, Jeff and good afternoon, everyone in line with our strategy to build a growing pipeline of discovery and development assets. We have made important progress during the first half of this year.
In addition to the nine molecules designed using our computational platform has transitioned to the clinic through collaboration.
Clinical stage wholly owned programs now include <unk> and CDC. Several <unk> one inhibitor program is on track for an IND submission next year.
Our immunology program is also advancing and we expect to select a first development candidate in this therapeutic area in 2024.
The increasing number of potentially first in class or best in class investigational medicines speaks to the power of the platform.
It provides us with an opportunity to advance molecules through proof of concept to create additional value.
With a growing clinical stage portfolio. This was the right time to hire a chief Medical officer. This week, we welcomed Margaret due again to our team and CLO market will oversee clinical development and regulatory strategy for our wholly owned programs.
Margaret is a board certified medical oncologists and Hematologists.
More than 30 years of clinical medical research and drug development experience, including serving as the global program head for Novartis oncology. We are very pleased to welcome her to the team and look forward to the insight she will bring turning now to our wholly owned programs. We are pursuing a global development strategy.
To build on our safety pharmacokinetics, pharmacodynamics and preliminary antitumor data activity package.
STL <unk> size remote one inhibitor.
In addition to adding clinical sites in the U S to our ongoing phase one study in patients with advanced B cell malignancies. We also expect to open sites in Europe . This year to support our recruitment objectives we.
We are conducting a phase one healthy volunteer study designed to generate additional data on the profile of <unk>.
Plan to leverage the data from these pharmacology assessment to inform our ongoing and planned trials in b cell malignancies and potentially other indications.
Designed and optimized STR <unk> to improve on the properties as previously described one inhibitors.
Imagine preliminary data from the healthy volunteer study informs our assessment of the pharmaceutical properties of SJI <unk> and points to once daily dosing, well behaved pharmacokinetics and evidence of Pharmacodynamic activity.
Further development, we are really pleased with the progress, we're making and look forward to sharing additional results at medical meetings and investor events.
Moving to our CDC seven program today, we announced IMD clearance for Spi 2921, our preclinical data package demonstrates the STL in 2921 exhibit strong monotherapy and combination of antitumor activity in multiple preclinical patient derived AML models.
Independent genetic drivers.
And <unk> is animal models to standard of care agents, such as flip three inhibitors active.
<unk> is already underway to open clinical study sites globally. This year the <unk>.
One study is designed to evaluate the safety pharmacokinetics and pharmacodynamics.
Establishing a recommended dose of SJI 2921 in patients with acute myeloid leukemia or Myelodysplastic syndrome.
Once the recommended dose is determined we intend to evaluate <unk> 2991 in combination with approved AML and Mds treatment.
Earlier this year, we selected our development candidate STL $35 15, which is shown durable antitumor activity in preclinical models used to study more advanced Wee one inhibitor clinical.
Clinical data from our <unk> program presented at a medical meeting earlier. This year continues to validate we want inhibition as a therapeutic strategy in several forms of cancer with high unmet need, including uterine and ovarian cancer.
We're excited about the profile of STL for OTI 15, and believe it may offer advantages over prior inhibitors, including lower risk of drug drug interactions and off target activity.
Furthermore, our collaboration with MD Anderson has resulted in the identification of potential synthetic lethality relationship sensitive tumor types, which helped inform our phase one trial design.
We are continuing to characterize STL 35, 15, as we move through R&D, enabling studies to support an IND submission to the FDA next year.
Phase III programs, we are working on a number of undisclosed programs in oncology immunology and neurology at various stages of discovery.
We are continuing to initiate new programs that we may look to partner or advance independently to key value inflection points.
We also announced today that for strategic reasons. So online has elected not to advance the discovery collaboration with us to the next stage of development in the two years of the collaboration the joint team has made substantial progress towards the technical go for this complex target. The program is now wholly owned by <unk>.
Putting it in.
Can you just reemphasize or clarify what you're seeing on the software part I think I heard you say multiple big companies talking multiple year deals and so that's that's the positive on software part, but on the drug discovery part I heard a lot of comments around timing of milestones I would say 20 million dollar guidance.
Changes not small show what exactly was going on there.
And then my question for Karen is on the mall one sounded like you were making quite quite good progress on the.
Phase one included on the healthiest can you just remind us how much progress you have there and if you've been dosing patients and you're not seen anything so you feel quite good about safety shofar. Thank you.
Baseline is Ronnie.
Sure the first question.
[noise] eliminated over to Karen.
So with regard that's correct with regard to the proper guidance.
Greece.
That is the result of a real confidence.
The quality.
A number of discussions around a multi million dollar multi year how to drive.
Number [noise] excuse me with large company given the stage of these discussions relative to <unk>.
Previous years.
Where particularly positive about all those are going.
And that's given us the confidence.
Increase the the guy.
We think this is coming from just the overwhelming validation of of the pot.
Coming from successes like Nimitz structure and.
Perfect and even our own programs I think that that must be made me think that's contributing to the quality of the discussion.
Clear Ah desire by quite a number of companies to really scale of their usage of the platform.
With respect to the Ah drug discovery revenue.
Yeah M I.
Mmm contributing factors the transfer the drug discovery got.
Wanted to collaborate is doing with programs that are out of our control and as you can imagine it. It's so perhaps difficult to get information about the progress of those programs, making we've taken a cautious approach with this update since we'd we'd have to try that windows milestones for one second.
The second component is is the ongoing collaborations perfect.
Perfect is working.
And some of those cases, we'd have to adjust the time lines for the cost of the program. All the time, if you get into a milestone results and I was changing.
And use it we can expect a subsequent quarters, that's a contributing factor here and then lastly cause we're trying to forecast your business loan activity, particularly the move any contribution for that the activity.
And.
<unk> revenue recognition rules.
The contribution that you can take 404 <unk>, Sir it's all of them.
To the charge in regards <unk> at this point.
And then.
I might be.
That's what I'm, making.
Have you had.
That'd be happening.
Study.
<unk>.
And suggesting Tonight.
We have.
K E N.
Two trial.
The data, suggesting that we have a lemonade.
Mmk and.
<unk>.
I'm the patient.
Continue.
And the last and ugly and what's that.
Uhm.
Great. Thank you guys.
The next question is from David <unk> with the city or your line is open.
Very much for taking my question.
With respect to the change in guidance on the partnership in drug discovery.
Businesses.
Would you.
You feel it is appropriate for us to take the incremental shift we do and just move it to next year and place it on top of what our prior expectations were for next year or would there be a more nuanced way to.
Just.
Yeah go ahead.
I think I don't want to.
I'm looking at your model, but I wouldn't say that.
<unk> most of the Mileson, Sir we have taken out of this she has done.
We expect now to next year slowly with the announcement is outside.
Madison Redone anticipate the current and future.
Does that sound relatively small.
Got it and on achieving enrollment objectives and the phase one milk.
<unk> trial.
Uh huh.
Has the pace shifted from earlier this year to this point or does it <unk> do you really need the European sites to come on board for the paste to kind of catch up to where you expect your expectations.
Yeah, Hi, yes, indeed.
Alright.
<unk>.
Alright.
That's it.
<unk>.
Anytime an investigation.
Mhm.
Interesting.
Additional.
Hello.
Any thoughts on to when we might see data from the.
Patients.
D L D C L patient.
We're not adding anything specific right now.
How are we going to be.
Okay.
Okay.
The next question is from <unk> with a female cabinet.
Mine is open.
Hi, guys. Thank you so much for taking my questions. One on kind of a <unk> partnership any color as to why they pulled out of the preparation, but there's something on the theater or so just to refocus you know if they're pipeline priorities and just the bigger picture question for me with all the interest in AI. These Dave how are you working to keep your narrative focused.
You know that you are a software company, but also drug development company to not get ahead of yourself I know that's a common question that comes up I would love to hear if you had enough to get thoughts Sir Thank you.
[noise] Hello, Sir.
Operations design.
Uhm.
Calculation.
Thank you.
The strategic Nathan.
Let me see.
Information as well.
Really bad.
A strategic.
Yeah.
[noise], Oh, I'm, sorry, I didn't hear the other could you repeat the question.
Yeah.
Yeah for sure. So the question was just kind of.
<unk>.
With all the hyphen a I.
How are we going for in the narrative, so that investors and folks interested in <unk> are not getting ahead of themselves. When it comes to what you're working on and kind of how you manage the business in terms of your software platform, but also your drive to build platforms.
Yeah, I think it is a really clear answers to that which is what we've been doing.
You know for the last 33 years, which is just.
Avoiding.
Always.
And just.
Talking about the platform.
Knowledge and what it can and cannot do it completely rigorous and accurate way.
And I think we gain reputation of doing that publish.
Yeah.
We may be published in peer reviewed journals.
We have people using the software and validating it with their own publication.
I think as long as we.
Avoid.
Using words that.
Think people might just want to hear which is the definition of height.
Talk about the site.
<unk> way.
We're able to differentiate ourselves I think from a number of other company and.
The space and we don't we don't we.
We don't seem to have the problems that you think you may be alluding to.
Alright excellent. Thank you guys appreciate the caller.
Alright.
Yep.
The next question is from <unk> with Morgan Stanley . Your line is open.
Hi, good afternoon, thanks for taking our questions two from our side.
One clarification question so.
Just to make sure we understood. This correctly so for drug discovery revenue guidance for this year of $50 million to $70 million is there any future or is there any sorry C. D. <unk>. These numbers or is this purely economics from or partnerships and and secondly on.
About one as you move towards an initial healthy volunteer data, Sir you're moving towards moving through.
Studying patients how are you thinking about potential partnership opportunities for this program and also for your other Lee proprietary programs and when do you think might be a good time and.
Such a development here to see partnerships.
Perfect.
Let me answer the question on the drug Discovery Gardens.
There is.
Very small amount essential contribution to that for a.
The reason is now small is because of the.
Revenue.
Report in the second half of the year.
Transaction, so there isn't a huge amount lighting pleasant additional.
<unk>.
Teresa 40th soon as situations that being said.
We are engaged in.
<unk> business loan discussions as we are.
At all times about collaboration and about <unk>.
Okay. So let's see just one more thing it should be here the gentleman.
Because we are interacting with everybody in the industry of course those decisions wrong John .
Tell me about your modem, yes that link, though uhm on the healthy volunteer study as you pointed out we are approaching having a package of data in the health volunteers that will tell us more about the profile of the compound as we sat on the call really happy so far.
With that sounds as co properties.
<unk> clothing P K P T Hum.
The strategy moving forward as you're well aware, we are pursuing opportunities in oncology. We believe this mechanism has the potential for indication outside of oncology as well and.
<unk> 12 set this up well to take a number of different directions with this asset mm potentially so uhm with respect to the second part of your question you asked about partnering with Jeff just alluded to we continue to talk about amateur programs and I always be early presence or the number of partners.
Specifically with 15 O five let me see a number of opportunities first of all I think we also earlier this year, but there is monotherapy activity that was published in <unk>.
And I see them Alpha.
The molecule, we think that set up one well, but we do believe combinations with HEK inhibitors and the standard of care agents that are even imagine opportunities.
The potential to partner with companies, who have those assets either approved and on the market.
J B cell malignancy.
He thinks is very interesting and we continue to have that conversation. So there's a potential partner around combination and I think that in order to proceed they'll combination trials, obviously doesn't have to be access to drugs for the combination studies and we continue to proceed.
Types of opportunity.
Understood. Thank you.
The next question is from Matt Hughes with Greg with Craig Hallum. Your line is open.
Good afternoon. Thank you for taking the questions maybe for some clarification on the software I think rummy in your prepared remarks, you mentioned over a dozen multinational global pharmaceutical companies or your discussions with them for a multiyear possibly multi million dollar contracts alright, just took the clarification.
Those new with those represent new customers are those represent expansions with existing customers.
Good question it's.
Very.
Very much existing customers to the extent that we of course already are working with you know pretty much everybody in the industry.
This is N I'd.
I'd say in all cases actually discussions with existing customers, who have already actually even gone through a few of those steps of it of of increasing their usage and are very familiar with the technology already seeing an impact of the technology.
They're they're scaling up even more so that's that's very encouraging of course.
Absolutely and then let's go ahead.
Some of these these large scale up that we are contemplating not specifically with with pharma companies, what's quite encouraging is that we've seen established.
Biotech companies, who relying on the software drug discovery efforts and dancing the real benefit and also in discussions with us about stepping up the utilization for higher level. So I I don't want <unk> just for will pharma companies, who are finding the technology helped.
Helpful are accelerating drug discovery.
Hi Tech companies as well, yeah, that's a great point.
That that's really helpful and I guess it ties into my next question, which is.
We've heard from a number of companies already discerning season, you're adding up.
Yeah can you hear me.
Maybe he's on mute, we're not we're not sure what.
Can you guys hear me okay.
Uhm.
Oh.
No no don't work no no.
Just a second.
Can you hear me. Okay. Can you guys are you know we get nearer we might've had a technical problem on our end.
Okay, and you were saying.
No. That's okay I guess the follow up here is we've already heard from a number of companies. So far this earnings season that what you know given the week funding environment, which was originally impacting small farm a small biotech now that's expanded where even larger farm a larger biotech companies are just kind of slowly rolling their contracting faces and what.
I guess I'm hearing from you is that not only is that not occurring but you're actually seeing an expansion. So I guess the question is what do you think is differentiating is this the AI and the machine learning component, that's really driving a lot of excitement and leading to those new contracts or is there something else. Thank you.
Yep.
We don't think that's what it is we think it's much it's.
Much better than that it's actually cause they're seeing impact there are now starting to see that they're making fewer compounds that increase the success probability they're they're seen the positive impact of using a technology does it as we talked about as we've talked about many times of using.
What what <unk>.
The combination of physics based methods with with machine learning, but that's impacting real projects that they're working on and <unk> and so if they're seeing improvement in efficiency and drug discovery of course, that's going to be the motivating a drunk driver it's not hype, it's not just because it's you know.
Somebody might associate the platform with AI that that would be a sort of artificial and short lived.
Phenomena. This is this is a real something much much more real than that.
Understood. Thank you.
Yeah.
The next question is from a car of <unk> with <unk> capital markets. Your line is open.
Hey, guys. Thanks for taking my questions. Your first one you know assuming C. D C. Seven and we won reached the clinic, while one is still in your hands.
You have the bandwidth and resources to support.
Several clinical development for three programs.
In addition to launching in advancing new proprietary discovery stage programs.
Yeah. Thanks for your question. So yes, we have now and as you know ongoing 15 O five trials in Saint plan, we have at the.
For C D C seven and we have been preparing to.
To bring that molecule to the clinic over the last six months to nine months.
We are on track with regard to planning for those programs and we won is you know is going to transition spech.
Message transition next yeah, everything's going according to plan. So we have been planning for this obviously over the last few years. The fact that Ah molecules will transition into the clinic. So as you had today, we've just proton Margaret Dougans, who will be working closely with our teams.
And not just on the execution of the existing programs, but also building up this capability at shredding a to manage these clinical stage programs and as far as discovery is concerned your web that we have a significant number of programs in motion.
For a couple of years three years and then we replaced so we think that the bandwidth and discovery is good and we are preparing.
Right now and in the future it bring programs to the clinic Uhm, So we feel well prepared.
Awesome. Thanks, and then just a quick follow up also related on the on the same topic. So as you increase the number of install programs onto the clinic do you expect to pull back any check platform investment or do you feel you have the bandwidth to support those efforts just looking to see where your capital allocation priorities will stand.
Internal clinical development activities escalate. Thanks.
Yep.
Question garage you at the we're making a significant investment in the platform now, we're making a significant investment in discovery of proprietary medicines and of course, we're making an investment dancing.
The most of the basketball is proprietary medicines. So it's it's.
Oh free at this stage, we certainly don't have any plans to scale back.
The technology I think part of the reason that we are as well positioned as we are with our customers is because we are continuing to innovate we're continuing to invest not just in the office space message machine learning I was surprised informatics platform. We're just adding new features totally every corner with a quarterly update alright, thank enhances the Youtube.
A software.
Differentiates us more and more from a competitive so we're not backing off in that investment.
Not backing off of an investment and discovering new medicines. It was certainly excited about the opportunities to would have to dance the ones that we have that being said I think the area of growth in the future is.
<unk> capital allocation is likely to be in the progress of the proprietary medicines rather than the first two areas that I described where are we going to maintain your best friend, but I think obviously the grocery gotta be in the proprietary.
Programs progression.
Got it thanks for that <unk> I appreciate it.
Thanks.
The next question is from Michael Riskin with Bank of America. Your line is open.
Great. Thanks for taking the question cause I've got a couple first I Wanna pick up exactly where you're just left off Jeff on the relative areas of investment and I sort of focus going forward and you're talking about eternal pipeline.
For the drug discovery in the collaboration side of things I mean is there an appetite given the update today and some of your language around you know some of these collaborations just taking longer.
To come to fruition in terms.
Revenues is there an opportunity or an appetite to sign new collaboration is to continue to expand that to sort of you know.
If your current ones are just moving through with a slower is there is there interest to do more to offset or is that just not his priority for you because you focus more on the internal pipeline.
Just with respect to the collaborations you arrived and we have signal with the last couple of quarters, Mark There was a transition going on and we're we're allocating capital B.
Between the collaboration semi proprietary programs and <unk>.
That we have such a good balance sheet that we have an option to put more screaming became with our own programs that being said, we're not walking away from cooperations with completely convinced proposed that we have but as you can see with the news for example from sigh, yes that leaves us a little bit more dependent upon the internal decision making changes.
Monica cooperation partners. So we do think that there are opportunities for additional collaborations. We do believe that we have bandwidth to take on a very small number of additional collaborations uhm I've alluded to some of the business world discussions that we're having those remainder reactive but of course, we're going to be very selective about them. We can only go off to target.
We think our technology is gonna be.
Extra enabling where we think that we have attractive economic times.
Of course with the validation of a technology opportunities first chance to continue to improve.
Okay. That's really helpful. I appreciate that color sounds like so you're not just gonna be chasing a number for the sake of chasing it.
And then my second question is I Gotta go back to the software revenues and and a softer guide and your comment on you know all those all those customers and the negotiations on the conversations you're having I just want to make sure I'm thinking through this correctly so.
If most if not all of these are existing customers and they would normally and a lot of them already are all sort of multiyear contracts if they.
Paul <unk> or if a lot of them re up later this year I just based on your Guy you know it looks like it implies that it's gonna be a <unk> because you're essentially guarding so flat sequential revenue in the fiscal your guy calls for something like roughly.
Roughly 29 million software in the third quarter $67 million in the fourth quarter. So huge step up just hit the mid point of the guide so if that happens in the fourth quarter does that create an air pocket in a sense for next year because customers that may have renewed and scaled up next year.
They all scale off this year than theirs, you know if it's a multiyear contract and you're doing it a 40 twenty-three then you're not gonna be renewing anything and four 224 am I thinking about that correctly.
Well.
You are thinking about it correctly I would say fast they're awesome multiyear contracts from prior period. So we gotta be renewed in the fourth quarter anyway, and we've just foresters in the past and we both such as far as the correct.
Very high degree of protection. So we expect those those conference to bring you.
Now.
As we've indicated we're we're very positive about the discussions that we're having with those customers the opportunity to scale up the department about technology to even higher levels than we have some pretty interesting perfect. So that's contributing to the outlets that we have for the fourth quarter of the you know the question of whether that creates in their pockets and.
Next year.
Maybe it will come to that next year I'm, sorry, you're not trying to give guidance for next year, but.
The.
That volatility that comes from that is certainly not lost something that we're thinking about I don't want it getting to give me more guidance that next year, but we do see further opportunities to scale up an appointment about technology next year as well as the opportunities receive the ship yeah.
Yeah, we have more than 12 customers yeah, yeah, Yeah, I'm exaggerating of course yeah.
Yes, I do need to be sorry that but that's that's it.
You're absolutely right, Okay, Alright, I appreciate it.
Okay.
The next question is from Joseph <unk> with Piper Sandler Your line is open.
Hey, everybody. Thanks for taking my questions here, maybe maybe two for me on the clinical side of things I know you've said a couple of things on the Moslem unhealthy volunteer experience, but was wondering if you could say how long your dosing the healthy volunteers for and whether you think that's long enough to give you a sense of whether you're avoiding some of the safety liabilities that we've seen with other.
One inhibitors and.
And then the second question on the immunology side of things for your first candidate in 24 should we think of that as a target with clinical proof of concept, where you think there is opportunity for best in class or rather one where there's opportunity to be first in class. Thanks.
Okay. So first of all I'm 59, five uhm, we're not sharing today the expanse of information we have on on the molecule of course, but we can say that we've obviously, there's been single dosing and multiple testing and so far the profile is looking good there is.
The what to do on that first human trial, and so we expect to be sharing more about that later on this year, but sofa, we're very happy with the profile of <unk>, so that molecule, especially from the pharmaceutical properties point of view and safety, so far but there's no data that we need to.
As far as the Immunology program is concerned we're not yeah sharing information about the target and will hope to look to present some of that towards the end of this year I will say this this target the I alluded to is one that has strong genetic validation.
And we believe that constitute strong human evidence the other programs that have been in the clinic Uhm. This program and as you know from a track record. We believe there's always an opportunity to design really fantastic molecules, including in the immunology space. So.
We'll be sharing more about this later on this year.
Okay got it that's all helpful. Thanks, so much.
Thanks.
Again, that's star one if you'd like to ask a question. The next question is from Chris issue Brittani with Goldman Sachs. Your line is open.
Yes, thanks very much in terms of the software business I think a lot of us are trying to assess what is driving the growth and there's a sense that you have such.
Depth of penetration in the industry, particularly in the Biopharma side.
Can you help us understand a little bit what are the variable factors that would influence the decision I think let me think about the smaller companies. We think about their budgetary constraints, there's always going to be an appetite to do things better cheaper, but maybe they are kind of constrained by financing, but with a larger companies. What are the factors that drive is variable spend and.
When it reflects on your revenues are.
Are you able to do anything with pricing what is the dynamic there just in terms of thinking actually the software revenue print. These large customers seem to be so meaningful and this decision that's gonna come in the queue for period, what are the factors that will define that and then a second question that I have.
As we think about the way artificial intelligence machine learning is being inculcated throughout the kind of drug discovery and development process, obviously, you're expect expertise primarily centers on the discovery side, but with your pipeline you're moving more into the development side I'm kind of provocatively curious to know.
Whether we should think about the clinical development path is being kind of an approach you're taking and equipping yourself, that's pretty much on par with everybody else in the industry or do you feel that you are going to invoke something that is may be smarter quote unquote somehow with artificial intelligence guided ways of better patient selection.
Mmm managing clinical trials since et cetera that also with labor enable you to sort of say see we have this better smarter path to discovery and we're gonna continue to walk that walk on the clinical development side. Thanks.
Thanks, Chris I'll take the first question and I'll hand, it over to Karen for the for the second one so.
A little bit about this before we.
We think the variable if you will and maybe what you're really asking is sort of what might be barriers to continued increases in and spend from these larger companies and one thing you have to.
I remember is that.
So there's really require a fair amount of expertise internal expertise to utilize this type of technology and there needs to be a real shift.
<unk> the whole drug discovery process. For example, you know how how many compounds you're committed to me how many comments you put on a program how many computational Kenneth how many computers you are or how many computer knows that you're you'll dedicate to to a program and that's that's.
One of the things that were what we're playing a really big role in this in and helping to train a medicinal chemist for example to use this kind of sophisticated technology, we're seeing something really extraordinary happening in for example, the online courses that we provide we're seeing huge increase and the.
Number of.
Paul in companies not just in an academic institution companies, taking these courses and learning about how to deploy technology. This technology, it's scale and that's taking time, but we're we're obviously very encouraged as you can hear by the nature of the discussions, but it but it takes time to <unk> because of because of that you.
Mentioned something else about price as well, let me explain that really quickly about increasing the price.
So to the extent that <unk> that our customers are now still limited.
In the or are they are not fully utilizing the technology and by U utilization. What we mean is the number of calculations that they're actually running so the way that we're getting these increases and the way that the spend goes up is by simply licensing more instances of of the.
The.
The calculations more more more number of more calculations, if they're running simultaneously and so that's where the increase comes from getting more licenses.
Not just by and so it's unnecessary to increase the price per license.
Since they're still far far away from maxing out on the number of licenses that are really required to fully support a program and we know that number because it's it's the way we use the software and as we said many times, we're still utilizing the software orders of magnitude higher scale than than even our largest customers.
I'm, Karen do you Wanna talk about <unk> [laughter] <unk> [laughter], Yes, Hello, I think there's a company that has.
Ah phenotype is looking for ways to run programs more efficiently with that let me eyes wide open on the validation that's required to really make a difference obviously in discovery with them. It's allergies and we're taking that same view of clinical opportunities for technology.
To improve.
Efficiency and speed with which trials are done, but I do want to be plan. This is a highly regulated space in the clinic first programs are following it very typical approach.
We do want to keep our eyes wide open for opportunities that are well validated is having an impact on clinical trials Prozac nation selection understanding team and types et cetera. So we keeping a very close eye on that but really focused on validation uhm, which we think is.
No spaces for technology enabled drug discovery and development.
And as the state of the art now are there well validated choices that you'd be willing to go with or is that still work in progress.
I believe it's still a work in progress with thing some really nice opportunity to identify patient population because of computation uhm that small industry broad I'd say, but also actually using imaging to look at <unk> responses and I'm understanding.
<unk> the opportunity to segment patient that is emerging and I think that within is not decades, that's obviously going to be something that will allow those will be able to benefit from.
Thank you I appreciate the insightful comments.
Thanks, Chris.
We have no further questions at this time.
Conclude today's call you may now disconnect.
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