10-Q 1 sdgr-20240331.htm 10-Q sdgr-20240331
000149097812-312024Q1falseSubsequent Events
TBD
March 4, 2024468
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to
Commission File Number: 001-39206
________________________________________
Schrodinger, Inc.
(Exact Name of Registrant as Specified in its Charter)
________________________________________
Delaware95-4284541
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1540 Broadway, 24th Floor
New York, NY
10036
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (212) 295-5800
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per shareSDGR
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of April 22, 2024, the registrant had 63,515,197 shares of common stock, $0.01 par value per share, and 9,164,193 shares of limited common stock, $0.01 par value per share, outstanding.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report include, among other things, statements about:
the potential advantages of our physics-based computational platform;
our strategic plans to accelerate the growth of our software business and acquire new customers;
our research and development efforts for our proprietary drug discovery programs and our computational platform;
our drug discovery collaborations, including the initiation, timing, progress and results of such collaborations;
our estimates or expectations regarding any milestone or other payments we may receive from drug discovery collaborations, including pursuant to our collaboration agreement with Bristol-Myers Squibb Company;
our proprietary drug discovery programs, including the initiation, timing, progress, and results of our preclinical studies and clinical trials;
our plans to submit investigational new drug applications to the U.S. Food and Drug Administration for our proprietary drug discovery programs;
our plans to discover and develop product candidates and to maximize their commercial potential by advancing such product candidates ourselves or in collaboration with others;
our plans to leverage the synergies between our businesses;
the timing of, the ability to submit applications for and the ability to obtain and maintain regulatory approvals for any product candidates we or one of our collaborators may develop;
the potential advantages of our drug discovery collaborations and our proprietary drug discovery programs;
the rate and degree of market acceptance of our software solutions;
the rate and degree of market acceptance and clinical utility of any product we or any of our collaborators may develop;
our estimates regarding the potential market opportunity for our software solutions and any product candidate we or any of our collaborators may develop;
our sales and marketing capabilities and strategy;
our intellectual property position;
our ability to identify technologies with significant commercial potential that are consistent with our commercial objectives;
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents, and marketable securities;
our expectations related to the use of our cash, cash equivalents, and marketable securities;
our expectations related to the key drivers of our performance;
the impact of government laws and regulations;
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our competitive position and expectations regarding developments and projections relating to our competitors and any competing products, technologies, or therapies that are or become available;
our ability to maintain and establish collaborations or obtain additional funding;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
the potential impact of public health epidemics or pandemics, including the COVID-19 pandemic; and
the potential impact of geopolitical and global economic developments.
We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in “Risk Factor Summary” below and Part II, Item 1A. “Risk Factors”, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, in-licensing arrangements, joint ventures, or investments we may make or enter into.
You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission, or the SEC, with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Unless the context otherwise requires, we use the terms “company,” “we,” “us,” and “our” in this Quarterly Report to refer to Schrödinger, Inc. and its consolidated subsidiaries.
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RISK FACTOR SUMMARY
Our business is subject to a number of risks of which you should be aware before making an investment decision. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this Quarterly Report.
We have a history of significant operating losses, and we expect to incur losses over the next several years.
If we are unable to increase sales of our software, increase revenue from our drug discovery collaborations, or if we and our current and future collaborators are unable to successfully develop and commercialize drug products, our revenues may be insufficient for us to achieve or maintain profitability.
Our quarterly and annual results may fluctuate significantly, which could adversely impact the value of our common stock.
If our existing customers do not renew their licenses, do not buy additional solutions from us, or renew at lower prices, our business and operating results will suffer.
A significant portion of our revenues are generated by sales to life sciences industry customers, and factors that adversely affect this industry could adversely affect our software sales.
The markets in which we participate are highly competitive, and if we do not compete effectively, our business and operating results could be adversely affected.
We may never realize a return on our investment of resources and cash in our drug discovery collaborations.
Although we believe that our computational platform has the potential to identify more promising molecules than traditional methods and to accelerate drug discovery, our focus on using our platform technology to discover and design molecules with therapeutic potential may not result in the discovery and development of commercially viable products for us or our collaborators.
We may not be successful in our efforts to identify, discover or develop product candidates and may fail to capitalize on programs, collaborations, or product candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.
As a company, we have very limited experience in clinical development, which may adversely impact the likelihood that we will be successful in advancing our programs.
We will likely require additional capital to fund our operations. If we are unable to raise additional capital on terms acceptable to us or at all or generate cash flows necessary to maintain or expand our operations, we may not be able to compete successfully, which would harm our business, operations, and financial condition.
Conducting successful clinical trials requires the enrollment of a sufficient number of patients, and suitable patients may be difficult to identify and recruit.
We rely on, and plan to continue to rely on, third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, which may prevent or delay our ability to seek or obtain marketing approval for or commercialize our product candidates or otherwise harm our business.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA or other comparable foreign regulatory authorities.
If we fail to comply with our obligations under our existing license agreements with Columbia University, under any of our other intellectual property licenses, or under any future intellectual property licenses, or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business.
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If we are unable to obtain, maintain, enforce, and protect patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.
Our internal information technology systems, or those of our third-party vendors, contractors, or consultants, may fail or suffer security breaches, loss or leakage of data, and other disruptions, which could result in a material disruption of our services, compromise sensitive information related to our business, or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.
Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel.
We are pursuing multiple business strategies and expect to expand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our multiple business units and our growth, which could disrupt our operations.
Our executive officers, directors, and principal stockholders, if they choose to act together, have the ability to influence all matters submitted to stockholders for approval.
Our actual operating results may differ significantly from our guidance.

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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
SCHRÖDINGER, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except for share and per share amounts)
AssetsMarch 31, 2024December 31, 2023
Current assets:
Cash and cash equivalents$130,236 $155,315 
Restricted cash4,638 5,751 
Marketable securities300,843 307,688 
Accounts receivable, net of allowance for doubtful accounts of $130 and $220
19,839 65,992 
Unbilled and other receivables, net for allowance for unbilled receivables of $130 and $100
25,781 23,124 
Prepaid expenses12,349 9,926 
Total current assets493,686 567,796 
Property and equipment, net26,133 23,325 
Equity investments91,387 83,251 
Goodwill4,791 4,791 
Right of use assets - operating leases118,578 117,778 
Other assets3,187 6,014 
Total assets$737,762 $802,955 
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable$9,974 $16,815 
Accrued payroll, taxes, and benefits19,549 31,763 
Deferred revenue49,497 56,231 
Lease liabilities - operating leases16,927 16,868 
Other accrued liabilities10,560 11,996 
Total current liabilities106,507 133,673 
Deferred revenue, long-term8,016 9,043 
Lease liabilities - operating leases, long-term108,988 111,014 
Other liabilities, long-term545 667 
Total liabilities224,056 254,397 
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; zero shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
  
Common stock, $0.01 par value. Authorized 500,000,000 shares; 63,472,866 and 62,977,316 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
635 630 
Limited common stock, $0.01 par value. Authorized 100,000,000 shares; 9,164,193 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
92 92 
Additional paid-in capital906,193 885,973 
Accumulated deficit(393,142)(338,418)
Accumulated other comprehensive (loss) income(72)281 
Total stockholders' equity513,706 548,558 
Total liabilities and stockholders' equity$737,762 $802,955 
See accompanying notes to unaudited condensed consolidated financial statements.
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SCHRÖDINGER, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except for share and per share amounts)
Three Months Ended March 31,
20242023
Revenues:
Software products and services$33,415 $32,213 
Drug discovery3,183 32,569 
Total revenues36,598 64,782 
Cost of revenues:
Software products and services7,976 7,115 
Drug discovery9,732 11,974 
Total cost of revenues17,708 19,089 
Gross profit18,890 45,693 
Operating expenses:
Research and development50,611 40,741 
Sales and marketing10,171 9,145 
General and administrative25,541 26,308 
Total operating expenses86,323 76,194 
Loss from operations(67,433)(30,501)
Other income:
Gain on equity investments 147,322 
Change in fair value8,137 35,737 
Other income5,028 2,937 
Total other income13,165 185,996 
(Loss) income before income taxes(54,268)155,495 
Income tax expense456 26,359 
Net (loss) income$(54,724)$129,136 
Net (loss) income per share of common and limited common stockholders, basic:$(0.76)$1.81 
Weighted average shares used to compute net (loss) income per share of common and limited common stockholders, basic:72,291,13471,467,097
Net (loss) income per share of common and limited common stockholders, diluted:$(0.76)$1.75 
Weighted average shares used to compute net (loss) income per share of common and limited common stockholders, diluted:72,291,13473,818,611
See accompanying notes to unaudited condensed consolidated financial statements.
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SCHRÖDINGER, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
(in thousands)
Three Months Ended March 31,
20242023
Net (loss) income$(54,724)$129,136 
Changes in market value of investments, net of tax:
Unrealized (loss) gain on marketable securities(353)1,483 
Comprehensive (loss) income$(55,077)$130,619 
See accompanying notes to unaudited condensed consolidated financial statements.
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SCHRÖDINGER, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands, except for share amounts)
Common stockLimited common
stock
Additional
paid-in
capital
Accumulated
deficit
Accumulated other comprehensive gain (loss)Total stockholders’
equity
SharesAmountSharesAmount
Balance at December 31, 202362,977,316 $630 9,164,193 $92 $885,973 $(338,418)$281 $548,558 
Change in unrealized loss on marketable securities— — — — — — (353)(353)
Issuances of common stock upon stock option exercises41,623 — — — 390 — — 390 
Issuance of common stock upon vesting of RSUs and PSUs170,964 2 — — — — — 2 
Issuance of common stock in ATM offering282,963 3 — — 7,612 — — 7,615 
Stock-based compensation— — — — 12,218 — — 12,218 
Net loss— — — — — (54,724)— (54,724)
Balance at March 31, 202463,472,866 $635 9,164,193 $92 $906,193 $(393,142)$(72)$513,706 
       
Balance at December 31, 202262,163,739 $622 9,164,193 $92 $828,700 $(379,138)$(2,382)$447,894 
Change in unrealized gain on marketable securities— — — — — — 1,483 1,483 
Issuances of common stock upon stock option exercises186,201 1 — — 866 — — 867 
Issuance of common stock upon vesting of RSUs12,075 — — — — — — — 
Stock-based compensation— — — — 10,880 — — 10,880 
Net income— — — — 129,136 — 129,136 
Balance at March 31, 202362,362,015 $623 9,164,193 $92 $840,446 $(250,002)$(899)$590,260 
See accompanying notes to unaudited condensed consolidated financial statements.
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SCHRÖDINGER, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net (loss) income$(54,724)$129,136 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on equity investments (147,322)
Fair value adjustments(8,137)(35,737)
Depreciation and amortization1,436 1,760 
Stock-based compensation12,218 10,880 
Noncash investment accretion(2,683)(964)
Decrease (increase) in assets:
Accounts receivable, net46,153 9,262 
Unbilled and other receivables(2,657)(336)
Reduction in the carrying amount of right of use assets - operating leases2,152  
Prepaid expenses and other assets(2,559)(5,750)
(Decrease) increase in liabilities:
Accounts payable(7,150)2,468 
Income taxes payable 25,963 
Accrued payroll, taxes, and benefits(12,214)(11,730)
Deferred revenue(7,761)(11,603)
Lease liabilities - operating leases(1,967)(623)
Other accrued liabilities(1,383)3,502 
Net cash used in operating activities(39,276)(31,094)
Cash flows from investing activities:
Purchases of property and equipment(4,095)(3,580)
Purchases of equity investments (4,125)
Distribution from equity investment 111,329 
Purchases of marketable securities(37,126)(58,823)
Proceeds from maturity of marketable securities46,300 127,401 
Net cash provided by investing activities5,079 172,202 
Cash flows from financing activities:
Issuances of common stock upon stock option exercises392 867 
Principal payments on finance leases(14) 
Issuance of common stock upon ATM offering, net7,627  
Net cash provided by financing activities8,005 867 
Net (decrease) increase in cash and cash equivalents and restricted cash(26,192)141,975 
Cash and cash equivalents and restricted cash, beginning of period161,066 95,717 
Cash and cash equivalents and restricted cash, end of period$134,874 $237,692 
Supplemental disclosure of cash flow and noncash information
Cash paid for income taxes$180 $86 
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment in accounts payable501 218 
Purchases of property and equipment in accrued liabilities282 86 
Acquisition of right of use assets - operating leases, contingency resolution2,848 1,820 
See accompanying notes to unaudited condensed consolidated financial statements.
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SCHRÖDINGER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three months ended March 31, 2024 and 2023
(in thousands, except for share and per share amounts and note 3(c))
(1)    Description of Business
Schrödinger, Inc. (the “Company”) has developed a differentiated, physics-based computational platform that enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly and at a lower cost, compared to traditional methods. The Company's software platform is licensed by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world. The Company is also applying its computational platform to advance a broad pipeline of drug discovery programs in collaboration with leading biopharmaceutical companies. In addition, the Company uses its computational platform to discover novel molecules for its pipeline of proprietary drug discovery programs, which the Company is advancing through preclinical and clinical development.
In February 2024, the Company entered into an amended and restated sales agreement with Leerink Partners LLC ("Leerink Partners"), as sales agent, with respect to an at-the-market offering program ("the ATM") under which the Company could offer and sell, from time to time pursuant to its Form S-3, shares of common stock, having an aggregate offering price of up to $250,000, through Leerink Partners. The amended and restated sales agreement amends and restates the original sales agreement that the Company entered into with Leerink Partners with respect to the ATM in May 2023, which is no longer in effect. During the three months ended March 31, 2024, 282,963 shares of common stock were sold under the ATM for total net proceeds of $7,626 and gross proceeds of $7,782 before deducting sales agent commissions. As of March 31, 2024, the Company had $242,218 of common stock remaining available for sale under the ATM.
(2)    Significant Accounting Policies
(a)    Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This standard is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted. The Company has not yet adopted ASU 2023-07 and is still evaluating the impact of the adoption on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures, which requires public business entities to disclose specific categories in the tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This standard is effective for annual periods beginning after December 15, 2024, and interim periods within annual periods beginning after December 15, 2025, on a prospective basis, with early adoption permitted. The Company has not yet adopted ASU 2023-09 and is still evaluating the impact of the adoption on its consolidated financial statements.
(b)    Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements and the related interim disclosures have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the interim financial information. These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the SEC’s rules and regulations for interim reporting. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 28, 2024.
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The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the assumptions used in the allocation of revenue and estimates regarding the progress of completing performance obligations under collaboration agreements. Actual results could differ from those estimates, and such differences may be material to the unaudited condensed consolidated financial statements.
(c)    Principles of Consolidation
The Company’s unaudited condensed consolidated financial statements include the accounts of Schrödinger, Inc., its wholly owned subsidiaries, and its variable interest entity. All intercompany balances and transactions have been eliminated in consolidation. The functional currency for foreign entities is the United States dollar. The Company accounts for investments over which it has significant influence, but not a controlling financial interest, using the equity method.
(d)    Restricted Cash
Restricted cash consists of letters of credit held with the Company’s financial institution related to facility leases and is classified as current in the Company’s balance sheets based on the maturity of the underlying letters of credit. Additionally, funds received from certain grants are restricted as to their use and are therefore classified as restricted cash.
(e)    Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables and contract assets, which represent contracted unbilled receivables.
The Company does not require customers to provide collateral to support accounts receivable. If deemed necessary, credit reviews of significant new customers may be performed prior to extending credit. The determination of a customer’s ability to pay requires judgment, and failure to collect from a customer can adversely affect revenue, cash flows, and results of operations.
As of March 31, 2024, two customers accounted for 28% and 12% of total accounts receivable, respectively. As of December 31, 2023, two customers accounted for 15% and 11% of total accounts receivable, respectively. As of March 31, 2024, two customers accounted for 41% and 20% of total contract assets, respectively. As of December 31, 2023, two customers accounted for 42% and 22% of total contract assets, respectively. For the three months ended March 31, 2024, no customer accounted for more than 10% of total revenue. For the three months ended March 31, 2023, one customer accounted for 44% of total revenue.
(f)    Income Taxes
The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. Deferred tax assets are reduced by a valuation allowance when it is estimated to become more likely than not that a portion of the deferred tax assets will not be realized. Accordingly, the Company currently maintains a full valuation allowance against existing net deferred tax assets.
The Company recognizes the effect of income tax positions only if such positions are deemed “more likely than not” capable of being sustained. Interest and penalties accrued on unrecognized tax benefits are included within income tax expense in the unaudited condensed consolidated financial statements.
(g)    Equity Investments
In the normal course of business, the Company has entered, and may continue to enter, into collaboration agreements with companies to perform drug design services for such companies in exchange for equity ownership stakes in such companies. If it is determined that the Company has control over the investee, the investee is consolidated in the financial statements. If the investee is consolidated with the Company and less than 100% of the equity is owned by the Company, the Company will present non-controlling interest to represent the portion of the investee owned by other investors. If it is determined that the Company does not have control over the investee, the Company evaluates the investment for the ability to exercise significant influence.
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Equity investments over which the Company has significant influence may be accounted for under equity method accounting in accordance with Accounting Standards Codification (ASC) Topic 323 (“Topic 323”), Equity Method and Joint Ventures. If it is determined that the Company does not have significant influence over the investee, and there is no readily determinable fair value for the investment, the equity investment may be accounted for at cost less impairment, in accordance with ASC Topic 321 (“Topic 321”), Investments - Equity Securities.
For further information regarding the Company’s equity investments, see Note 4, Fair Value Measurements and Note 10, Equity Investments.
(h)    Net (Loss) Income per Share Attributable to Common and Limited Common Stockholders
The outstanding equity of the Company consists of common stock and limited common stock. Under the Company’s certificate of incorporation, the rights of the holders of common stock and limited common stock are identical, except with respect to voting and conversion. Holders of limited common stock are precluded from voting such shares in any election of directors or on the removal of directors. Limited common stock may be converted into common stock at any time at the option of the stockholder.
Undistributed earnings allocated to the participating securities are subtracted from net income in determining net income (loss) attributable to common and limited common stockholders. Basic net income (loss) per share is computed by dividing net income (loss) attributable to common and limited common stockholders by the weighted-average number of shares of common and limited common stock outstanding during the period.
For the calculation of diluted net income, net income attributable to common and limited common stockholders for basic net income is adjusted by the effect of dilutive securities, including awards under the Company’s equity compensation plans. Diluted net income per share attributable to common and limited common stockholders is computed by dividing the resulting net income attributable to common and limited common stockholders by the weighted-average number of fully diluted shares of common and limited common stock outstanding.
(3)    Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time, which can result in different revenue recognition patterns.
The following table illustrates the timing of the Company’s revenue recognition patterns:
Three Months Ended March 31,
20242023
Software products and services – point in time48.7 %30.8 %
Software products and services – over time42.6 19.0 
Drug Discovery – point in time 41.9 
Drug Discovery – over time8.7 8.3 
(a)Software Products and Services
The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative standalone selling price (“SSP”) basis. Revenue is recognized net of any sale and value-added taxes collected from customers and subsequently remitted to governmental authorities.
The Company’s software business derives revenue from five sources: (i) on-premise software license fees, (ii) hosted software subscription fees, (iii) software maintenance fees, (iv) professional services fees, and (v) contributions.
On-premise software. The Company’s on-premise software license arrangements grant customers the right to use its software on their own in-house servers or their own cloud instances for a specified term, typically for one year, though
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in recent years, the Company has entered into a small number of large multi-year on-premise software license agreements. The Company recognizes revenue for on-premise software license fees upfront, either upon transfer of control of the license or the effective date of the agreement, whichever is later. In instances where the timing of the transfer of control differs from the timing of invoicing, the Company considers whether a significant financing component exists. The Company has elected the practical expedient to not assess for significant financing where the term is less than one year. The Company’s updates and upgrades are not integral to maintaining the utility of the software licenses. Payments typically are received upfront or annually.
Hosted software. Hosted software revenue consists primarily of fees to provide the Company’s customers with hosted licenses, which allows these customers to access the Company’s cloud-based software solution on their own hardware without taking control of the licenses, and is recognized ratably over the term of the arrangement, which is typically one year, though in recent years, the Company has entered into a small number of large multi-year hosted software license agreements. When a customer enters into a hosted arrangement for which revenue is recognized over time, the amount paid upfront that is not recognized in the current period is included in deferred revenue in the Company's statement of financial position until the period in which it is recognized.
Software maintenance. Software maintenance includes technical support, updates, and upgrades related to the Company's on-premise software licenses. Software maintenance revenue is recognized ratably over the term of the arrangement. Software maintenance activities are performed in connection with the use of the Company's on-premise software, and may fluctuate from period to period.
Professional services. Professional services include training, technical setup, installation or assisting customers with modeling services, where the Company uses its software to perform tasks such as virtual screening on behalf of the Company’s customers. These services are generally not related to the core functionality of the Company’s software and are recognized as revenue when resources are consumed. Since each professional services agreement represents a unique, ad hoc engagement, professional services revenue may fluctuate from period to period.
Software contribution revenue. Software contribution revenue consists of funds received under a non-reciprocal agreement with Gates Ventures, LLC originally entered into in June 2020 and further extended through August 2026. The agreement is an unconditional non-exchange contribution without restrictions. Revenue was recognized annually from June 2020 through June 2022 and upon extension of the agreement in August 2023, when invoiced, in accordance with ASC Topic 958, Not-for-Profit Entities as the agreement is not an exchange transaction.
The agreement with Gates Ventures, LLC initially covered the period from June 23, 2020 through June 22, 2023 for total consideration of up to $3,000. The Company recognized revenue of $1,000 upon entry into the agreement and $1,000 upon each of the first and second anniversary of the agreement. The agreement was then extended through August 13, 2026 and provides for total additional consideration of up to $6,000. The Company recognized revenue of $1,800 upon extension of the agreement. As of March 31, 2024 and December 31, 2023, the Company had no deferred revenue balance related to this agreement. As of March 31, 2024 and December 31, 2023, the Company had no accounts receivable related to this agreement.
The following table presents the revenue recognized from the sources of software products and services revenue:
Three Months Ended March 31,
20242023
On-premise software$17,619 $19,944 
Hosted software7,176 4,451 
Software maintenance5,895 5,750 
Professional services2,725 2,068 
Revenue from contracts with customers33,415 32,213 
Software contribution  
Total software revenue$33,415 $32,213 
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(b)Drug Discovery
Drug discovery services. Revenue from drug discovery and collaboration services contracts is recognized either over time or at a point in time, typically by using costs incurred, hours expended to measure progress, or based on the achievement of milestones. Payments for services are generally due upfront at the start of a contract, upon achieving milestones stated in a contract, or upon consumption of resources. Services may at times include variable consideration, and the Company has estimated the amount of consideration that is variable using the most likely amount method. The Company evaluates milestones on a case-by-case basis, including whether there are factors outside the Company’s control that could result in a significant reversal of revenue, and the likelihood and magnitude of a potential reversal. If achievement of a milestone is not considered probable, the Company constrains (reduces) variable consideration to exclude the milestone payment until it is probable to be achieved. Upon removal of the constraint on variable consideration, revenue may be recognized at a point in time or over time by applying the allocation guidance of ASC Topic 606, Revenue from Contracts with Customers ("Topic 606").
As of March 31, 2024, milestones not yet achieved that were determined to be probable of achievement totaled $350, of which zero was recognized as drug discovery milestone revenue for the three months ended March 31, 2024. As of March 31, 2023, milestones not yet achieved that were determined to be probable of achievement totaled $2,500, of which $2,171 was recognized as drug discovery milestone revenue for the three months ended March 31, 2023.
Drug discovery contribution revenue. Drug discovery contribution revenue consists of funds received under an agreement with the Bill and Melinda Gates Foundation on a cost reimbursement basis, to perform services aimed at accelerating drug discovery in women’s health. The initial agreement began in November 2021 and expired in September 2023. In September 2023, the Company entered into a new agreement with the Bill and Melinda Gates Foundation to perform services aimed at accelerating drug discovery in women's health that expires in October 2025. Revenue is recognized as conditions are met in accordance with ASC Topic 958, Not-for-Profit Entities. As of March 31, 2024 and December 31, 2023, the Company had deferred revenue balances related to these agreements of $1,091 and $1,581, respectively.
The following table presents the revenue recognized from the sources of drug discovery revenue:
Three Months Ended March 31,
20242023
Drug discovery services revenue from contracts with customers$2,692 $31,803 
Drug discovery contribution491 766 
Total drug discovery revenue$3,183 $32,569 
(c)Collaboration and License Agreement
On November 22, 2020, the Company entered into an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company (“BMS”), pursuant to which the Company and BMS agreed to collaborate in the discovery, research and preclinical development of new small molecule compounds for disease indications in oncology, neurology, and immunology therapeutics areas. Under the agreement, the Company was initially responsible, at its own cost and expense, for the discovery of small molecule compounds directed to five specified biological targets pursuant to a mutually agreed research plan for each such target. The initial targets included HIF-2 alpha and SOS1, which were two of the Company’s proprietary programs. In November 2021, the Company and BMS mutually agreed to replace the HIF-2 alpha target with another precision oncology target. Following the replacement election, all rights to the HIF-2 alpha target program reverted to the Company. In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to the Company, which increased revenue recognition in the third quarter of 2022 due to the accelerated completion of the Company's obligations related to the program. In December 2022, the Company and BMS entered into an amendment to the agreement to include an additional target in neurology on terms similar to the original agreement. In September 2023, BMS elected not to proceed with further development of two related oncology programs and all rights to these programs reverted to the Company, which increased revenue recognition in the third quarter of 2023 due to the accelerated completion of the Company's obligations related to those programs. In the first quarter of 2024, BMS elected not to proceed with further development of the SOS1 program based on portfolio prioritization decisions and all rights to this program reverted to the Company. The Company currently plans to evaluate and assess the data package from the SOS1 program to determine next steps and plans for further investment in the program.
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Once a development candidate meeting specified criteria for a target under the agreement has been identified by the Company, BMS will be solely responsible for the further development, manufacturing and commercialization of such development candidate at its own cost and expense. The Company is solely responsible for the development of any programs that have been returned by BMS.
Under the terms of the agreement, as amended, BMS paid the Company an initial upfront fee payment of $55.0 million in November 2020 and an additional upfront payment in December 2022. The Company also is eligible to receive up to $971.0 million in total milestone payments across the two remaining targets currently subject to the collaboration, consisting of up to $489.0 million in milestone payments per neurology and immunology target, consisting of up to $264.0 million in the aggregate for the achievement of certain specified research, development, and regulatory milestones and $225.0 million in the aggregate for the achievement of certain specified commercial milestones. As of March 31, 2024, the Company has recognized $25.0 million in revenue related to milestones under this agreement.
The Company is also entitled to a tiered percentage royalty on annual net sales ranging from mid-single digits to low-double digits, subject to certain specified reductions. Royalties are payable by BMS on a licensed product-by-licensed product and country-by-country basis until the later of the expiration of the last valid claim covering the licensed product in such country, expiration of all applicable regulatory exclusivities in such country for such licensed product and the tenth anniversary of the first commercial sale of such licensed product in such country.
The Company assessed the collaboration and license agreement in accordance with Topic 606, and concluded that BMS is a customer based on the agreement structure. At inception, the Company identified one performance obligation for each of the five programs initially covered under the agreement, which includes research activities for each program and a license grant for the underlying intellectual property. The Company determined that the license grant for intellectual property is not separable from the research activities, as the research activities are expected to significantly modify or enhance the license grant over the period of service, and therefore are not distinct in the context of the contract.
The Company determined that the transaction price at the onset of the agreement is $55.0 million. Additional consideration to be paid to the Company upon the achievement of future milestone payments were excluded from the transaction price as they represent milestone payments that are not considered probable as of the inception date such that there is not a significant risk of revenue reversal.
The Company has allocated the transaction price of $55.0 million to each performance obligation based on the SSP of each performance obligation at inception, which was determined based on each performance obligation’s estimated SSP. The Company determined the estimated SSP at contract inception of the research activities based on internal estimates of the costs to perform the services, inclusive of a reasonable profit margin. Significant inputs used to determine the total costs to perform the research activities included the length of time required, the internal hours expected to be incurred on the services and the number and costs of various studies that will be performed to complete the research plan.
Revenue associated with the research activities is recognized on a proportional performance basis over the period of service for research activities, using input-based measurements of total costs of research incurred to estimate the proportion performed. Progress towards completion is remeasured at the end of each reporting period.
During the three months ended March 31, 2024 and 2023, the Company recognized $1.5 million and $28.1 million, respectively, of revenue associated with the agreement based on the research activities performed and milestones achieved. As of March 31, 2024 and December 31, 2023, there was $5.8 million and $7.3 million, respectively, of deferred revenue related to the agreement, which was classified as either current or non-current in the condensed consolidated balance sheet based on the period the services are expected to be performed. As of March 31, 2024 and December 31, 2023, the Company had no outstanding receivables for this collaboration.
(d)Significant Judgments
Significant judgments and estimates are required under Topic 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.
The Company’s contracts with customers often include promises to transfer multiple software products and services, including training, professional services, technical support services, and rights to unspecified updates. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or
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are not distinct and therefore should be accounted for together, requires significant judgment. In some arrangements, such as most of the Company’s term-based software license arrangements, the Company has concluded that the licenses and associated services are distinct from each other. In other arrangements, including collaboration services arrangements, the licenses and certain services may not be distinct from each other. The Company’s time-based software arrangements may include multiple software licenses and a right to updates or upgrades to the licensed software products, and technical support. The Company has concluded that such promised goods and services are separate distinct performance obligations.
The Company is required to estimate the total consideration expected to be received from contracts with customers, including any variable consideration. For collaborative arrangements, under which the Company is eligible to receive variable consideration in the form of milestones payments, judgment is required to evaluate whether the milestones are considered probable of being achieved. If it is probable that a significant revenue reversal would not occur, the constraint is removed and value of the associated milestone is included in the estimated transaction price using the most likely amount method based on contractual requirements and historical experience. Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is allocated to each separate performance obligation on a relative SSP basis consistent with the allocation objectives of Topic 606.
Judgment is required to determine the SSP for each distinct performance obligation. The Company rarely licenses or sells products on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where the SSP is not directly observable because the Company does not sell the license, product, or service separately, the Company determines the SSP using information that includes historical discounting practices, market conditions, cost-plus analysis, and other observable inputs. The Company typically has more than one SSP for individual performance obligations due to the stratification of those items by volume of sales, classes of customers and other relevant circumstances. In these instances, the Company may use information such as the size and geographic region of the customer in determining the SSP. Professional service revenue is recognized as costs and hours are incurred, and judgment is required in estimating both the project status and the costs incurred or hours expended.
If a group of agreements are so closely related to each other that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprises a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.
Judgment is required to determine the total costs to perform research activities, which include the length of time required, the internal hours expected to be incurred on the services, and the number and costs of various studies that may be performed by third-parties to complete the research plan.
Generally, the Company has not experienced significant returns or refunds to customers.
The Company’s estimates related to revenue recognition may require significant judgment and a change in these estimates could have an effect on the Company’s results of operations during the periods involved.
(e)Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the condensed consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to invoicing. A deferred revenue liability is recorded when revenue is expected to be recognized subsequent to invoicing. For the Company’s time-based software agreements, customers are generally invoiced at the beginning of the arrangement for the entire term, though when the term spans multiple years the customers may be invoiced on an annual basis. For certain drug discovery agreements where the milestones are deemed probable in a period prior to when the milestone is achieved, the Company records a contract asset for the full value of the milestone.
Contract assets are included in unbilled and other receivables within the condensed consolidated balance sheets and are transferred to receivables when the Company invoices the customer.
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Contract balances were as follows:
As of
March 31,
2024
As of
December 31,
2023
Contract assets$23,902 $21,107 
Deferred revenue, short-term:
Software products and services39,537 44,218 
Drug discovery9,960 12,013 
Deferred revenue, long-term:
Software products and services1,961 2,407 
Drug discovery6,055 6,636 
For the three months ended March 31, 2024 and 2023, the Company recognized $23,380 and $24,296 of revenue, respectively, that was included in deferred revenue at the end of the respective preceding periods. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. The Company expects to recognize as revenue approximately 86% of its March 31, 2024 deferred revenue balance in the next 12 months and the remainder thereafter. Additionally, contracted but unsatisfied performance obligations that had not yet been billed to the customer or included in deferred revenue were $32,040 as of March 31, 2024.
Payment terms and conditions vary by contract type, although terms typically require payment within 30 to 60 days. In instances where the timing of revenue recognition differs from that of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to facilitate financing arrangements.
(f)Deferred Sales Commissions
The Company has applied the practical expedient for sales commission expense, as any material compensation paid to sales representatives to obtain a contract relates to a period of one year or less. The Company has not capitalized any costs related to sales commissions.
(4)    Fair Value Measurements
Various inputs are used in determining the fair value of the Company’s financial assets and liabilities. These inputs are summarized into the following three broad categories:
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk, etc.
Level 3 – significant unobservable inputs, including the Company’s own assumptions in determining fair value
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Marketable securities, which consist primarily of corporate and U.S. government agency bonds, are classified as available for sale and fair value did not differ significantly from carrying value as of March 31, 2024 and December 31, 2023. The following table presents information about the Company’s assets measured at fair value as of March 31, 2024:
Level 1Level 2Level 3Total
Assets:
Cash and cash equivalents and restricted cash$134,874 $ $ $134,874 
Marketable securities 300,843  300,843 
Equity investments87,759  1,928 89,687 
Total$222,633 $300,843 $1,928 $525,404 
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The following table presents information about the Company’s assets measured at fair value as of December 31, 2023:
Level 1Level 2Level 3Total
Assets:
Cash and cash equivalents and restricted cash$161,066 $ $ $161,066 
Marketable securities 307,688  307,688 
Equity investments79,623  1,928 81,551 
Total$240,689 $307,688 $1,928 $550,305 
The following table sets forth changes in fair value of the Company’s Level 3 investments:
Amount
As of December 31, 2022$1,629 
Realized gain147,213 
Cash distributions(147,213)
Transfer to Level 1(1,629)
Unrealized gain1,928 
As of December 31, 20231,928 
Unrealized loss 
As of March 31, 2024$1,928 
The fair value of the Company’s investment in Nimbus Therapeutics, LLC (“Nimbus”), classified as Level 3 in the fair value hierarchy, was recorded as an equity method investment under Topic 323, using the hypothetical liquidated book value method (“HLBV method”) through June 30, 2023, as further described in Note 10, Equity Investments. Significant unobservable inputs used to determine Nimbus’ fair value under the HLBV method were the entity's annual financial statements and the Company’s liquidation preference. During the year ended December 31, 2023, the Company recorded a realized gain of $147,213 on account of its equity position in Nimbus following the closing of Takeda's acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its tyrosine kinase 2 inhibitor, NDI-034858. The Company received $147,213 in cash distributions related to this sale from Nimbus during the year ended December 31, 2023. Following the dilution of the Company's investment in Nimbus during the period ended September 30, 2023, the fair value of the Company's investment is recorded under Topic 321 as a non-marketable equity security as the Company no longer exercises significant influence over Nimbus. This change in accounting method resulted in an unrealized gain of $1,928.
During the year ended December 31, 2023, the Company recorded a transfer of $1,629 from a Level 3 investment to a Level 1 investment due to the completion of Structure Therapeutics Inc.'s, ("Structure Therapeutics"), initial public offering ("IPO"). The Company's investment in Structure Therapeutics was previously recorded using the HLBV method. Following the completion of Structure Therapeutics' IPO, the Company's investment in Structure Therapeutics is recorded under Topic 321 because there is an observable price of the investment.
Unrealized gains and losses arising from changes in fair value of the Company’s equity investments are classified within change in fair value in the condensed consolidated statements of operations. Realized gains arising from distributions receivable from the Company's equity investments are classified within gain on equity investments in the condensed consolidated statements of operations.
For further information regarding the Company’s equity investments, see Note 10, Equity Investments.
(5)    Commitments and Contingencies
(a)    Leases
The Company has multiple operating leases for office space and a finance lease for equipment that expire at various dates through 2037. The Company has elected the package of practical expedients under the transition guidance of ASC Topic 842, Leases, to exclude short-term leases from the balance sheet and to combine lease and non-lease
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components. The Company classifies finance lease right of use assets under property and equipment, net and finance short-term and long-term lease liabilities under other accrued liabilities and other liabilities, long-term, respectively.
Upon inception of a lease, the Company determines if an arrangement is a lease, if it is classified as an operating or finance lease, if it includes options to extend or terminate the lease, and if it is reasonably certain that the Company will exercise the options. Lease cost, representing lease payments over the term of the lease and any capitalizable direct costs less any incentives received, is recognized on a straight-line basis over the lease term as lease expense.
In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. Upon execution of a new lease, the Company performs an analysis to determine its incremental borrowing rate using its current borrowing rate, adjusted for various factors including level of collateralization and lease term. As of March 31, 2024, the remaining weighted average lease term for operating and finance leases was 12 years.
During the three months ended March 31, 2024, operating lease right of use assets increased by $2,952 due to contingency resolutions associated with office leases.
Variable and short-term lease costs for the Company's operating and finance leases were immaterial for the three months ended March 31, 2024. Additional details of the Company’s operating and finance leases are presented in the following table:
Three Months Ended March 31,
20242023
Lease costs$4,490 $3,794 
Cash paid for leases4,099 2,637 
Maturities of operating and finance lease liabilities as of March 31, 2024 under noncancelable operating leases were as follows:
Year ending December 31:
Remainder of 2024$13,337 
202517,457 
202617,136 
202715,963 
202814,950 
Thereafter112,027 
Total future minimum lease payments190,870 
Less: imputed interest(64,699)
Present value of future minimum lease payments126,171 
Less: current portion of lease payments17,027 
Lease liabilities, long-term$109,144 
(b)    Legal Matters
From time to time, the Company may become involved in routine litigation arising in the ordinary course of business. While the results of such litigation cannot be predicted with certainty, management believes that the final outcome of such matters is not likely to have a material adverse effect on the Company’s financial position or results of operations or cash flows.
(c)    Contingencies
The Company is currently under audit with a royalty partner. As of March 31, 2024, the Company believes a contingency is probable and has accrued $2,500 related to this audit.
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(6)    Income Taxes
The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.
For the three months ended March 31, 2024 and 2023, the Company’s income tax expense was $456 and $26,359, respectively. For the three months ended March 31, 2024, the difference between the effective rate and the statutory rate was primarily attributed to the application of research and development credits and the change in the valuation allowance against net deferred tax assets.
The Company recognizes the effect of income tax positions only if those positions are “more likely than not” capable of being sustained. As of March 31, 2024, the Company had $3,045 of unrecognized tax benefits. Interest and penalties accrued on unrecognized tax benefits are recorded as tax expense within the unaudited condensed consolidated financial statements. The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months.
The Company and its subsidiaries file U.S. federal income tax returns and various state, local and foreign income tax returns. At March 31, 2024, the Company’s statutes of limitations are open for all federal and state tax returns filed after the years ended December 31, 2021 and 2020, respectively. Net operating loss (“NOL”) and credit carryforwards from all years are subject to examination and adjustments for the three years following the year in which the carryforwards are utilized. The Company is not currently under Internal Revenue Service or state examination.
Pursuant to Internal Revenue Code Sections 382 and 383, the utilization of NOLs and other tax attributes may be substantially limited due to cumulative changes in ownership greater than 50% that may have occurred or could occur during applicable testing periods. The Company has performed an analysis through December 31, 2023 and determined that such an ownership change occurred on March 31, 2021. There was no material impact to the financial statements due to this ownership change.
(7)    Stockholders’ Equity
(a)    Common Stock
As of March 31, 2024, the Company had authorized 500,000,000 shares of common stock with a par value of $0.01 per share. Holders of common stock are entitled to one vote per share, to receive dividends, if and when declared by the board of directors, and upon liquidation or dissolution, to receive a portion of the assets available for distributions to stockholders, subject to preferential amounts owed to holders of the Company’s preferred stock, if any.
Common stockholders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. The rights, preferences and privileges of holders of the common stock are subject to and may be adversely affected by the right of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.
(b)    Limited Common Stock
As of March 31, 2024, the Company had authorized 100,000,000 shares of limited common stock with a par value of $0.01 per share. Holders of limited common stock are entitled to one vote per share, however, the holders of limited common stock shall not be entitled to vote such shares in any election of directors or on the removal of directors. Holders of limited common stock are entitled to receive dividends, if and when declared by the board of directors, and upon liquidation or dissolution, to receive a portion of the assets available for distributions to stockholders, subject to preferential amounts owed to holders of the Company’s preferred stock, if any. Holders of the Company’s limited common stock have the right to convert each share of limited common stock into one share of the Company’s common stock.
Limited common stockholders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. The rights, preferences and privileges of holders of the limited common stock are subject to and may be adversely affected by the right of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.
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(c)    Preferred Stock
As of March 31, 2024, the Company had authorized 10,000,000 shares of undesignated preferred stock with a par value of $0.01 per share. The Company’s board of directors has the discretion to determine the rights, preferences, privileges, and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences, of each series of preferred stock.
(8)    Stock-Based Compensation
Stock Incentive Plans
As of March 31, 2024, the Company’s stock incentive plans included the 2010 Stock Plan (the “2010 Plan”), the 2020 Equity Incentive Plan (the “2020 Plan”), the 2021 Inducement Equity Incentive Plan, as amended (the “2021 Plan”), and the 2022 Equity Incentive Plan (the “2022 Plan”) (together, the “Plans”).
The 2022 Plan provides for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, and cash-based awards to employees, directors, consultants or advisors. Shares of common stock subject to outstanding awards granted under the 2020 Plan and the 2010 Plan that expire, terminate, or are otherwise surrendered, cancelled, forfeited, or repurchased by the Company are available for issuance under the 2022 Plan.
The 2021 Plan provides for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards to persons who were not previously an employee or director of the Company or who are commencing employment with the Company following a bona fide period of non-employment, in either case, as an inducement material to such person’s entry into employment with the Company and in accordance with the requirements of the Nasdaq Stock Market Rule 5635(c)(4). Neither consultants nor advisors are eligible to participate in the 2021 Plan.
The 2020 Plan provided for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards to employees, directors, consultants or advisors. As of June 15, 2022, the effective date of the 2022 Plan, no further awards will be made under the 2020 Plan. Any options or awards outstanding under the 2020 Plan are governed by the terms of the 2020 Plan.
The 2010 Plan provided for the granting of incentive stock options and nonstatutory stock options to employees, directors, consultants or advisors. As of the effective date of the 2020 Plan, no further awards will be made under the 2010 Plan. Any options or awards outstanding under the 2010 Plan are governed by the terms of the 2010 Plan.
As of March 31, 2024 and December 31, 2023, there were 1,190,282 and 3,472,195 shares available for grant under the Plans, respectively. The following table presents classification of stock-based compensation expense within the unaudited condensed consolidated statements of operations:
Three Months Ended March 31,
20242023
Cost of sales$1,135 $1,298 
Research and development4,066 3,514 
Sales and marketing974 851 
General and administrative6,043 5,217 
Total stock-based compensation$12,218 $10,880 
Restricted Stock Units
Each restricted stock unit (“RSU”) represents the right to receive one share of the Company’s common stock upon vesting. The fair value of RSUs granted by the Company was calculated based upon the Company’s closing stock price on the date of the grant, and the stock-based compensation expense is recognized over the vesting period. RSUs generally vest over four years with 25% of the grants vesting at the end of the first year and the remaining vesting annually over the following three years.
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There were 1,114,970 and 638,875 RSUs granted during the three months ended March 31, 2024 and 2023, respectively. The weighted average grant date fair value for each RSU granted during the three months ended March 31, 2024 and 2023 was $25.28 and $26.69, respectively.
As of March 31, 2024, there was $40,573 of unrecognized compensation cost related to RSUs granted under the Plans, which is expected to be recognized over a weighted average period of 3.57 years. During the three months ended March 31, 2024 and 2023, 161,964 and 12,075 RSUs vested, respectively. The fair value of RSUs vested during the three months ended March 31, 2024 and 2023 was $4,406 and $293, respectively.
Performance-Based Restricted Stock Units
In March 2024 and February 2023, the Company awarded performance-based restricted stock units ("PRSUs") under the 2022 Plan. Each PRSU represents a contingent right to receive one share of common stock upon the achievement of specified performance goals. The fair value of PRSUs granted by the Company was calculated based upon the Company's closing stock price on the date of the grant, and the stock-based compensation expense is recognized when the grant date is determined and performance conditions are probable of achievement. At the point where performance conditions are considered probable of achievement, the Company records stock-based compensation expense with a cumulative catch-up expense in the period first recognized and on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.
In March 2024, the Company awarded to all executive officers PRSUs for a maximum of 180,000 shares (based on 150% achievement of the applicable performance conditions outlined in the awards), with a target award of 120,000 PRSUs (based on 100% achievement of the applicable performance conditions), and a threshold award of 60,000 PRSUs (based on 50% achievement of the applicable performance conditions). All such PRSUs were considered granted under ASC 718, Compensation—Stock Compensation ("Topic 718") in March 2024. Such PRSUs are scheduled to vest, if at all, upon the certification by the Company's compensation committee of the achievement of the applicable performance conditions following the filing of the Company's Annual Report on Form 10-K for the fiscal year ending December 31, 2026.
In February 2023, the Company awarded to certain executive officers PRSUs for a maximum of 62,693 shares (based on 150% achievement of the applicable performance conditions outlined in the awards), with a target award of 41,795 PRSUs (based on 100% achievement of the applicable performance conditions), and a threshold award of 20,898 PRSUs (based on 50% achievement of the applicable performance conditions). All such PRSUs were considered granted under Topic 718 in February 2023. Such PRSUs are scheduled to vest, if at all, upon the certification by the Company's compensation committee of the achievement of the applicable performance conditions following the filing of the Company's Annual Report on Form 10-K for the fiscal year ending December 31, 2025.
In August 2022, the Company awarded 90,000 PRSUs to an executive officer of which 30,150 PRSUs were considered granted under Topic 718 at the time the PRSUs were awarded. In March 2024 and 2023, of the 90,000 PRSUs awarded in August 2022, an additional 14,850 and 45,000 PRSUs were considered granted under Topic 718, respectively. During the three months ended March 31, 2024, the Company's compensation committee determined the achievement of the awards set to vest upon the certification by the Company's compensation committee following the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Of the 36,000 PRSUs that were eligible to vest, the Company's compensation committee determined that the applicable performance conditions had been met for 9,000 of the PRSUs, which vested during the three months ended March 31, 2024, and that the applicable performance conditions had not been met for 27,000 PRSUs, which were forfeited during the three months ended March 31, 2024. The remaining 54,000 PRSUs are scheduled to vest, if at all, upon the certification by the Company's compensation committee of the achievement of the applicable performance conditions following the filing of the Company's Annual Report on Form 10-K for the fiscal years ending December 31, 2024 and 2025.
The weighted average grant date fair value for each PRSU granted during the three months ended March 31, 2024 and 2023 was $26.08 and $22.48, respectively. During the three months ended March 31, 2024 and 2023, 9,000 and zero PRSUs vested, respectively.
Stock Options
Stock options must be granted at an exercise price not less than 100% of the fair market value per share at the grant date. The board of directors or compensation committee determines the exercise price of the Company’s stock
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options based on the closing price of the common stock as reported on the Nasdaq Global Select Market on the date of the grant. The maximum contractual term of options granted under the Plans is typically 10 years, options generally vest over four years with 25% of the shares underlying the option vesting at the end of the first year and the remaining vesting monthly over the following three years. In March 2024 and February 2023, the Company granted the chief executive officer premium priced options to purchase 87,271 and 65,525 shares of common stock, respectively, with exercise prices equal to 110% of the closing price of the Company's common stock on the date of grant.
During the three months ended March 31, 2024 and 2023, 41,623 and 186,201 options under the Plans were exercised for total proceeds of $390 and $867, respectively.
The fair value of each option award is determined on the date of grant using the Black Scholes Merton option-pricing model. The calculation of fair value included several assumptions that require management’s judgment. The expected terms of options granted to employees during 2024 and 2023 were calculated using an average of historical exercises. Estimated volatility for the three months ended March 31, 2024 and 2023 incorporated a calculated volatility derived from the historical closing prices of shares of common stock of similar entities whose share prices were publicly available for the expected term of the option. The risk-free interest rate was based on the U.S. Treasury constant maturities in effect at the time of grant for the expected term of the option. The Company accounts for forfeitures as they occur; as such, the Company does not estimate forfeitures at the time of grant.
Following are the weighted average valuation assumptions used for option awards during the periods presented:
Three Months Ended March 31,
20242023
Valuation assumptions
Expected dividend yield % %
Expected volatility65 %68 %
Expected term (years)5.315.07
Risk-free interest rate4.22 %3.86 %
The weighted average grant date fair value per share of options granted during the three months ended March 31, 2024 and 2023 was $15.10 and $14.00, respectively. The intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $723 and $3,203, respectively.
As of March 31, 2024, there was $69,386 of unrecognized compensation cost related to unvested stock options granted under the Plans, which is expected to be recognized over a weighted average period of 2.43 years. The fair value of shares vested during the three months ended March 31, 2024 and 2023 was $12,770 and $17,025, respectively.
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(9)    Net (Loss) Income per Share Attributable to Common and Limited Common Stockholders
The following table presents the calculation of basic and diluted net (loss) income per share attributable to common and limited common stockholders for the periods presented (in thousands, except for share and per share data):
Three Months Ended March 31,
20242023
Numerator:
Net (loss) income attributable to Schrödinger common and limited common stockholders$(54,724)$129,136 
Denominator:
Weighted average shares used to compute net (loss) income per share of common and limited common stockholders, basic:72,291,13471,467,097
Effect of the exercise of common stock options and vested RSUs on weighted average common and limited common shares 2,351,514 
Weighted average shares used to compute net (loss) income per share of common and limited common stockholders, diluted:72,291,134 73,818,611 
Net (loss) income per share of common and limited common stockholders, basic:$(0.76)$1.81 
Net (loss) income per share of common and limited common stockholders, diluted:$(0.76)$1.75 
For the three months ended March 31, 2023, in order to calculate diluted net income per share, the weighted average shares used to compute net income is adjusted by the effect of dilutive securities, including awards under the Plans. Diluted net income per share is computed by dividing the resulting net income by the weighted average number of fully diluted common and limited shares outstanding.
Since the Company was in a loss position for the three months ended March 31, 2024, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares and limited common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
Three Months Ended March 31,
20242023
Shares subject to outstanding common stock options and unvested RSUs and PRSUs13,974,4836,216,397
(10)    Equity Investments
(a)    Nimbus
The Company previously provided collaboration services for Nimbus under the terms of a master services agreement executed on May 18, 2010, as amended. Collaboration agreements are separate from the transaction that resulted in equity ownership and related fees are paid in cash to the Company. Nimbus was previously recorded as an equity method investment under the HLBV method, as the entity is a limited liability company and the Company was determined to have significant influence due to the Company's collaboration with Nimbus on a number of drug discovery targets, as well as the Company's level of ownership in Nimbus. During the period ended September 30, 2023, the Company's equity ownership in Nimbus was diluted to the point that the Company no longer has significant influence over the entity. As the Company no longer has significant influence over Nimbus, after June 30, 2023, the equity investment in Nimbus is valued as a non-marketable equity security.
The carrying value of the Nimbus investment was $1,928 as of both March 31, 2024 and December 31, 2023. The Company has no obligation to fund Nimbus losses in excess of its initial investment. For the three months ended March 31, 2024, the Company reported no gain or loss on the Nimbus investment. For the three months ended March 31, 2023, the Company reported a realized gain of $147,322 on the Nimbus investment, which reflected the total cash distribution the
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Company was eligible to receive from Nimbus on account of Takeda's acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its tyrosine kinase 2 inhibitor NDI-034858.
(b)    Morphic
The Company accounts for its investment in Morphic Holding, Inc. (“Morphic”) at fair value based on the share price of Morphic’s common stock at the measurement date.
During the three months ended March 31, 2024 and 2023, the Company reported a mark-to-market gain of $5,277 and $9,093, respectively, on the Morphic investment. As of March 31, 2024 and December 31, 2023, the carrying value of the Company’s investment in Morphic was $29,391 and $24,114, respectively.
(c)    Ajax
In May 2021, the Company purchased 631,377 shares of Series B preferred stock of Ajax Therapeutics, Inc. (“Ajax”) for $1,700 in cash. The Company has concluded that its equity investment in Ajax should be valued as a non-marketable equity security as the Company does not exercise significant influence over Ajax. As of each of March 31, 2024 and December 31, 2023, the carrying value of the Company’s investment in Ajax was $1,700.
(d)    Structure Therapeutics
In July 2021, the Company purchased 494,035 shares of Series B preferred stock of Structure Therapeutics for $2,000 in cash. In April 2022, the Company purchased an additional 148,210 shares of Series B preferred stock for $600 in cash. On February 7, 2023, Structure Therapeutics completed its IPO. Immediately upon the closing of Structure Therapeutics' IPO, all of the outstanding Series B preferred stock automatically converted into ordinary shares on a one-for-one basis. As of March 31, 2024, the Company owned 3,260,495 ordinary shares of Structure Therapeutics. The Company purchased 275,000 American Depository Shares ("ADS") at $15.00 per ADS in the IPO. Each ADS represents three ordinary shares.
Upon completion of Structure Therapeutics' IPO, the Company changed the valuation methodology used to value the Structure Therapeutics investment from an equity method investment under the HLBV method to an equity investment reported at fair value as the Company no longer exerts significant influence over Structure after the IPO. As there is a readily available market price for Structure Therapeutics' ADSs, the Company values its investment based on the closing price of Structure Therapeutics' ADSs as of the reporting date.
During the three months ended March 31, 2024 and 2023, the Company reported a mark-to-market gain of $2,859 and $26,644, respectively, on the Structure Therapeutics investment. As of March 31, 2024 and December 31, 2023, the carrying value of the Company's investment in Structure Therapeutics was $58,368 and $55,509, respectively.
(11)    Related Party Transactions
(a)    Board Member
For the three months ended March 31, 2024 and 2023, the Company paid consulting fees of $105 and $105, respectively, to a member of its board of directors.
(b)    Bill and Melinda Gates Foundation
The Bill and Melinda Gates Foundation, an entity under common control with Bill and Melinda Gates Foundation Trust, a stockholder of the Company, issued a grant under which it agreed to pay the Company directly for certain licenses and services provided to a specified group of third-party organizations. Revenue recognized for services provided by the Company under this grant was $7 and $33 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, the Company had no net receivables due from the Bill and Melinda Gates Foundation.
For the three months ended March 31, 2024 and 2023, the Company recognized $490 and $766, respectively, in drug discovery contribution revenue related to funds received under an agreement with the Bill and Melinda Gates Foundation, aimed at accelerating drug discovery in women’s health. As of March 31, 2024 and December 31, 2023, the
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Company had no receivables due under these agreements from the Bill and Melinda Gates Foundation. As of March 31, 2024 and December 31, 2023, restricted cash on hand related to the arrangement was $1,138 and $2,251, respectively.
Gates Ventures, LLC is an entity under the control of William H. Gates III, who may be deemed to be the beneficial owner of more than 5% of the Company’s voting securities. The Company received $1,000 in contribution revenue in connection with its entry into an agreement with Gates Ventures, LLC annually from June 2020 to June 2022. In August 2023, the Company renewed the agreement with Gates Ventures, LLC and recognized $1,800 in contribution revenue. As of March 31, 2024 and December 31, 2023, the Company had no net receivables due from Gates Ventures, LLC.
(c)    Structure Therapeutics
During the year ended December 31, 2023, the Company entered into a collaboration agreement with Structure Therapeutics and its subsidiaries to conduct certain drug discovery services as well as provide software access. For the three months ended March 31, 2024, the Company recognized revenue of $810 under this collaboration. As of March 31, 2024 and December 31, 2023, the Company had net receivables of $250 and $494, respectively, due from Structure Therapeutics.
(12)    Segment Reporting
The Company has determined that its chief executive officer (“CEO”) is its chief operating decision maker (“CODM”). The Company’s CEO evaluates the financial performance of the Company based on two reportable segments: Software and Drug Discovery. The Software segment is focused on licensing the Company’s software to transform molecular discovery. The Drug Discovery segment is focused on building a portfolio of preclinical and clinical drug programs, internally and through collaborations.
The CODM reviews segment performance and allocates resources based upon segment revenue and segment gross profit of the Software and Drug Discovery reportable segments. Segment gross profit is derived by deducting operational expenditures, with the exception of research and development, sales and marketing, and general and administrative activities from U.S. GAAP revenue. Operational expenditures are expenditures made that are directly attributable to the reportable segment. These expenditures are allocated to the segments based on headcount. The reportable segment expenditures include compensation, supplies, and services from contract research organizations.
Certain cost items are not allocated to the Company’s reportable segments. These cost items primarily consist of non-drug discovery program related compensation and general operational expenses associated with the Company’s research and development, sales and marketing, and general and administrative. These costs are incurred by both segments and due to the integrated nature of the Company’s Software and Drug Discovery segments, any allocation methodology would be arbitrary and provide no meaningful analysis.
Segment revenue is primarily earned in the United States and there are no intersegment revenues. Additionally, the Company reports assets on a consolidated basis and does not allocate assets to its reportable segments for purposes of assessing segment performance or allocating resources.
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Presented below is financial information with respect to the Company’s reportable segments for the periods presented:
Three Months Ended March 31,
20242023
Segment revenues:
Software$33,415 $32,213 
Drug discovery3,183 32,569 
Total segment revenues$36,598 $64,782 
Segment gross profit:  
Software$25,439 $25,098 
Drug discovery(6,549)20,595 
Total segment gross profit18,890 45,693 
Unallocated:  
Research and development(50,611)(40,741)
Sales and marketing(10,171)(9,145)
General and administrative(25,541)(26,308)
Gain on equity investments 147,322 
Change in fair value8,137 35,737 
Other income5,028 2,937 
Income tax expense(456)(26,359)
Consolidated net (loss) income$(54,724)$129,136 
Revenues by geographic area are determined based on the address provided by the Company's customers and partners. The following table sets forth revenues by geographic area for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,
20242023
United States$23,297 $50,344 
APAC5,501 7,073 
EMEA7,196 6,828 
Rest of World604 537 
$36,598 $64,782 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A. “Risk Factors” of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For further information regarding our forward-looking statements, see “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report.
Overview
We are transforming the way therapeutics and materials are discovered. Our differentiated, physics-based computational platform enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly and at a lower cost, compared to traditional methods. Our software platform is licensed by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world. We are applying our computational platform to advance a broad pipeline of drug discovery programs in collaboration with leading biopharmaceutical companies. In addition, we use our computational platform to discover novel molecules for our pipeline of proprietary drug discovery programs, which we are advancing through preclinical and clinical development.
Since our founding, we have been primarily focused on developing our computational platform, which is capable of predicting critical properties of molecules with a high degree of accuracy, as well as advancing drug discovery programs both with our collaborators and on our own. We have devoted substantially all of our resources to introducing new capabilities and refining our software, conducting research and development activities, recruiting skilled personnel, and providing general and administrative support for these operations.
Over the last decade, we have entered into a number of collaborations with leading biopharmaceutical companies that have provided us with significant income and have the potential to produce additional milestone payments, option fees, and future royalties. In 2018, we began to develop a pipeline of proprietary drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics. In June 2022, the U.S. Food and Drug Administration, or FDA, cleared our first investigational new drug application, or IND, for our MALT1 inhibitor, which we refer to as SGR-1505. We have initiated dosing in a Phase 1 clinical trial of SGR-1505, which is designed as an open-label, multi-center dose escalation trial in patients with relapsed or refractory B-cell lymphomas. The trial is designed to evaluate the safety, pharmacokinetics, pharmacodynamics, maximum tolerated dose and/or recommended dose of SGR-1505. Exploratory cohorts will evaluate additional pharmacokinetics, pharmacodynamics, preliminary anti-tumor activity and safety to establish the recommended dose. To date, patient discontinuations from participation in the trial have been non-treatment related. We anticipate reporting initial data from the trial in late 2024 or 2025.
We also completed a Phase 1 clinical trial of SGR-1505 in 73 healthy volunteers to gather additional data, including data relating to the safety, tolerability and pharmacokinetics of SGR-1505, as well as the effect of food and drug-drug interactions. In the healthy volunteer trial, SGR-1505 was well tolerated with no drug-related serious adverse events or dose limiting toxicities observed. In the trial, we observed that SGR-1505 achieved greater than 90 percent inhibition of IL-2 secretion in an activated T cell whole blood assay at 100mg twice a day (n=4), confirming target engagement and meeting the pharmacodynamic goals for the trial. Inhibition of IL-2 secretion is a marker for target engagement and pathway modulation as it is tightly linked to MALT1 and the downstream NF-κB signaling. The data supported continued evaluation of SGR-1505 in the ongoing Phase 1 clinical trial in patients with relapsed or refractory B-cell lymphomas. In addition, the FDA recently granted orphan drug designation to SGR-1505 for the potential treatment of mantle cell lymphoma.
In July 2023, the FDA cleared our IND for our CDC7 inhibitor, which we refer to as SGR-2921. We have initiated dosing in a Phase 1 clinical trial of SGR-2921 in patients with relapsed or refractory acute myeloid leukemia or high-risk myelodysplastic syndrome, and we anticipate reporting initial data from the trial in late 2024 or 2025. In March 2024, we also submitted an IND to the FDA for our novel WEE1/MYT1 inhibitor, which we refer to as SGR-3515, and the FDA cleared the IND in April 2024. We expect to initiate a Phase 1 clinical trial of SGR-3515 in patients with solid tumors in the third quarter of 2024.
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We have funded our operations to date principally from the sale of our equity securities, including our initial public offering and our follow-on public offering, and to a lesser extent, from sales of our software solutions and from upfront payments, research funding and milestone payments from our drug discovery collaborations, and from distributions on account of, or proceeds from the sale of, our equity stakes in our collaborators. On February 13, 2023, April 6, 2023, and November 9, 2023, on account of our equity stake in Nimbus Therapeutics, LLC, or Nimbus, we received cash distributions of $111.3 million, $35.8 million, and $0.1 million, respectively, from Nimbus in connection with Takeda’s acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its TYK2 inhibitor NDI-034858.
We currently conduct our operations through two reportable segments: software and drug discovery. The software segment is focused on selling our software to transform drug discovery across the life sciences industry, as well as to customers in materials science industries. The drug discovery segment is focused on generating revenue from a diverse portfolio of preclinical and clinical programs, internally and through collaborations, that have advanced to various stages of discovery and development.
Our software segment generates revenue from software product licenses, hosted software subscriptions, software maintenance, professional services, and contributions. The revenue we generate through our software solutions from each of our customers varies largely depending on the type and number of software licenses our customers purchase from us. The licenses that our customers purchase from us provide them the ability to perform a certain number of calculations used in the design of molecules for drug discovery or materials science. The amount we charge per license depends on the specific software products our customers purchase from us, and the number of licenses needed to perform calculations per software product varies. With the exception of certain limited products, the number of licenses a customer requires is typically based on the scale at which they are running our software products and is not based on how many users have access to the software. As customers increase the number of licenses they purchase from us, they will typically be able to run a greater number of simultaneous instances of our products, thereby increasing the number of calculations they will be able to perform in parallel, subject to having enough computational capacity. We deliver our software through either (i) a product license that permits our customers to install the software solution directly on their own in-house hardware and use it for a specified term, or (ii) a subscription that allows our customers to access our cloud-based software solution on their own hardware without taking control of licenses.
We currently generate drug discovery revenue from our collaborations, including upfront payments, research funding and discovery and development milestones. In the future, we may also derive drug discovery revenue from our collaborations from option fees, the achievement of regulatory and commercial milestones, and royalties on commercial drug sales. In addition to revenue from our collaborations, we may also derive drug discovery revenue from collaborating on or out-licensing our proprietary drug discovery programs when we believe it will help maximize our clinical and commercial opportunities for the program.
In November 2020, we entered into an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas. After mutual agreement on the targets(s) of interest, the Schrödinger therapeutics group is responsible for the discovery of development candidates. Once a development candidate meeting specified criteria for a target has been identified, BMS will be solely responsible for the development, manufacturing and commercialization of such development candidate. We are eligible to receive up to $971.0 million in total milestone payments across the two remaining targets currently subject to the collaboration, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions. We have received a total of $25.0 million in milestone payments from BMS as of March 31, 2024. In the first quarter of 2024, BMS elected not to proceed with further development of the SOS1 program based on portfolio prioritization decisions and all rights to this program reverted to us. We currently plan to evaluate and assess the data package from the SOS1 program to determine next steps and plans for further investment in the program. See “Collaboration and License Agreement” in Note 3 to our unaudited condensed consolidated financial statements for additional information relating to this agreement.
In September 2022, we entered into a collaboration with Eli Lilly and Company, or Lilly, under which we are responsible for the discovery and optimization of small molecule compounds addressing an immunology target. Lilly will be responsible for the completion of preclinical development, clinical development and commercialization. Under the terms of the agreement we received an upfront payment and we are eligible to receive up to $425.0 million in discovery, development and commercial milestone payments. We are also eligible to receive low single- to low double-digit royalties on net sales of any products emerging from the collaboration in all markets.
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We generated revenue of $36.6 million and $64.8 million during the three months ended March 31, 2024 and 2023, respectively, representing a year-over-year decrease of 44%. Our net loss for the three months ended March 31, 2024 was $54.7 million. Our net income for the three months ended March 31, 2023 was $129.1 million.
Components of Results of Operations
Software Products and Services Revenue
Our software business generates revenue from five sources: (i) on-premise software license fees, (ii) hosted software subscription fees, (iii) software maintenance fees, (iv) professional services fees, and (v) contributions.
On-premise software. Our on-premise software license arrangements grant customers the right to use our software on their own in-house servers or their own cloud instances for a specified term, typically for one year, though in recent years, we have entered into a small number of large multi-year on-premise software license agreements. We recognize revenue for on-premise software license fees upfront, either upon transfer of control of the license or the effective date of the agreement, whichever is later.
Hosted software. Hosted software revenue consists primarily of fees to provide our customers with hosted licenses, which allows these customers to access our cloud-based software solution on their own hardware without taking control of the licenses, and is recognized ratably over the term of the arrangement, which is typically one year, though in recent years, we have entered into a small number of large multi-year hosted software license agreements. When a customer enters into a hosted arrangement for which revenue is recognized over time, the amount paid upfront that is not recognized in the current period is included in deferred revenue in our statement of financial position until the period in which it is recognized.
Software maintenance. Software maintenance includes technical support, updates, and upgrades related to our on-premise software licenses. Software maintenance revenue is recognized ratably over the term of the arrangement. Software maintenance activities are performed in connection with the use of our on-premise software, and may fluctuate from period to period.
Professional services. Professional services include training, technical setup, installation or assisting customers with modeling services, where we use our software to perform tasks such as virtual screening on behalf of our customers. These services are generally not related to the core functionality of our software and are recognized as revenue when resources are consumed. Since each professional services agreement represents a unique, ad hoc engagement, professional services revenue may fluctuate from period to period.
Software contribution revenue. Software contribution revenue consists of funds received under a non-reciprocal agreement with Gates Ventures, LLC originally entered into in June 2020 and further extended through August 2026. The agreement is an unconditional non-exchange contribution without restrictions. Revenue was recognized annually from June 2020 through June 2022 and upon extension of the agreement in August 2023, when invoiced, in accordance with Accounting Standard Codification, or ASC, Topic 958, Not-for-Profit Entities as the agreement is not an exchange transaction.
Drug Discovery Revenue
Drug discovery services. We currently generate drug discovery revenue from discovery collaboration arrangements, including upfront payments, research and development payments, and discovery and development milestones. The majority of our current collaborations are in the discovery and preclinical development stages. Milestone payments typically increase in magnitude as a program advances. However, our focus is increasingly on investing in our proprietary drug discovery programs, which may result in a smaller number of collaborative programs over time and, as a result, fewer milestone payments on account of those collaborative programs. In addition to revenue from our collaborations, we may also derive drug discovery revenue from out-licensing our proprietary drug discovery programs when we believe it will help maximize the probability of clinical and commercial success of the program. Overall, we expect that our drug discovery revenue will fluctuate from period to period due to the inherently uncertain nature of the timing of milestone achievement and our dependence on the program decisions of our collaborators.
Drug discovery contribution revenue. Contribution revenue consists of funds received under agreements with the Bill and Melinda Gates Foundation on a cost reimbursement basis, to perform services aimed at accelerating drug
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discovery in women’s health. Revenue is recognized as conditions are met in accordance with ASC Topic 958, Not-for-Profit Entities.
Cost of Revenues
Software products and services. Cost of revenues for software includes personnel-related expenses (comprised of salaries, benefits, and stock-based compensation) for employees directly involved in the delivery of software solutions, maintenance and professional services, royalties paid for products sold and services performed using third-party licensed software functionality, and allocated overhead (facilities and information technology support) costs. Pursuant to various third-party arrangements, we license technology that is used in our software. These arrangements require us to pay royalties based on sales volume.
Drug discovery. Costs of revenue for drug discovery includes personnel-related expenses and costs of third-party contract research organizations, or CROs, that support discovery activities in our collaborations, royalties paid for services performed using third-party licensed software functionality, allocated compute capacity and overhead costs. While we have incurred costs associated with discovery efforts since late 2017, we have recognized and expect to continue to recognize revenues in the future if and when milestones are deemed probable or achieved. Generally, drug discovery costs of revenue for collaborations are incurred in advance of the revenue milestone achievement.
We expect our drug discovery costs of revenue to trend lower over time as we shift our focus to proprietary drug discovery programs.
Gross Profit and Gross Margin
Gross profit represents revenue less cost of revenues. Gross margin is gross profit expressed as a percentage of revenue. Our software products and services gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of changes in sales mix between on-premise and hosted software solutions due to timing of recognition. For example, the cost of royalties due for sales of our hosted software arrangements are recognized upfront, whereas the associated hosted software revenue for these arrangements is recognized over the term of the underlying agreement.
While the gross margin of our drug discovery business will fluctuate significantly from period to period depending on factors such as the timing of recognition of milestones, we expect the gross margins to generally trend higher over time as more programs advance to later stages of development, the milestones increase in size and our ongoing research and development obligations to such programs decline in cost.
Research and Development Expense
Research and development expense accounts for a significant portion of our operating expenses. We recognize research and development expense as incurred. Research and development expense consists of drug discovery and development program costs and costs incurred for continuous development of the technology and science that supports our computational platform, primarily:
personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation for employees engaged in research and development functions;
expenses incurred under agreements with third-party CROs and consultants involved in our proprietary drug discovery programs; and
allocated compute capacity on our proprietary drug discovery programs and overhead (facilities and information technology support) costs.
We expect our research and development expense to increase in absolute dollars as we continue to invest in activities related to discovery and development of our proprietary drug discovery programs, in advancing our computational platform, and as we incur expenses associated with hiring additional personnel directly involved in such efforts. The amount to which our research and development expense may increase in the future will also be dependent on our development plans for our proprietary drug discovery programs, including the timing of any partnering or out-licensing decisions. At this time, we do not know, nor can we reasonably estimate, the nature, timing, or costs of the efforts that will be necessary to complete the development of any of our proprietary drug discovery programs.
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Sales and Marketing Expense
Sales and marketing expense consists primarily of personnel-related costs for our sales and marketing staff and application scientists supporting our sales efforts, including salaries, benefits, bonuses, and stock-based compensation. Other sales and marketing costs include promotional events that promote and expand knowledge of our company and platform, including industry conferences and events and our annual user group meetings in the United States and Europe, advertising, and allocated overhead costs. Due to the inherent scientific complexity of our software solutions, a high level of scientific expertise is needed to support our sales and marketing efforts. We plan to make focused investments in sales and marketing over the foreseeable future to foster the growth of our business as we aim to expand software sales to existing customers and increase our customer base.
General and Administrative Expense
General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and stock-based compensation. General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.
We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. In addition, as a public company, we expect to continue to incur increased expenses such as insurance and professional services. As a result, we expect the dollar amount of our general and administrative expense to increase for the foreseeable future.
Gain on Equity Investments
Gain on equity investments consists of realized gains in the form of cash distributions from our equity investments.
Change in Fair Value
Fair value gains and losses consist of adjustments to the fair value of our equity investments, which may include Nimbus, Structure Therapeutics Inc., or Structure Therapeutics, and Morphic Holding, Inc., or Morphic. We remeasure our investments at each period end.
We expect that fair value gains and losses will fluctuate significantly in future periods.
Other Income
Other income consists of interest earned on our cash equivalents and marketable securities, interest expense, and transactional foreign exchange gains and losses.
Income Tax Expense
Income tax expense consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.
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Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023
The following table summarizes our unaudited results of operations data for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,Change
20242023$%
(in thousands)
Revenues:
Software products and services$33,415 $32,213 $1,202 4%
Drug discovery3,183 32,569 (29,386)(90)%
Total revenues36,598 64,782 (28,184)(44)%
Cost of revenues:
Software products and services7,976 7,115 861 12%
Drug discovery9,732 11,974 (2,242)(19)%
Total cost of revenues17,708 19,089 (1,381)(7)%
Gross profit18,890 45,693 (26,803)(59)%
Operating expenses:
Research and development50,611 40,741 9,870 24%
Sales and marketing10,171 9,145 1,026 11%
General and administrative25,541 26,308 (767)(3)%
Total operating expenses86,323 76,194 10,129 13%
Loss from operations(67,433)(30,501)(36,932)121%
Other income:
Gain on equity investments— 147,322 (147,322)N/M
Change in fair value8,137 35,737 (27,600)N/M
Other income5,028 2,937 2,091 N/M
Total other income13,165 185,996 (172,831)N/M
(Loss) income before income taxes(54,268)155,495 (209,763)N/M
Income tax expense456 26,359 (25,903)N/M
Net (loss) income$(54,724)$129,136 $(183,860)N/M
N/M – not meaningful
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Revenues
Three Months Ended March 31,Change
20242023$%
(in thousands)
Revenues:
Software
On-premise software$17,619 $19,944 $(2,325)(12)%
Hosted software7,176 4,451 2,725 61%
Software maintenance5,895 5,750 145 3%
Professional services2,725 2,068 657 32%
Revenue from contracts with customers33,415 32,213 1,202 4%
Software contribution— — — —%
Total software products and services33,415 32,213 1,202 4%
Drug discovery
Drug discovery services2,692 31,803 (29,111)(92)%
Drug discovery contribution491 766 (275)(36)%
Total drug discovery3,183 32,569 (29,386)(90)%
Total revenues$36,598 $64,782 $(28,184)(44)%
Software Products and Services Revenue
On-premise software. The decrease in revenues for on-premise software for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily attributable to fewer multi-year customer contracts with up-front revenue recognition in the current period versus the comparable period.
Hosted software. The increase in revenues for hosted software for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily due to increased spend from existing customers, as well as growth in new customers purchasing hosted software subscriptions, for which revenue is recognized ratably over time.
Software maintenance. The increase in revenues for software maintenance for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily due to the increase in on-premise software sales, including multi-year arrangements, in the second half of 2023. Software maintenance revenue is recognized ratably over time.
Professional services. The increase in revenues from professional services for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily related to the progress and completion of technology and modeling service projects.
Software contribution revenue. There was no software contribution revenue during the three months ended March 31, 2024 or the three months ended March 31, 2023.
Drug Discovery Revenue
Drug discovery services. The decrease in revenues for drug discovery services for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily due to the timing and amount of collaboration milestones achieved, including $25.0 million received from BMS in the three months ended March 31, 2023, as well as BMS electing not to proceed with further development for two programs during 2023. The decrease is offset by an increase in revenue due to the progress of existing and new collaborations. We expect that our drug discovery revenue will fluctuate from period to period due to the inherently uncertain nature of the timing of milestone achievement and our dependence on the program decisions of our collaborators.
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Drug discovery contribution revenue. The decrease in contribution revenue for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was due to fluctuation in allotted funds spent under an agreement with the Bill and Melinda Gates Foundation, aimed at accelerating drug discovery in women’s health, which began in November 2021.
Cost of Revenues
Three Months Ended March 31,Change
20242023$%
(in thousands)
Cost of revenues:
Software products and services$7,976 $7,115 $861 12%
Gross margin76 %78 %
Drug discovery9,732 11,974 (2,242)(19)%
Software products and services. The increase in cost of revenues for software products and services during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to increases of approximately $0.6 million in cloud computing expense, approximately $0.2 million in personnel-related expense, and approximately $0.1 million in royalty expense.
Software products and services gross margin. The decrease in software gross margin during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to the increase in cloud computing expense.
Drug discovery. The decrease in cost of revenues for drug discovery during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to decreases of approximately $1.7 million in CRO expense associated with the expansion and progression of collaborative programs, approximately $0.4 million in royalties expense, and approximately $0.2 million in personnel-related expense reflecting the redeployment of our discovery organization towards proprietary drug discovery programs, partially offset by an increase of approximately $0.1 million in other expenses.
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Research and Development Expense
A significant portion of our research and development costs have been external preclinical and clinical CRO costs, which we track on a program-by-program basis related to a product candidate, once the candidate has been identified. Our internal research and development costs are primarily personnel-related costs, rent expense, and other indirect costs and are not tracked on a program-by-program basis. All other research and development costs are related to non-program related costs. The following table summarizes our research and development expense for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,Change
20242023$%
(in thousands)
External costs by program:
SGR-1505$2,103$2,910$(807)(28)%
SGR-29212,576 756 1,820 241%
SGR-35151,553 1,979 (426)(22)%
Other early development candidates and unallocated costs8,692 5,849 2,843 49%
Total external costs for programs in preclinical and clinical development14,92411,4943,43030%
Internal costs for discovery, preclinical and clinical development:
Employee compensation and benefits10,2177,2003,01742%
Facility and other49026922182%
Total internal costs10,7077,4693,23843%
All other research and development24,98021,7783,20215%
Total research and development expense$50,611$40,741$9,87024%
The increase in external costs of $3.4 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily attributable to an increase in costs associated with the ongoing Phase 1 clinical trial of SGR-2921 and other development activities for SGR-2921, as well as other external research costs to support our early-stage product candidates, partially offset by slightly lower costs for SGR-1505 and SGR-3515 due to timing of costs.
The increase in internal costs for programs in clinical and preclinical development of $3.2 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily attributable to an increase in personnel-related expense.
The increase in all other research and development expense during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was attributable to increases of approximately $1.4 million in personnel-related expense, approximately $0.9 million in cloud computing expense, approximately $0.4 million related to office facilities, approximately $0.2 million in travel and entertainment expenses, approximately $0.2 million related to professional services, and approximately $0.1 million in other expenses.
Sales and Marketing Expense
Three Months Ended March 31,Change
20242023$%
(in thousands)
Sales and marketing$10,171 $9,145 $1,026 11%
The increase in sales and marketing expense during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to increases of approximately $0.7 million in personnel-related expenses,
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approximately $0.1 million in cloud computing expense, approximately $0.1 million in travel and entertainment expenses, and approximately $0.1 million in other expenses.
General and Administrative Expense
Three Months Ended March 31,Change
20242023$%
(in thousands)
General and administrative$25,541 $26,308 $(767)(3)%
The decrease in general and administrative expense during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to decreases of approximately $2.1 million in royalties related to cash distributions we received from Nimbus, approximately $0.5 million in amortization related to the acceleration of customer relationship intangible assets, and approximately $0.6 million in other expenses, partially offset by increases of approximately $1.9 million in personnel-related expense, approximately $0.4 million related to professional services expenses, and approximately $0.1 million in cloud computing expense.
Gain on Equity Investments
Three Months Ended March 31,
20242023Change
(in thousands)
Gain on equity investments$— $147,322 $(147,322)
There were no transactions for the three months ended March 31, 2024 that resulted in a gain or loss on equity investments. The gain on equity investments during the three months ended March 31, 2023 was due to the realized gain on our equity investment in Nimbus following the closing of Takeda's acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its tyrosine kinase 2 inhibitor NDI-034858.
Change in Fair Value
Three Months Ended March 31,
20242023Change
(in thousands)
Change in fair value$8,137 $35,737 $(27,600)
The change in fair value during the three months ended March 31, 2024 was due to an unrealized gain on our investment in Morphic of $5.3 million and an unrealized gain on our investment in Structure Therapeutics of $2.9 million. The change in fair value during the three months ended March 31, 2023 was due to an unrealized gain on our investment in Structure Therapeutics of $26.6 million and an unrealized gain on our investment in Morphic of $9.1 million.
Other Income
Three Months Ended March 31,
20242023Change
(in thousands)
Other income$5,028 $2,937 $2,091 
The increase in other income during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to an increase in interest rates on our investment portfolio.
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Income Tax Expense
Three Months Ended March 31,
20242023Change
(in thousands)
Income tax expense$456 $26,359 $(25,903)
During the three months ended March 31, 2024, due to the full valuation allowance on our U.S. federal and state tax assets, our income tax expense represents our income tax obligations in certain states and taxes in foreign jurisdictions in which we conduct business.
During the three months ended March 31, 2023, our income tax expense primarily represented the federal and state tax impact of our profitable quarter, which is driven by our cash distribution received from Nimbus and the impact of capitalizing research and development costs for tax purposes.
Critical Accounting Estimates
Detailed information about our critical accounting estimates is set forth in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 28, 2024. There were no material changes to our critical accounting estimates during the three months ended March 31, 2024.
Liquidity, Capital Resources and Funding Requirements
We have a history of significant operating losses and have incurred negative cash flows from operations from inception through the three months ended March 31, 2024. As of March 31, 2024, we had an accumulated deficit of $393.1 million.
We have funded our operations to date principally from the sale of our equity securities, including our initial public offering and our follow-on public offering, and to a lesser extent, from sales of our software solutions and from upfront payments, research funding and milestone payments from our drug discovery collaborations, and from distributions on account of, or proceeds from the sale of, our equity stakes in our collaborators. Our operating cash flows are impacted by the magnitude and timing of our software sales and by the magnitude and timing of our drug discovery milestone achievements and research funding fees.
On February 28, 2024, we filed a universal shelf registration statement on Form S-3 which allows us to offer and sell an indeterminate number of shares of common stock, preferred stock, depositary shares or warrants, or an indeterminate principal amount of debt securities, from time to time pursuant to one or more offerings at prices and terms to be determined at the time of the sale.
In February 2024, we entered into an amended and restated sales agreement with Leerink Partners LLC (formerly SVB Securities LLC), or Leerink Partners, as sales agent, with respect to an at-the-market offering program, or the ATM, under which we could offer and sell, from time to time pursuant to our Form S-3, shares of common stock, having an aggregate offering price of up to $250.0 million, through Leerink Partners. The amended and restated sales agreement amends and restates the original sales agreement that we entered into with Leerink Partners with respect to the ATM in May 2023, which is no longer in effect. During the three months ended March 31, 2024, 282,963 shares of common stock were sold under the ATM for total net proceeds of $7.6 million and gross proceeds of $7.8 million before deducting sales agent commissions. As of March 31, 2024, we had $242.2 million of common stock remaining available for sale under the ATM.
As of March 31, 2024, we had cash, cash equivalents, restricted cash, and marketable securities of $435.7 million.
We believe our existing cash, cash equivalents, and marketable securities as of March 31, 2024 will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 24 months. Our future capital requirements will depend on many factors, including the growth of our software revenue, the timing and extent of spending to support research and development efforts, the continued expansion of software sales and marketing activities, the timing and receipt of milestone payments from our collaborations, as well as spending to support, advance, and broaden our proprietary drug discovery programs. Furthermore, our capital requirements will also change depending on the timing and receipt of any distributions we may receive from our equity stakes in our drug discovery collaborators. The potential for
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these distributions, and the amounts which we may be entitled to receive, are difficult to predict due to the inherent uncertainty of the events which may trigger such distributions.
We plan to utilize the existing cash, cash equivalents, and marketable securities on hand primarily to fund our software and drug discovery activities. With respect to our proprietary drug discovery programs, as part of our strategy we may choose to advance them into preclinical and clinical development ourselves, enter into collaborations to co-develop them with leading industry partners, or out-license them to maximize their clinical and commercial opportunities.
We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to maintain or expand our operations and invest in our platform, we may not be able to compete successfully, which would harm our business, operations and financial condition. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.
Our contractual obligations as of March 31, 2024 include lease obligations of $190.9 million, consisting of our continuing rent obligations through December 2037, primarily for our offices located in New York, New York for $143.2 million, Cambridge, Massachusetts for $16.0 million, Framingham, Massachusetts for $11.1 million and San Diego, California for $5.9 million, which expire in December 2037, June 2032, March 2033 and January 2031, respectively. In addition, see Note 5, “Commitments and Contingencies” to our unaudited condensed consolidated financial statements for information relating to our operating lease obligations.
In December 2022, we entered into an agreement with a third-party to establish an exclusive integrated drug discovery dedicated facility in Hyderabad, India. The agreement contains a minimum payment obligation, which totals $21.8 million over five years after the date of first occupancy.
In December 2020, we entered into a five-year agreement with a third-party cloud provider for compute power. The agreement contains a minimum payment obligation, which totals $60.0 million over the five years after the date we entered into the agreement. There is no annual commitment.
We also enter into agreements in the normal course of business with CRO vendors for research, preclinical studies, and clinical trials, professional consultants for expert advice, and other vendors for various products and services. These contracts do not contain any minimum purchase commitments and are cancellable at any time by us, generally upon 30 days prior written notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. We have also agreed to pay volume-based royalties to third-parties for use of software functionality under various licensing and related agreements. See Note 2 - Significant Accounting Policies to our audited consolidated financial statements appearing in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023 for more information relating to our royalty obligations.
Cash Flows
The following table presents a summary of our cash flows for the periods shown:
Three Months Ended March 31,