What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-02-28 compared with 2022-02-24 · 371 added, 265 removed, 878 unchanged (42% of the section changed)

We are transforming the way therapeutics and materials are discovered.

Our differentiated, physics-based software platform enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly, at lower cost, and with, we believe, a higher likelihood of success compared to traditional methods.

Our software platform is used by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world.

Our multidisciplinary drug discovery team also leverages our software platform to advance collaborative drug discovery and development programs and our own pipeline of novel therapeutics to address unmet medical needs.

Traditional drug discovery and development efforts have become increasingly complex, lengthy, capital-intensive, and are prone to high failure rates.

Traditional drug discovery relies upon many rounds of costly and time-consuming manual molecule design, chemical synthesis, and experimental testing.

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 discover and advance a broad pipeline of development programs in collaboration with leading biopharmaceutical companies.

In addition, we use our platform to advance a pipeline of partnered and wholly-owned drug discovery programs, which we refer to collectively as our proprietary drug discovery programs.

Traditional drug discovery and development efforts have become increasingly complex, lengthy and capital-intensive, and are prone to high failure rates.

Traditional drug discovery relies upon many iterations of costly and time-consuming manual molecule design, chemical synthesis, and experimental testing.

One of the primary reasons for long timelines, high costs, and high failure rates in drug discovery is that predicting properties of molecules in advance of chemical synthesis is extremely complex and not amenable to traditional approaches.

Over the past several decades and with the concerted efforts of hundreds of our scientists and software engineers, we have developed a physics-based computational platform that is capable of predicting critical properties of molecules with a high degree of accuracy.

Over the past several decades and with the concerted efforts of our scientists and software engineers, we have developed a physics-based computational platform that is capable of predicting critical properties of molecules with a high degree of accuracy.

This key capability enables drug discovery teams to design and selectively synthesize molecules with more optimal properties, reducing the average time and costs required to identify a development candidate and increasing the probability that a drug discovery program will enter clinical development.

7 unchanged sentences

We had 227, 190, and 153 such customers, which represented 82%, 80%, and 79% of our total ACV, for the years ended December 31, 2022, 2021, and 2020, respectively.

In addition, our customer retention rate for our customers with an ACV over $100,000 for the year ended December 31, 2021 was 98% and was 96% or higher for each of the previous eight fiscal years.

We believe the growth in the number of our customers demonstrates that companies are increasingly recognizing the power and efficiency of our platform while the retention in this group is indicative of the continued value of our platform.

Furthermore, the number of customers with an ACV in excess of $1.0 million increased to 18 for the year ended December 31, 2022 compared to 15 and 16 for the years ended December 31, 2021 and 2020, respectively.

We also had four customers with an ACV in excess of $5.0 million for the year ended December 31, 2022, compared to two such customers for the year ended December 31, 2021.

In addition, our customer retention rate for our customers with an ACV over $100,000 for the year ended December 31, 2022 was 96% and was 96% or higher for each of the previous nine fiscal years.

We believe the growth in the number of our customers demonstrates that companies are increasingly recognizing the power and appreciating the scientific and financial benefits of using our platform at scale while the retention in this group is indicative of the continued value of our platform.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance” for additional information regarding ACV and customer retention rate.

We also leverage our platform and capabilities across a portfolio of collaborative and internal drug discovery programs spanning a wide range of disease targets and indications.

Our drug discovery group is comprised of a multidisciplinary team of over 100 experts in protein science, biochemistry, biophysics, medicinal and computational chemistry, and discovery scientists with expertise in preclinical and early clinical development.

During the year ended December 31, 2021, we collaborated on more than 20 drug discovery programs with more than ten different biopharmaceutical companies.

These collaborations generate drug discovery revenue, including upfront payments, research funding payments, and discovery and development milestones, and have the potential to produce additional milestone payments, option fees, and future royalties.

Furthermore, in mid-2018, we launched a pipeline of internal, wholly-owned programs with the goal of rapidly advancing the discovery of best-in-class and first-in-class therapies.

Our initial programs are focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.

We also leverage our platform and capabilities across a portfolio of collaborative and proprietary drug discovery programs spanning a wide range of disease targets and indications.

Our drug discovery group, which we refer to as the Schrödinger Therapeutics Group, is comprised of a multidisciplinary team of approximately 150 experts in protein science, biochemistry, biophysics, medicinal and computational chemistry, and discovery scientists with expertise in preclinical and early clinical development.

Our collaborative and partnered programs generate drug discovery revenue, including upfront payments, research funding payments, and discovery and development milestones, and have the potential to produce additional milestone payments, option fees, and future royalties.

In 2018, we began to develop a pipeline of wholly-owned drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics.

Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.

Since then, we have expanded into other therapeutic areas, including in the areas of immunology and neurology.

We continue to advance multiple internal programs through investigational new drug, or IND, -enabling studies.

We expect to submit an IND application to the U.S.

Food and Drug Administration, or FDA, for our MALT1 program in the first half of 2022, and subject to receiving regulatory clearance, we expect to initiate a Phase 1 clinical trial of our MALT1 inhibitor in patients with relapsed and resistant lymphoma in the second half of 2022.

We also plan to submit IND applications to the FDA for our CDC7 program in early 2023 and our WEE1 program in 2023, subject to

favorable data from IND-enabling studies.

In addition, we plan to initiate a Phase 1 clinical trial of our CDC7 inhibitor in 2023, subject to receipt of regulatory clearance.

While our revenue-generating collaborations are an important component of our business, our strategy is to pursue an increasing number of wholly-owned programs and strategically evaluate on a program-by-program basis entering into clinical development ourselves , entering into collaborations, or out-licensing programs to maximize commercial opportunities.

As part of this strategy, 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.

The initial collaboration targets included HIF-2 alpha and SOS1/KRAS, which were two of our internal pipeline programs.

We submitted an investigational new drug application, or IND, for our MALT1 inhibitor, which we refer to as SGR-1505, and the U.S.

Food and Drug Administration, or FDA, cleared the IND in June 2022.

We recently initiated a Phase 1 clinical trial of SGR-1505 in patients with relapsed or refractory B-cell lymphomas and currently have clinical trial sites open for screening and enrollment, but we have not yet dosed any patients with SGR-1505.

In addition, we continue to advance other wholly-owned programs through IND-enabling studies.

We expect to submit an IND application to the FDA for our CDC7 inhibitor, which we refer to as SGR-2921, in the first half of 2023 and for our WEE1 inhibitor, which we refer to as SGR-3515, in 2024, subject to favorable data from IND-enabling studies.

In addition, we plan to initiate a Phase 1 clinical trial of SGR-2921 in the second half of 2023, subject to receipt of regulatory clearance.

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.

The initial collaboration targets included HIF-2 alpha and SOS1/KRAS, which were two of our wholly-owned pipeline programs.

In November 2021, we 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 us.

Under the terms of the agreement, we received a $55.0 million upfront payment from BMS, and we are eligible to receive up to $2.7 billion in total milestones from BMS across all potential targets, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions.

In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to us.

In December 2022, we and BMS entered into an amendment to our collaboration and license agreement to include an additional target in neurology on terms similar to the original agreement.

Under the terms of the agreement, as amended, we received a $55.0 million upfront payment from BMS in November 2020 and an additional upfront payment in December 2022 related to the additional target, and we are eligible to receive up to $2.7 billion in total milestones from BMS across all potential targets, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions.

See “—Collaboration Agreement with Bristol-Myers Squibb Company” for additional information relating to this agreement.

2 unchanged sentences

Our mission is to improve human health and quality of life by transforming the way therapeutics and materials are discovered.

Our physics-based approach and differentiated software solutions enable the discovery of novel molecules for drug development and materials applications more rapidly, at lower cost, and with, we believe, a higher likelihood of success compared to traditional methods.

We aim to do this by:

• Advancing the science that underlies our computational platform:

We have emerged as the leader in the field of physics-based computational drug discovery, and we believe our computational platform is far ahead of that of our nearest competitors.

We are the leader in the field of physics-based computational drug discovery, and we believe our computational platform is far ahead of that of our nearest competitors.

We intend to maintain our industry-leading position by introducing new capabilities and refining our software to further strengthen our technology and advance the science underlying our platform.

1 unchanged sentence

We have experienced steady growth in our software revenues, achieving $135.6 million in revenue in 2022, an increase of 20% compared to 2021, primarily driven by broad adoption of our software solutions by the biopharmaceutical industry and the expansion of our materials science business.

Life science software business:

In 2021, all of the top 20 pharmaceutical companies, measured by 2020 revenue, licensed our solutions, accounting for $42.0 million, or 37%, of our software revenue in 2021.

However, we estimate that many of our largest customers are currently purchasing only enough software to optimally enable only a small portion of their drug discovery projects, which typically represents a small fraction of their drug discovery projects.

Our ability to expand within our customer base is demonstrated by the increasing number of our customers with an ACV of over $100,000.

We had 190, 153, and 131 such customers for the years ended December 31, 2021, 2020, and 2019 , respectively.

In addition, we had 15, 16, and 10 customers for the years ended December 31, 2021, 2020, and 2019 , respectively, with an ACV of over $1.0 million.

We intend to leverage our existing relationships with our customers to drive larger-scale adoption of our solutions.

Further, we believe there remains a large opportunity for growth as there are thousands of biopharmaceutical companies that could benefit from our solutions.

Materials science software business:

Beyond drug discovery, our solutions can be leveraged for broad application to address industrial challenges in molecule design, including in the fields of aerospace, energy, semiconductors and electronic displays.

We intend to continue growing this business through increased brand awareness and a build-out of industry-specific functionality.

Accelerating growth of our drug discovery business:

We also apply our computational platform across a diversified portfolio of drug discovery programs through collaborations with biopharmaceutical companies, and through our own efforts on internal programs.

Our collaborations generate revenues through upfront payments, research funding, preclinical and clinical milestones as well as the potential for option fees, commercial milestones, and future royalties.

We aim to continue to grow our software sales by increasing the adoption of our software by our existing customers and identifying and adding new customers.

Further, we believe there remains a large opportunity for growth as there are thousands of biopharmaceutical companies that could benefit from our software solutions.

▪ Progressing our wholly-owned and partnered drug discovery programs :

We plan to progress our wholly-owned drug discovery programs, including SGR-1505, SGR-2921 and SGR-3515, and continue to add new programs that leverage our computational platform.

As we progress these programs, we will strategically evaluate on a program-by-program basis advancing them into preclinical and clinical development ourselves, entering into collaborations to co-develop them with leading industry partners, or out-licensing them to maximize clinical and commercial opportunity.

As part of this strategy, we entered into an exclusive, worldwide collaboration and license agreement with BMS in November 2020, as well as collaboration agreements with Zai Lab Limited, or Zai Lab, in August 2021, with Eli Lilly and Company, or Lilly, in September 2022, and with Otsuka Pharmaceutical Co.

Ltd., or Otsuka, in December 2022.

▪ Advancing our collaborative programs:

We intend to continue to work with our collaborators on advancing our collaborative programs, which generate revenues through upfront payments, research funding, preclinical and clinical milestones as well as potentially through option fees, commercial milestones, and future royalties.

We achieved drug discovery revenue of $45.4 million in 2022, an increase of 84% compared to 2021, largely driven by the achievement of milestones from our collaborative and partnered programs.

We also benefit from equity positions in certain of our collaborators.

We are actively working with our collaborators to discover novel therapies.

We also intend to add new collaborations that offer scientific synergies and favorable economic terms.

We plan to progress our existing internal programs , including our MALT1, CDC7 and WEE1 inhibitor programs , and continue to add new programs that leverage our computational platform.

As we progress these programs, we will strategically evaluate on a program-by-program basis entering into preclinical and clinical development ourselves , entering into collaborations, or out-licensing programs to maximize commercial opportunities.

• Leveraging the synergies between our businesses:

We believe that there are significant synergies within our business.

We leverage the feedback that we receive from our software customers, collaborators, and internal drug discovery experts to improve the functionality of our platform, which we believe supports increased customer adoption of our solutions and more rapid advancement of our collaborative and internal drug discovery programs.

In addition, the success of our collaborators in advancing drug discovery programs provides significant validation of our platform and approach, which we believe increases the attractiveness of our platform to customers, helps us establish new collaborations, and validates the potential of our own internal drug discovery programs.

Central to our ability to pursue these distinct lines of business is a firewall policy consisting of a set of well-established protocols and technology measures designed to ensure that the intellectual property of our software customers and drug discovery collaborators remains confidential and segregated.

Industry Overview

Traditional drug discovery and development efforts have become increasingly complex, lengthy, capital-intensive, and are prone to high failure rates.

Traditional drug discovery involves experimental screening of existing libraries of molecules to find molecules with detectable activity, or “hit molecules,” followed by many rounds of chemical synthesis to attempt to optimize those hit molecules to a development candidate that can be advanced into clinical development.

Traditional drug discovery and development efforts have become increasingly complex, lengthy and capital-intensive, and are prone to high failure rates.

Traditional drug discovery involves experimental screening of existing libraries of molecules to find molecules with detectable activity, or “hit molecules,” followed by many iterations of chemical synthesis to attempt to optimize those hit molecules to a development candidate that can be advanced into human clinical trials.

Efforts to optimize initial hit molecules for a drug discovery project involve costly and iterative synthesis and testing of molecules seeking to identify a molecule with the required property profile.

The optimal profile has the acceptable balance of properties such as potency, selectivity, solubility, bioavailability, half-life, permeability, drug-drug interaction potential, synthesizability, and toxicity.

The optimal profile has the acceptable balance of properties such as potency, selectivity, solubility, bioavailability, half-life, permeability, drug-drug interaction profile, synthesizability, and toxicity.

These properties are often inversely correlated, meaning that optimizing one property often de-optimizes others.

1 unchanged sentence

As a result, this optimization process often fails to yield a molecule with a satisfactory property profile to be a development candidate, which is why many drug discovery programs fail to advance into clinical development.

The traditional approach to drug discovery takes too long, is too prone to failure, and is too costly.

Successfully reaching an IND application filing requires on average five to six years, and the average success rates suggest two out of three projects will fail.

Accounting for such failures, the industry average cost to complete a successful IND filing is $35 million.

A typical drug discovery project only has the budget and time to synthesize and assay fewer than 10,000 molecules, because the cost and timelines associated with interrogating a greater number of molecules is impractical.

This small sampling of molecules

represents a minuscule fraction of the total number of molecules that could potentially be synthesized.

Exploring such a limited number of molecules reduces the likelihood of identifying molecules with the desired property profile, which we believe leads to development candidates with higher failure rates.

Being able to predict molecular properties before initiating costly and time-consuming experimental synthesis would accelerate drug discovery, reduce costs, and increase the probability of success.

9 unchanged sentences

Accordingly, since the number of possible molecules that could be synthesized is effectively infinite, machine learning can only cover a minuscule fraction of the total number of molecules that could potentially be synthesized.

The other primary computational method that has been attempted involves using fundamental, “first-principles” physics-based methods, which require a deep and thorough understanding of the specific property to be computed.

The other primary computational method that has been explored to improve drug discovery involves using fundamental, “first-principles” physics-based methods, which require a deep and thorough understanding of the specific property to be computed.

However, physics-based methods are difficult to develop and can be slow compared to machine learning.

Further, to apply such methods to design molecules that will bind with high affinity to a particular protein target, the three-dimensional structure of that protein must be generated with sufficient atomic detail to enable application of these physics-based approaches, which is referred to as being “structurally enabled,” and such structures have been historically difficult to obtain.

Another factor preventing computational chemistry from realizing its promise has been limited compute speed.

However, despite all of these challenges, physics-based methods have a significant advantage over machine learning in that they do not require a training set and can, in principle, compute properties for any molecule .

factor preventing computational chemistry from realizing its promise has been limited compute speed.

Over the past several decades and with the concerted effort of hundreds of our scientists and software engineers, we have developed a computational platform that is capable of predicting critical properties of molecules with a high degree of accuracy.

We have built our platform on a foundation of rigorous, physics-based methods, combined with the rapid data processing and scaling advantages of machine learning, that together provide a significant advantage over traditional methods.

We believe that physics-based simulation is at a strategic inflection point as a result of the increased availability of massive computing power, combined with a more sophisticated understanding of models and algorithms and the growing availability of high-resolution protein structures.

We believe that physics-based simulation is at an inflection point as a result of the increased availability of massive computing power, combined with a more sophisticated understanding of models and algorithms and the growing availability of high-resolution protein structures.

We have demonstrated that our software platform can have a transformative impact on the drug discovery process by:

1 unchanged sentence

• increasing the probability of drug discovery programs entering clinical development.

Based on our collaborative drug discovery efforts to date, we believe that the development candidates discovered using our platform have a higher probability of successfully progressing through clinical development than the industry average.

Based on our drug discovery efforts to date, including in our collaborative programs, we believe that the development candidates discovered using our platform have a higher probability of successfully progressing through clinical development than the industry average.

As shown below, we achieve these outcomes by tightly integrating our predictive physics-based methods, which have a high degree of accuracy, with machine learning, which is highly scalable.

In addition, our platform enables real-time collaboration on drug discovery projects to inform decision-making and fully benefit from the predictive capabilities of our computational platform .

In addition, our platform enables real-time collaboration on drug discovery projects to inform decision-making and maximize the impact of the predictive capabilities of our computational platform.

Our computational platform provides the following significant technological advantages over traditional approaches to drug discovery, all of which enable shortening timelines, decreasing costs, and increasing the probability of success of drug discovery efforts:

14 unchanged sentences

the ability to generate, access, and analyze the data derived from complex calculations integrated with assay data through a powerful and user-friendly graphical interface.

Recognition of our scientific advances has come through customer adoption, and in citations of publications in peer reviewed journals.

Recognition of our scientific advances has come through customer adoption, in citations of publications in peer reviewed journals and in the progress of our collaborative and proprietary drug discovery programs.

For example, the initial paper describing our ligand-protein docking program, Glide, published in 2004 is one of the most cited papers in the history of the Journal of Medicinal Chemistry , a premier journal in its field.

Glide continues to be broadly used as a

hit-finding technology throughout the biopharmaceutical industry by our customers.

Glide continues to be broadly used as a hit-finding technology throughout the biopharmaceutical industry by our customers.

We have made many similar scientific advances in fields including druggability assessment, affinity calculation, protein structure refinement, and molecule ideation and design.

These advances were achieved by our team of hundreds of Ph.D.-level scientists and software engineers with extensive input from our Scientific Advisory Board, or SAB, which includes thought leaders in computational chemistry, physics-based simulations, statistical mechanics, and machine learning .

These advances were achieved by our team of hundreds of Ph.D.-level scientists and software engineers with extensive input from our Scientific Advisory Board, which includes thought leaders in computational chemistry, physics-based simulations, statistical mechanics, and machine learning.

Our computational platform is also applicable to new problems of interest and new fields of study.

10 unchanged sentences

Our ten largest software customers represented approximately 32% of our software revenue in 2022, including one customer that makes up 16% of total revenue.

We continue to expand our customer base as we promote the education and recognition of the potential of our computational platform across industries.

We continue to expand our customer base as we provide education and information to increase the awareness of the potential of our computational platform across different industries.

As of December 31, 2022, we had 1,748 active customers, which we define as the number of customers who had an ACV of at least $1,000 in a given fiscal year.

4 unchanged sentences

In addition, we had 18, 15, and 16 customers for the years ended December 31, 2022, 2021, and 2020, respectively, with an ACV of over $1.0 million.

Furthermore, we also had four customers with an ACV in excess of $5.0 million for the year ended December 31, 2022, compared to two such customers for the year ended December 31, 2021.

For the year ended December 31, 2022, our top 10 customers, measured by ACV, accounted for $46.5 million of our total ACV compared to $34.1 million for the year ended December 31, 2021.

We believe biopharmaceutical companies are increasingly recognizing and applying the power and efficiency of our platform.

We believe biopharmaceutical companies are increasingly recognizing and appreciating the scientific and financial benefits of using our platform at scale.

Furthermore, we believe our sales and marketing approach and the quality of our software solutions help us cultivate long-standing relationships and reoccurring sales.

This is demonstrated by the length of our key relationships, with the average tenure of our 10 largest customers in 2021 being over 17 years .

Furthermore, our ability to expand our customer relationships over time is exemplified by our ability to retain our customers with an ACV over $100,000.

For the year ended December 31, 2021 , our year-over-year customer retention rate for our customers with an ACV over $100,000 was 98 % and was 96% or higher for each of the previous eight fiscal years .

This is demonstrated by the length of our key relationships, with the average tenure of our 10 largest software customers in 2022 being nearly 19 years.

Furthermore, our ability to

expand our customer relationships over time is exemplified by our ability to retain our customers with an ACV over $100,000.

For the year ended December 31, 2022, our year-over-year customer retention rate for our customers with an ACV over $100,000 was 96% and was 96% or higher for each of the previous nine fiscal years.

We believe the continued expansion of our customer base coupled with our ability to expand our customers’ use of our software will continue to drive revenue growth.

37 unchanged sentences

◦ Maestro is our user-friendly modeling environment, which allows expert modelers to utilize our advanced modeling solutions.

Furthermore, in January 2022, we acquired XTAL BioStructures, Inc., a company that provides structural biology services, including biophysical methods, protein production and purification, and X-ray crystallography, which we believe will expand our offerings to include an advanced and differentiated service that provides customers access to protein structures that have been computationally validated and are ready for structure-based virtual screening and lead optimization.

Our Software Solutions for Materials Science

11 unchanged sentences

As part of our ongoing efforts to further advance our software solutions for materials science applications, in June 2020, we entered into a three-year agreement with Gates Ventures, LLC to develop and apply atomistic simulations methods to improve battery performance.

Furthermore, in March 2022, we entered into a three-year collaboration with Eonix LLC, or Eonix, to accelerate the discovery and design of materials for safer, energy dense lithium ion batteries.

Under the terms of this collaboration, we received an equity stake in Eonix, and will be eligible to receive additional equity upon the successful completion of certain technical milestones.

Drug Discovery Business

We are using our computational platform in both collaborative and internal drug discovery programs.

Traditional drug discovery and development efforts have become increasingly complex, lengthy, capital-intensive, and are prone to high failure rates.

Decreasing returns on investments in drug research and development have created a significant opportunity for us to leverage our computational platform to design and discover new medicines.

In drug discovery stages, our platform can reduce the time and cost required to identify a development candidate with a more optimized property profile as compared to traditional methods.

We believe that these candidates with more optimized property profiles will have a higher probability of success in clinical development.

We are using our computational platform in both our collaborative and proprietary drug discovery programs.

The figure below illustrates the advantages in time, cost, and molecule quality of our computational drug design approach over traditional drug discovery approaches.

The figures below show the number of collaborative programs we have worked on in each given year, as well as the amount of drug discovery revenue we have generated for the periods presented.

While our revenue-generating collaborations are an important component of our business, our strategy is also to pursue an increasing number of internal programs and strategically evaluate on a program-by-program basis entering into preclinical and clinical development ourselves, entering into collaboration, or out-licensing programs to maximize commercial opportunities.

As part of this strategy, in November 2020, we entered into an exclusive, worldwide collaboration and license agreement with BMS pursuant to which we and BMS agreed to collaborate in the discovery, research and clinical development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.

Furthermore, in August 2021, we entered into a global discovery, development and commercialization collaboration with Zai Lab Limited focused on a novel program in oncology targeting DNA damage response.

These programs are not included in the number of collaborative programs described below.

See “—Our Pipeline” for a further discussion of these programs.

Furthermore, collaborative programs which we did not actively work on in a given year, but for which we are still eligible to receive potential milestone payments and royalties, are not included in the number of collaborative programs below.

For the year ended December 31, 2021, we had seven such programs compared to nine and two for the years ended December 31, 2020, and 2019, respectively.

Our drug discovery revenue consists of revenue generated from collaborations through the combination of upfront payments, research funding payments, discovery and development milestones, and other fees, as well as any revenue generated from our pipeline of internal drug discovery programs, including revenue generated from our collaboration with BMS.

As part of the BMS collaboration in November 2020, we received an upfront payment of $55.0 million.

Approximately $13.7 million and $1.0 million of the upfront payment were included in our drug discovery revenue for the years ended December 31, 2021 and 2020, with the remainder recorded as deferred revenue as of December 31, 2021.

The figures below show the number of collaborative and partnered programs we have worked on in each given year, as well as the amount of drug discovery revenue we have generated for the years presented.

Collaborative programs on which our discovery work is completed, but for which we remain eligible for future milestones and royalties are not included in the figures below.

As of December 31, 2022, we also had an aggregate of 15 collaborative and partnered programs for which we are eligible to receive future royalties on sales, if any, compared to 13 programs as of December 31, 2021.

While our revenue-generating collaborations are an important component of our business, our strategy is also to invest in wholly-owned drug discovery programs.

We evaluate these programs individually to determine the advisability of entering into preclinical and clinical development ourselves, entering into collaboration, or out-licensing programs to optimize their development and clinical and commercial potential.

As part of this strategy, we have entered into collaboration agreements with BMS, Zai Lab Limited, and Lilly, which are more fully described in "—Our Proprietary Drug Discovery Programs."

Our Drug Discovery Collaborations

Over the last decade, leveraging our platform and expertise, we have steadily grown our portfolio of collaborations with biopharmaceutical companies that have provided us with significant income and have the potential to produce additional milestone payments, option fees, and future royalties.

These programs pursue design of clinical candidates across a wide range of therapeutic target protein classes and indications.

Over the last decade, leveraging our platform and expertise, we have steadily grown our portfolio of collaborative programs.

These programs have provided us with significant income and have the potential to produce additional milestone payments, option fees, and royalties in the future.

These programs pursue the discovery and development of clinical candidates across a wide range of therapeutic target protein classes and indications.

Many of these programs are pursuing novel molecules for targets where a low-dose small molecule inhibitor or activator with optimal drug-like properties has been difficult to achieve or where selectivity for the target of interest has been difficult to achieve relative to other proteins.

We have steadily grown our pipeline of collaborations by selectively entering into drug discovery collaborations with high potential from a large number of opportunities.

Among the key factors that we use to select collaborators are whether the targets are well-validated, have high therapeutic potential, and are amenable to the strengths of our computational platform, and whether or not the collaborator brings complementary capabilities, all of which we believe contribute to an increased probability of success.

We have steadily grown our pipeline of collaborative programs by selectively entering into drug discovery collaborations with leading drug development and commercialization companies.

Among the factors that we use to embark on collaborations are whether the targets are well-validated, have high therapeutic potential, and are amenable to the strengths of our computational platform, and whether or not the collaborator brings complementary capabilities, all of which we believe contribute to an increased probability of success.

Through access to the maximum potential scale of our computational platform and our drug discovery and software development teams, our collaborators receive the following key benefits:

6 unchanged sentences

• Target exclusivity :

Under our collaboration agreements, we agree to design drugs for a particular protein target or targets using our computational platform and knowhow exclusively for the collaborator.

Under our collaboration agreements, we agree to design drugs for a particular protein target or targets using our computational platform and know-how exclusively for the collaborator.

Collaboration Agreements

We have entered into a number of collaborations with biopharmaceutical companies under which our collaborators are pursuing research in a number of therapeutics areas, including without limitation, various programs in oncology, antifungal diseases, fibrosis, inflammatory bowel disease, metabolic disease, autoimmune disease, immune-oncology, cardiopulmonary disease and tuberculosis.

Our current collaborators include Ajax Therapeutics, Inc., Bright Angel Therapeutics Inc., Morphic Holding, Inc., or Morphic, Nimbus Therapeutics, LLC, Sanofi S.A., ShouTi Inc., TB Alliance and Takeda Pharmaceuticals Company Limited, or Takeda.

With the exception of Takeda, where we retain all intellectual property rights until Takeda exercises its option to acquire a program, all of the programs being pursued under these collaborations are fully owned and controlled by each respective collaborator.

Our opportunity to receive potential revenues from any of these programs is generally limited to research funding payments, development, regulatory, and commercial milestones, option fees to license projects and royalties on commercial sales, if any.

We have entered into a number of collaborations with biopharmaceutical companies under which our collaborators are pursuing research in a number of therapeutics areas, including without limitation, various programs in oncology, antifungal diseases, fibrosis, inflammatory bowel disease, metabolic disease, autoimmune disease, immuno-oncology, cardiopulmonary disease and tuberculosis.

Our current collaborators include, but are not limited to, Ajax Therapeutics, Inc., Bright Angel Therapeutics Inc., Morphic Holding, Inc., or Morphic, Nimbus Therapeutics, LLC, or Nimbus, Otsuka Pharmaceutical Co., Ltd., or Otsuka, Petra Pharma Corporation, Sanofi S.A., and Structure Therapeutics Inc.

(formerly ShouTi, Inc.).

All of the programs being pursued under these collaborations are fully owned and controlled by each respective collaborator.

We are not responsible for advancing their preclinical or clinical development or their commercialization, if approved.

1 unchanged sentence

We have received equity consideration in certain of our collaborators, and from time to time, we have also made additional equity investments in certain of these collaborators.

As noted above, all of these programs are fully owned and controlled by each respective collaborator, with the exception of Faxian, which is a 50/50 joint venture.

The following table presents our equity stakes on an issued and outstanding basis as of December 31, 2021 :

As noted above, all of these programs are fully owned and controlled by each respective collaborator, with the exception of Faxian Therapeutics, LLC, which is a

50/50 joint venture.

The following table presents our equity stakes on an issued and outstanding basis (unless otherwise noted) as of December 31, 2022:

Company Ownership %

Ajax Therapeutics, Inc.

Apollo, LLC (1)

Bright Angel Therapeutics Inc.

3 unchanged sentences

Ravenna Pharmaceuticals, Inc.

Based on the number of shares of common stock outstanding as of November 1, 2021, as reported on Morphic’s Quarterly Report on Form 10-Q for the period ended September 30, 2021, as filed with the SEC on November 4, 2021.

Structure Therapeutics, Inc.

(1) Represents our equity in the entity, which entity holds the rights to any future payments received in connection with Gilead Sciences, Inc.’s acquisition of Nimbus’ ACC inhibitor program.

(2) Based on the number of shares of common stock outstanding as of February 21, 2023, as reported on Morphic’s Annual Report on Form 10-K for the annual period ended December 31, 2022, as filed with the SEC on February 23, 2023.

(3) On a fully diluted basis

(4) Based on the number of ordinary shares outstanding as of December 31, 2022, as reported on Structure Therapeutics Inc.'s prospectus, as filed with the SEC on February 6, 2023.

From time to time, we may also receive distributions on account of our equity stakes in our collaborators.

For example, in February 2023, Nimbus announced the closing of the acquisition by Takeda Pharmaceuticals Company Limited, or Takeda, of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its tyrosine kinase 2, or TYK2, program, which includes the TYK2 inhibitor, NDI-034858, which is being evaluated for the treatment of multiple immune-mediated diseases following positive results from the Phase 2b clinical trial in psoriasis.

Following the closing of the acquisition, in February 2023, we received a cash distribution in the amount of $111.3 million from Nimbus, and we expect to receive a second cash distribution in the amount of $36.0 million from Nimbus in the second quarter of 2023, for a total cash distribution of $147.3 million.

Financial Rights.

In addition to our equity stakes in certain of our collaborators, we also have rights to various payments on a collaborator-by-collaborator agreement basis including research funding payments, discovery, development, and commercial milestones, potential option fees to license projects, and potential royalties in the single-digit range.

Under certain of our collaboration agreements, we are also eligible to receive a percentage of our collaborators’ sublicense revenue.

1 unchanged sentence

Generally, the size of the payments we are eligible to receive from a collaborative program increases as the program advances.

As a result of the broader validation of our platform, we intend to pursue an increasing number of wholly-owned programs, and we will continue evaluating new collaborative programs that fit our selection criteria and where the collaborator’s particular expertise has the potential to create substantial value.

Importantly, our current collaboration agreements typically also contemplate additional program targets being added, allowing our collaborators to potentially increase the number of programs under our current collaboration agreements.

As a result of the broader validation of our platform, we intend to pursue an increasing number of wholly-owned drug discovery programs, and we will continue evaluating new collaborative programs that fit our selection criteria and where the collaborator’s particular expertise, resources or intellectual property has the potential to create substantial value.

However, because these collaborations are not under our control, we cannot predict whether or when we might achieve any event-based increases in research funding payments, milestone payments, royalty or other payments under these collaborations or estimate the full amount of such payments, and we may never receive any such payments.

1 unchanged sentence

How We Work with Our Collaborators.

Generally, our existing collaboration agreements provide that we agree to design drugs for a particular target or targets using our computational platform and knowhow exclusively for the collaborator.

With the exception of Takeda, where we retain all intellectual property rights until Takeda exercises its option to acquire a program, the collaborator retains the intellectual property related to any molecules developed under the collaboration.

Generally, our collaborators are not contractually required to provide us with, nor do we expect generally to receive, access to nonpublic information regarding key developments related to the advancement of these collaboration programs, such as clinical trial results, including safety and efficacy data, regulatory communications, or commercialization plans and strategies.

Generally, our existing collaboration agreements provide that we agree to design drugs for a particular target or targets using our computational platform and know-how exclusively for the collaborator.

The collaborator retains the intellectual property related to any molecules developed under the collaboration.

To the extent we do receive such information, our collaboration agreements generally require us to maintain the confidentiality of information we receive under the collaboration.

As our collaboration strategy has evolved, we are seeking to take more direct control and responsibility for all aspects of a drug discovery project and own a higher percentage of the value generated in the completed programs.

For example, under our collaboration with Takeda, after mutual agreement on the target(s) of interest, our drug discovery group conducts all drug discovery research and pharmacology activities through the development candidate stage.

Takeda has the option to acquire the program at either the lead optimization stage or development candidate stage and to develop and commercialize product candidate(s) from the program.

Importantly, under the collaboration with Takeda, we control the drug discovery process and retain all intellectual property rights to any product candidates that are discovered under the program until Takeda exercises its option to acquire the program.

The collaboration with Takeda anticipates drug discovery research on up to six targets.

Three programs have been initiated to date in schizophrenia, oncology, and neurodegenerative disease with multiple milestone payments achieved.

Two of these programs continue to advance while the program in schizophrenia is no longer an active collaboration and all rights to this program will continue to be retained by us.

In mid-2018, we launched a pipeline of internal, wholly-owned programs with the goal of rapidly advancing the discovery of best-in-class and first-in-class therapies.

Our initial programs are focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.

In December 2022, we entered into a multi-part agreement with Otsuka, together with Otsuka’s subsidiary Astex Pharmaceuticals, which includes a collaboration for the discovery and development of a program focused on an emerging central nervous system, or CNS, disease target.

Under the collaboration, we are responsible for drug design through lead optimization and Otsuka will be responsible for all other drug discovery and clinical development activities.

We received an upfront payment and will be eligible to receive discovery, development and regulatory milestones, as well as tiered royalties on net sales of any products emerging from the drug discovery collaboration in all markets.

Our Proprietary Drug Discovery Programs

In 2018, we began to develop a pipeline of wholly-owned drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics.

Our initial programs were focused on discovering and developing inhibitors for targets in DNA damage response pathways and genetically defined cancers.

Since then, we have expanded into other therapeutic areas, including in the areas of immunology and neurology.

We continue to advance multiple internal programs through investigational new drug, or IND, -enabling studies.

We expect to submit an IND application to the FDA for our MALT1 program in the first half of 2022, and subject to receiving regulatory clearance, we expect to initiate a Phase 1 clinical trial of our MALT1 inhibitor in patients with relapsed and resistant lymphoma in the second half of 2022.

We also plan to submit IND applications to the FDA for our CDC7 program in early 2023 and our WEE1 program in 2023, subject to favorable data from IND-enabling studies.

In addition, we plan to initiate a Phase 1 clinical trial of our CDC7 inhibitor in 2023, subject to receipt of regulatory clearance.

Our strategy is to pursue an increasing number of wholly-owned programs and strategically evaluate on a program-by-program basis entering into preclinical and clinical development ourselves, entering into collaborations, or out-licensing programs to maximize commercial opportunities.

The FDA cleared our IND for SGR-1505 in June 2022.

In addition, we continue to advance other wholly-owned programs through IND-enabling studies.

We expect to submit an IND application to the FDA for SGR-2921 in the first half of 2023 and for SGR-3515 in 2024, subject to favorable data from IND-enabling studies.

In addition, we plan to initiate a Phase 1 clinical trial of SGR-2921 in the second half of 2023, subject to receipt of regulatory clearance.

Our strategy is to pursue an increasing number of wholly-owned programs and strategically evaluate on a program-by-program basis advancing them into preclinical and clinical development ourselves, entering into collaborations to co-develop them with leading industry partners, or out-licensing them to maximize their clinical and commercial opportunities.

As part of this strategy, in November 2020, we entered into an exclusive, worldwide collaboration and license agreement with BMS pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.

The initial collaboration targets included HIF-2 alpha and SOS1/KRAS, which were two of our internal pipeline programs.

In November 2021, the Company and BMS mutually agreed to replace the HIF-2 alpha target with another precision oncology target.

The initial collaboration targets included HIF-2 alpha and SOS1/KRAS, which were two of our wholly-owned programs.

In November 2021, we 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 us.

In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to us.

In December 2022, we and BMS entered into an amendment to the agreement to include an additional target in neurology on terms similar to the original agreement.

Under the terms of the agreement, as amended, we received a $55.0 million upfront payment from BMS in November 2020 and an additional upfront payment in December 2022, and we are eligible to receive up to $2.7 billion in total milestones from BMS across all potential targets, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions.

We recently announced we are expecting the first program from this collaboration to advance to development candidate status.

Following finalization of this advancement, we expect to recognize a drug discovery milestone associated with advancement of the program, which is projected in the first quarter of 2023.

See “—Collaboration Agreement with Bristol-Myers Squibb Company” for additional information relating to this agreement.

Under the terms of the agreement, we are entitled to receive an upfront payment, and if we elect to co-fund clinical development of a product candidate under the collaboration, we will be entitled to receive 50% of any profits from the commercialization of an approved therapeutic in the United States.

In August 2021, we entered into a global discovery, development and commercialization collaboration with Zai Lab Limited focused on a novel program in oncology targeting DNA damage response.

Under the terms of the agreement, we received an upfront payment, and if we elect to co-fund clinical development of a product candidate under the collaboration, we will be entitled to receive 50% of any profits from the commercialization of an approved therapeutic in the United States.

We are also eligible to receive up to approximately $338.0 million in preclinical, clinical, regulatory and sales-based milestone payments from Zai Lab Limited for any product candidate developed under the collaboration, and we are entitled to receive tiered royalties on net sales outside the United States.

The following is a summary of our drug discovery programs:

In September 2022, we entered into a collaboration with Lilly, under which we are responsible for the discovery and optimization of small molecule compounds addressing a specific target.

Lilly will be responsible for the completion of preclinical development, clinical development and commercialization.

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.

In addition to the above, we are also advancing a program in collaboration with Takeda focusing on an oncology target.

Under this collaboration, we conduct all drug discovery research and pharmacology activities through the development candidate stage, and Takeda has the option to acquire the program at either the lead optimization stage or development candidate stage and to develop and commercialize such product candidate from the program.

We control the drug discovery process and retain all intellectual property rights to any product candidate that is discovered under the program until Takeda exercises its option to acquire the program.

The following is a summary of our proprietary drug discovery programs:

Our Approach to Target Selection

8 unchanged sentences

• Identification of unsolved design challenges .

We determine whether there are property profile challenges that could be solved by the application of our computational platform and provide a clinically meaningful differentiated, best-in-class or first-in-class product opportunity.

• Assessment of potential value of pathways and mechanisms.

2 unchanged sentences

We continue to evaluate a number of additional targets using this analysis methodology.

MALT1 Inhibitor Program

We are developing novel MALT1 inhibitors for the treatment of patients with non-Hodgkin’s lymphoma and chronic lymphocytic leukemia who are resistant to or have relapsed on Bruton’s tyrosine kinase, or BTK, inhibitors, a currently-approved therapy for lymphoma patients.

Our MALT1 Inhibitor

We are advancing SGR-1505, our novel MALT1 inhibitor, for the treatment of patients with relapsed or refractory B-cell lymphomas.

Constant activation of nuclear factor-kappa B, or NF-κB, a key signaling molecule in B cells, is a hallmark of several subtypes of lymphoma.

4 unchanged sentences

Among these mutations is a gain of function mutation or amplification of MALT1, which has also been identified in ABC-DLBCL patients.

Our program utilizes our physics-based software platform to enable the identification and advancement of multiple novel series from hit finding to lead optimization.

Combining multi-parameter optimization, FEP+, and machine learning, we were able to prioritize tight-binding compounds with drug-like properties, and identify multiple novel and distinct chemical series which showed strong anti-tumor activity, ultimately enabling development candidate selections in our MALT1 inhibitor program in under two years.

As shown in the figures below, in preclinical studies, one of our MALT1 inhibitors, Compound 1, showed anti-tumor activity in a MALT1 enzymatic assay and strong anti-proliferative effect in cell viability in a BTK inhibitor resistant OCI-LY3 B-cell non-Hodgkin’s lymphoma cell line, when compared to ibrutinib, a covalent BTK inhibitor.

As shown in the figures below, in preclinical studies, Compound 1 also demonstrated strong anti-tumor activities as a single agent in BTK inhibitor resistant OCI-LY3 cells and in BTK sensitive OCI-LY10 B-cell non-Hodgkin’s lymphoma in vivo cell-line derived xenograft (CDX) models.

Our program utilized our physics-based software platform to enable the identification and advancement of multiple novel series of MALT1 inhibitors from hit finding to lead optimization.

Combining multi-parameter optimization, FEP+, and machine learning, we were able to prioritize tight-binding compounds with drug-like properties, and identified multiple novel and distinct chemical series which showed strong anti-tumor activity, ultimately enabling us to select SGR-1505 as our development candidate in under two years.

As shown in the figures below, in preclinical studies, SGR-1505 showed anti-tumor activity in a MALT1 enzymatic assay and strong anti-proliferative effect in cell viability in a Bruton's tyrosine kinase, or BTK, inhibitor resistant OCI-LY3 B-cell non-Hodgkin’s lymphoma cell line, when compared to ibrutinib, a covalent BTK inhibitor.

As shown in the figures below, in preclinical studies, SGR-1505 also demonstrated strong anti-tumor activities as a single agent in BTK inhibitor resistant OCI-LY3 cells and in BTK sensitive OCI-LY10 B-cell non-Hodgkin’s lymphoma in vivo cell-line derived xenograft (CDX) models.

TPGS = D-alpha-tocopheryl polyethylene glycol succinate, a solvent used in co-administration for drug dosing in animals;

1 unchanged sentence

SDD = spray dried dispersion;

In addition, Compound 1 demonstrated strong anti-tumor activities in combination with ibrutinib in the BTK inhibitor sensitive in viv o models, such as the ABC-DLBCL patient-derived xenograft (PDX) model LY2298 and the OCI-LY10 CDX model.

Beyond ABC-DLBCL disease models, Compound 1 also demonstrated single agent anti-tumor activity in an in vivo mantle cell lymphoma REC-1 CDX model.

Compound 1 also showed strong combination effects with venetoclax (an inhibitor of the anti-apoptotic protein B-cell lymphoma 2 (BCL2)) on inhibition of cancer cell viability in the OCI-LY10 CDX model.

SEM = scanning electron microscopy, a method used to measure cell volume

In addition, as shown in the figures below, SGR-1505 demonstrated strong anti-tumor activities in combination with ibrutinib in the BTK inhibitor sensitive in viv o models, such as the ABC-DLBCL patient-derived xenograft (PDX) model LY2298 and the OCI-LY10 CDX model.

Beyond ABC-DLBCL disease models, as shown in the figures below, SGR-1505 also demonstrated single agent anti-tumor activity in an in vivo mantle cell lymphoma REC-1 CDX model.

SGR-1505 also showed strong combination effects with venetoclax (an inhibitor of the anti-apoptotic protein B-cell lymphoma 2 (BCL2)) on inhibition of cancer cell viability in the OCI-LY10 CDX model.

QD = once per day dosing;

BID = twice a day dosing

These data suggest that targeting MALT1 may expand therapeutic options for patients with selected B-cell lymphomas, such as ABC-DLBCL, with the possibility of expanding into other B-cell lymphomas such as mantle cell lymphoma.

Furthermore, these small molecule MALT1 inhibitors demonstrated potential in combination with BTK inhibitors to overcome drug-induced resistance to BTK inhibitors in patients with relapsed/refractory B-cell lymphomas.

Taken together, we believe the data present an opportunity to move a potential best-in-class MALT1 inhibitor into clinical trials, subject to the submission of our IND application and clearance from the FDA, and strongly underscore the therapeutic potential of our MALT1 inhibitors.

CDC7 Kinase Inhibitor Program

We are developing tight-binding, selective, novel small molecule inhibitors of CDC7 for the treatment of advanced solid and liquid tumors.

These data suggest that targeting MALT1 with SGR-1505 may expand therapeutic options for patients with selected B-cell lymphomas, such as ABC-DLBCL, with the possibility of expanding into other B-cell lymphomas such as mantle cell lymphoma.

Furthermore, SGR-1505 demonstrated potential in combination with BTK inhibitors to overcome drug-induced resistance to BTK inhibitors in patients with relapsed/refractory B-cell lymphomas.

The FDA cleared the IND for SGR-1505 in June 2022.

Our Phase 1 clinical trial of SGR-1505 is designed as an open-label, multi-center dose escalation clinical trial in patients with relapsed or refractory B-cell lymphomas.

We anticipate enrolling up to 52 patients with confirmed mature B-cell malignancies who are 18 years or older and have a life expectancy of equal to or greater than 12 weeks.

SGR-1505 will be administered orally.

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, and a sub-study will also evaluate the effect of food and drug-drug interactions.

We recently initiated a Phase 1 clinical trial of SGR-1505 and we currently have clinical trial sites open for screening and enrollment, but we have not yet dosed any patients with SGR-1505.

Our CDC7 Inhibitor

We are advancing SGR-2921, our novel CDC7 inhibitor, for the treatment of advanced solid and liquid tumors.

CDC7 is a serine/threonine protein kinase that has been shown to play important roles in DNA replication initiation and in response to replication stress and DNA damage.

2 unchanged sentences

Disruption of CDC7 activity in cancer cells leads to delayed DNA replication, increased replication stress, cell cycle abnormalities, and cell death.

The antiproliferative potential of CDC7 inhibition was validated by a third party in Phase 1 clinical trials of a CDC7 inhibitor in which responses were observed in patients, including those with bladder and pancreatic cancer.

Prior to this positive result, existing CDC7 inhibitors were not sufficiently tight-binding, lacked selectivity, and demonstrated poor pharmacokinetic properties.

In order to maximize the anti-cancer activities of CDC7 inhibitors, very tight-binding inhibitors are required to achieve durable clinical impact as monotherapy or in the context of clinical combinations.

Using our computational platform, we have identified multiple tight-binding, selective, and novel CDC7 inhibitor series.

As shown in the figures below, our advanced preclinical molecules, compound 1 (Cpd-1) and compound 2 (Cpd-2), demonstrated inhibition of recombinant human CDC7 in a biochemical kinase assay and inhibition of the phosphorylation of the serine in position 53, or S53, of the protein MCM2, or pMCM2, a downstream substrate of CDC7, in a Colo205 colorectal cancer cell line.

Dose-dependent inhibition of CDC7 by Compound-1 (Cpd-1)

or Cpd-2 in a biochemical kinase (ADP-Glo) assay

Inhibition of phosphorylation of MCM2 (CDC7 substrate) at S53 by CDC7

inhibitors in Colo205 cells measured by MSD (Meso Scale Discovery) assay

Furthermore, Cpd-1 showed tumor growth inhibition resulting in tumor regression in the Colo205 colorectal cancer CDX model at doses that did not result in significant body weight loss.

Cpd-1 also showed a dose-dependent increase in plasma drug concentration and a dose-dependent decrease in intratumoral pMCM2 in the Colo205 CDX model.

In mouse models of acute myeloid leukemia, Cpd-1 also showed strong anti-tumor activity at doses that did not result in significant body weight loss.

As also shown in the figures below, a combination of our advanced preclinical molecule, compound 4 (Cpd-4), with venetoclax (an inhibitor of the anti-apoptotic protein B-cell lymphoma 2 (BCL2)), olaparib (an FDA-approved PARP inhibitor marketed as LYNPARZA by AstraZeneca), ceralasertib (an ataxia telangiectasia and RAD-3relate, or ATR, inhibitor), or adavosertib (a WEE1 inhibitor) showed synergistic effect on inhibition of cancer cell viability in the indicated cancer cell lines, which are the acute myeloid leukemia cell line, or MV-4-11, the lung cancer cell line, or H460, and the Colo205 colorectal cancer cell line.

All competitor data is internally generated by contract research organizations, using commercially available tools or synthesized by third-party research chemists using publicly available structure information.

WEE1 Kinase Inhibitor Program

Using our computational platform, we identified multiple tight-binding, selective, and novel CDC7 inhibitor series, and selected SGR-2921 as our development candidate.

As shown in Tables 1 and 2 below, SGR-2921 demonstrated inhibition of recombinant human CDC7 in a biochemical kinase assay and in a biophysical assay, as measured by the average IC 50 value, which is a measure of the

potency of a compound in inhibiting specific biological functions.

Table 1 also shows that SGR-2921 demonstrated strong binding affinity to CDC7 with an average equilibrium dissociation constant, or KD, which is a measure of binding affinity between a protein and a binding partner, in the picomolar range.

Further, SGR-2921 showed inhibition of the phosphorylation of the serine in position 53, or S53, of the protein MCM2, or pMCM2, a downstream substrate of CDC7, in COLO205, a colorectal cancer cell line, and in two acute myeloid leukemia cell lines, MV-4-11 and MOLM-16.

Table 1 Average IC 50 of CDC7 Kinase Activity and Binding Affinity to CDC7 for SGR-2921

Average IC 50 [nM]

0.0277 ± 0.0054

Table 2 In Vitro Cell Based IC 50 Values of pMCM2 (S53) by SGR-2921

COLO205 [IC 50 (nM)]

MV-4-11 [IC 50 (nM)]

MOLM-16 [IC 50 (nM)]

SGR-2921 also showed anti proliferative activity in vitro in COLO205, MV-4-11 and MOLM-16 cell lines.

Table 3 summarizes the average IC 50 value from the individual assays.

Table 3 In Vitro Cell Based Viability IC 50 Values of SGR-2921

Cell line COLO205 [IC 50 (nM)]

MV-4-11 [IC 50 (nM)]

MOLM-16 [IC 50 (nM)]

Cell viability

Furthermore, as shown in the figures below, SGR-2921 showed tumor growth inhibition resulting in tumor regression in the COLO205 colorectal cancer CDX model, which is a colorectal cancer cell line derived xenograft model, at doses that did not result in significant body weight loss.

SGR-2921 also showed a dose-dependent increase in plasma drug concentration and a dose-dependent decrease in intratumoral pMCM2 in the COLO205 CDX model.

In mouse models of acute myeloid leukemia, SGR-2921 also showed strong anti-tumor activity at doses that were tolerated.

We expect to submit an IND application to the FDA for SGR-2921 in the first half of 2023 and plan to initiate a Phase 1 clinical trial of SGR-2921 in the second half of 2023, subject to receipt of regulatory clearance.

Our WEE1 Inhibitor

We are advancing SGR-3515, our novel WEE1 inhibitor for the treatment of gynecological cancers and other solid tumors.

WEE1 is a gatekeeper checkpoint kinase that prevents cellular progression through the cell cycle allowing time for DNA repair before cell division takes place.

Inhibition of WEE1 allows for accumulation of DNA damage, triggering DNA breakage and

apoptosis in tumor cells.

We are therefore developing tight-binding, selective W EE 1 inhibitors with optimized physicochemical properties that we believe will be well suited for combinations with DNA damage response inhibitors such as PARP and ATR inhibitors and other targeted therapies for the treatment of ovarian, colorectal, breast, and other solid tumors.

A WEE1 inhibitor currently being investigated in Phase 2 clinical trials by a third party has shown clinically meaningful tumor regression with partial responses and stable disease in ovarian and uterine cancer, and is being studied in combinations with chemotherapy, PARP inhibitors, and immunotherapy.

A prior third party WEE1 inhibitor that has advanced to clinical trials may have off-target effects resulting from inhibition of other kinases, and inactivation of a liver enzyme, CYP3A4, which is responsible for elimination of drug and drug metabolites from the body, making dosing and combinations more challenging.

We believe our computational platform can be used to identify tight-binding molecules with optimized drug-like properties that exhibit neither of these liabilities.

As shown in the figure below, we have identified WEE1 inhibitor lead molecules that are tight-binding and highly selective, and have exhibited a favorable drug-like property profile, including no observable inactivation of CYP3A4.

We have benchmarked our compounds against AZD-1775, a WEE1 inhibitor being advanced by AstraZeneca, and Zn-C3, a WEE1 inhibitor being advanced by Zentalis Pharmaceuticals, and our lead molecules have shown comparable binding affinity against WEE1, as measured by Kd, a measure of binding affinity.

Our compounds have also shown comparable effects on the viability of the A427 non-small cell lung cancer cell line and the OVCAR3 high grade serous ovarian cancer cell line.

The selectivity of our WEE1 inhibitors was evaluated by profiling one of our lead compounds at 1 uM across a panel of over 450 kinases.

Our WEE1 inhibitor showed high selectivity for WEE1 in this assay panel, binding significantly, with a greater than 90% inhibition relative to control, to only eight other kinases.

Furthermore, time-dependent inhibition, or TDI, of the enzyme CYP3A4 often results in clinically significant drug-drug interactions, or DDI.

In vitro, our compound showed no measurable TDI of CYP3A4, which we believe might lead to a lower potential liability for DDI if our WEE1 inhibitors were used in combination with other agents.

We are pursuing in vitro and in vivo WEE1 and PARP inhibitor combination studies and studies in patient-derived tumor mouse models and other combinations, which we believe may have implications for future clinical combination trials.

Inhibition of WEE1 allows for accumulation of DNA damage, triggering DNA breakage and apoptosis in tumor cells.

Third party WEE1 inhibitors have shown clinically meaningful tumor regression with partial responses and stable disease in ovarian and uterine cancer in clinical trials.

A third party WEE1 inhibitor is currently being studied in combinations with chemotherapy, PARP inhibitors, and immunotherapy.

We identified a number of tight-binding, selective WEE1 inhibitor series using our computational platform and we have recently selected SGR-3515 as our development candidate.

We believe SGR-3515's physicochemical properties make it well suited for combinations with DNA damage response inhibitors such as PARP and ATR inhibitors and other targeted therapies for the treatment of ovarian, colorectal, breast, and other solid tumors.

Prior third party WEE1 inhibitors may have off-target effects resulting from inhibition of other kinases and proteins, some of which are liver enzymes responsible for elimination of drug and drug metabolites from the body,

potentially making dosing and combinations more challenging.

As shown in the figure below, we have benchmarked SGR-3515 against AZD1775, a WEE1 inhibitor from AstraZeneca, and Zn-C3, a WEE1 inhibitor being advanced by Zentalis Pharmaceuticals, and SGR-3515 demonstrated an improved kinase selectivity profile and we believe has lower potential for drug-drug interaction, or DDI, liabilities associated with liver enzyme inactivation.

As shown in the figure below, SGR-3515 also showed better potency against WEE1 in cells measured by target engagement marker pCDC2 Y15.

The selectivity of SGR-3515 was evaluated by profiling it at 1 uM across a panel of over 400 kinases.

SGR-3515 demonstrated a more desirable selectivity profile compared to Zn-C3 and AZD1775.

SGR-3515 has also shown comparable or better effects on the viability of various tumor cells including the A427 non-small cell lung cancer cell line and the OVCAR3 high grade serous ovarian cancer cell line compared to Zn-C3 and ADZ1775.

SGR-3515 demonstrated robust and sustainable anti-tumor activity in vivo in A427 and OVCAR3 tumor models.

These effects and anti-tumor activity are shown in the figure below with SGR-3515 demonstrating lower IC 50 values in these models as compared to Zn-C3 and AZD1775.

We plan to submit an IND application to the FDA for SGR-3515 in 2024, subject to favorable data from IND-enabling studies.

SOS1/KRAS Inhibitor Program

1 unchanged sentence

SOS1, or Son of sevenless-1, is involved in the activation and regulation of KRAS.

Oncogenic mutant KRAS

stimulates the growth of some of the most intractable tumors, such as lung, pancreatic, and colon cancer.

Oncogenic mutant KRAS stimulates the growth of some of the most intractable tumors, such as lung, pancreatic, and colon cancer.

Strategies to disrupt the persistently active Ras pathway have focused on targeting Cys12 of the oncogenic mutant KRAS G12C with covalent inhibitors.

Disruption of the SOS1/KRAS interaction has emerged as an alternative approach based on third party preclinical data.

Our initial efforts suggest that we can leverage our computational platform to identify a novel development candidate for this target.

Pursuant to our collaboration and license agreement with BMS, once we have discovered or identified a SOS1/KRAS protein-protein interaction inhibitor that meets specified, mutually agreed criteria (or upon BMS's selection), BMS will be solely responsible for the further preclinical and clinical development, manufacturing and commercialization of such candidate at its own expense.

See “—Collaboration Agreement with Bristol-Myers Squibb Company” for additional information relating to this agreement.

LRRK2 Inhibitor Program

We are developing a LRRK2 inhibitor for the treatment of Parkinson’s disease.

LRRK2, a genetically validated target, is a large multifunctional kinase enzyme and mutations in the LRRK2 gene have been shown to be associated with the development of Parkinson’s disease.

In 2022, we generated cryo-electron microscopy structures of LRRK2, which have helped us to accelerate the identification of novel LRRK2 inhibitors.

We expect to select a development candidate for this program in 2024.

Other and Future Programs

We have identified a large number of protein targets that we believe are amenable to our computational platform, which creates a large and growing inventory of targets that we can potentially advance into discovery programs.

Our drug discovery group also intends to pursue targets with strong biological validation and therapeutic potential that currently lack protein structures of sufficient quality to permit the use of our computational platform for drug discovery.

We are actively pursuing strategic alliances with collaborators that have the ability to generate high-quality protein structures for these targets, which will enable us to initiate discovery efforts.

We have identified a large number of protein targets that we believe are amenable to our computational platform, and now have a significant inventory of targets that we can potentially advance into discovery programs.

The Schrödinger Therapeutics Group also intends to pursue targets with strong biological validation and therapeutic potential that currently lack protein structures of sufficient quality to permit the use of our computational platform for drug discovery.

We are actively pursuing strategic alliances with collaborators, as well as progressing internal initiatives, that enable us to generate high-quality protein structures for these targets, which will enable us to initiate discovery efforts.

For example, as part of these efforts, in 2020 we entered into strategic partnerships with Viva Biotech to access new x-ray crystal structures as well as with Thermo Fisher Scientific to obtain structures of protein complexes leveraging cryo-EM technology.

6 unchanged sentences

In addition to our programs highlighted above, we are also progressing a number of undisclosed programs in the areas of oncology, immunology, and neurology.

We are pursuing certain of these programs on our own and certain of these programs are being advanced in collaboration with BMS pursuant to our collaboration agreement described above, as well as under a separate collaboration agreement with BMS that we entered into in August 2021 to discover, develop and commercialize bifunctional protein degraders.

We are pursuing certain of these programs on our own and certain of these programs are partnered with others pursuant to our collaboration agreements described above.

All of these programs are currently in the discovery stage, and we have not yet identified a development candidate for any of these programs.

6 unchanged sentences

Accurately calculating the binding affinity of a drug molecule to a protein is enormously complex and requires a full characterization of all the physical contributions to the binding.

These contributions include the deformation and/or rigidification of the small molecule into the bound conformation ( Δ G(1) in the figure below) and the rigidification of the protein in the bound conformation ( Δ G(2)), the removal of waters surrounding the molecule ( Δ G(3)) and the removal of waters within the protein binding site ( Δ G(4)), and finally the interactions achieved between the molecule and protein when binding to form the protein-molecule complex ( Δ G(5)).

waters within the protein binding site (ΔG(4)), and finally the interactions achieved between the molecule and protein when binding to form the protein-molecule complex (ΔG(5)).

We have developed a solution to consistently assess all of these contributions to binding with a high degree of accuracy, building on a method called “free energy perturbation.” Free energy perturbation perturbs, or transforms, an initial molecule into another molecule of interest and evaluates how that transformation changes binding affinity to a particular protein target.

10 unchanged sentences

FEP+ is also able to perform these computations more rapidly than experimental assays.

Computational assessment of a molecule utilizing FEP+ requires approximately only a few hours.

Computational assessment of a molecule utilizing FEP+ requires only a few hours.

In comparison, it often takes weeks to synthesize a drug-like molecule and assay its binding affinity for the target of interest in a laboratory.

1 unchanged sentence

In a peer-reviewed article published in collaboration with a large biopharmaceutical company, the ability of FEP+ to prioritize molecules for synthesis expected to bind more tightly than an initial hit was compared with several other industry-standard approaches.

We found that FEP+ succeeded in prioritizing the synthesis of molecules with improved binding affinity with eight times greater success than any other technique tested.

We found that FEP+ succeeded in prioritizing the synthesis of molecules with improved

binding affinity with eight times greater success than any other technique tested.

This evidence supports the essential role that FEP+ can play in advancing drug discovery programs.

Enumeration of extremely large libraries of molecules

We have developed methods to enumerate extremely large libraries of molecules with our PathFinder software solution, thereby allowing our software customers, our drug discovery collaborators, and our internal drug discovery team to explore a much larger portion of chemical space than is possible through manual design.

We have developed methods to enumerate extremely large libraries of molecules with our PathFinder software solution, thereby allowing our software customers, our drug discovery collaborators, and the Schrödinger Therapeutics Group to explore a much larger portion of chemical space than is possible through manual design.

The chemical enumeration technology we have developed incorporates the most commonly used chemical reactions and can, in a fully automated fashion, computationally explore billions of alterations of a molecule of interest.

11 unchanged sentences

One can evaluate the utility of any particular prediction method with regard to both its accuracy and its computational efficiency.

Modern machine learning methods, such as deep

learning, do provide a small improvement over conventional machine learning methods .

Modern machine learning methods, such as deep learning, do provide a small improvement over conventional machine learning methods.

However, for much of its history, conventional molecular simulations were much less computationally efficient than machine learning but not that much more accurate.

15 unchanged sentences

• free energy calculations using our software solution FEP+, which provides a fully dynamic atomistic representation of the target protein receptor.

These four approaches are complementary to each other, and their integrated use has led to successful hit-finding campaigns for dozens of protein targets in our collaborative and internal drug discovery programs.

There are also numerous reports in the literature and in patents of our software customers utilizing some combination of these approaches to identify hit molecules.

1 unchanged sentence

From this training process, AutoQSAR/DeepChem learns to identify substructures in the molecules that may lead to activity.

Then when applied to large libraries of molecules, these methods can identify molecules with

measurable activity against the target protein.

These methods are highly efficient and can be used to screen billion s of molecules in less than one day.

Then when applied to large libraries of molecules, these methods can identify molecules with measurable activity against the target protein.

These methods are highly efficient and can be used to screen billions of molecules in less than one day.

However, one significant limitation is that machine learning methods cannot extrapolate into chemical space that differs from the training set and therefore, this method tends to identify molecules similar to already known molecules.

3 unchanged sentences

This allows results from Shape to augment the AutoQSAR/DeepChem results while still being efficient for screening a large library.

Glide and WScore use knowledge of three-dimensional structure of the binding site of the protein of interest, rather than the structure of active molecules, to evaluate the likelihood of a small molecule to bind a protein target.

Glide and WScore evaluate molecules based on the number and kind of contacts made between the molecule and protein.

14 unchanged sentences

Software Business

The overall market for molecular discovery and design software is global, rapidly evolving, competitive, and subject to changing technology and shifting customer focus.

The overall market for molecular discovery and design software is global, rapidly evolving, competitive, and subject to changing technology and shifting customer interests and priorities.

The solutions and applications offered by our competitors vary in size, breadth, and scope.

2 unchanged sentences

Our ability to remain competitive will largely depend on our ability to continue to improve our computational platform and demonstrate success in our drug discovery efforts.

Our software solutions face competition from commercial competitors in the business of selling or providing simulation and modeling software to biopharmaceutical companies.

These competitors include BIOVIA, a brand of Dassault Systèmes SE, or BIOVIA, Chemical Computing Group (US) Inc., Cresset Biomolecular Discovery Limited, OpenEye Scientific Software, Inc., Optibrium Limited, Cyrus Biotechnology, Inc., Molsoft LLC , Insilico Medicine , Inc.

, Iktos, XtalPi Inc., and Simulations Plus, Inc.

Our software solutions face competition from competitors in the business of selling or providing simulation and modeling software to biopharmaceutical companies.

These competitors include BIOVIA, a brand of Dassault Systèmes SE, or BIOVIA, Chemical Computing Group (US) Inc., Cresset Biomolecular Discovery Limited, Cadence Design Systems, Inc., Optibrium Limited, Cyrus Biotechnology, Inc., Molsoft LLC, Insilico Medicine, Inc., Iktos, XtalPi Inc., and Simulations Plus, Inc.

We also have competitors in materials science, such as BIOVIA and Materials Design, Inc., and in enterprise software for the life sciences, such as BIOVIA, Certara USA, Inc., ChemAxon, PerkinElmer, Inc., and Dotmatics, Inc.

2 unchanged sentences

In life sciences, the most prominent academic simulation packages include AMBER, CHARMm, GROMACS, GROMOS, OpenMM, and OpenFF.

These packages are primarily maintained and developed by graduate students and post-doctoral researchers, often without the intent for commercialization.

These packages are primarily maintained and developed by graduate students and post-doctoral researchers, often without the intent of commercialization.

We also face competition from solutions that biopharmaceutical companies develop internally, smaller companies that offer products and services directed at more specific markets than we target, enabling these competitors to focus a greater proportion of their efforts and resources on these markets, as well as a large number of companies that have been founded with the goal of applying machine learning technologies to drug discovery.

1 unchanged sentence

The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and strong emphasis on proprietary and novel products and product candidates.

While we believe that our computational platform, technology, knowledge, experience, and scientific resources provide us with competitive advantages, our drug discovery business faces potential competition from many sources, including major pharmaceutical, specialty biopharmaceutical companies, technology companies, academic institutions and government agencies, and public and private research institutions.

private research institutions.

Any product candidates that we or one of our collaborators successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

The key competitive factors affecting the success of the product candidates we develop, if approved, are likely to be their efficacy, safety, convenience and price, the level of generic competition and the availability of coverage and adequate reimbursement from third-party payors.

If any of our product candidates are approved and successfully commercialized, it is likely that we will face increased competition as a result of other companies pursuing development of products to address similar diseases.

In particular, there is intense competition in the fields of oncology we are pursuing.

The key competitive factors affecting the success of the product candidates we develop, if approved, are likely to be their efficacy, safety, tolerability, convenience and price, the level of branded and generic competition and the availability of adequate reimbursement from third-party payors.

In particular, there is intense competition in the field of oncology, which is a focus of our drug discovery efforts.

We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, emerging and start-up companies, universities and other research institutions.

We also compete with these organizations to recruit management, scientists and clinical development personnel, which could negatively affect our level of expertise and our ability to execute our business plan.

We will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials and in identifying new product candidates.

Large pharmaceutical and biotechnology companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing biotechnology products.

These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions.

We also face competition in finding and establishing clinical trial sites, enrolling subjects for clinical trials, accessing combination studies and recruiting credible principal investigators and advisors from key clinical disciplines and academic centers.

For example, with respect to our MALT1 inhibitor, SGR-1505, which we are advancing for the treatment of patients with relapsed or refractory B-cell lymphomas, we are aware of several MALT1 inhibitors in clinical development, including by Janssen Research and Development, LLC, a Johnson & Johnson company, AbbVie Inc., Ono Pharmaceutical Co., Ltd.

and Zentalis Pharmaceuticals.

In addition, we are also aware of other therapeutics, both approved and in clinical development, for the treatment of B-cell lymphomas.

Large pharmaceutical and biotechnology companies, in particular, have extensive experience in building and accessing networks of expert investigators, designing and conducting clinical trials, obtaining regulatory approvals, and manufacturing and commercializing biotechnology products.

These companies also have significantly greater research and development and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions.

Established pharmaceutical and biotechnology companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete.

8 unchanged sentences

Following the replacement election, all rights to the HIF-2 alpha target program reverted to us.

In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to us.

In December 2022, we and BMS entered into an amendment to the agreement to include an additional target in neurology on terms similar to the original agreement.

Once we have discovered or identified a compound for a target that meets specified, mutually-agreed criteria or upon BMS selection of a compound as a development candidate, BMS will be solely responsible for the further preclinical and clinical development, manufacturing and commercialization of such candidate at its own cost and expense.

The research term will end on the earlier of four years or until we have delivered a candidate for each specified target.

research term will end on the earlier of four years or until we have delivered a candidate for each specified target.

We may elect to extend the research term for a limited period of time to deliver a candidate for a given target.

5 unchanged sentences

Pursuant to the agreement, for a given target, we have granted to BMS an exclusive license, with the right to grant sublicenses, under certain patent rights, know-how and materials controlled by us to clinically develop, manufacture, use, sell, offer for sale, export and import and otherwise exploit, and have others do the same, any compound, molecule or product for such target throughout the world.

Under the terms of the agreement, BMS paid us an initial upfront fee payment of $55 million.

Under the terms of the agreement, BMS paid us an initial upfront fee payment of $55.0 million, and we received an additional upfront fee payment in connection with the amendment in December 2022.

We are also entitled to receive up to $2.7 billion in total milestones across all potential targets.

Such milestones consist of up to $585.0 million in total milestones per oncology target, including $360.0 million in the aggregate for certain specified research, development and regulatory milestones and $225.0 million in the aggregate for certain specified commercial milestones, as well as up to $489.0 million in total milestones per neurology and immunology target, including $264.0 million in the aggregate for certain specified research, development and regulatory milestones and $225.0 million in the aggregate for certain specified commercial milestones.

With respect to the additional neurology target we and BMS added pursuant to the December 2022 amendment, we are entitled to similar research, development, and regulatory milestones and commercial milestones for such target as under the original agreement.

We are also entitled to a tiered percentage royalty on annual global net sales of licensed products ranging from mid-single digits to low-double digits, subject to certain specified reductions.

30 unchanged sentences

The 1994 Columbia Agreement and the licenses granted thereunder may be terminated by us or Columbia University only upon the other party’s material breach of the agreement and such party’s failure to cure such breach.

Upon termination, any third party that

has licensed the Licensed PS-GVB Software from us will retain the right to use such software, and we will have the perpetual right to continue to provide support to any such third parties in connection with their use of such software.

termination, any third party that has licensed the Licensed PS-GVB Software from us will retain the right to use such software, and we will have the perpetual right to continue to provide support to any such third parties in connection with their use of such software.

Fast Multipole RESPA License Agreement

40 unchanged sentences

Our Water Site Products include our WaterMap Core program, which we market and distribute as part of our physics-based computational platform.

We are restricted from distributing the Water Site Software source code without the prior written consent of Columbia University.

We are restricted from

distributing the Water Site Software source code without the prior written consent of Columbia University.

Under the 2008 Columbia Agreement, Columbia University retains the right to use, and to permit other entities and individuals to use, the Water Site Software and Water Site Patents for academic and non-commercial educational purposes in the field of computational chemistry software and related services.

2 unchanged sentences

The royalties under the 2008 Columbia Agreement are paid on a product-by-product basis and vary based on whether or not the gross revenues are generated in countries of manufacture or sale in which the Water Site Product is covered by a Water Site Patent.

(ii) negotiate in good faith with Columbia University on a single royalty, if there are more than two royalties payable on the particular Water Site Product.

In the event that there are multiple royalties payable on a single product, we are required to (i) pay the higher of the two royalties, if there are no more than two royalties payable on the particular Water Site Product or (ii) negotiate in good faith with Columbia University on a single royalty, if there are more than two royalties payable on the particular Water Site Product.

In the event that we take action against Columbia University with respect to the validity or enforceability of any Water Site Patents, excluding any defensive actions or claims, the royalties paid under the 2008 Columbia Agreement will increase by a specified amount.

26 unchanged sentences

As a result, we cannot guarantee that any products we develop will be protected or remain protectable by enforceable patents.

Moreover, any patents that we

hold or may hold may be challenged, circumvented or invalidated by third parties.

Moreover, any patents that we hold or may hold may be challenged, circumvented or invalidated by third parties.

See “Risk Factors—Risks Related to Our Intellectual Property” for a more comprehensive description of risks related to our intellectual property.

1 unchanged sentence

The patent portfolio for our software business includes at least 12 published patent families.

As of February 4, 2022, we owned or held exclusive license rights to approximately 55 patents and patent applications, including at least eight issued or allowed U.S.

As of February 6, 2023, we owned or held exclusive license rights to approximately 37 patents and patent applications, including at least 12 issued or allowed U.S.

cases, five pending U.S.

4 unchanged sentences

Any patents that are issued or that may issue from these families are expected to expire between 2026 and 2038, absent any adjustments or extensions.

As of February 4, 2022, there were two published patent families related to our internal drug discovery business, and several of our drug discovery collaborators have filed patent applications related to our collaborations that include employees of ours as inventors, including over 100 compound patents and patent applications since 2010.

As of February 6, 2023, there were seven published patent families related to our proprietary drug discovery business, and several of our drug discovery collaborators have filed patent applications related to our collaborations that include employees of ours as inventors, including over 100 compound patents and patent applications since 2010.

We do not own any intellectual property rights related to these inventions.

As of February 4, 2022, there are six pending wholly-owned provisional applications, six pending international patent applications, and two pending non-U.S.

patent applications related to our internal drug discovery business.

As of February 6, 2023, there are seven pending wholly-owned provisional applications, six pending international patent applications, three pending U.S.

non-provisional patent applications, and 27 pending non-U.S.

patent applications related to our proprietary drug discovery business.

Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the U.S.

31 unchanged sentences

Drug Discovery Business

We have not established a commercial organization or developed distribution capabilities given the current stage of development of our internal, wholly-owned drug discovery programs.

We have not established a commercial organization or developed distribution capabilities given the current stage of development of our wholly-owned drug discovery programs.

We plan to enter into agreements with biopharmaceutical companies that contribute to our ability to efficiently advance development candidates that we discover internally using our computational platform through to commercialization.

25 unchanged sentences

Preclinical tests include laboratory evaluations of product chemistry, formulation, and stability, as well as other studies to evaluate, among other things, the toxicity of the product candidate.

These studies are generally referred to as IND-enabling studies.

The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements, including GLP regulations and standards and the United States Department of Agriculture’s Animal Welfare Act, if applicable.

33 unchanged sentences

Expanded access, sometimes called “compassionate use,” is the use of investigational new products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options.

The rules and regulations related to expanded access are intended to improve access to investigational products for patients who may benefit from investigational therapies.

The rules and regulations related to expanded access are intended

to improve access to investigational products for patients who may benefit from investigational therapies.

FDA regulations allow access to investigational products under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for:

30 unchanged sentences

Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.

In December 2022, with the passage of Food and Drug Omnibus Reform Act, or FDORA, Congress required sponsors to develop and submit a diversity action plan for each phase 3 clinical trial or any other “pivotal study” of a new drug or biological product.

These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products.

Specifically, action plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them.

In addition to these requirements, the legislation directs the FDA to issue new guidance on diversity action plans.

In some cases, the FDA may approve an NDA for a product candidate but require the sponsor to conduct additional clinical trials to further assess the product candidate’s safety and effectiveness after approval.

9 unchanged sentences

The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

In August 2018, the FDA released a draft guidance entitled “Expansion Cohorts:

In March 2022, the FDA released a final guidance entitled “Expansion Cohorts:

Use in First-In-Human Clinical Trials to Expedite Development of Oncology Drugs and Biologics,” which outlines how sponsors can utilize an adaptive trial design in the early stages of oncology product development (i.e., the first-in-human clinical trial) to compress the traditional three phases of trials into one continuous trial called an expansion cohort trial.

5 unchanged sentences

The failure to submit clinical trial information to clinicaltrials.gov, as required, is a prohibited act under the FDCA with violations subject to potential civil monetary penalties of up to $10,000 for each day the violation continues.

Although the FDA has historically not enforced these reporting requirements due to HHS’s long delay in issuing final implementing regulations, those regulations have now been issued and the FDA has issued several Notices of Noncompliance to manufacturers since April 2021.

Concurrent with clinical trials, companies often complete additional animal studies.

3 unchanged sentences

Pediatric Studies

Under the Pediatric Research Equity Act, or PREA, applications and certain types of supplements to applications must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

product is safe and effective.

The sponsor must submit an initial Pediatric Study Plan within 60 days of an end-of-phase 2 meeting or as may be agreed between the sponsor and the FDA.

2 unchanged sentences

A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric trials begin.

The law now requires the FDA to send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation.

Pursuant to the Food and Drug Administration Safety and Innovation Act of 2012, or FDASIA, the FDA must send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation.

FDASIA further requires the FDA to publicly post the PREA Non-Compliance letter and sponsor’s response.

Expedited Review Programs

16 unchanged sentences

In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials.

With passage of FDORA in December 2022, Congress modified certain provisions governing accelerated approval of drug and biologic products.

Specifically, the new legislation authorized the FDA to:

require a sponsor to have its confirmatory clinical trial underway before accelerated approval is awarded, require a sponsor of a product granted accelerated approval to submit progress reports on its post-approval studies to FDA every six months (until the study is completed;

and use expedited procedures to withdraw accelerated approval of an NDA or BLA after the confirmatory trial fails to verify the product’s clinical benefit.

Further, FDORA requires the agency to publish on its website “the rationale for why a post-approval study is not appropriate or necessary” whenever it decides not to require such a study upon granting accelerated approval.

• Regenerative advanced therapy.

24 unchanged sentences

These pre-approval inspections may cover all facilities associated with an NDA submission, including component manufacturing, finished product manufacturing, and control testing laboratories.

The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

The PREVENT Pandemics Act, which was enacted in December 2022, clarifies that foreign drug manufacturing establishments are subject to registration and listing requirements even if a drug or biologic undergoes further manufacture, preparation, propagation, compounding, or processing at a separate establishment outside the United States prior to being imported or offered for import into the United States.

The FDA will not approve an application unless it determines that the

manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the data in the application.

With passage of FDORA, Congress clarified FDA’s authority to conduct inspections by expressly permitting inspection of facilities involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to FDA as well as other persons holding study records or involved in the study process.

In addition, as a condition of approval, the FDA may require a sponsor to develop a REMS.

2 unchanged sentences

The FDA may also refer an application for a novel product to an advisory committee or explain why such referral was not made.

Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that review,

evaluate and provide a recommendation as to whether the application should be approved and under what conditions.

Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that review, evaluate and provide a recommendation as to whether the application should be approved and under what conditions.

The FDA is not bound by the recommendations of an advisory committee, but the FDA considers such recommendations carefully when making decisions.

8 unchanged sentences

If a CRL is issued, the sponsor will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application withdrawn or, in its discretion, grant the sponsor an additional six-month extension to respond.

For those seeking to challenge FDA’s CRL decision, the FDA has indicated that sponsors may request a formal hearing on the CRL or they may file a request for reconsideration or a request for a formal dispute resolution.

If the FDA approves a new product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, or require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval.

11 unchanged sentences

In September 2021, the FDA published final regulations which describe the types of evidence that the agency will consider in determining the intended use of a drug product.

It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off-label information, such as distributing scientific or medical journal information.

Moreover, with passage of the Pre-Approval Information Exchange Act, or PIE Act, in December 2022, sponsors of products that have not been approved may proactively communicate to payors certain information about products in development to help expedite patient access upon product approval.

Previously, such communications were permitted under FDA guidance but the new legislation explicitly provides protection to sponsors who convey certain information about products in development to payors, including unapproved uses of approved products.

If a company is found to have promoted off-label uses, it may become subject to administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities.

4 unchanged sentences

The restoration period granted on a patent covering a product is typically one-half the time between the effective date of the IND and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date.

Patent term restoration cannot

be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date.

Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date.

Only one patent applicable to an approved product is eligible for the extension, and only those claims covering the approved product, a method for using it, or a method for manufacturing it, may be extended.

51 unchanged sentences

Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Pharmaceutical Prices

The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States.

There have been several recent U.S.

congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid.

In 2020, the prior administration issued several executive orders intended to lower the costs of prescription products and certain provisions in these orders have been incorporated into regulations.

These regulations include an interim final rule implementing a most favored nation model for prices that would tie Medicare Part B payments for certain physician-administered pharmaceuticals to the lowest price paid in other economically advanced countries, effective January 1, 2021.

That rule, however, has been subject to a nationwide preliminary injunction and, on December 29, 2021, CMS issued a final rule to rescind it.

With issuance of this rule, CMS stated that it will explore all options to incorporate value into payments for Medicare Part B pharmaceuticals and improve beneficiaries' access to evidence-based care.

In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription drugs from Canada into the United States.

The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico, and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing SIPs for review and approval by the FDA.

Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.

The final rule would eliminate the current safe harbor for Medicare drug rebates and create new safe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager, or PBM, service fees.

It originally was set to go into effect on January 1, 2022, but with passage of the Inflation Reduction Act has been delayed by Congress to January 1, 2032.

On July 9, 2021, President Biden signed Executive Order 14063, which focuses on, among other things, the price of pharmaceuticals.

The Order directs HHS to create a plan within 45 days to combat “excessive pricing of prescription pharmaceuticals and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal government for such pharmaceuticals, and to address the recurrent problem of price gouging.” On September 9, 2021, HHS released its plan to reduce pharmaceutical prices.

The key features of that plan are to:

(a) make pharmaceutical prices more affordable and equitable for all consumers and throughout the health care system by supporting pharmaceutical price negotiations with manufacturers;

(b) improve and promote competition throughout the prescription pharmaceutical industry by supporting market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase transparency;

and (c) foster scientific innovation to promote better healthcare and improve health by supporting public and private research and making sure that market incentives promote discovery of valuable and accessible new treatments.

More recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law by President Biden.

The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage.

Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap;

imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023);

and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025).

The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.

Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D.

CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond.

This provision applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition.

Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation.

The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation.

The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

A number of states, for example, require drug manufacturers and other entities in the drug supply chain, including health carriers, pharmacy benefit managers, wholesale distributors, to disclose information about pricing of pharmaceuticals.

In addition, regional healthcare organizations and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription pharmaceutical and other healthcare programs.

These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Review and Approval of Medicinal Products in the European Union

In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety, and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales, and distribution of products.

Whether or not it obtains FDA approval for a product, a

sponsor will need to obtain the necessary approvals by the comparable non-U.S.

Whether or not it obtains FDA approval for a product, a sponsor will need to obtain the necessary approvals by the comparable non-U.S.

regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions.

10 unchanged sentences

The submission will be made through the Clinical Trials Information System, a new clinical trials portal overseen by the EMA and available to clinical trial sponsors, competent authorities of the EU Member States and the public.

Beyond streamlining the process, the new Regulation includes a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors, and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts.

Part I is assessed by the competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (Member States concerned).

Part II is assessed separately by each Member State concerned.

Strict deadlines have been established for the assessment of clinical trial applications.

The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU Member State.

However, overall related timelines will be defined by the Clinical Trials Regulation.

The new regulation did not change the preexisting requirement that a sponsor must obtain prior approval from the competent national authority of the EU Member State in which the clinical trial is to be conducted.

8 unchanged sentences

Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted.

Importantly, a dedicated agency contact and rapporteur from the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level.

A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.

5 unchanged sentences

the European Union as well as Iceland, Liechtenstein and Norway).

Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy medicinal products, and products

with a new active substance indicated for the treatment of certain diseases.

For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.

39 unchanged sentences

In the European Union, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC.

Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance the centralized authorization procedure.

Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance with the centralized authorization procedure.

Data exclusivity prevents sponsors for authorization of generics of these innovative products from referencing the innovator’s data to assess a generic (abridged) application for a period of eight years.

During an additional two-year period of market exclusivity, a generic marketing authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the European Union market until the expiration of the market exclusivity.

During an additional two-year period of market exclusivity, a generic marketing

authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the European Union market until the expiration of the market exclusivity.

The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

11 unchanged sentences

The Agreement focuses primarily on free trade by ensuring no tariffs or quotas on trade in goods, including healthcare products such as medicinal products.

Thereafter, the E uropean Union and the U nited Kingdom will form two separate markets governed by two distinct regulatory and legal regimes.

As such, the Agreement seeks to minimize barriers to trade in goods while accepting that border checks will become inevitable as a consequence that the U nited Kingdom is no longer part of the single market.

Thereafter, the European Union and the United Kingdom will form two separate markets governed by two distinct regulatory and legal regimes.

As such, the Agreement seeks to minimize barriers to trade in goods while accepting that border checks will become inevitable as a consequence that the United Kingdom is no longer part of the single market.

As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law whereas Northern Ireland continues to be subject to EU rules under the Northern Ireland Protocol.

The MHRA will rely on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines.

The HMR has incorporated into the domestic law the body of EU law instruments governing medicinal products that pre-existed prior to the U nited Kingdom’s withdrawal from the E uropean Union .

The HMR has incorporated into the domestic law the body of EU law instruments governing medicinal products that pre-existed prior to the United Kingdom’s withdrawal from the European Union.

The MHRA may rely on a decision taken by the European Commission on the approval of a new marketing authorization via the centralized procedure until December 31, 2023.

Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the European Union’s GDPR is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under GDPR.

6 unchanged sentences

Some countries provide that products may be marketed only after a reimbursement price has been agreed.

Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval.

Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available

therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval.

For example, EU Member States have the option to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use.

16 unchanged sentences

In July 2020, the Court of Justice of the European Union, or the CJEU, invalidated the EU-U.S.

Privacy Shield framework, one of the mechanisms used

to legitimize the transfer of personal data from the EEA to the United States.

Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States.

The CJEU decision also drew into question the long-term viability of an alternative means of data transfer, the standard contractual clauses, for transfers of personal data from the EEA to the United States.

3 unchanged sentences

and includes parallel obligations to those set forth by GDPR.

Additionally, in October 2022, President Biden signed an executive order to implement the EU-U.S.

Data Privacy Framework, which would serve as a replacement to the EU-US Privacy Shield.

The EC initiated the process to adopt an adequacy decision for the EU-US Data Privacy Framework in December 2022.

It is unclear if and when the framework will be finalized and whether it will be challenged in court.

The uncertainty around this issue may further impact our business operations in the EU.

Human Capital

1 unchanged sentence

Of these full-time employees, 573 of these employees are located in the United States and 214 of these employees are located in our offices outside of the United States.

Additionally, as of February 14, 2022, 32% of our full-time employees self-identified as female or non-binary, or chose not to disclose their gender and 38% of our executive team self-identified as female, and 37% of our new hires since January 1, 2021 self-identify as female or non-binary, or have chosen not to disclose their gender.

Additionally, as of February 6, 2023, 33.3% of our full-time employees self-identified as female, 0.4% self-identified as non-binary, and 0.6% chose not to disclose their gender, and 33% of our executive team self-identified as female.

Further, 34% of our new hires since January 1, 2022 self-identify as female, 1% self-identify as non-binary, and 1% have chosen not to disclose their gender.

As of February 6, 2023, 59% of our full-time employees in the United States self-identified as White, 24% self-identified as Asian, 4% self-identified as having two or

more races, 3% self-identified as Black or African American, 2% self-identified as Hispanic or Latino, and 8% chose not to disclose their race or ethnicity.

Our employees are our greatest asset and we strive to create a work environment that is inclusive, challenging and rewarding.

We are committed to embedding a long-term, formal Environmental, Social and Governance, or ESG, strategy within our business, and we recently created a new leadership role dedicated to Corporate Sustainability and ESG.

We expect to complete a formal sustainability materiality assessment in the first half of 2022, serving as the foundation of our comprehensive, long-term, Corporate Sustainability strategy.

Further, our vision for Diversity, Equity and Inclusion, or DEI, is focused on developing a culture of transparency and accountability, active inclusion, and a growth mindset.

We have focused our recruiting efforts on diversifying our candidate pipeline by participating in conferences and engaging with student networks that promote racial and gender diversity in the science and technology industries.

Further, we utilize a structured interviewing model when assessing candidates to provide for consistency and equity in the hiring process across candidates and to help reduce unconscious bias.

Given our DEI aspirations, in 2021 we created our first DEI Council, a cross functional learning and listening body that allows our executive leadership team, employee volunteers, and Employee Resource Group, or ERG, leaders to listen to feedback from all levels of the company.

ERG membership directly engages one third of our employees, however, these forums provide an environment for community support, professional development, and educational opportunities for our entire employee population.

Through our ERG leadership program, ERG leaders are paired with an executive sponsor to guide them throughout their tenure, they have the opportunity to hone skills such as negotiation, influence, and public speaking.

Our commitment to offering employee programs also extends to our investments in learning and development, or L&D, and in 2022, we launched a global L&D initiative with the Neuroleadership Institute designed to build active listening and bias mitigation skills.

We consider the intellectual capital of our employees to be an essential driver of our business and key to our future prospects.

Though the biotechnology industry is historically competitive for talent, we have maintained high employee retention rates.

We are committed to embedding a long-term, formal Environmental, Social and Governance, or ESG, strategy within our business, a commitment we refer to as Corporate Sustainability.

In 2022, we completed a "double materiality assessment," where we worked to determine the ESG-related topics most important to both our company and our stakeholders.

The assessment was informed by both internal and external stakeholders and by key ESG standards and frameworks such as the Global Reporting Initiative, Sustainability Accounting Standards Board and United Nations Sustainable Development Goals.

This assessment will serve as the foundation for our comprehensive, data-driven, Corporate Sustainability strategy.

Among the ESG-related topics identified as most important to our company and stakeholders was Diversity, Equity and Inclusion, or DEI, an area we have been dedicated to addressing for many years.

Our DEI philosophy is focused on ensuring that our employees feel safe, heard, comfortable, and valued.

We continue to focus many of our recruiting efforts on diversifying our candidate pipeline by participating in specific conferences and hosting our own events that promote racial and gender diversity in the science and technology industries, including, for example, a hackathon for female and non-binary engineers and events for female and non-binary Ph.D.

Further, we utilize a standardized interviewing model to reduce unconscious bias and to create a consistent hiring process across our open positions.

Our DEI Council was founded in 2021 and is comprised of a select group of senior leaders, Employee Resource Group, or ERG, representatives and passionate employees who meet on a monthly basis to advise on our DEI strategy, priorities, and goals.

Our DEI Council also provides a permanent forum for voices to be heard across all levels of the organization.

We currently have six ERGs that provide support and sharing of resources while representing and communicating the interest of that group to the company.

While our ERG membership directly engages approximately one third of our employees, these forums also provide an environment for community support, professional development, and educational opportunities for our entire employee population.

Through our ERG leadership program, ERG leaders are provided with the opportunity to hone leadership skills such as negotiation and public speaking.

Additionally, in an effort to advance our DEI aspirations, we have partnered with the Neuroleadership Institute on a learning program to better equip our employees with critical tools and language to talk about inclusion, bias, and leveraging a growth mindset in the workplace.

In an industry known for its fierce competition for talent, we have been able to maintain high retention and low turnover rates.

For the year ended December 31, 2022, our employee retention rate was 92.9%.

Given our financial resources, our industry-leading position in the field of physics-based computational drug discovery and materials science research and our developing internal drug discovery programs, we believe that we will continue to be able to fill positions and grow our headcount in support of our software, drug discovery and materials science businesses.

Given our financial resources, our industry-leading position in the field of physics-based computational drug discovery and materials science research and our developing proprietary drug discovery programs, we believe that we will continue to be able to fill positions and grow our headcount in support of our software, drug discovery and materials science businesses.

We are committed to providing our employees with compensation that meets the expectations of the market and industry norms.

We monitor our compensation programs closely using comprehensive industry surveys and data to guide us, and we provide what we consider to be a competitive mix of incentives, including competitive salaries and bonuses, a 401(k) retirement plan with an employer matching contribution, participation in our equity programs, and health and welfare benefits, including, for example, access to a variety of mental health, family care, and reproductive health benefits for our employees based in the United States.

We routinely review our compensation practices and analyze the equity of our compensation decisions for all employees.

1 unchanged sentence

We consider our relations with our employees to be good.

We believe our company culture is one that aims to support each individual fully, not just their contribution as an employee.

The COVID-19 pandemic has resulted in the creation of a more fluid and flexible work environment to allow individuals to meet their needs and those of their family members while contributing to our success.

In the current virtual world, we have moved from regular onsite wellness activities to those that can be enjoyed virtually, including meditation, yoga and other fitness classes, as well as art classes for employees and their families.

Our company culture also encourages engagement, both among our employees and within the communities we live and work.

In the advancement of these efforts, internally, we have established a new mentorship program, updated our management training programs to include mental health and wellness trainings, and refreshed our annual review process to encourage more real-time feedback between employees and managers to set and achieve personal performance goals.

In engaging with our external community, we host a student internship program, including in partnership with a non-profit educational group that supports underserved local high school students who have demonstrated the knowledge, character, and skills to achieve their aspirations.

In addition, our ERGs sponsor a summer camp for a local non-profit organization dedicated to providing underserved students with hands-on science and

engineering educational and mentorship experiences.

To further our community engagement efforts, each of our U.S.-based employees is provided with a paid full day each year to volunteer in their local community.

The health and safety of our onsite employees has been an even greater focus for us since the onset of the COVID-19 pandemic.

In early March 2020, we issued a global work from home policy to ensure the health of our employees and local communities while continuing to advance our business objectives.

Beginning in June 2020, we began limited re-openings of certain of our offices in the United States and abroad.

Our office re-openings are being conducted on a limited basis and are voluntary for all of our employees.

We believe we are well-equipped to work remotely, engage with our customers and continue to advance our business

We recognize the value of in-person collaboration and relationship building while also being mindful of the needs and priorities our employees have outside of the workplace.

Our flexible hybrid work schedule currently gives employees the option of coming into the office two days per week and working remotely the other three.

Prior to the COVID-19 pandemic, employees had the option of coming into the office three days a week and working remotely the other two.

We believe that our flexible hybrid schedule allows us to engage with each other and our customers effectively and to continue to advance our business.

Our company culture encourages engagement, both among our employees and within the communities we live and work.

In the advancement of these efforts, internally, we have a well-regarded mentor program, we have expanded our

resonance program to match colleagues to connect over virtual coffee chats globally, updated our management training programs to include mental health and wellness resources, and refreshed our annual review process to encourage more real-time feedback between employees and managers to set and achieve personal performance goals.

Some examples of external engagement in our local communities include hosting a student internship program in partnership with a non-profit educational group that supports underserved local high school students who have demonstrated the knowledge, character, and skills to achieve their aspirations.

To further our community engagement efforts, each of our employees is provided with a paid full day each year to volunteer in their local community, in addition to our matching gifts program.

Our Corporate Information

9 unchanged sentences

We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons.

The information contained on, or that can be access through, our website is not a part of or incorporated by reference in this Annual Report.

We may also disclose information to the public concerning our software, drug discovery programs, computational platform and other items through a variety of disclosure channels in order to achieve broad, non-exclusionary distribution of information to the public.

Some of the information distributed through these disclosure channels may be considered material information.

Investors and others are encouraged to review the information we make public in the locations below.

This list may be updated from time to time.

• For information concerning our software, drug discovery programs, computational platform, please visit:

https://www.schrodinger.com.

• For information provided to the investment community, including news releases, events and presentations, and filings with the SEC, please visit https://ir.schrodinger.com.

• For additional information, please follow us on LinkedIn and Instagram, or visit our blog, Extrapolations.com.

These websites and social media channels, and the contents thereof, are not incorporated by reference into this Annual Report on Form 10-K nor deemed filed with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business