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Item 1. Business

2025-02-26 compared with 2024-02-28 · 511 added, 323 removed, 1149 unchanged (42% of the section changed)

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Furthermore, we believe that development candidates with more optimized property profiles will have a higher probability of success in clinical development.

Additionally, since the physics underlying the properties of drug molecules and materials is the same, we have been able to extend our computational platform to materials science applications in fields such as aerospace, energy, semiconductors, and electronic displays.

We offer our customers a variety of software solutions that accelerate all stages of molecule discovery, design, and optimization.

In 2023, all of the top 20 pharmaceutical companies, measured by 2022 revenue, licensed our solutions, accounting for $71.8 million, or 45%, of our software revenue in 2023.

In 2024, 19 of the top 20 pharmaceutical companies, measured by 2023 revenue, licensed our solutions, accounting for $74.7 million, or 41%, of our software revenue in 2024.

We had 235, 222, and 227 customers with an annual contract value, or ACV, of at least $100,000, which represented 87%, 83%, and 82% of our total ACV, for the years ended December 31, 2024, 2023, and 2022, respectively.

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Biopharmaceutical companies are increasingly adopting our software at a larger scale, and we anticipate this scaling-up will drive future revenue growth.

Our ability to expand within our customer base is demonstrated by the increasing number of our customers with an ACV at higher thresholds, including customers with an ACV of at least $500,000 or $1.0 million.

Our ability to expand within our customer base is demonstrated by the increasing number of our customers with an ACV at higher thresholds.

For the year ended December 31, 2024, we had 61 customers with an ACV of at least $500,000 compared to 54 for the year ended December 31, 2023.

Furthermore, the number of customers with an ACV of at least $1.0 million increased to 31 for the year ended December 31, 2024, compared to 27 and 18 for the years ended December 31, 2023 and 2022, respectively.

We also had four customers with an ACV of at least $5.0 million for the year ended December 31, 2023, compared to four and two such customers for the years ended December 31, 2022 and 2021, respectively.

In addition, our customer retention rate for our customers with an ACV of at least $100,000 for the year ended December 31, 2023 was 92% and was 96% or higher for each of the previous nine fiscal years.

We also had eight customers with an ACV of at least $5.0 million for the year ended December 31, 2024, compared to four customers for each of the years ended December 31, 2023 and 2022.

In addition, our customer retention rate for our customers with an ACV of at least $100,000 for the year ended December 31, 2024 was 95% and was 92% or higher for each of the previous 10 fiscal years.

Our customer retention rate for our customers with an ACV of at least $500,000 was 100% for the year ended December 31, 2024 and 98% for the year ended December 31, 2023.

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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 180 experts in protein science, biochemistry, biophysics, medicinal and computational chemistry, and discovery scientists with expertise in preclinical and

early clinical development.

We have entered into drug discovery collaborations with biopharmaceutical companies under which our collaborators are pursuing research in a number of therapeutic areas, including programs in oncology, antifungal diseases, fibrosis, inflammatory bowel disease, metabolic disease, autoimmune disease, immuno-oncology, cardiopulmonary disease and tuberculosis.

We have entered into drug discovery collaborations with biopharmaceutical companies under

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which our collaborators are pursuing research in a number of therapeutic areas, including programs in oncology, antifungal diseases, fibrosis, inflammatory bowel disease, metabolic disease, autoimmune disease, immuno-oncology, cardiopulmonary disease and tuberculosis.

When we engage in drug discovery with these collaborators, we typically provide access to our platform and platform experts who assist the drug discovery collaborator in identifying molecules that have activity against one or more specified protein targets.

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

Our collaboration agreements typically include upfront consideration, discovery, development, commercial and regulatory milestones, and royalties from future sales of commercialized products.

We generate drug discovery revenue through the performance of specified research and development activities under our collaboration agreements and upon the achievement of discovery and development milestones, and we have the potential to generate drug discovery revenue from commercial and regulatory milestones, option fees, and royalties under our collaboration agreements.

We also rely on collaborators for the development and potential commercialization of product candidates we discover internally when we believe it will help maximize clinical and commercial opportunities for the product candidate.

For example, in November 2020, we entered into an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas.

After mutual agreement on the targets(s) of interest, the Schrödinger therapeutics group is responsible for the discovery of development candidates.

Once a development candidate meeting specified criteria for a target has been identified, BMS will be solely responsible for the development, manufacturing and commercialization of such development candidate.

We are eligible to receive up to $1.5 billion in total milestone payments across the potential targets currently subject to the collaboration, of which we have received $25.0 million as of December 31, 2023, 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.

For example, in November 2024, we entered into a research collaboration and license agreement with Novartis Pharma AG, or Novartis, pursuant to which we and Novartis agreed to collaborate on the discovery, research and preclinical development of small molecule compounds for targets in certain specified therapeutic areas.

The agreement is intended to advance multiple development candidates for development and commercialization by Novartis.

We are eligible to receive up to $2.272 billion in total milestones across the initial programs, of which no milestone revenue has been recognized as revenue as of December 31, 2024, as well as a tiered percentage royalty on net sales of each product commercialized by Novartis ranging from mid-single-digits to low double-digits, subject to certain specified reductions.

See “—Collaboration Agreement with Novartis Pharma AG” for additional information relating to this agreement.

We also entered into a three-year software agreement with Novartis that substantially increased Novartis' access to our computational predictive modeling technology and enterprise informatics platform.

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

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Food and Drug Administration, or FDA, cleared our first investigational new drug application, or IND, for our MALT1 inhibitor, which we refer to as SGR-1505.

We have initiated dosing in a Phase 1 clinical trial of SGR-1505 in patients with relapsed or refractory B-cell lymphomas and we anticipate reporting initial data from the trial in late 2024 or 2025.

We have initiated dosing in a Phase 1 clinical trial of SGR-1505, which is designed as an open-label, multi-center dose escalation trial in patients with relapsed or refractory B-cell malignancies.

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.

We anticipate reporting initial data from the trial in the second quarter of 2025.

We also completed a Phase 1 clinical trial of SGR-1505 in 73 healthy volunteers to gather additional data, including data relating to the safety, tolerability, and pharmacokinetics of SGR-1505, as well as the effect of food and drug-drug interactions.

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Inhibition of IL-2 secretion is a marker for target engagement and pathway modulation as it is tightly linked to MALT1 and the downstream NF-κB signaling.

The data supported continued evaluation of SGR-1505 in the ongoing Phase 1 clinical trial in patients with relapsed or refractory B-cell lymphomas.

In addition, the FDA recently granted orphan drug designation to SGR-1505 for the potential treatment of mantle cell lymphoma.

The data supported continued evaluation of SGR-1505 in the ongoing Phase 1 clinical trial in patients with relapsed or refractory B-cell malignancies.

In addition, in August 2023, the FDA granted orphan drug designation to SGR-1505 for the potential treatment of mantle cell lymphoma.

In July 2023, the FDA cleared our IND for our CDC7 inhibitor, which we refer to as SGR-2921.

We have initiated dosing in a Phase 1 clinical trial of SGR-2921 in patients with relapsed or refractory acute myeloid leukemia or high-risk myelodysplastic syndrome, and we anticipate reporting initial data from the trial in late 2024 or 2025.

We are also advancing SGR-3515, our novel WEE1/MYT1 inhibitor for the treatment of solid tumors.

We expect to submit an IND to the FDA for SGR-3515 in the first half of 2024, subject to favorable data from ongoing IND-enabling studies, and we plan to initiate a Phase 1 clinical trial of SGR-3515 by the end of 2024, subject to receipt of regulatory clearance.

We generated total revenue of $216.7 million, $181.0 million, and $137.9 million in 2023, 2022, and 2021, respectively, representing year-over-year growth of 20% and 31%, respectively.

Our net income for the year ended December 31, 2023 was $40.7 million and our net losses for the years ended December 31, 2022 and 2021 were $149.2 million and $101.2 million, respectively.

In July 2024, the FDA granted Fast Track designation to SGR-2921 in patients with relapsed or refractory acute myeloid leukemia, or AML.

In addition, in January 2025, the FDA granted orphan drug designation to SGR-2921 in patients with relapsed or refractory AML.

We have initiated dosing in a Phase 1 clinical trial of SGR-2921, which is designed as an open-label, multi-center dose-escalation clinical trial in patients with relapsed or refractory AML or high-risk myelodysplastic syndrome.

The trial is designed to evaluate the safety and tolerability of SGR-2921 as a monotherapy and to identify the recommended Phase 2 dose, including the maximum tolerated dose.

Secondary and exploratory objectives of the trial include evaluating the pharmacokinetics and pharmacodynamics of SGR-2921 and investigating preliminary anti-tumor activity.

We anticipate reporting initial data from the trial in the second half of 2025.

In March 2024, we also submitted an IND to the FDA for our novel Wee1/Myt1 inhibitor, which we refer to as SGR-3515, and the FDA cleared the IND in April 2024.

We recently initiated dosing in a Phase 1 clinical trial of SGR-3515 in patients with advanced solid tumors.

The trial is a dose-escalation trial designed to evaluate the safety, tolerability, and recommended Phase 2 dose of SGR-3515.

Secondary and exploratory objectives of the trial include

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evaluating the pharmacokinetics and preliminary anti-tumor activity of SGR-3515.

We anticipate reporting initial data from the trial in the second half of 2025.

For the year ended December 31, 2024, we generated total revenue of $207.5 million and had a net loss of $187.1 million.

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

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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.

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.

For example, in 2024, we launched an initiative to expand our computational platform to predict toxicology risk early in drug discovery, which is being funded by $19.5 million in grants from the Bill & Melinda Gates Foundation.

The goal of this initiative is to develop a computational solution designed to improve the properties of novel drug development candidates and reduce the risk of development failure associated with binding to off-target proteins, which can be associated with serious side effects.

• Growing and expanding our software business:

We have experienced steady growth in our software revenues, achieving $159.1 million in revenue in 2023, an increase of 17% compared to 2022, primarily driven by broad adoption of our software solutions by the biopharmaceutical industry and the expansion of our materials science business.

We have experienced steady growth in our software revenues, achieving $180.4 million in revenue in 2024, an increase of 13% compared to 2023, primarily driven by broad adoption of our software solutions by the biopharmaceutical industry.

Biopharmaceutical companies are increasingly adopting our software at a larger scale, and we anticipate that this scaling-up will drive future revenue growth.

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We intend to continue to work with our collaborators on advancing our collaborative programs through discovery research stages.

Our collaborative programs 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 $57.5 million in 2023, an increase of 27% compared to 2022, largely driven by the achievement of milestones from our collaborative programs.

Our collaboration agreements typically include upfront consideration, discovery, development, commercial and regulatory milestones, and royalties from future sales of commercialized products.

We achieved drug discovery revenue of $27.2 million in 2024.

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

For example, during the fiscal year ended December 31, 2023, we received a total of $147.2 million in cash distributions on account of our equity stake in Nimbus Therapeutics, LLC, or Nimbus, following 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 included the TYK2 inhibitor, NDI-034858.

For example, in 2024, we received $47.6 million for the equity stake that we owned in Morphic Holding, Inc., or Morphic, one of our drug discovery collaborators and co-founded companies, in connection with Morphic's acquisition by Eli Lilly and Company, or Lilly, for approximately $3.2 billion.

▪ Progressing our proprietary drug discovery programs :

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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.

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Industry Overview

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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 profile, synthesizability, and toxicity.

The optimal profile has an 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.

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As a result, larger pools of molecules could be analyzed allowing for more selective synthesis of molecules, leading to higher-quality molecules.

In addition, with predictive computational methods, better selections of molecules would be synthesized

through exploration of larger portions of chemical space, leading to higher-quality molecules that would in turn have a higher probability of progressing through clinical development and obtaining regulatory approval for commercial sale.

In addition, with predictive computational methods, better selections of molecules would be synthesized through exploration of larger portions of chemical space, leading to higher-quality molecules that would in turn have a higher probability of progressing through clinical development and obtaining regulatory approval for commercial sale.

There have been many attempts to improve the efficiency of the drug discovery process by using computational methods to predict properties of molecules.

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• reducing the average time and cost required to identify a development candidate;

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

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Our platform is able to evaluate molecules in hours rather than the weeks it typically takes to screen, synthesize and test molecules in the laboratory.

Our platform can explicitly evaluate billions of molecules per day, whereas traditional drug discovery projects only synthesize and evaluate approximately one thousand molecules per year, thereby increasing the probability that we find a novel molecule with the desired property profile.

Our platform can explicitly evaluate billions of molecules per day, whereas traditional drug discovery methods only synthesize and evaluate approximately one thousand molecules per year, thereby increasing the probability that we find a novel molecule with the desired property profile.

In a peer-reviewed study, our platform was tested against traditional methods for selecting tight-binding molecules and resulted in an eight-fold increase in the number of molecules with the desired affinity.

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the ability to computationally ideate and explore novel, high-quality drug-like molecules for consideration by discovery project teams utilizing computational enumeration and generative machine learning techniques that are trained and constructed to yield molecules that are synthetically feasible;

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• Large-Scale Molecule Evaluation :

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Similarly, the physics underlying the properties of materials is no different than the physics underlying the properties of drug molecules.

Therefore, we have applied our computational platform to materials science applications, including in the fields of aerospace, energy, semiconductors, and electronic displays.

Therefore, we have applied our computational platform to materials science applications, including in the fields of aerospace, energy, semiconductors, electronic displays, and chemicals.

Software Business

We are the leading provider of computational software solutions for drug discovery to the biopharmaceutical industry.

In 2023, all of the top 20 pharmaceutical companies, measured by 2022 revenue, licensed our solutions, accounting for $71.8 million, or 45%, of our software revenue in 2023.

In 2024, 19 of the top 20 pharmaceutical companies, measured by 2023 revenue, licensed our solutions, accounting for $74.7 million, or 41%, of our software revenue in 2024.

Additionally, in 2024, our software was used by researchers around the world at more than 1,818 academic institutions.

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As of December 31, 2024, we had 1,752 active customers, which we define as the number of customers who had an ACV of at least $1,000 in a given fiscal year.

Included in the number of customers are entities we derive software contribution revenue from, which for the year ended December 31, 2024, consisted of Gates Ventures, LLC and the Bill & Melinda Gates Foundation.

We had 235, 222, and 227 customers with an ACV of at least $100,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

We believe there is a significant opportunity to expand the adoption of our platform within our customer base.

For example, in November 2023, we entered into an expanded, three-year, software agreement with Eli Lilly and Company, or Lilly.

The three-year agreement builds on the collaboration established in 2022, which is more fully described in "— Collaboration Agreements ." The agreement provides Lilly with large-scale access to our full suite of technologies to enable and accelerate all stages of drug discovery, from target enablement and assessment of target druggability to hit discovery and lead optimization activities through development candidate identification.

We provide advanced support to ensure full integration and optimization of the platform across Lilly’s research sites.

For example, in November 2024, we entered into an expanded, three-year, software agreement with Novartis, which is more fully described in "— Collaboration Agreements ." The three-year agreement substantially increases Novartis' access to our computational predictive modeling technology and enterprise informatics platform to industry-leading scale.

Biopharmaceutical companies are increasingly adopting our software at a larger scale, and we anticipate that this scaling-up will drive future revenue growth.

Our ability to expand within our customer base is demonstrated by the increasing number of our customers with an ACV at higher thresholds.

For the year ended December 31, 2024, we had 61 customers with an ACV of at least $500,000 compared to 54 for the year ended December 31, 2023.

In addition, we had 27, 18, and 15 customers for the years ended December 31, 2023, 2022, and 2021, respectively, with an ACV of at least $1.0 million.

Furthermore, we also had four customers with an ACV of at least $5.0 million for the year ended December 31, 2023, compared to four and two such customers for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2023, our top

10 customers, measured by ACV, accounted for $51.0 million of our total ACV compared to $46.5 million for the year ended December 31, 2022.

In addition, we had 31, 27, and 18 customers for the years ended December 31, 2024, 2023, and 2022, respectively, with an ACV of at least

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$1.0 million.

Furthermore, we also had eight customers with an ACV of at least $5.0 million for the year ended December 31, 2024, compared to four customers for each of the years ended December 31, 2023 and 2022.

For the year ended December 31, 2024, our top 10 customers, measured by ACV, accounted for $73.1 million of our total ACV compared to $51.0 million for the year ended December 31, 2023.

Our ACV was $190.8 million and $154.2 million for the years ended December 31, 2024 and 2023, respectively.

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

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

For the year ended December 31, 2023, our year-over-year customer retention rate for our customers with an ACV of at least $100,000 was 92% and was 96% or higher for each of the previous nine fiscal years.

Our customer retention rate for our customers with an ACV of at least $500,000 was 98% for the year ended December 31, 2023 and 100% for the year ended December 31, 2022.

For the year ended December 31, 2024, our year-over-year customer retention rate for our customers with an ACV of at least $100,000 was 95% and was 92% or higher for each of the previous 10 fiscal years.

Our customer retention rate for our customers with an ACV of at least $500,000 was 100%, 98%, 100% for the years ended December 31, 2024, 2023, and 2022, respectively.

We believe our high retention rate for our customer base coupled with our ability to expand our customers’ use of our software will continue to drive revenue growth.

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We offer our customers a variety of software solutions that accelerate all stages of molecule discovery, design, and optimization pursuant to agreements with terms typically for one year.

Our licenses give our customers the ability to execute a certain number of calculations across specified software solutions.

Our licenses give our customers the ability to

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execute a certain number of calculations across specified software solutions.

Certain of our key software solutions are highlighted below, along with the particular stage of drug discovery in which they are employed.

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◦ WaterMap characterizes the locations and energetics of water molecules occupying the binding site of, or solvating, a target protein.

From this analysis, one can infer the druggability of a protein,

as well as uncover opportunities to significantly increase binding affinity by exploiting the water structure in the binding site.

From this analysis, one can infer the druggability of a protein, as well as uncover opportunities to significantly increase binding affinity by exploiting the water structure in the binding site.

◦ SiteMap allows binding site identification and evaluation to help locate potential protein binding sites, including allosteric sites, and predict the approximate druggability of those sites.

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◦ Glide is our virtual screening program that is used to screen libraries of molecules to find hit molecules likely to bind a particular protein target in a specific conformation.

◦ WScore is our next-generation virtual screening program that utilizes a more accurate and robust description of protein-ligand interaction solvation effects.

This and other novel features enable WScore to more reliably find hit molecules for challenging protein targets when screening libraries of molecules.

◦ GlideWS is our next-generation virtual screening program that utilizes a more accurate and robust description of protein-ligand interaction solvation effects.

This and other novel features enable GlideWS to more reliably find hit molecules for challenging protein targets when screening libraries of molecules.

◦ Shape uses the three-dimensional structure and shape of earlier known hit molecules to find new hits when screening libraries of molecules.

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• Software Solutions Used Throughout the Drug Discovery Process:

◦ LiveDesign is our user-friendly enterprise informatics solution that enables interactive and collaborative molecule design, aggregation and sharing of data, and end-to-end discovery project coordination between chemists, modelers, and biologists.

◦ LiveDesign is our user-friendly enterprise informatics solution that enables interactive and collaborative molecule design, aggregation and sharing of data, and end-to-end discovery project

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coordination between chemists, modelers, and biologists.

LiveDesign Biologics is our informatics solution for drug discovery teams designing biologics, which builds upon our LiveDesign offering.

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

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We also sell software licenses to customers engaged in molecule design for industrial purposes.

The software solutions for our materials science customers leverage much of the same technology as our software for biopharmaceutical

The software solutions for our materials science customers leverage much of the same technology as our software for biopharmaceutical companies.

In addition, similar to traditional drug discovery efforts, traditional approaches to discovering new molecules in these fields also suffer from long timelines, and it can take as long as 10 to 20 years to bring new materials to the market.

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In August 2023, we extended the agreement with Gates Ventures for an additional three-year term at an increased scale.

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.

We also collaborate with a number of materials science companies to help accelerate the discovery and development of new materials.

For example, in 2022, we entered into a 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.

In 2023, we also entered into a research collaboration with Copernic Catalysts, Inc.

to help accelerate the discovery and development of sustainable catalysts for applications in e-fuels and bulk chemicals.

Drug Discovery Business

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

Our collaborative 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.

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Our collaboration agreements typically include upfront consideration, discovery, development, commercial and regulatory milestones, and royalties from future sales of commercialized products.

As of December 31, 2024, we had 18 active collaborative drug discovery programs.

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We track the aggregate number of collaborators which we have collaborated with, or partnered with, for drug discovery and development since 2018, and as of December 31, 2024, we have had 19 collaborators.

The number of

collaborators is a cumulative number and we only include those collaborations from which we have derived revenue since the fiscal year ended December 31, 2018.

The number of collaborators is a cumulative number and we only include those collaborations from which we have derived revenue since the fiscal year ended December 31, 2018.

While our drug discovery revenue-generating collaborations are an important component of our business, our strategy is also to invest in our proprietary drug discovery programs including SGR-1505, SGR-2921 and SGR-3515, which we describe in more detail below under "—Our Proprietary Drug Discovery Business." We evaluate our proprietary drug discovery programs individually to determine the advisability of entering into preclinical and clinical development ourselves to co-develop them with leading industry partners, entering into collaborations, or out-licensing programs to optimize their development and clinical and commercial potential.

We intend to pursue additional proprietary drug discovery programs as existing programs advance through discovery and into development stages, internally or with partners, 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.

We intend to pursue additional proprietary drug discovery programs as our existing programs advance through discovery and development stages, internally or with partners, and we will continue to evaluate 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.

Our Drug Discovery Collaborations

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

Over the last decade, leveraging our platform and expertise, we have steadily developed a portfolio of drug discovery collaborative programs.

We have entered into a number of collaborations with leading 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.

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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.

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Collaboration Agreements

Our current collaborators include, but are not limited to, Ajax Therapeutics, Inc., BMS, Bright Angel Therapeutics Inc., Eli Lilly and Company, or Lilly, Morphic Holding, Inc., or Morphic, Otsuka Pharmaceutical Co., Ltd., or Otsuka, Sanofi S.A., Structure Therapeutics Inc.

(formerly ShouTi, Inc.), and Takeda.

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

With the exception of our collaboration agreements with Takeda, BMS, Otsuka, and Lilly, which are described below, our collaborative agreements typically have the following characteristics:

Our current collaborators include, but are not limited to, Ajax Therapeutics, Inc., BMS, Bright Angel Therapeutics Inc., Eli Lilly and Company, or Lilly, Novartis, Otsuka Pharmaceutical Co., Ltd., or Otsuka, Sanofi S.A., and Structure Therapeutics Inc.

(formerly ShouTi, Inc.).

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

With the exception of our collaboration agreements with BMS, Otsuka, Novartis, and Lilly, which are described below, our collaborative agreements typically have the following characteristics:

Control/Ownership.

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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.

Unless otherwise noted, the following table presents our equity stakes on an issued and outstanding basis as of December 31, 2023:

Unless otherwise noted, the following table presents our equity stakes in collaborators on an issued and outstanding basis as of December 31, 2024:

Company Ownership %

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Bright Angel Therapeutics Inc.

Faxian Therapeutics, LLC (JV) (2)

Lakshmi, LLC (2)

Morphic Holding, Inc.

Nimbus Therapeutics, LLC (3)

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, on a fully diluted basis.

(2) Represents a 50/50 joint venture.

(3) Represents our equity in the entity, which entity holds the rights to any future payments received in connection with Takeda's acquisition of Nimbus' TYK-2 inhibitor program, on a fully diluted basis.

(4) Based on the number of shares of common stock outstanding as of February 20, 2024, as reported on Morphic’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 22, 2024.

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

(2) Represents our equity in the entity, which holds the rights to any future payments received in connection with Takeda's acquisition of Nimbus' TYK-2 inhibitor program, on a fully diluted basis.

(3) On a fully diluted basis

(6) Based on the number of ordinary shares outstanding as of October 31, 2023, as reported on Structure Therapeutics Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the SEC on November 17, 2023.

(4) Based on the number of ordinary shares outstanding as of October 31, 2024, as reported on Structure Therapeutics Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, as filed with the Securities and Exchange Commission, or SEC, on November 13, 2024.

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 of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its 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.

On February 13, 2023, April 6, 2023, and November 9, 2023, we received cash distributions of $111.3 million, $35.8 million, and $0.1 million, respectively, related to the Takeda acquisition.

We received an aggregate of $147.2 million in cash distributions related to the Takeda acquisition in 2023.

Furthermore, in 2024, we received $47.6 million for the equity stake that we owned in Morphic, one of our drug discovery collaborators and co-founded companies, in connection with Morphic's acquisition by Lilly for approximately $3.2 billion.

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, 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.

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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.

For a further discussion of the risks we face with respect to receipt of any of these payments, please refer to “Risk Factors—Risks Related to Drug Discovery—We may never realize a return on our investment of resources and cash in our drug discovery collaborations”.

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further discussion of the risks we face with respect to receipt of any of these payments, please refer to "Risk Factors—Risks Related to Drug Discovery—We may never realize a return on our investment of resources and cash in our drug discovery collaborations".

How We Work with Our Collaborators.

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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.

In addition to the collaborations described above, we also have collaboration agreements with Takeda, BMS, Otsuka, and Lilly which are described below:

We are advancing a program in collaboration with Takeda focusing on an oncology target.

Under this collaboration, we conducted certain drug discovery research and pharmacology activities through the lead optimization stage, at which point Takeda exercised its option to obtain exclusive rights to such program, subject to continued collaboration towards a development candidate.

In addition to the collaborations described above, we also have collaboration agreements with BMS, Otsuka, Novartis, and Lilly which are described below:

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.

After mutual agreement on the targets(s) of interest, the Schrödinger therapeutics group is responsible for the discovery of development candidates.

The initial collaboration targets under our agreement with BMS included HIF-2 alpha and SOS1/KRAS, which were two of our proprietary 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.

Under the agreement, we were initially responsible, at our own cost and expense, for the discovery of small molecule compounds directed to five specified biological targets pursuant to a mutually agreed research plan for each such target.

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.

In September 2023, BMS elected not to proceed with further development of two related oncology programs and all rights to these programs reverted to us, which increased revenue recognition due to the accelerated completion of our obligations related to those programs.

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.

We are eligible to receive up to $1.5 billion in total milestones from BMS across the targets currently subject to the collaboration, of which we have received $25.0 million as of December 31, 2023, upon selection of a development candidate for the SOS1 program for the treatment of KRAS mutant tumors.

BMS is now solely responsible for the further preclinical and clinical development, manufacturing and commercialization of such candidate at its own expense.

We are also eligible to receive a tiered royalty on net sales of each product commercialized by BMS under the agreement 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.

Under our collaboration with BMS, BMS is advancing a SOS1 protein-protein interaction inhibitor for the treatment of KRAS-driven cancers that we discovered.

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.

Inhibition of SOS1 is considered a potential therapeutic strategy for the treatment of KRAS-driven cancers.

As a result of BMS electing not to proceed with further development of certain targets, there is one remaining neurology target under the agreement.

Under the terms of the agreement, we received a $55.0 million upfront payment from BMS in November 2020, an additional upfront payment in December 2022, and a program fee in December 2024.

As of December 31, 2024, we are eligible to receive up to $482.0 million from BMS in total milestone payments for the one remaining neurology target currently subject to the collaboration.

As of December 31, 2024, we have recognized $32.0 million in revenue related to milestones under this agreement.

We are also entitled to a tiered percentage royalty on annual net sales of any product commercialized by BMS under the agreement ranging from mid-single digits to low-double digits, subject to certain specified reductions.

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 an immunology target.

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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 February 2025, we expanded our research collaboration with Lilly to add an undisclosed target to the collaboration.

The terms of the expanded collaboration with respect to the additional target are similar to the terms for the existing target.

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.

In January 2025, we announced that we have expanded the collaboration with Otsuka to add an undisclosed target to the collaboration.

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.

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

In November 2024, we entered into a research collaboration and license agreement with Novartis, pursuant to which we and Novartis agreed to collaborate on the discovery, research and preclinical development of small molecule compounds for targets in certain specified therapeutic areas.

The agreement is intended to advance multiple development candidates for development and commercialization by Novartis.

Under the terms of the agreement, we received a $150.0 million upfront payment from Novartis in January 2025.

As of December 31, 2024, we are eligible to receive up to $2.272 billion from Novartis in total milestone payments across the initial programs.

Such milestones consist of up to $892.0 million in discovery and development milestones and up to $1.38 billion in commercial milestones.

No revenue had been recognized related to milestones under this agreement as of December 31, 2024.

We are also entitled to a tiered percentage royalty on annual net sales of each product commercialized by Novartis under the agreement ranging

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from mid single-digits to low double-digits, subject to certain specified reductions.

See "—Collaboration Agreement with Novartis Pharma AG" for additional information relating to this agreement.

Our Proprietary Drug Discovery Programs

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

Our strategy is to pursue a number of proprietary 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.

Our strategy is to pursue a number of proprietary 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.

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

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

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Our MALT1 Inhibitor

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

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

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.

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ABC-DLBCL is associated with a number of mutations that trigger a constitutively active NF-κB signaling pathway, which often is mediated by increased MALT1 protease activity.

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

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

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

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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 on 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.

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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.

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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.

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;

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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.

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

In addition, in a series of biochemical and cell-based assays, we compared the potency of SGR-1505 against JNJ-6633, a MALT1 inhibitor advanced into Phase 1 clinical development by Johnson & Johnson, as measured by IC 50 and IC 90 values, which are measures of the potency of a compound in inhibiting specific biological functions.

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

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IC 90 values, which are measures of the potency of a compound in inhibiting specific biological functions.

As shown in the graphic below, SGR-1505 demonstrated better potency in all assays tested.

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Clinical Development of SGR-1505

Phase 1 Clinical Trial of SGR-1505 in Patients with Relapsed or Refractory B-cell Lymphomas

Phase 1 Clinical Trial of SGR-1505 in Patients with Relapsed or Refractory B-cell Malignancies

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

We have initiated dosing in a Phase 1 clinical trial of SGR-1505, which 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 in the United States and Europe with confirmed mature B-cell lymphomas who are 18 years or older and have a life expectancy of equal to or greater than 12 weeks.

We anticipate enrolling up to 52 patients in the United States and Europe 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.

As of February 14, 2024, all patients dosed in our Phase 1 clinical trial of SGR-1505 remained on study drug, and based on the adverse events reported to date, the safety and

tolerability profile of SGR-1505 in patients appears to be consistent with the safety and tolerability profile observed in our Phase 1 clinical trial of SGR-1505 in healthy volunteers.

We anticipate reporting initial data from the trial in late 2024 or 2025.

The FDA recently granted orphan drug designation to SGR-1505 for the potential treatment of mantle cell lymphoma.

Exploratory cohorts will evaluate additional pharmacokinetics, pharmacodynamics, preliminary anti-tumor activity and safety to establish the recommended dose.

We anticipate reporting initial data from the trial in the second quarter of 2025.

In August 2023, the FDA granted orphan drug designation to SGR-1505 for the potential treatment of mantle cell lymphoma.

Phase 1 Clinical Trial of SGR-1505 in Healthy Volunteers

We also have recently completed a Phase 1 clinical trial of SGR-1505 in 73 healthy volunteers to gather additional data, including data relating to the safety, tolerability, pharmacokinetics of SGR-1505, as well as the effect of food and drug-drug interactions.

We also completed a Phase 1 clinical trial of SGR-1505 in 73 healthy volunteers to gather additional data, including data relating to the safety, tolerability, pharmacokinetics of SGR-1505, as well as the effect of food and drug-drug interactions.

SGR-1505 was generally well tolerated with no drug-related serious adverse events or dose limiting toxicities observed.

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All bilirubin elevations reversed upon discontinuation of SGR-1505.

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As shown in the figure below, we observed greater than 90 percent inhibition of IL-2 secretion in an activated T cell whole blood assay in the cohort of healthy volunteers who received doses of SGR-1505 at 100 mg twice a day for 10 days (n=4), confirming target engagement and meeting the pharmacodynamic goals for the study.

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QD = once a day dosing, Q12H = twice a day dosing

The data from the healthy volunteer trial support continued evaluation of SGR-1505 in our ongoing Phase 1 clinical trial in patients with relapsed or refractory B-cell lymphomas.

The data from the healthy volunteer trial support continued evaluation of SGR-1505 in our ongoing Phase 1 clinical trial in patients with relapsed or refractory B-cell malignancies.

Our CDC7 Inhibitor

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

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Preclinical Development of SGR-2921

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Cell viability

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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.

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We observed that the cell samples were generally sensitive to SGR-2921, as measured by their IC 50 values, and we observed that patient samples which contained TP53, or p53, mutations demonstrated particular sensitivity to SGR-2921.

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SGR-2921 showed potent anti-proliferative activity in AML patient-derived samples ex vivo independently of driver mutations, including in p53 mutated AML

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The trial is designed to evaluate the safety and tolerability of SGR-2921 as a monotherapy and to identify the recommended Phase 2 dose, including the maximum

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tolerated dose.

Secondary and exploratory objectives of the trial include evaluating the pharmacokinetics and pharmacodynamics of SGR-2921 and investigating preliminary anti-tumor activity.

We anticipate reporting initial data from the Phase 1 clinical trial of SGR-2921 in late 2024 or 2025.

We anticipate reporting initial data from the Phase 1 clinical trial of SGR-2921 in the second half of 2025.

In July 2024, the FDA granted Fast Track designation to SGR-2921 in patients with relapsed or refractory acute myeloid leukemia.

In addition, in January 2025, the FDA granted orphan drug designation to SGR-2921 in patients with relapsed or refractory acute myeloid leukemia.

Our Wee1/Myt1 Inhibitor

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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.

A third party Wee1 inhibitor is currently being studied in combination with chemotherapy.

Myt1 inhibition is a potential cancer therapy as inhibition of Myt1 forces cells into premature unchecked mitosis resulting in cell death.

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We identified a number of tight-binding, selective Wee1/Myt1 inhibitor series using our computational platform and ultimately 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.

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

Existing 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 table below, we have benchmarked SGR-3515 against AZD1775, a WEE1 inhibitor from AstraZeneca, and ZN-c3, a WEE1 inhibitor being advanced by Zentalis Pharmaceuticals, Inc., or Zentalis, and SGR-3515 demonstrated an improved selectivity profile.

We believe SGR-3515 has lower potential for drug-drug interaction, or DDI, liabilities associated with liver enzyme inactivation.

SGR-3515 has also shown comparable or better effects on the viability of tumor cells in the A427 non-small cell lung cancer cell line compared to AZD1775 and ZN-c3 in our preclinical studies.

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

As shown in the table below, SGR-3515 also showed better potency against WEE1 and MYT1 in cells measured by binding affinity and SGR-3515 demonstrated lower IC 50 values in the A427 non-small cell lung cancer model as compared to AZD1775 and ZN-c3.

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Preclinical Development of SGR-3515

As shown in the table below, in preclinical studies, we have benchmarked SGR-3515 against ZN-c3, a Wee1 inhibitor being advanced by Zentalis Pharmaceuticals, Inc., or Zentalis, and RP-6306, a PKMyt1 inhibitor being advanced by Repare Therapeutics, or Repare.

SGR-3515 demonstrated an improved selectivity profile against broad kinomes compared to ZN-c3 and RP-6306.

SGR-3515 also showed better target engagement activity against Wee1 and Myt1 in cells and better potency, as demonstrated by lower IC 50 values in a cell viability assay in the A427 non-small cell lung cancer cells, in each case, as compared to ZN-c3 and RP-6306.

We also believe SGR-3515 has lower potential for drug-drug interaction liabilities associated with CYP3A4 liver enzyme inactivation.

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.

As shown in the figure below, in the A427 non-small cell lung cancer model, SGR-3515 maintained anti-tumor activity in an intermittent 3 days of dosing in a 2-week cycle (3 days on/11 days off) as compared to the anti-tumor activity observed with continuous daily dosing.

Furthermore, when SGR-3515 was dosed intermittently, we observed recovery of red blood cell counts.

n=6 per group

We plan to submit an IND application to the FDA for SGR-3515 in the first half of 2024, subject to favorable data from IND-enabling studies, and we plan to initiate a Phase 1 clinical trial of SGR-3515 by the end of 2024, subject to receipt of regulatory clearance.

Discovery Programs

ND = not determined;

K i was measured in kinase activity assay.

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As shown in the first figure below, in cell line derived xenograft models, SGR-3515 demonstrated superior in vivo anti-tumor activity related to single inhibition of Wee1 or My1 as compared to ZN-c3 and RP-6306.

As shown in the second figure below, SGR-3515 also showed stronger target engagement of both Wee1 and Myt1 in the tumor as compared to ZN-c3 and RP-6306.

n=6 per group, mean +/- SEM.

Tumor PD samples were taken 8 hours post-last dose on day 28 except SGR-3515 treated tumor

samples taken on day 18 with minimal amount of tumor volume.

Tumor PD samples are tissue samples that are collected for measuring target engagement in vivo by determining percent inhibition of CDK1-Y15 and CDK1-T14 phosphorylation by Wee1 and Myt1 respectively.

****P<0.001, ***P<0.005, **P<0.01

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As shown in the figures below, we observed that SGR-3515 sustained strong anti-tumor activity in vivo leading to full tumor regression at the 40 mpk and 60 mpk dose levels with an intermittent dosing schedule.

SGR-3515 dosed intermittently was also shown to allow recovery from mechanism-based hematological toxicity compared to continuous dosing as measured by red blood cell counts.

A427 (NSCLC) xenograft model.

N=6 per group, mean +/- SEM.

Red blood cell counts were measured on the last day of the study.

Clinical Development of SGR-3515

The FDA cleared our IND for SGR-3515 in April 2024.

We have initiated dosing in our Phase 1 clinical trial of SGR-3515 in patients with advanced solid tumors.

The trial is a dose-escalation trial designed to evaluate the safety, tolerability, and recommended Phase 2 dose of SGR-3515.

Secondary and exploratory objectives of the trial include evaluating the pharmacokinetics and preliminary anti-tumor activity of SGR-3515.

We anticipate reporting initial data from the trial in the second half of 2025.

Other Proprietary Programs

We are also progressing a number of other programs in the areas of oncology, immunology, and neurology and a number of undisclosed programs in multiple therapeutic areas.

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

Our goal is to continue to advance these discovery-stage programs to enable at least one IND submission to the FDA in 2025.

Our most advanced discovery-stage programs are identified below.

PRMT5-MTA inhibition has demonstrated clinical responses in both hematologic and solid tumors with improved safety versus PRMT5 inhibitors due to a synthetic lethal targeting of cancer cells with MTAP-deletions.

We have identified selective, potent PRMT5-MTA inhibitors with potential applications in solid tumors, brain metastases and primary CNS tumors.

All of these programs are currently in the discovery stage, and we have not yet identified a development candidate for any of these programs, except for SGR-4174, our SOS1 inhibitor, as well as a development candidate for our EGFR C797S program, both of which are in preclinical development.

A number of these programs are discussed below.

SOS1 (SGR-4174).

SOS1 plays a critical role in cell signaling pathways and is involved in the activation and regulation of the KRAS gene.

Oncogenic mutant KRAS stimulates the growth of several cancers, such as lung, pancreatic, and colon cancer.

Inhibition of SOS1 is considered a potential therapeutic strategy for the treatment of KRAS-driven cancers.

Previously, SGR-4174, a SOS1 inhibitor, was being advanced in collaboration with BMS, after which it was returned to us based on BMS' portfolio prioritization decisions.

Our current plan is to seek to advance this program through a collaboration.

EGFR inhibitors are first-line standard of care agents for advanced non-small cell lung cancer patients with activating EGFR mutations.

We have identified multiple EGFR C797S inhibitors with potential to treat patients whose disease progressed following first-line treatment, potentially achieving deeper, more durable responses through new combination regimens.

In February 2025, we announced that we have identified a development candidate for our EGFR C797S program.

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We have identified selective, potent PRMT5-MTA inhibitors with potential applications in solid tumors, brain metastases and primary CNS tumors.

NLRP3 is a validated target, and mutations in the NLRP3 gene are associated with a broad spectrum of inflammatory and auto-immune diseases.

We have identified structurally distinct, selective, NLRP3 inhibitors with anti-inflammatory activity in preclinical models, and we are continuing to optimize peripheral and brain-penetrant lead molecules.

We have identified structurally distinct, selective, NLRP3 inhibitors with anti-inflammatory activity in preclinical models, and we are continuing to optimize brain-penetrant lead molecules.

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 received a $2.8 million research grant in 2024 from The Michael J.

Fox Foundation for Parkinson's Research to investigate modes of safely inhibiting the LRRK2 protein for the treatment of Parkinson's Disease.

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 intend 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 additional discovery efforts.

For example, as part of these efforts, 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 have augmented our ability to produce high quality target structures for our proprietary drug discovery programs.

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

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Therefore, the ability to predict the binding affinity of a drug molecule to a target protein with a high degree of accuracy can significantly accelerate discovery of new efficacious medicines.

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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.

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)).

These contributions include the deformation and/or rigidification of the small molecule into the bound conformation (ΔG(1) in the figure below) and the rigidification of the protein in the bound conformation (ΔG(2)), the removal of waters surrounding the molecule (ΔG(3)) and the removal of 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.

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As a result, our FEP+ solution can be used to explore very large numbers of molecules to identify drug candidates much more rapidly than would be possible solely using experimental approaches.

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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.

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By further combining this functionality with our ability to enumerate large sets of molecules provided by PathFinder and our ability to build and manage complex workflows utilizing cloud resources, we are able to deploy these capabilities at scale to advance projects.

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Active Learning FEP+ is depicted in the figure below.

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

We believe the principal competitive factors in our market include, among other things, accuracy of computations, level of customer satisfaction and functionality, ease of use, breadth and depth of solution and application functionality, brand awareness and reputation, modern and adaptive technology platform, integration, security, scalability and reliability of applications, total cost, ability to innovate and respond to customer needs rapidly, and ability to integrate with legacy enterprise infrastructures and third-party applications.

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brand awareness and reputation, modern and adaptive technology platform, integration, security, scalability and reliability of applications, total cost, ability to innovate and respond to customer needs rapidly, and ability to integrate with legacy enterprise infrastructures and third-party applications.

We believe that we compete favorably on the basis of these factors and that the effort and investment required to develop a computational, physics-based platform similar to ours will hinder new entrants that are unable to invest the necessary capital and time, and lack the breadth and depth of technical expertise required to develop competing technology.

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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., Inductive Bio, Inc., Chemaxon, PerkinElmer, Inc., and Simulations Plus, Inc.

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., AbCellera, Inductive Bio, Inc., Chemaxon, PerkinElmer, 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, Revvity, Inc.

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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 AbbVie Inc., Ono Pharmaceutical Co., Ltd., HotSpot Therapeutics, and Exelixis, Inc.

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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 malignancies, we are aware of several MALT1 inhibitors in clinical development, including by AbbVie Inc., Ono Pharmaceutical Co., Ltd., HotSpot Therapeutics, and Recursion Pharmaceuticals, Inc.

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

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With respect to our Wee1/Myt1 inhibitor, SGR-3515, which we are advancing for the treatment of solid tumors, we are aware of several Wee1 inhibitors in clinical development, including by Zentalis, Debiopharm International SA, IMPACT Therapeutics, Inc., Shouyao Holdings Co.

Ltd., BioCity Biopharma, and Aprea Therapeutics, Inc., as well as a MYT1 inhibitor in clinical development being advanced by Repare Therapeutics Inc..

Ltd., BioCity Biopharma, and Aprea Therapeutics, Inc., as well as a Myt1 inhibitor in clinical development being advanced by Repare.

Furthermore, we are also aware of a Wee1/Myt1 inhibitor in preclinical development being advanced by Acrivon Therapeutics, Inc.

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As a result of all of these factors, our competitors may succeed in obtaining approval from the FDA or other comparable foreign regulatory authorities or in discovering, developing and commercializing products in our field before we do.

Collaboration Agreement with Bristol-Myers Squibb Company

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 preclinical development of small molecule compounds (other than protein-degrader compounds) for biological targets in the oncology, neurology and immunology therapeutic areas.

Under the agreement, during a limited research term, we were initially responsible, at our own cost and expense, for the discovery of small molecule compounds (other than protein-degrader compounds) directed to five specified biological targets pursuant to a mutually agreed research plan for each such target.

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

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.

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

In addition, the parties may mutually agree to extend the initial research term for an additional year.

Under the agreement, BMS has agreed to use commercially reasonable efforts to develop, seek and obtain regulatory approval for, and commercialize at least one product that contains a licensed compound for each target in each of the United States, Japan and the European Union.

The research component of the collaboration will be overseen by a joint steering committee comprised of an equal number of representatives from each of us and BMS.

In addition to the initial specified targets, the parties have also agreed on a list of four reserved targets.

BMS may replace one of the initial specified targets with a reserved target during a limited substitution period in the research term.

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 $55.0 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 $1.5 billion in total milestone payments across the potential targets currently subject to the collaboration.

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, which are included in the totals above.

As of December 31, 2023, we received a milestone payment of $25.0 million from BMS upon selection of a development candidate for the SOS1 program for the treatment of KRAS mutant tumors.

BMS is now solely responsible for the further preclinical and clinical development, manufacturing and commercialization of such candidate at its own expense.

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.

Royalties are payable by BMS on a licensed product-by-licensed product and country-by-country basis until the later of the expiration of the last valid claim of certain specified patent rights covering the licensed product in such country, expiration of all applicable regulatory exclusivities in such country for such licensed product and the tenth anniversary of the first commercial sale of such licensed product in such country.

The agreement excludes any activities relating to protein-degrader compounds.

However, under the terms of the agreement, for a limited period of time after the execution of the agreement, we and BMS agreed to negotiate a separate definitive agreement pursuant to which we will agree to license to BMS the right to conduct research, development and commercialization activities with respect to degrader compounds for the targets under the agreement.

In August 2021, we and BMS entered into a definitive agreement to discover, develop and commercialize bifunctional protein degraders consistent with the terms and conditions described in the initial collaboration agreement.

On a target-by-target basis, during the term of the agreement for a given target, we are prohibited from clinically developing or commercializing, ourselves or with a third party, any nucleic acid, antibody, biologic, compound, small molecule or other molecule, or any product that contains the foregoing, that specifically modulates as its primary mechanism of action such target, or is designed to specifically modulate such target.

Such prohibition encompasses both the initial specified targets listed as of the effective date of the agreement and those targets on the reserved target list for the limited substitution period.

Unless earlier terminated, the agreement will expire on a licensed product-by-licensed product and country-by-country basis on the expiration of the applicable royalty term for such licensed product in such country and in its entirety upon expiration of the last royalty term for the last licensed product.

Either party may terminate the agreement earlier upon an uncured material breach of the agreement by the other party on a target-by-target basis, or upon the occurrence of certain events of insolvency of the other party.

Additionally, BMS may terminate the agreement for any or no reason, in its entirety or on a target-by-target basis, upon specified written notice to us.

BMS may also terminate the agreement on a target-by-target basis for safety reasons.

We may terminate the agreement on a target-by-target basis to the extent BMS commences or participates in challenging certain patents licensed by us to BMS under the agreement.

In the event that BMS terminates the agreement at will, or if we terminate for a breach, insolvency or patent challenge by BMS, we are entitled to certain reversionary rights with respect to certain compounds and products for the applicable terminated target(s).

In the event that BMS has the right to terminate the agreement, in whole or with respect to a particular target, upon our uncured material breach or an event of insolvency with respect to us, then in lieu of so terminating, BMS has the right to elect to the have the agreement continue in full force and effect;

provided that all royalties and milestones thereafter payable by BMS to us with respect to such applicable target(s) shall be reduced by 50%.

Collaboration Agreement with Novartis Pharma AG

In November 2024, we entered into a research collaboration and license agreement with Novartis, pursuant to which, we and Novartis agreed to collaborate on the discovery, research and preclinical development of small molecule compounds for targets in certain specified therapeutic areas.

The agreement is intended to advance multiple development candidates for development and commercialization by Novartis.

Under the agreement, during the research term, we are responsible, together with Novartis, for the discovery of small molecule compounds directed against specified targets pursuant to mutually agreed research plans, which we refer to as project plans.

Under the agreement, we and Novartis have agreed to pursue multiple initial project plans.

The agreement also includes mechanisms pursuant to which Novartis may, subject to specified conditions, add additional project plans.

The research term for each project plan will generally extend for four years or such earlier time as a development candidate is designated for such project plan or the project plan is terminated.

We and Novartis may mutually agree to extend the research term for any project plan.

After the identification of a development candidate in any project plan, Novartis will be solely responsible for the further preclinical and clinical development, manufacturing and commercialization of products containing all compounds resulting from such project plan.

Under the terms of the research collaboration and license agreement, Novartis paid us an initial upfront fee of $150.0 million in January 2025, and we are eligible to receive up to $2.272 billion in total milestone payments across the initial project plans.

Such milestones consist of up to $892.0 million in discovery and development milestones and up to $1.38 billion in commercial milestones.

We are also entitled to receive additional milestones in the event that additional project plans are added to the agreement.

We are also entitled to a tiered percentage royalty ranging from mid-single-digits

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to low double-digits on products commercialized by Novartis under the agreement, subject to certain specified reductions.

To date we have not received any milestone payments under our agreement with Novartis.

On a collaboration target-by-collaboration target basis, during a specified period and subject to specified exceptions, we are prohibited from researching, developing, manufacturing, modifying, improving or commercializing, ourselves or with a third party, any small molecule directed against such collaboration target.

Unless earlier terminated, the agreement will expire (1) on a collaboration product-by-collaboration product and country-by-country basis on the expiration of the applicable royalty term for such collaboration product in such country, (2) on a collaboration target-by-collaboration target basis upon the expiration of all royalty terms for all collaboration products directed against such collaboration target and (3) in its entirety upon expiration of all payment obligations under the agreement with respect to all collaboration products.

The agreement contains customary termination provisions, including by either party upon an uncured material breach or upon the occurrence of certain events of insolvency.

Additionally, Novartis may terminate the agreement, in its entirety or on a collaboration target-by-collaboration target basis, for convenience or for safety reasons;

provided that certain customary rights and obligations will survive termination.

License Agreements with Columbia University

We have entered into several license agreements with Columbia University, or the Columbia License Agreements.

The Columbia License Agreements establish our rights and obligations with respect to certain patents, software code, technology, and improvements thereto that we license from Columbia University and that are used in, and integrated into, our software solutions, and our physics-based computational platform.

Our rights and obligations under, and the terms and

conditions of, the Columbia License Agreements that we consider material to the operation of our business are described more fully below.

On November 1, 2008, we entered into an amendment, or the Royalty Amendment, to certain Columbia License Agreements, including each of the agreements described below.

Master License Agreement

In September 2024, our wholly-owned subsidiary, Schrödinger, LLC, entered into a master license agreement, or the Master License Agreement, with The Trustees of Columbia University in the City of New York, or Columbia University, that amended and restated our existing license agreements with Columbia University, which we refer to as the Prior Columbia License Agreements and which are more fully described below.

The Prior Columbia License Agreements provided for our rights and obligations with respect to certain patents, software code, technology and improvements that it licenses from Columbia University and that are used in, and integrated into, our software solutions and computational platform.

The Prior Columbia License Agreements are described in more detail below.

The Master License Agreement was adopted to modify and streamline the royalties payable pursuant to the Prior Columbia License Agreement, to modify certain other terms of the Prior Columbia License Agreements and to create a single Master License Agreement that, from and after the effective date of the Master License Agreement, governs all of the intellectual property licensed from Columbia University to us and our affiliates.

Each Prior Columbia License Agreement will remain in full force and effect with respect to any services agreement entered into by us or our affiliates under such Prior Columbia License Agreement prior to the effective date, but the Prior Columbia License Agreements will otherwise be of no further force or effect from and after the effective date.

Under the Master License Agreement, Columbia University granted us and our affiliates an exclusive license (subject to specified non-commercial rights retained by Columbia University, on behalf of itself and other institutions, and any rights of the United States government), under Columbia University’s rights in specified software, or the Licensed Software, and patents, or the Licensed Patents, to develop, make, use, market, license, sell, distribute and otherwise commercially exploit products that incorporate any of the Licensed Software or are covered by any of the Licensed Patents, including the following Company software solutions:

the electronic structure software program PS-GVB v1.0, the IMPACT software program used in the Glide ligand-protein docking program, the PrimeX protein modelling program, the QSite QM/MM program, the Combiglide automated library generation program, the Prime and PrimeX protein modelling programs, the Membrane Permeability model and the products that implement the water site analysis method, or collectively, the Licensed Products.

We are restricted from distributing the Licensed Software source code without the prior written consent of Columbia University, which is not to be unreasonably withheld or delayed.

We are obligated to pay Columbia University a low single-digit percentage royalty on consideration, subject to certain exclusions and deductions, received by us or our affiliates for sales, licenses, leasing or rentals of Licensed Products or services provided using Licensed Products.

We are obligated to pay royalties on a Licensed Product-by-Licensed Product basis until:

(1) with respect to each Licensed Product that incorporates any Licensed Software identified in the Master License Agreement as of the Effective Date, twenty years after the Effective Date or (2) with respect to each Licensed Product that incorporates any Licensed Software added to the Master License Agreement after the Effective Date, twenty years after such addition, each, a Royalty Term.

In addition, if we incorporate specified Licensed Software improvements into a Licensed Product, then the Royalty Term for such Licensed Product will be extended for an additional

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ten years per incorporated improvement.

If we or our affiliates receive consideration for specified services provided using Licensed Products in the form of equity securities, or Services Project Securities, then (1) if and when such securities may be transferred to Columbia University under applicable state and federal securities laws, we have agreed to transfer, assign or otherwise cause to be delivered to Columbia University a number of such Services Project Securities equal to the applicable royalty rate multiplied by the total number of Services Project Securities, or the Columbia Securities, and (2) until such time as the Columbia Securities are transferred, assigned or delivered to Columbia University, at the time we receive cash consideration as a result of owning Services Project Securities, whether on account of a dividend, distribution, sale or otherwise, we have agreed to pay Columbia University a portion of such proceeds that is equal to the applicable royalty rate multiplied by such amount received in cash.

Under the Master License Agreement, we have agreed to indemnify Columbia University for losses incurred in any third-party action arising out of the exercise of any rights granted to us under the Master License Agreement or as a result of any breach of the Master License Agreement by us.

Unless earlier terminated, the Master License Agreement will expire on the expiration of the last to expire Royalty Term.

We may terminate any license granted under the Master License Agreement for any reason upon 180 days written notice to Columbia University.

In addition, either party may terminate the Master License Agreement, or one or more licenses granted under the Master License Agreement, for the other party’s material breach, following a customary notice and cure period, and Columbia University may terminate the Master License Agreement upon the occurrence of certain events of insolvency for us.

Upon termination of the Master License Agreement, (1) we will have the right, for 18 months or such longer period as the parties may reasonably agree, to sell Licensed Products, continue the development and maintenance of Licensed Products and use Licensed Products to the extent needed to perform any services required to be performed as of the date of termination and (2) any third party that has licensed any Licensed Product from us will retain the right to use such Licensed Product, and we will have the right to continue to provide support to such third parties in connection with their use of such Licensed Products.

Prior Columbia License Agreements

Prior to entering into the Master License Agreement described above, we entered into several license agreements with Columbia University, or the Prior Columbia License Agreements.

The Prior Columbia License Agreements establish our rights and obligations with respect to certain patents, software code, technology, and improvements thereto that we license from Columbia University and that are used in, and integrated into, our software solutions, and our physics-based computational platform.

The terms of the Prior Columbia License Agreements remain in effect for arrangements that were entered prior to the effective date of the Master License Agreement.

The terms of the Master License Agreement supersede the terms of the Prior Columbia License Agreements for arrangements entered into starting from the effective date of the Master License Agreement.

Our rights and obligations under, and the terms and conditions of, the Prior Columbia License Agreements that we consider material to the operation of our business are described more fully below.

On November 1, 2008, we entered into an amendment, or the Royalty Amendment, to certain Prior Columbia License Agreements, including each of the agreements described below.

The Royalty Amendment simplified the royalties payable under each agreement on gross revenues generated from the use of any product which contains any code or software, or is covered by any patent, that we license from Columbia University, or a Licensed Product, in connection with a services agreement.

We also pay royalties under the Columbia License Agreements on gross revenues generated from the sale, licensing or renting of our Licensed Products, which we calculate on a product-by-product basis.

We also pay royalties under the Prior Columbia License Agreements on gross revenues generated from the sale, licensing or renting of our Licensed Products, which we calculate on a product-by-product basis.

In the event that one or more Licensed Products are sold together with other products for a single aggregate license fee, we have agreed to pay to Columbia University the applicable royalty on the gross revenues attributable to each Licensed Product based on the relative list prices of each product covered by such license fee.

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The technology licensed under the 1994 Columbia Agreement is incorporated into our Jaguar quantum mechanical program, which we market and distribute as part of our physics-based computational platform.

The 1994 Columbia Agreement grants us a worldwide, exclusive, license to the software code developed by Columbia University and incorporated into the electronic structure software program PS-GVB v1.0, or the PS-GVB Code, and all improvement to the PS-GVB v1.0 software program and PS-GVB Code developed by Columbia University, or the PS-GVB Improvements, including all PS-GVB Code and PS-GVB Improvements that are incorporated into any new products, new releases, and new versions related to the software, or the New PS-GVB Module Code, in each case, to reproduce, use, execute, copy, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.

The 1994 Columbia Agreement grants us a worldwide, exclusive, license to the software code developed by Columbia University and incorporated into the electronic structure software program PS-

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GVB v1.0, or the PS-GVB Code, and all improvement to the PS-GVB v1.0 software program and PS-GVB Code developed by Columbia University, or the PS-GVB Improvements, including all PS-GVB Code and PS-GVB Improvements that are incorporated into any new products, new releases, and new versions related to the software, or the New PS-GVB Module Code, in each case, to reproduce, use, execute, copy, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.

We may only sublicense the PS-GVB Code, the PS-GVB Improvements, and the New PS-GVB Module Code, or the Licensed PS-GVB Software, to the extent they are incorporated into a product that is sold directly by us or that is distributed on our behalf.

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The 1998 Columbia Agreement grants us a worldwide, non-exclusive, license to the Fast Multipole RESPA code developed at Columbia University, or the RESPA Code, which was incorporated into the IMPACT software program used in our Glide ligand-protein docking program, PrimeX protein modelling program, QSite QM/MM program, and Combglide automated library generation program, and all improvements to the IMPACT software program, including any new versions and new releases thereof, that are developed by Columbia University, or the IMPACT Improvements, in each case, to reproduce, use, execute, copy, compile, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.

We may sublicense the RESPA Code

and the IMPACT Improvements, or the Licensed IMPACT Software, to the extent it is incorporated into a product that is sold directly by us or that is distributed on our behalf.

We may sublicense the RESPA Code and the IMPACT Improvements, or the Licensed IMPACT Software, to the extent it is incorporated into a product that is sold directly by us or that is distributed on our behalf.

Under the 1998 Columbia Agreement, Columbia University retains the right to conduct, and to permit other academic and non-profit research institutions to conduct, research using the Licensed IMPACT Software.

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In September 2001, we entered into a license agreement, or the 2001 Columbia Agreement, with Columbia University, which was amended on September 9, 2004 and November 1, 2008.

The technology licensed under the 2001 Columbia Agreement is incorporated into our Prime protein modelling program, which we market and distribute as part of our physics-based computational platform.

The technology licensed under the 2001 Columbia Agreement is incorporated into our Prime protein modelling program, which we market and distribute as part of

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our physics-based computational platform.

The 2001 Columbia Agreement grants us a worldwide, exclusive license to the protein folding code developed by Columbia University, or the Folding Code;

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The technology licensed under the 2003 Columbia Agreement is incorporated into our Prime and PrimeX protein modelling programs and our Membrane Permeability model, which we market and distribute as part of our physics-based computational platform.

that are developed by Columbia University or the University of California, or the PLOP Improvements, in each case, to reproduce, use, execute, copy, compile, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.

The 2003 Columbia Agreement grants us a worldwide, exclusive license to the protein local optimization program software code, or the PLOP Code, developed at Columbia University and the University of California and all software code comprising improvements to the PLOP Code that are developed by Columbia University or the University of California, or the PLOP Improvements, in each case, to reproduce, use, execute, copy, compile, operate, sublicense, and distribute in connection with the marketing and sale of our products and services, to develop improvements thereto, and to conduct research and backup disaster recovery.

Pursuant to an interinstitutional agreement between Columbia University and the University of California, the University of California granted Columbia University the sole right to license the PLOP Code and PLOP Improvements and has agreed not to license the PLOP Code or PLOP Improvements to any third party for as long as the interinstitutional agreement remains in effect.

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Our obligation to pay any royalty under the 2003 Columbia Agreement, including any royalty paid pursuant to the Royalty Amendment, expired pursuant to its terms on June 19, 2023.

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Columbia University is responsible for the copyright registration of the PLOP Code and PLOP Improvements.

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Columbia University may terminate the 2008 Columbia Agreement if we fail to cure a material breach, become subject to a voluntary or involuntary petition for bankruptcy or any other proceeding relating to insolvency, receivership or liquidation, or initiate any proceeding or assert any claim challenging the validity or enforceability of the Water Site Patents.

Upon termination, any third party that has licensed a Water Site Product from us will retain the right to use such product, subject to the terms of their existing license agreement with us, and we will have the right to continue to provide support to any such third parties for the duration of their license agreement.

Upon termination, any third party that has licensed a Water Site Product from us will retain the right to use such

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product, subject to the terms of their existing license agreement with us, and we will have the right to continue to provide support to any such third parties for the duration of their license agreement.

Services Royalty Amendment

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We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors.

useful in protecting our software, technology, computational platform, and any product candidates we develop.

We also cannot ensure that patents will issue with respect to any patent applications that we or our licensors may file in the future, nor can we ensure that any of our owned or licensed patents or future patents will be commercially useful in protecting our software, technology, computational platform, and any product candidates we develop.

In addition, the coverage claimed in a patent application may be significantly reduced before a patent is issued, and its scope can be reinterpreted and even challenged after issuance.

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

As of January 31, 2024, we owned or held exclusive license rights to approximately 40 patents and patent applications, including at least 14 issued or allowed U.S.

As of January 24, 2025, we owned or held exclusive license rights to approximately 40 patents and patent applications, including approximately 14 issued or allowed U.S.

cases, five pending U.S.

non-provisional patent applications, 18 issued or allowed non-U.S.

cases, including seven granted European patents which have been validated among multiple individual European Patent Convention nations and eight non-European patents, and six pending foreign patent applications relating to our computational platform.

cases, including nine granted European patents which have been validated among multiple individual European Patent Convention nations, eight non-European patents, and two pending foreign patent applications relating to our computational platform.

While we believe that the specific and generic claims contained in our wholly-owned and licensed pending U.S.

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

As of January 31, 2024, we wholly-owned approximately 12 pending U.S.

As of January 24, 2025, we wholly-

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owned approximately 12 pending U.S.

patent applications, including U.S.

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Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain or use information that we regard as proprietary.

Although we take

steps to protect our proprietary information, third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information.

Although we take steps to protect our proprietary information, third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information.

As a result, we may be unable to meaningfully protect our trade secrets and proprietary information.

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Our marketing strategy leverages our strong base of scientific publications to support the continued growth of our computational platform into computational chemistry markets across industries and academia worldwide.

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Drug Discovery Business

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We rely and expect to continue to rely on third-party contract manufacturers for all of our required raw materials, drug substance, and finished drug product for the preclinical and clinical development of any development candidates we develop ourselves.

We do not currently have any agreements with third-party manufacturers for the long-term supply of any of our product candidates.

Government Regulation and Product Approvals

Government authorities in the United States at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, pricing, reimbursement, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of biopharmaceutical products.

The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Approval and Regulation of Drugs in the United States

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• review of the product candidate by an FDA advisory committee, where appropriate or if applicable;

• satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product candidate or components thereof are manufactured to assess compliance with current good manufacturing practices, or cGMP, requirements and to assure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity;

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with current good manufacturing practices, or cGMP, requirements and to assure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity;

• satisfactory completion of any FDA audits of the non-clinical and clinical trial sites to assure compliance with GCP and the integrity of clinical data in support of the NDA;

• payment of user fees and securing FDA approval of the NDA to allow marketing of the new drug product;

• payment of user application and program fees pursuant to the Prescription Drug User Fee Act, or PDUFA;

• approval of an NDA for the new drug product authorizing marketing of the new drug product for particular indications in the United States;

• compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct any post- approval studies required by the FDA.

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Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity and long-term toxicity studies may continue after the IND is submitted.

With passage of the FDA’s Modernization Act 2.0 in December 2022, Congress eliminated provisions in both the FDCA and the Public Health Service Act, or PHSA, that required animal testing in support of an NDA.

While animal testing may still be conducted, the FDA was authorized to rely on alternative non-clinical tests, including cell-based assays, microphysiological systems or bioprinted or computer models.

The IND and IRB Processes

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A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.

An IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer such investigational

product to humans.

Such authorization must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved NDA.

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Clinical holds are imposed by the FDA whenever there is concern for patient safety and may be a result of new data, findings, or developments in clinical, nonclinical, and/or chemistry, manufacturing, and controls.

A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation.

A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical trial or to suspend an ongoing investigation.

A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND.

For example, a specific protocol or part of a protocol may not be allowed to proceed, while other protocols may be allowed.

No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold.

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more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold.

Following issuance of a clinical hold or partial clinical hold, a clinical trial may only resume after the FDA has so notified the sponsor of its decision to lift the hold.

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An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee.

This group provides authorization as to whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the study.

Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data monitoring committee, or DMC.

The DMC provides authorization as to whether or not a trial may move forward at designated check points based on access that only the DMC maintains to available data from the study.

Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk.

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or 15 days after the investigational product receives designation from the FDA as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy.

In addition, on May 30, 2018, the Right to Try Act was signed into law.

The law, among other things, provides a federal framework for certain patients to access certain investigational products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval.

In addition, the Right to Try Act, among other things, provides a federal framework for certain patients to access certain investigational products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval.

Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program.

There is no obligation for a manufacturer to make its investigational products available to eligible patients as a result of the Right to Try Act.

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Human Clinical Trials in Support of an NDA

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

In January 2024, the FDA issued draft guidance setting out its policies for the collection of race and ethnicity data in clinical trials.

In June 2024, the FDA issued draft guidance outlining the general requirements for diversity action plans.

Unlike most guidance documents issued by the FDA, the diversity action plan guidance, when finalized, will have the force of the law because FDORA specifically dictates that the form and manner for submission of diversity action plans are specified in FDA guidance.

In January 2025, in response to an executive order issued by President Trump on Diversity, Equity and Inclusion programs, the FDA removed this draft guidance from its website.

The implications of this action are not yet known.

In June 2023, the FDA issued draft guidance with updated recommendations for GCPs aimed at modernizing the design and conduct of clinical trials.

The updates are intended to help pave the way for more efficient clinical trials to facilitate the development of medical products.

The draft guidance is adopted from the International Council for Harmonisation’s recently updated E6(R3) draft guideline that was developed to enable the incorporation of rapidly developing technological and methodological innovations into the clinical trial enterprise.

The draft guidance is adopted from the International Council for Harmonisation’s recently updated E6(R3) draft guideline that was developed to enable the incorporation of rapidly

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developing technological and methodological innovations into the clinical trial enterprise.

In addition, the FDA issued draft guidance outlining recommendations for the implementation of decentralized clinical trials.

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Expansion cohort trials can potentially bring efficiency to product development and reduce developmental costs and time.

Clinical Studies Outside the United States in Support of FDA Approval

Clinical Trials Outside the United States in Support of FDA Approval

In connection with our clinical development program, we are and may in the future conduct trials at sites outside the United States.

When a foreign clinical study is conducted under an IND, all IND requirements must be met unless waived.

When a foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval.

When a foreign clinical trial is conducted under an IND, all IND requirements must be met unless waived.

When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the trial as support for an IND or application for marketing approval.

Specifically, the studies must be conducted in accordance with GCP, including undergoing review and receiving approval by an independent ethics committee, and seeking and receiving informed consent from subjects.

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They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.

The acceptance by the FDA of study data from clinical trials conducted outside the United States in support of US approval may be subject to certain conditions or may not be accepted at all.

The acceptance by the FDA of trial data from clinical trials conducted outside the United States in support of US approval may be subject to certain conditions or may not be accepted at all.

In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S.

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and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.

In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite

inspection if deemed necessary.

In addition, even where the foreign trial data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the trial is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the trial through an onsite inspection if deemed necessary.

Many foreign regulatory authorities have similar approval requirements.

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Following the clearance of an IND and the commencement of clinical trials, the sponsor will continue to have interactions with the FDA.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur.

A development and safety update report, or DSUR, detailing the results of the clinical trials must be submitted annually to the FDA within 60 days of the anniversary date that the IND was filed.

In addition, IND safety reports must be submitted to the FDA for any of the following:

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and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all.

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified

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period, or at all.

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

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Finally, a type D meeting is focused on a narrow set of issues (should be limited to no more than two focused topics) and should not require input from more than three disciplines or divisions.

Finally, INTERACT meetings are intended for novel products and development programs that present unique challenges in the early development of an investigational product.

Finally, Initial Targeted Engagement for Regulatory Advice on CBER products, or INTERACT, meetings are intended for novel products and development programs that present unique challenges in the early development of an investigational product.

These meetings provide an opportunity for the sponsor to share information about the data gathered to date with the FDA and for the FDA to provide advice on the next phase of development.

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The FDA has indicated that its responses, as conveyed in meeting minutes and advice letters, only constitute mere recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations and/or advice.

Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design of a clinical program may put the program at significant risk of failure.In September 2023, the FDA issued draft guidance outlining the terms of such meetings in more detail.

Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design of a clinical program may put the program at significant risk of failure.

In September 2023, the FDA issued draft guidance outlining the terms of such meetings in more detail.

Reporting Clinical Trial Results

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In particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial.

Although the FDA has historically not enforced these reporting requirements due to HHS’s long delay in issuing final implementing regulations, the FDA has issued several pre-notices for voluntary corrective action and several notices of noncompliance to manufacturers during the past two years.

The PHSA grants the Secretary of Health and Human Services the authority to issue a notice of noncompliance to a responsible party to failure to submit clinical trial information as required.

The responsible party is allowed 30 days to correct the noncompliance and submit the required information.

As of December 19, 2024, the FDA has issued six notices of non-compliance, signaling its willingness to enforce the reporting requirements.

While these notices of non-compliance did not result in civil monetary penalties, 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.

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The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality, purity, and potency of the final drug.

Additionally, appropriate packaging

must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

The FDA’s regulations require that pharmaceutical products be manufactured in approved facilities and in accordance with cGMPs.

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Manufacturers and other entities involved in the manufacture and distribution of approved pharmaceuticals are subject to periodic unannounced inspections by the FDA for compliance with cGMPs and other requirements.

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.

Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies.

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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.

Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations.

Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process.

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The FDA’s regulations also require, among other things, the investigation and correction of any deviations from cGMP and the imposition of reporting and documentation requirements upon the sponsor and any third-party manufacturers involved in producing the approved product.

A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution.

If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all the manufacturer’s tests performed on the lot, to the FDA.

The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution.

Finally, the FDA will conduct laboratory research related to the safety, purity, potency and effectiveness of pharmaceutical products.

Pediatric Studies

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Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation, although the FDA has recently taken steps to limit what it considers abuse of this statutory exemption in the PREA by announcing that it does not intend to grant any additional orphan drug designations for rare pediatric subpopulations of what is otherwise a common disease.

The FDA also maintains a list of diseases that are exempt from

PREA requirements due to low prevalence of disease in the pediatric population.

The FDA also maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease in the pediatric population.

In May 2023, the FDA issued new draft guidance that further describes the pediatric study requirements under the PREA.

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Expedited Review Programs

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A product candidate is eligible for priority review if it treats a serious condition and, if approved, it would be a significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention compared to marketed products.

FDA aims to complete its review of priority review applications within six months as opposed to 10 months for standard review.

Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation.

The FDA aims to complete its review of priority review applications within six months as opposed to 10 months for standard review.

• Accelerated approval.

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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 FDA 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.

In March 2023, the FDA issued draft guidance that outlines its current thinking and approach to accelerated approval.

and use expedited procedures to withdraw accelerated approval of an NDA or BLA if certain conditions are not met, including where a confirmatory trial fails to verify the product’s clinical benefit or where evidence demonstrates the product is not shown to be safe or effective under the conditions of use.

The FDA may also use such procedures to withdraw an accelerated approval if a sponsor fails to conduct any required post-approval trial of the product with due diligence, including with respect to “conditions specified by the Secretary.” The new procedures include the provision of due notice and an explanation for a proposed withdrawal, and opportunities for a meeting with the FDA Commissioner or the Commissioner’s designee and a written appeal, among other things.

In March 2023, the FDA issued draft guidance that outlines its views and approach to accelerated approval.

The FDA indicated that the accelerated approval pathway is commonly used for approval of oncology drugs due to the serious and life-threatening nature of cancer.

Although single-arm trials have been commonly used to support accelerated approval, a randomized controlled trial is the preferred approach as it provides a more robust efficacy and safety assessment and allows for direct comparisons to an available therapy.

To that end, the FDA outlined considerations for designing, conducting, and analyzing data for trials intended to support accelerated approvals of oncology therapeutics.

To that end, the FDA outlined considerations for designing, conducting, and analyzing data for trials intended to

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support accelerated approvals of oncology therapeutics.

Subsequently, in December 2024 and January 2025, the FDA issued additional draft guidance relating to accelerated approval.

This guidance describes the FDA’s views on what it means to conduct a confirmatory trial with due diligence and how the agency plans to interpret whether such a study needs to be underway at the time of approval.

While this guidance is currently only in draft form and will ultimately not be legally binding even when finalized, sponsors typically observe the FDA’s guidance closely to ensure that their investigational products qualify for accelerated approval.

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Every new drug product candidate must be the subject of an approved NDA before it may be commercialized in the United States.

Biologic License Applications, or BLAs, are submitted for licensure of biologic products under the Public Health Service Act.

Under federal law, the submission of most NDAs is subject to an application user fee.

The sponsor of an approved NDA is also subject to an annual program fee.

Biologic License Applications, or BLAs, are submitted for licensure of biologic products under the PHSA.

Under federal law, the fee required for the submission and review of an application under the Prescription Drug User Fee Act, or the PDUFA, is substantial (for example, for federal fiscal year 2025 this application fee is approximately $4.3 million), and the sponsor of an approved application is also subject to an annual program fee, currently more than $403,889 per eligible prescription product for federal fiscal year 2025.

Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation, an exception from the program fee when the program does not engage in manufacturing the drug during a particular fiscal year and a waiver for certain small businesses.

The FDA conducts a preliminary review of the application within 60 calendar days of its receipt, and must inform the sponsor within that period of time whether the application is sufficiently complete to permit substantive review.

In the event that FDA determines that an application does not satisfy this standard, it will issue a Refuse to File, or RTF, determination to the sponsor.

In the event that the FDA determines that an application does not satisfy this standard, it will issue a Refusal to File determination to the sponsor.

The FDA may request additional information rather than accept the application for filing and, the application may be resubmitted with the additional information.

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For applications seeking approval of products that are not NMEs, the ten-month and six-month review periods run from the date that the FDA receives the application.

The review process and the Prescription Drug User Fee Act, or PDUFA, goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission.

The review process and the PDUFA goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission.

Despite these review goals, it is not uncommon for FDA review of an application to extend beyond the PDUFA goal date.

The FDA seeks to meet these timelines for review of an application but its ability to do so may be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel and statutory, regulatory and policy changes.

Average review times at the FDA have fluctuated in recent years as

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For example, during the past decade, the U.S.

government has shut down several times and certain regulatory agencies, including the FDA, have had to furlough critical employees and stop critical activities, including the review of both NDAs and BLAs.

In connection with its review of an application, the FDA typically will inspect the facility or facilities where the product is being or will be manufactured.

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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.

Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.

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.

To ensure cGMP and GCP compliance by its employees and third-party contractors, a sponsor may incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control.

Moreover, the FDA will review a sponsor’s financial relationship with the principal investigators who conducted the clinical trials in support of the application.

That is because, under certain circumstances, principal investigators at a clinical trial site may also serve as scientific advisors or consultants to a sponsor and receive compensation in connection with such services.

Depending on the level of that compensation and any other financial interest a principal investigator may have in a sponsor, the sponsor may be required to report these relationships to the FDA.

The FDA will then evaluate that financial relationship and determine whether it creates a conflict of interest or otherwise affects the interpretation of the trial or the integrity of the data generated at the principal investigator’s clinical trial site.

If so, the FDA may exclude data from the clinical trial site in connection with its determination of the approvability of the product candidate.

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

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The CRL may require additional clinical or other data, additional pivotal Phase 3 clinical trials and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing.

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.

If a CRL is issued, the sponsor will have one year to respond to the deficiencies

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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.

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Following approval of a new prescription product, the manufacturer, the approved product and the product’s manufacturing locations are subject to pervasive and continuing regulation by the FDA, governing, among other things, monitoring and record-keeping activities, reporting of adverse experiences with the product and product problems to the FDA, product sampling and distribution, manufacturing and promotion and advertising.

Although physicians may prescribe

legally available products for unapproved uses or patient populations (i.e., “off-label uses”), manufacturers may not market or promote such uses.

The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, with manufacturing processes, or failure to comply with regulatory requirements, may result in:

revisions to the approved labeling to add new safety information;

imposition of post-market studies or clinical trials to assess safety risks;

or imposition of distribution or other restrictions under a REMS program.

Other potential consequences include, among other things:

• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

• fines, warning letters or holds on post-approval clinical trials;

• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

• product seizure or detention, or refusal to permit the import or export of products;

• injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed on the market.

This regulation includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet and social media.

Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is approved.

After approval, a drug product generally may not be promoted for uses that are not approved by the FDA, as reflected in the product’s prescribing information, although 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.

In the United States, health care professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as off-label uses, because the FDA does not regulate the practice of medicine.

However, FDA regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off-label uses.

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

In the United States, health care professionals are generally permitted to prescribe products for such uses not described in the labeling, known as off-label uses, because the FDA does not regulate the practice of medicine.

However, in October 2023, the FDA published draft guidance outlining the FDA’s non-binding policies governing the distribution of scientific information on unapproved uses to healthcare providers.

This draft guidance calls for such communications to be truthful, non-misleading, factual and unbiased and include all information necessary for healthcare providers to interpret the strengths and weaknesses and validity and utility of the information about the unapproved use.

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.

Moreover, with passage of the Pre-Approval Information Exchange Act in December 2022, sponsors of products that have not been approved may proactively communicate to

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payors certain information about products in development to help expedite patient access upon product approval.

In addition, in January 2025, the FDA published final guidance outlining its policies governing the distribution of scientific information to healthcare providers about unapproved uses of approved products.

The final guidance calls for such communications to be truthful, non-misleading and scientifically sound and to include all information necessary for healthcare providers to interpret the strengths and weaknesses and validity and utility of the information about the unapproved use of the approved product.

If a company engages in such communications consistent with the guidance’s recommendations, the FDA indicated that it will not treat such communications as evidence of unlawful promotion of a new intended use for the approved product.

While this guidance only applies to communications about unapproved uses of approved products, it may be helpful in understanding the FDA’s approach to communications about unapproved 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.

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The federal government has levied large civil and criminal fines against companies for alleged improper promotion, and has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCSA, which regulate the distribution and tracing of prescription drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states.

The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.

Manufacturers were required by November 2023 to have such systems and processes in place to comply with the DSCSA, but, so as not to disrupt supply chains, the FDA has granted certain exemptions from enhanced drug distribution security requirements for eligible trading partners for particular periods of time.

Orphan Drug Designation and Exclusivity

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If a product designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.

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The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication for which the product has been designated.

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In January 2023, the FDA announced that, in matters beyond the scope of that court order, the FDA will continue to apply its existing regulations tying orphan-drug exclusivity to the uses or indications for which the orphan drug was approved.

Section 505(b)(2) NDAs

NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product.

These applications are submitted under Section 505(b)(1) of the FDCA.

The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA.

This type of application allows the sponsor to rely, in part, on the FDA’s previous findings of safety and effectiveness for a similar product, or published literature.

Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the sponsor for approval of the application “were not conducted by or for the sponsor and for which the sponsor has not obtained a right of reference or use from the person by or for whom the investigations were conducted.”

Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and efficacy data that were not developed by the sponsor.

NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products.

If the Section 505(b)(2) sponsor can establish that reliance on the FDA’s previous approval is scientifically appropriate, the sponsor may eliminate the need to conduct certain preclinical or clinical studies of the new product.

The FDA may also require companies to perform additional studies or measurements to support the change from the approved product.

The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) sponsor.

Generic Drugs and Regulatory Exclusivity

In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs.

To obtain approval of a generic drug, a sponsor must submit an abbreviated new drug application, or ANDA, to the FDA.

An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures.

ANDAs are “abbreviated” because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness.

Instead, in support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.

Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA or 505(b)(2) application until any applicable period of non-patent exclusivity for the RLD has expired.

The FDCA provides a period of five years of regulatory exclusivity for a new drug containing a new chemical entity, or NCE.

For the purposes of this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA.

This interpretation of the FDCA by the FDA was confirmed with enactment of the Ensuring Innovation Act in April 2021.

An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance.

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cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the sponsor may submit its application four years following the original product approval.

The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the sponsor and are essential to the approval of the application.

Pediatric Exclusivity

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of regulatory exclusivity.

For drug products, the six-month period of exclusivity may be attached to the term of any existing patent or regulatory exclusivity.

This six-month exclusivity may be granted if an NDA or BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data.

The data do not need to show the product to be effective in the pediatric population studied;

rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted.

If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of non-patent exclusivity for drugs and biologics, or patent protection that covers a drug product, are extended by six months.

This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.

Patent Term Restoration and Extension

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• federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs;

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• federal Open Payments (or federal "sunshine" law), which requires pharmaceutical and medical device companies to monitor and report certain financial interactions with certain healthcare providers to the Center for Medicare & Medicaid Services, or CMS, within the U.S.

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There are a broad variety of data protection laws that may be applicable to our activities, and a range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws.

The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers.

The Federal Trade Commission and state Attorneys General are aggressive in reviewing privacy and data security protections for consumers.

New laws also are being considered at both the state and federal levels.

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Some of the provisions of these laws may apply to our business activities.

There are also states that are strongly considering privacy laws that will go into effect in 2025 and beyond.

Other states will be considering these laws in the future, and Congress has also been

debating passing a federal privacy law.

There are also states that are strongly considering or have already passed comprehensive privacy laws that will go into effect in the near future.

Other states will be considering similar laws in the future, and Congress has also been debating passing a federal privacy law.

There are also states that are specifically regulating health information that may affect our business.

These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our product candidates, if approved.

For example, the State of Washington passed the My Health My Data Act in 2023 which specifically regulated health information that is not otherwise regulated by the HIPAA rules, and the law also has a private right of action, which further increases the relevant compliance risk.

Connecticut and Nevada have also passed similar laws regulating consumer health data, and more states are considering such legislation in 2025.

These laws may impact our

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business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our product candidates, if approved.

Plaintiffs’ lawyers are also increasingly using privacy-related statutes at both the state and federal level to bring lawsuits against companies for their data-related practices.

In particular, there have been a significant number of cases filed against companies for their use of pixels and other web trackers.

These cases often allege violations of the California Invasion of Privacy Act and other state laws regulating wiretapping, as well as the federal Video Privacy Protection Act.

Pharmaceutical Insurance Coverage and Health Care Reform

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We may be subject to fines and other penalties if we fail to report such prices accurately.

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Outside the United States, ensuring adequate coverage and payment for any product candidates we may develop will face challenges.

Pricing of prescription pharmaceuticals is subject to governmental control in many countries.

Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conduct a clinical trial that compares the cost effectiveness of any product candidates we

may develop to other available therapies.

The conduct of such a clinical trial could be expensive and result in delays in our commercialization efforts.

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For example, the Tax Act repealed the "individual mandate." The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019.

Further, on December 14, 2018, a U.S.

District Court judge in the Northern District of Texas ruled that the individual mandate portion of the PPACA is an essential and inseverable feature of the PPACA, and therefore because the mandate was repealed as part of the Tax Act, the remaining provisions of the PPACA are invalid as well.

Supreme Court heard this case on November 10, 2020 and, on June 17, 2021, dismissed this action after finding that the plaintiffs do not have standing to challenge the constitutionality of the PPACA.

Litigation and legislation over the PPACA are likely to continue, with unpredictable and uncertain results.

The Trump administration also took executive actions to undermine or delay implementation of the PPACA, including directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices.

On January 28, 2021, however, President Biden revoked those orders and issued a new Executive Order which directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access.

Under this Order, federal agencies are directed to re-examine:

policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19;

demonstrations and waivers under Medicaid and the PPACA that may reduce coverage or undermine the programs, including work requirements;

policies that undermine the Health Insurance Marketplace or other markets for health insurance;

policies that make it more difficult to enroll in Medicaid and the PPACA;

and policies that reduce affordability of coverage or financial assistance, including for dependents.

On June 17, 2021, the U.S.

Supreme Court dismissed the most recent judicial challenge to the PPACA after finding that the plaintiffs do not have standing to challenge the constitutionality of the PPACA.

During the first Trump Administration, the Congress and administration sought to overturn the PPACA and related measures.

Shortly after taking office in January 2025, President Trump revoked a number of executive orders issued by President Biden, including at least two executive orders that were designed to further implement the PPACA.

We anticipate similar efforts to undermine the PPACA, and litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.

Pharmaceutical Prices

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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 Trump administration issued several executive orders intended to lower the costs of prescription

products and certain provisions in these orders have been incorporated into regulations.

In 2020, the Trump 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.

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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.

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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 to import certain prescription drugs from Canada into the United States.

That regulation was challenged in a lawsuit by the Pharmaceutical Research and Manufacturers of America, or PhRMA, but the case was dismissed by a federal district court in February 2023 after the court found that PhRMA did not have standing to sue HHS.

A number of states have passed laws allowing for the importation of drugs from Canada.

Several states have passed legislation establishing workgroups to examine the impact of a state importation program.

Several other states have passed laws allowing for the importation of drugs from Canada.

Certain of these states have submitted Section 804 Importation Program proposals and are awaiting FDA approval.

In January 2024, the FDA approved Florida’s plan for Canadian drug importation.

Florida now has authority to import certain products from Canada for a period of two years once certain conditions are met.

Florida will first need to submit a pre-import request for each product selected for importation, which must be approved by the FDA.

Florida will also need to relabel the products and perform quality testing of the products to meet FDA standards.

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.

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

More recently, on August 16, 2022, the 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.

The IRA 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;

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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.

In August 2024, the HHS published the results of the first Medicare drug price negotiations for ten selected drugs that treat a range of conditions, including diabetes, chronic kidney disease, and rheumatoid arthritis.

The prices of these ten drugs will become effective January 1, 2026.

On January 17, 2025, CMS announced its selection of 15 additional drugs covered by Part D for the second cycle of negotiations.

Following the change in administrations, CMS issued a public statement on January 29, 2025, declaring that lowering the cost of prescription drugs is a top priority of the new administration and CMS is committed to considering opportunities to bring greater transparency in the negotiation program.

The second cycle of negotiations with participating drug companies will occur during 2025, and any negotiated prices for this second set of drugs will be effective starting January 1, 2027.

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.

In addition to the drug price negotiation program, the IRA established inflation rebate programs under Medicare Part B and Part D.

These programs require manufacturers to pay rebates to Medicare if they raise their prices for certain Part B and Part D drugs faster than the rate of inflation.

On December 9, 2024, with issuance of its 2025 Physician Fee Schedule final regulation, CMS finalized its rules governing the IRA inflation rebate programs.

The new law also caps Medicare out-of-pocket drug costs at an estimated $2,000 beginning in 2025.

The IRA includes a provision exempting orphan drugs from Medicare price negotiation but this exclusion has been interpreted by CMS in final guidance issued in July 2023 to apply only to those orphan drugs with an approved indication (or indications) for a single rare disease or condition.

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CMS also clarified that, if a drug loses its orphan drug exclusion status, the agency will use the earliest date of approval/licensure to determine whether the product is a qualifying single source drug subject to price negotiations.

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In June 2023, Merck filed a lawsuit against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution.

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Chamber of Commerce and pharmaceutical companies, also filed lawsuits in various courts with similar constitutional claims against HHS and CMS.

HHS has generally won the substantive disputes in these cases, and various federal district court judges have expressed skepticism regarding the merits of the legal arguments being pursued by the pharmaceutical industry.

Certain of these cases are now on appeal, and, on October 30, 2024, the Court of Appeals for the Third Circuit heard oral argument in these cases.

Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain results.

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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.

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.

This is increasingly true with respect to products approved pursuant to the accelerated approval pathway.

State Medicaid programs and other payers are developing strategies and implementing significant coverage barriers, or refusing to cover these products outright, arguing that accelerated approval drugs have insufficient or limited evidence despite meeting the FDA’s standards for accelerated approval.

Review and Approval of Medicinal Products in the European Union

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It also requires the submission to the relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold in the European Union.

Preclinical Studies

Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical or biological substances.

Non-clinical (pharmaco-toxicological) studies must be conducted in compliance with GLP principles as set forth in EU Directive 2004/10/EC (unless otherwise justified for certain particular medicinal products – e.g., radio-pharmaceutical precursors for radio-labeling purposes).

In particular, non-clinical studies, both in vitro and in vivo , must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies.

These GLP standards reflect the Organization for Economic Co-operation and Development requirements.

Clinical Trial Approval

On January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014, or the Clinical Trials Regulation, became effective in the European Union and replaced the prior Clinical Trials Directive 2001/20/EC, or the Clinical Trials Directive.

The Clinical Trials Regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the European Union.

The Clinical Trials Regulation aims at simplifying and streamlining the authorization, conduct and transparency

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of clinical trials in the European Union.

Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one member state of the European Union, or EU Member State, will only be required to submit a single application for approval.

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Marketing Authorization

To obtain a marketing authorization for a product under European Union regulatory systems, a sponsor must submit an MAA either under a centralized procedure administered by the EMA, or one of the procedures administered by competent authorities in the EU Member States (decentralized procedure, national procedure or mutual recognition procedure).

To obtain a marketing authorization for a product under European Union regulatory systems, a sponsor must submit a marketing authorization application, or MAA, either under a centralized procedure administered by the EMA, or one of the procedures administered by competent authorities in the EU Member States (decentralized procedure, national procedure or mutual recognition procedure).

A marketing authorization may be granted only to a sponsor established in the European Union.

Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the European Union, sponsors have to demonstrate compliance with all measures included in an EMA-approved Paediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver, or (3) a deferral for one or more of the measures included in the PIP.

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Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver, or (3) a deferral for one or more of the measures included in the PIP.

The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the European Economic Area (i.e.

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This draft decision must take the opinion and any relevant provisions of European Union law into account.

Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on

Medicinal Products for Human Use, or the Standing Committee.

Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on Medicinal Products for Human Use, or the Standing Committee.

The Standing Committee is composed of representatives of the EU Member States and chaired by a non-voting European Commission representative.

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The European Parliament’s role is to ensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization.

Exceptional Circumstances

The European Commission may grant a so-called "marketing authorization under exceptional circumstances".

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Thus, a marketing authorization under exceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA decides that safety grounds merit one additional five-year renewal.

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Conditional Marketing Authorization

The European Commission may also grant a so-called "conditional marketing authorization" prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization.

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The reference EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application.

The resulting assessment report is submitted to the concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and

related materials.

The resulting assessment report is submitted to the concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and related materials.

If a concerned EU Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all EU Member States.

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Even if a compound is considered to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another company nevertheless could also market another version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests, and clinical trials.

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The European Union pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November 2020.

The European Commission’s proposal for revision of several legislative instruments related to medicinal products was published in April 2023 and includes, among other things, provisions that would potentially reduce the duration of regulatory data protection.

The European Parliament requested several amendments in April 2024.

At this time, the proposed revisions remain to be agreed and adopted by the European Parliament and European Council and the proposals may therefore be substantially revised before adoption, which is not anticipated before early 2026.

The revisions may, however, have a significant impact on the pharmaceutical industry in the long term, if and when adopted.

Periods of Authorization and Renewals

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There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.

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General Data Protection Regulation

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Brexit and the Regulatory Framework in the United Kingdom

The United Kingdom’s withdrawal from the European Union took place on January 31, 2020.

The European Union and the United Kingdom reached an agreement on their new partnership in the Trade and Cooperation Agreement, or the Agreement, which was applied provisionally beginning on January 1, 2021 and which entered into force on May 1, 2021.

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 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 European Union rules under the Northern Ireland Protocol.

On February 27, 2023, the UK government and the European Commission announced a political agreement in principle to replace the Northern Ireland Protocol with a new set of arrangements, known as the “Windsor Framework”.

This new framework fundamentally changes the existing system under the Northern Ireland Protocol, including with respect to the regulation of medicinal products in the United Kingdom In particular, the MHRA will be responsible for approving all medicinal products destined for the United Kingdom market (i.e., Great Britain and Northern Ireland), and the EMA will no longer have any role in approving medicinal products destined for Northern Ireland.

A single UK-wide marketing authorization will be granted by the MHRA for all medicinal products to be sold in the United Kingdom, enabling products to be sold in a single pack and under a single authorization throughout the United Kingdom.The Windsor Framework was approved by the EU-UK Joint Committee on March 24, 2023, so the United Kingdom government and the European Union will enact legislative measures to bring it into law.

On June 9, 2023, the MHRA announced that the medicines aspects of the Windsor Framework will apply from January 1, 2025.

The Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or HMR, is the primary legal instrument for the regulation of medicines in the United Kingdom.

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.

European Union laws which have been transposed into United Kingdom law through secondary legislation continue to be applicable as “retained EU law”.

However, new legislation, such as the Clinical Trials Regulation, will not be applicable in Great Britain.

Since a significant proportion of the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety, and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit may have a material impact upon the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom.

For example, the United Kingdom is no longer covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA, and a separate marketing authorization will be required to market our product candidates in the United Kingdom.A new international recognition framework has been in place since January 1, 2024, whereby the MHRA will have regard to decisions on the approval of marketing authorizations made by the EMA and certain other regulators when determining an application for a new marketing authorization in Great Britain.

As with other issues related to withdrawal of the United Kingdom from the European Union, there are open questions about how personal data will be protected in the United Kingdom and whether personal information can transfer from the European Union to the United Kingdom.

Following the withdrawal of the United Kingdom from the European Union, the UK Data Protection Act 2018 applies to the processing of personal data that takes place in the United Kingdom and includes parallel obligations to those set forth by the GDPR.

While the Data Protection Act 2018 in the United Kingdom that “implements” and complements the GDPR has achieved Royal Assent on May 23, 2018 and 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 the GDPR.

The UK government has already determined that it considers all European Union and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the European Union/EEA remain unaffected.

In addition, a recent decision from the European Commission appears to deem the United Kingdom as being “essentially adequate” for purposes of data transfer from the European Union to the United Kingdom, although this decision may be re-evaluated in the future.

The United Kingdom’s withdrawal from the EU, commonly referred to as Brexit, took place on January 31, 2020.

The EU and the United Kingdom reached an agreement on their new partnership in the Trade and Cooperation Agreement, which entered into force on May 1, 2021.

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, as amended by the so called Windsor Framework agreed in February 2023.

As of January 1, 2025, the changes introduced by the Windsor Framework resulted in the MHRA being responsible for approving all medicinal products destined for the United Kingdom market (Great Britain and Northern Ireland), and the EMA will no longer have any role in approving medicinal products destined for Northern Ireland.

The MHRA relies 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 United Kingdom’s withdrawal from the EU.

As of January 1, 2024 on, a new international recognition procedure, or IRP, applies which intends to facilitate approval of pharmaceutical products in the UK.

The IRP is open to applicants that have already received an authorization for the same product from one of the MHRA’s specified Reference Regulators, or RRs.

The RRs notably include EMA and regulators in the EEA member states for approvals in the EU centralized procedure and mutual recognition procedure as well as the FDA (for product approvals granted in the U.S.).The RR assessment must have undergone a full and standalone review.

RR assessments based on reliance or recognition cannot be used to support an IRP application.

A CHMP positive opinion or an MRDC positive end of procedure outcome is an RR authorisation for the purposes of IRP.

Human Capital

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Of these full-time employees, 626 of these employees are located in the United States and 265 of these employees are located in our offices outside of the United States.

Additionally, as of February 5, 2024, 33.3% of our full-time employees self-identified as female, 0.3% self-identified as non-binary, and 0.9% chose not to disclose their gender, and 42.1% of our executive team self-identified as female.

Additionally, as of February 3, 2025, 33.6% of our full-time employees

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self-identified as female, 0.4% self-identified as non-binary, and 0.7% chose not to disclose their gender, and 37.5% of our executive team self-identified as female.

Further, 40.7% of our new hires since January 1, 2025 self-identify as female, 0.9% self-identify as non-binary, and 0.9% have chosen not to disclose their gender.

As of February 5, 2024, 60.3% of our full-time employees in the United States self-identified as White, 26.1% self-identified as Asian, 4.4% self-identified as having two or more races, 3.3% self-identified as Black or African American, 2.6% self-identified as Hispanic or Latino, 0.2%

self-identified as American Indian or Alaskan Native, 0.2% self-identified as Native Hawaiian or Other Pacific Islander, and 2.9% chose not to disclose their race or ethnicity.

As of February 3, 2025, 55.1% of our full-time employees in the United States self-identified as White, 28.6% self-identified as Asian, 4.6% self-identified as having two or more races, 3.8% self-identified as Black or African American, 3.2% self-identified as Hispanic or Latino, 0.2% self-identified as American Indian or Alaskan Native, 0.2% self-identified as Native Hawaiian or Other Pacific Islander, and 4.3% 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.

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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 served as the foundation for our inaugural Corporate Sustainability Report, which we published in April 2023, and continues to 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.

This assessment serves as the foundation for our annual Corporate Sustainability Report and continues to serve as the foundation for our comprehensive, data-driven, Corporate Sustainability strategy.

Our workplace philosophy is focused on maintaining an inclusive workplace for employees with a wide range of perspectives, experiences and backgrounds, and ensuring that our employees feel safe, heard, comfortable, and valued.

We continue to focus many of our recruiting efforts on attracting a broad candidate pipeline of top talent in the science and technology industries.

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

The DEI Council also regularly seeks feedback from employees to improve DEI programming and provides a permanent forum for voices to be heard across all levels of the organization.

We currently have six ERGs that provide safe and equitable spaces for employees to advance inclusivity, create opportunities for education and awareness, and contribute to ongoing business objectives.

Our ERGs, which include Caregivers and Parents of Schrödinger, Schrödinger Allied Sexualities Society, Schrödinger People of Color, Schrödinger Gender Equity, International Community of Schrödinger, and Healthy Minds Alliance, support the sharing of resources while representing and communicating the interests of a particular ERG and its allies to the company.

While membership in our six ERGs directly comprises approximately one-third of our employees, these forums provide an environment for community support, professional development, and educational opportunities for our entire employee population.

Our ERGs are also involved in recruiting diverse candidates and participating in industry conferences, extending their reach well beyond our company.

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 how to leverage a growth mindset in the workplace.

A selected group of senior leaders, Employee Resource Group, or ERG, representatives and passionate employees meet monthly to discuss strategy, priorities, and goals for best supporting our workforce.

This group also regularly seeks feedback from employees and provides a forum for voices to be heard across all levels of the organization.

We currently have employee-led ERGs that provide spaces for all employees to advance inclusivity and create opportunities for education and awareness.

While membership in our ERGs directly comprises approximately one-third of our employees, these forums provide an environment for community support, professional development, and educational opportunities for our entire employee population.

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

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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 open positions in support of our software, drug discovery and materials science businesses.

We strategically recruit talent through various methods.

Prospective employees are identified by leveraging our current employee network and our existing and growing relationships with computational chemistry professors and labs, and by hosting networking events.

We maintain a strong presence at industry conferences and post job openings to industry-specific online career forums.

Employee learning and development is a high priority for our company, and we believe it is essential for its growth and success.

We offer employees cross-departmental rotations, leadership training and workshops, mentoring and reverse-mentoring programs and online learning with curated learning paths.

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

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This allows our employees to develop a work schedule that best suits their individual needs.

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

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We also have a variety of communications channels that allow employees to stay informed and connected, and an annual performance review process that emphasizes regular connections and real-time feedback between employees and managers.

In our local communities, we are focused on giving back through educational outreach to students and educators to increase awareness, interest and literacy for students in STEM.

To further our community engagement efforts, we provide an annual paid volunteer day benefit and matching gift program, and in 2023 we launched a new social impact platform to provide employees access to local volunteer opportunities in various local currencies and languages.

In our local communities, we are focused on giving back through educational outreach to students and educators to increase awareness, interest and literacy for students in STEM, among other social impact areas of focus.

To further our community engagement efforts, we provide an annual paid volunteer day benefit and matching gift program and we have established a social impact platform to provide employees access to local volunteer opportunities in various local currencies and languages.

Our Corporate Information

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Our website address is www.schrodinger.com.

The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report or in any other report or document we file with the Securities and Exchange Commission, or SEC, and any reference to our website address is intended to be an inactive textual reference only.

The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report or in any other report or document we file with the SEC and any reference to our website address is intended to be an inactive textual reference only.

We own or have rights to trademarks, service marks, and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names.

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

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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