What changed in this filing

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Item 1. Business

2023-10-27 compared with 2022-10-28 · 143 added, 107 removed, 189 unchanged (57% of the section changed)

ITEM 1 –BUSINESS

As used in this Annual Report, each of the terms “we,” “us,” “our,” the “Company,” and “Simulations Plus” refers to Simulations Plus, Inc.

and its wholly owned subsidiaries (both current and previous, as applicable) Cognigen Corporation, of Buffalo, New York;

DILIsym Services, Inc.

of Research Triangle Park, North Carolina;

and Lixoft of Paris, France, unless otherwise stated or the context otherwise requires.

As used in this Report, each of the terms “we,” “us,” “our,” the “Company,” and “Simulations Plus” refers to Simulations Plus, Inc.

and its wholly owned subsidiaries (both current and previous, as applicable), Simulations Plus International, Inc.

(“SLPI”), which owns 100% of the outstanding equity interests of Lixoft of Paris, France, and Immunetrics, Inc., unless otherwise stated or the context otherwise requires.

On December 20, 2022, SLPI, a Delaware corporation, was created as a wholly owned subsidiary of Simulations Plus, Inc.

in order to facilitate future international acquisitions, if any, and global integrations.

In furtherance of this objective, the Company added the trade name “SLP France” to Lixoft, and on April 25, 2023, Simulations Plus, Inc.

transferred its ownership of Lixoft to SLPI pursuant to a contribution and acceptance agreement, resulting in Lixoft becoming a wholly owned subsidiary of SLPI.

The transfer did not impact the rights of the Company’s stockholders.

On June 16, 2023, Simulations Plus, Inc.

acquired Immunetrics, Inc.

(“Immunetrics”) through a reverse triangular merger.

Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), at closing, Simulation Plus, Inc.’s newly created wholly owned subsidiary, Insight Merger Sub, Inc., merged with and into Immunetrics, with Immunetrics surviving as a wholly owned subsidiary of the Company.

Effective September 1, 2023, the Company merged Immunetrics with and into Simulations Plus, Inc.

through a short-form mergers (the “Merger”).

To effectuate the Merger, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Immunetrics’ state of incorporation) and California (Simulation Plus, Inc.’s state of incorporation).

Consummation of the Merger was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

Simulations Plus, Inc., incorporated in 1996, is a premier developer of modeling and simulation software for drug discovery and development, including the prediction of properties of molecules utilizing both artificial intelligence (“AI”) and machine-based technology.

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Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies and academic and regulatory agencies worldwide for use in the conduct of industry-based research.

The Company is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, and Paris, France.

The Company is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, Pittsburgh, PA, and Paris, France.

Our common stock has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the same symbol.

We are a global leader, delivering relevant, cost-effective software and creative and insightful consulting services.

Pharmaceutical and biotechnology companies and hospitals use our software programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical, and clinical development programs, and the development of generic medicines after patent expiration, including using our software products and services to enhance their understanding of the properties of potential new therapies and to use emerging data to improve formulations, select and justify dosing regimens, support the generics industry, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients.

Pharmaceutical and biotechnology companies and hospitals use our software programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical, and clinical development programs, and the development of generic medicines after patent expiration, including using our software products and services to enhance their understanding of the properties of potential new therapies and to use emerging data to improve formulations, select and justify dosing regimens, support generic pharmaceutical product development, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients.

SEGMENT INFORMATION

During the year ended August 31, 2023, our business was organized into two reportable segments, software and services.

We currently offer thirteen software products for pharmaceutical research and development as follows:

• Three simulation products that provide time-dependent results based on solving large sets of differential equations:

We currently offer twelve software products for pharmaceutical research and development, as follows:

• Three simulation products that provide time-dependent results based on solving large sets of mechanistic differential equations:

◦ GastroPlus ®

◦ MembranePlus™

• Two products that predict and analyze static properties of chemicals utilizing both artificial intelligence as well as machine-learning technologies:

• Two products that predict and analyze static properties of chemicals utilizing both AI and machine-learning technologies:

◦ ADMET Predictor ®

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• Six products that are based on mechanistic, mathematical models:

• Two products designed for modeling and simulation that allow for population analyses, rapid clinical trial data analyses and regulatory submissions:

◦ MonolixSuite™ (the combination of Monolix™, PKanalix™, and Simulx™).

• One product designed for modeling and simulation that allows for population analyses, rapid clinical trial data analyses and regulatory submissions:

◦ MonolixSuite™ (the combination of Monolix (c) , PKanalix (c) , and Simulx (c) ).

Our software business represented 61% of our total revenue during the year ended August 31, 2023, primarily generated by the following products:

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In October 2022, GastroPlus version 9.8.3, which included new mechanisms and updated documentation for key drug interaction standards models, was released.

This version added important new capabilities, including improvements to population simulations, additional dosage route models, drug interactions, and automated workflows for virtual bioequivalence simulations to mimic real-world study designs.

This version also included a new validated swine PBPK model to drive pharmaceutical and veterinary medicine research and updated options for Monolix™ and NAFLDsym® software, were released.

This version also added important new capabilities, including improvements to nonalcoholic fatty liver disease (“NAFLD”) and nonalcoholic steatohepatitis (“NASH”) disease population simulations to inform the NAFLDsym® platform, additional dosage route models, and improved reporting templates for the Monolix™ software to support the statistical analysis of virtual physiologically-based pharmacokinetic (“PBPK”) population results.

Because of the widespread use of GastroPlus, we have been able to enter both funded and unfunded collaborations with industry and government agencies to drive advances to modeling and simulation science.

In all such collaborations, we own the intellectual property developed within the GastroPlus program, and updates are integrated into future versions and made available to all clients.

In the year ended August 31, 2023, we received six funded grants from the U.S.

FDA to enhance PBPK modeling science.

Recent collaborations include:

• Animal health models:

in January 2022, we entered a funded collaboration with a large animal health company to validate current animal physiologically based pharmacokinetic ("PBPK") models and add critical new species to GastroPlus to support veterinary medicine and next-generation alternatives to animal testing.

in November 2022, we entered into a funded collaboration with the University of Bath and the FDA to improve the accuracy of drug concentrations predicted locally within gut tissue and to outline novel strategies for applying in vitro systems and in silico models to assess new formulation approaches for addressing GI diseases.

• Long-acting injectable (LAI) formulation model:

in October 2021, through a joint proposal with the University of Connecticut’s Department of Pharmaceutical Sciences, we were awarded a newly funded contract from the FDA to enhance and validate mechanistic in vitro/in vivo correlation ("IVIVC") methods for LAI formulations within GastroPlus.

• Dermal absorption -Transdermal Compartmental Absorption and Transit (TCAT™) model:

in September 2021, we received a newly funded cooperative agreement from the FDA to expand the dermal formulations which can be mechanistically simulated via the TCAT model within GastroPlus, implement new virtual population groups, and extend bioequivalence calculations to account for local skin concentrations.

• Oral absorption – Advanced Compartmental Absorption and Transit (ACAT™) model:

in November 2019, we entered a newly funded collaboration with a large pharmaceutical company to modify the mechanistic ACAT™ model in GastroPlus to support gastrointestinal disease research.

In January 2021, we entered into a newer funded collaboration with a different large pharmaceutical company to add novel mechanisms for oral peptide formulations within the ACAT model to expand oral absorption modeling beyond small molecules.

In January 2022, we entered into a newly funded collaboration with a third large pharmaceutical company to further enhance the ACAT model to aid scientists in the detailed understanding of local drug disposition in the gastrointestinal tract

• Oral cavity absorption model:

in October 2020, through a joint proposal with the St.

Louis College of Pharmacy at the University of Health Sciences and Pharmacy in St.

Louis, we were awarded a newly funded cooperative agreement from the FDA to establish novel in vitro/in silico models for the oral cavity route of administration in GastroPlus.

in October 2022, through a joint proposal with the University of Florida’s College of Pharmacy, we were awarded a newly funded contract from the FDA to advance in vitro and (patho) physiology-based PBPK models to understand and predict pulmonary absorption and tissue retention of inhaled drugs.

The MonolixSuite is a unique solution for modeling and simulation for pharmaceutical companies, biotechnology enterprises, and hospitals.

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Monolix, Simulx, and PKanalix.

Monolix 2021R2 was released in June 2022, which combines the most advanced algorithms with a unique ease of use.

Monolix 2023R1 was released in March 2023, which combines the most advanced algorithms with a unique ease of use.

The products are used by pharmaceutical companies across the globe at each step of drug development, from preclinical to first-in-human, clinical, and post-approval.

ADMET Predictor

ADMET (Absorption, Distribution, Metabolism, Excretion, and Toxicity) Predictor is a top-ranked, chemistry-based computer program that takes molecular structures as inputs and uses machine-learning technology to predict different properties for them.

ADMET (Absorption, Distribution, Metabolism, Excretion, and Toxicity) Predictor is a top-ranked, chemistry-based computer program that takes molecular structures as inputs and uses AI/machine-learning technology to predict different properties for them.

This capability allows chemists to generate estimates for many important molecular properties without the need to synthesize and test the molecules.

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The optional ADMET Modeler™ Module in ADMET Predictor enables scientists to use their own experimental data to quickly create proprietary high-quality predictive models using the same powerful AI engine we use to build our top-ranked property predictions.

Version 10.4 of ADMET Predictor, marketed as APX.4, was released in May 2022, which added many new features including, but not limited to:

• New 3D conformer generation functionality to easily predict properties using advanced 3D molecular and atomic descriptors

• New mouse species models added to the high-throughput pharmacokinetic ("HTPK") Simulation Module to complement the rat and human options for novel lead selection activities

• New transform rules added to the artificial intelligence-driven drug design ("AIDD") Module to boost the virtual design space

• Improvements to the API and command line features for flexible deployment and workflow options

We have made significant investments in two key areas with recent versions:

improving integration of our top-ranked ADMET Predictor and GastroPlus models to leverage our novel ‘Discovery PBPK’ approaches for chemists and safety researchers, and further enhancing our best-in-class machine-learning engine to assist with drug discovery.

Version 11 of ADMET Predictor was released in July 2023, which added many new features including:

• New industry partner data that more than doubles the training dataset of ionization constants (“pKa”), leading to enhanced predictive accuracy and wider applicability of our S+pKa model

• New functionality to perform 3D virtual screening based on shape and pharmacophore-feature similarity

• New CYP inhibition (“Ki”) models to allow for rapid drug-drug interaction (“DDI”) risk assessment

• Significant enhancements to the AI-driven drug design (“AIDD”) module

We have made significant investments in three key areas with recent versions:

improving integration of our top-ranked ADMET Predictor and GastroPlus models to leverage our novel high-throughput pharmacokinetic (“HTPK”) simulation approaches for chemists and safety researchers, enhancing our best-in-class AI/machine-learning engine to assist with drug discovery, and advancing on our innovative AIDD Module to apply generative AI technology to design and optimize lead molecules for any combination of properties.

Recent collaborations include:

• Drug discovery workflows :

in December 2019, we entered into a new collaboration agreement with Bayer AG to advance our ADMET Predictor machine-learning software for use within integrated drug discovery workflows by developing improved structure and tautomer handling capabilities that will support data integrity across the different discovery platforms.

• HTPK simulations:

in April 2020, we entered into a new collaboration agreement with a large pharmaceutical company to develop enhanced capabilities in our existing HTPK Simulation Module which will incorporate PBPK modeling into the partner’s discovery platform to support compound screening activities.

In September 2020, we entered an accelerated second phase of this collaboration with the sponsor company to add further enhancements to the HTPK Simulation Module calculations and workflows.

• AIDD Module validation:

in September 2020, we entered into a collaborative research agreement with a large pharmaceutical company to apply the AIDD Module to an active therapeutic program.

We worked with the partner to define the multi-objective parameters against which the lead molecule(s) were to be optimized.

In April 2021, we received initial experimental results from 10 candidate molecules selected for synthesis and testing.

In August 2021, the second phase of experimental results were received.

Peer-reviewed manuscripts of the methodology and results are expected to be jointly published with our collaboration partner in 2023.

• Machine-learning models for ionization constants ( “ pKa ” ):

in August 2022, we entered into a new collaboration with a large pharmaceutical company to leverage their expansive internal databases to improve the accuracy of predictions, and extend the chemical coverage space, of our pKa models using the novel machine-learning and atomic descriptor calculation methods within ADMET Predictor.

in August 2022, we entered into a new collaboration with a large pharmaceutical company to leverage their expansive internal databases to improve the accuracy of predictions, and extend the chemical coverage space, of our pKa models using the novel AI/machine-learning and atomic descriptor calculation methods within ADMET Predictor.

In February 2023, we entered another new data-sharing collaboration with a large agrochemicals company to further extend our top-rated AI/machine learning models for predicting ionization descriptors and endpoints.

• Drug design collaboration using the AIDD Module:

in March 2023, we entered into a collaborative research agreement with the Polish Academy of Sciences (“PAS”) to jointly design new compounds for the RORγ/RORγT nuclear receptors using our cutting-edge AI/machine learning (“ML”) technology in the ADMET Predictor® software platform.

Emerging intellectual property, in the form of encouraging lead compounds, will be jointly owned by the Company and PAS for further development opportunities.

• Strategic collaboration to discover anticancer therapies using the AIDD Module:

in March 2023, we entered into a strategic research collaboration with the Sino-American Cancer Foundation (“SACF”) to leverage our staff and AIDD Module to support the discovery and design of novel inhibitors of methylenetetrahydrofolate dehydrogenase 2 (“MTHFD2”), an emerging cancer target.

SACF will provide upfront funding to the Company to design a set number of compounds for efficacy against MTHFD2 which will be exclusive to SACF.

Subsequent milestone payments will be made to the Company as key research and development goals are met.

Our scientists and engineers have extensive expertise in drug absorption via various dosing routes, pharmacokinetics, pharmacodynamics, drug-drug interactions, and other areas related to the drug development process.

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In addition to modeling and simulation consulting services, we provide expertise and assistance with development-related decision-making and support for regulatory interactions related to dose selection, clinical trial design, and understanding of the determinants of safety and efficacy for new medicines.

We provide creative and insightful consulting services to support our quantitative systems pharmacology/quantitative systems toxicology ("QSP/QST") modeling focused on nonalcoholic fatty liver safety ("NAFLD"), and nonalcoholic steatohepatitis ("NASH"), IPF, heart disease, liver and kidney safety, and radiation syndrome, as well as other areas.

We provide creative and insightful consulting services to support our quantitative systems pharmacology/quantitative systems toxicology (“QSP/QST”) modeling focused on NAFLD, and NASH, idiopathic pulmonary fibrosis (“IPF”), heart disease, liver and kidney safety, as well as other areas.

In 2014, the FDA and other regulatory agencies began to emphasize the need to encourage mechanistic PBPK modeling and simulation in clinical pharmacology, with final guidance documents completed in 2018.

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More specifically, our clients seek out our consulting services to acquire scientific, therapeutic-area-related modeling and simulation expertise that they do not have in-house.

Early Drug Discovery ( “ EDD ” )

At Simulations Plus, we have a team of experts, including computational and medicinal chemists, cheminformatics specialists, and drug development professionals with decades of experience, all here to facilitate small and large companies’ drug discovery and development journeys.

With our EDD services offering, we provide end-to-end in silico drug design and optimization services as well as help with individual steps in the process, including:

• AIDD enabled drug discovery and optimization

• High-throughput screening (“HTS”) library design and hit visualization and analysis

• QSAR/QSPR modeling and simulation

Below is a summary of revenue percentages by each of our software and services businesses for the fiscal years ended August 31:

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SALES AND MARKETING

We market our software and services globally through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and government agencies, our website, and various communication channels to our database of prospects and customers.

We market our software and services globally through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and government agencies, online presentations, our website, and various communication channels to our database of prospects and customers.

At various yearly scientific meetings worldwide, numerous presentations and posters report research performed using our software.

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Our sales and marketing efforts are handled primarily internally by sales and marketing staff, with our scientific team and several senior management staff assisting our marketing and sales staff with trade shows, seminars, and customer training both online and on-site.

During fiscal year 2023, the Company invested in learning management software which streamlined our ability to offer online training to customers.

In addition, enhancements were made to our customer relationship management software providing insights about our targeted markets and customers.

We also have independent distributors in Japan, China, India, South Korea, and Brazil, who sell and market our products with support from our scientists and engineers.

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The event also featured a panel discussion on the ascent of model-informed drug development and the increasing importance of developing next-generation technology.

In February 2022, we hosted the 2022 Model-Informed Drug Development (MIDD+) scientific conference where attendees from 57 countries spent two days focusing on advancing Model-Informed Drug Development.

The conference was focused on delivering real-world case studies using modeling and simulation.

Tracks included dedicated sessions covering all stages of the drug development process, including discovery, preclinical, clinical, and post-approval/generics.

In 2022, the Medicines and Healthcare products Regulatory Agency in the United Kingdom was added to the Regulatory Affairs panel, and speakers from many pharmaceutical and biotech companies presented their latest research.

The conference was well received, and we hosted it again in February 2022 and February 2023.

We compete against a number of established companies that provide screening, testing, and research services, and products that are not based on simulation software.

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Smaller companies generally need to outsource a greater percentage of this effort.

Thus, we compete not only with other software suppliers and scientific consulting service providers but with the in-house development and scientific consulting teams at some of the larger pharmaceutical companies.

Thus, we compete not only with other software suppliers and scientific consulting service providers, but also with the in-house development and scientific consulting teams at some of the larger pharmaceutical companies.

Based on our technical knowledge and expertise, we believe that we are strategically positioned to offer competitive modeling and simulation consulting services to companies.

Our clients seek out our services for multiple reasons including, without limitation:

Our clients seek out our services for multiple reasons including:

(i) to acquire scientific, therapeutic-area-related modeling expertise that they do not have in-house, (ii) to address a need for modeling and simulation efforts beyond the capacity of in-house resources, (iii) to fulfill their modeling requirements more efficiently than they could do in-house, and (iv) to utilize our software when they do not have the in-house expertise to do so.

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TRAINING AND TECHNICAL SUPPORT

Customer training and technical support are important factors in customer satisfaction for our pharmaceutical products, and we believe we are an industry leader in providing strong customer training and technical support in our business areas.

Customer training and technical support are important factors in customer satisfaction for our products, and we believe we are an industry leader in providing strong customer training and technical support in our business areas.

We provide in-house seminars at customers’ and potential customers’ sites, as well as at selected universities to train students who will soon be industry scientists.

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Technical support is provided after the sale of any software in the form of on-site training (at the customer’s expense), web meetings and telephone, fax, and e-mail assistance to the customer’s users during the customer’s license period.

We provide telephone, e-mail, and web-based support for all of our software products.

Technical support for our software is provided by our life sciences teams and our inside sales and support staff.

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Our current customer base is highly fragmented.

in 2022, our three largest customers in terms of revenue each accounted for 5%, 3%, and 3% of our revenues, respectively.

Our revenues exhibit seasonal fluctuations, with the first fiscal quarter (September-November) and fourth fiscal quarter (June-August) generally having the lowest revenues due to vacations and reduced activities at our customers’ sites.

This is due to pharmaceutical industry buying patterns as well as our revenue recognition policies for software, consulting service slowdowns due to vacations, and lower customer and employee conference attendance in those periods.

For the year ended August 31, 2023, our three largest customers in terms of revenue each accounted for 6%, 4%, and 3% of our revenues, respectively.

Our revenues exhibit seasonal fluctuations, with the first fiscal quarter (September-November) generally having the lowest revenues.

This is due to pharmaceutical industry buying patterns as well as our revenue recognition policies for software, consulting service slowdowns due to summer vacations in the previous quarter, and lower customer and employee conference attendance in those periods.

Revenues for any quarter are not necessarily indicative of revenues for any future period;

however, because our pharmaceutical software is licensed on an annual basis, renewals are usually within the same quarter year after year, even though there are certain instances in which the license renewal term may not immediately follow the initial license term, and therefore result in a shift of certain customer revenues to a subsequent quarter.

ENVIRONMENTAL RUGULATORY MATTERS

ENVIRONMENTAL REGULATORY MATTERS

We believe we are in compliance in all material respects with all applicable environmental laws.

Presently, we do not anticipate that such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any of our operations.

Presently, we do not anticipate that efforts to maintain such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any of our operations.

HUMAN CAPITAL RESOURCES

We are committed to our people, and we embrace a culture of engagement, empowerment, and equity.

Over 90 percent of our global employees are employed full-time, and more than two-thirds work within our life sciences software or consulting divisions.

Over 95% of our global employees are employed full-time, and more than 75% work within our life sciences software or consulting divisions.

Given the specialized nature of our business, candidates for our open positions are strategically selected for their unique education and skills.

The majority of our employees have advanced degrees in mathematics, chemistry, biomedical engineering, and/or the pharmaceutical sciences;

approximately half hold doctorate degrees and approximately one-fourth hold master’s degrees.

As of August 31, 2022, we employed a total of 163 persons, including 157 full-time employees and 6 part-time employees, consisting of 113 in scientific, technical, and research and development, 21 in marketing and sales, and 29 in administration and accounting.

Currently 75 employees hold PhDs.

(including PharmDs) in their respective science or engineering disciplines, and 40 employees hold one or more Master’s degrees.

Most of the senior management team and all of the members of our Board of Directors hold graduate degrees.

The majority of our employees have advanced degrees with over 70% of our technical and scientific staff holding a doctoral degrees in mathematics, chemistry, biomedical engineering, and/or the pharmaceutical sciences.

As of August 31, 2023, we employed a total of 197 persons, including 192 full-time employees and 5 part-time employees, consisting of 127 in scientific, technical, and research and development, 18 in marketing and sales, and 52 in administration, operations, and accounting.

We believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel.

To continue to support the endeavor we have implemented an employee referral program and have added a dedicated corporate recruiter to our team to further these efforts.

We continue to seek additions to our science and technical staff, although the competition for such personnel in the pharmaceutical industry is intense, we hired over 20 scientists this past year.

To continue to support the endeavor, we have focused heavily on our total rewards program, which includes components of compensation, training, time off, recognition and support for business travel.

At the end of 2022, we were recognized by Comparably for several workplace accolades including Best Company for Women, A+ culture rating and A+ Diversity rating.

We continue to seek additions to our science and technical staff, although the competition for such personnel in the pharmaceutical industry is intense.

We added 10 new scientists via direct recruiting and 19 scientific and technical staff with the acquisition of Immunetrics this past year.

We also achieved a turnover rate of under 8%.

None of our employees are represented by a labor union, and we have never experienced a work stoppage.

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Diversity, Equity, and Inclusion

In 2020 and 2021, we expanded our Human Resources team to implement unified and consistent policies, procedures, and employee training across all of our business units.

In 2022, we added an internal recruiter to focus on expanding our recruitment and hiring presence in the market.

We embrace diversity with the knowledge that it can lead to greater innovation, and in our workplace, we foster inclusion, so all employees feel they are a part of our team with equal access to all opportunities.

One of our goals is to continue expanding our focus on diversity, equity, and inclusion.

In terms of gender equity, women currently comprise 49% of our workforce.

In terms of gender equity, women currently comprise 48% of our workforce and 52% of our scientific staff.

We have also increased racial diversity with over 39% of our employees from minority backgrounds.

We have implemented the ADP workforce now platform, which allows us to access and better understand trends in our staff and hiring relative to diversity.

We are utilizing the recruitment platform to track our applicants and push job postings out to reach as many diverse applicants as possible.

We continue to refine our policies and benefits to be inclusive, and implemented a new parental leave program in 2023 allowing all of our employees to take company paid time off after birth or adoption.

Compensation, Training, and Awareness Programs

In 2022, Company-wide, we engaged an external consulting team to assist in analyzing all of our positions, including job descriptions and our compensation program, and are continuing to refine career paths for the different functions within our organization.

We are continuing to refine career paths for the different functions within our organization.

We use these career paths as a basis for promoting employee career development and growth within the organization, as well as in recruiting and hiring new talent.

The past year we focused on mandated compliance, data privacy and soft-skills training throughout the organization.

As we finalize the career paths, we are also committed to including additional training opportunities for technical and leadership development.

We have continued the effort to provide top tier benefits and in fiscal year 2023, we also added a paid parental leave program.

Over the past two years, we have focused on mandated compliance, soft-skill and data privacy training.

In the coming year, we will be rolling out an education and training reimbursement program that will allow all employees access to company paid technical, leadership or skills training opportunities.

In addition to these new employee training and development initiatives, we have an ongoing program of cross-specialty training consisting of presentations by expert modelers from each division.

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We place a high value on maintaining a clean, safe, and healthy environment for our employees.

We believe that we have in place effective procedures to identify, evaluate, and mitigate potential risks associated with our operations, although we believe such risks are minimal.

In 2023, we implemented a new Human Rights Policy confirming our commitment to basic human rights worldwide.

We also updated our Code of Conduct to ensure we require our employees and vendors work within our established principals of ethics.

The well-being of our employees, whether they are working in our divisional offices or remotely from home offices, is paramount.

We believe that we are substantially in compliance with all applicable laws, regulations, and standards, and we make every effort to be attentive and responsive to our employees’ needs.

We believe that we are substantially in compliance with all applicable laws, regulations, and standards, and we make every reasonable effort to be attentive and responsive to our employees’ needs.

In our offices, we have provided employees with ergonomic equipment, including ergonomic chairs and standing desks, and for their home offices, we provide an allowance for the purchase of home office equipment.

We continue to provide very competitive health and wellness benefits, and in 2023, we ran a wellness challenge that had monetary incentives to encourage a healthy and less sedentary lifestyle.

We also consider open and transparent channels of communication to be a critical component of our employee health and wellness program.

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We file reports with the SEC, which are available on our website free of charge.

These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, “Section 16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as reasonably practical after we electronically file such materials with or furnish them to the SEC.

These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, “Section 16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as reasonably practical after we electronically file such materials with or furnish them to the SEC.

In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.

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The topics covered in this section are identified through third-party ESG reporting frameworks, standards and metrics, such as the Sustainability Accounting Standards Board ("SASB"), and United Nations Sustainable Development Goals ("SDGs").

More information regarding our key ESG programs, goals and commitments, and key metrics can be found on our website and in our 2020 ESG Report.

More information regarding our key ESG programs, goals and commitments, and key metrics can be found on our website and within our 2022 ESG Update and 2020 ESG Report.

Our ESG highlights include the following:

COVID-19 Response

With employee health and safety always a top priority, we proactively implemented a COVID-19 Contingency Plan in late February of 2020, prior to the state-issued stay-at-home orders.

The comprehensive plan included information on prevention measures, travel restrictions, when and how to quarantine, the Families First Coronavirus Response Act, sick leave arrangements including caring for family members affected by COVID-19, and workplace safety measures.

At the time, as part of our ongoing flexible work initiative to give employees the option of telecommuting or working remotely, over 40 percent of our workforce was already working from home, however in response to the COVID-19 pandemic, we took quick action to ensure the safety of the rest of our workforce by supporting them in setting up home offices.

Since that initial plan was disseminated, additional updates from management have included the most up-to-date information from the U.S.

Department of State, Center for Disease Control ("CDC"), and World Health Organization ("WHO"), and we have, at all times, encouraged employees to keep management informed of the need for any additional support.

Our COVID-19 Contingency Plan communication and our Policy for Returning to Work During the Coronavirus Pandemic specify several CDC-recommended measures to mitigate the spread of COVID-19 in the workplace, including that masks be worn in the office, the importance of social and physical distancing and frequent hand-washing, and that employees are to remain home if feeling unwell and self-quarantine following any possible exposure to the virus.

In addition to these measures, we have increased sanitation procedures and updated our travel policy to ensure the safety of those employees who have resumed working in the office and those who travel for business.

We will continue to monitor mandates, guidelines, and recommendations issued by the CDC, WHO, and local governments as they are released, and will revise our COVID-19 Contingency Plan communication and our Policy for Returning to Work During the Coronavirus Pandemic accordingly.

Environmental Matters

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Across the Company, our facilities provide for recycling, and our electronic waste is sent to local approved e-waste recycling centers.

We have achieved 90% reduction in energy usage for data center cooling.

We have implemented a policy of using exclusively IT hardware vendors that embrace environmental sustainability.

We are continuing with the commitment to work-from-home, with 74% employees working remotely.

Greenhouse gas emission:

Our purpose is to calculate the greenhouse gas (GHG) emissions for better visibility of environmental impact.

We have identified our base year to calculate emissions inventory for the year ended August 31, 2023.

We have used control approach to identify and determine the organizational boundaries.

offices are in Pittsburgh-PA with 7,141 square feet of leased office space, Lancaster-CA with 4,200 square feet of leased office space, Buffalo-NY with 4,317 square feet of leased office space, and Raleigh-NC with 1,510 square feet of leased office space.

Our Data Center is located in Buffalo-NY.

We lease 2,300 square feet of office in Paris, France.

Currently, we have identified our U.S.A.

offices including data center for calculating GHG emissions.

Scope 1 covers emissions are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles).

Scope 1 is not applicable to our organization as it does not own or control any sources that produces direct greenhouse gas emissions (GHG).

The Scope 2 Guidance standardizes how corporations measure emissions from purchased or acquired electricity, steam, heat, and cooling (called “scope 2 emissions”).

We have identified electricity as our source of greenhouse gas (GHG) emissions that produces greenhouse gas (GHG) emissions.

Scope 3 encompasses emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by them, but by those that it’s indirectly responsible for up and down its value chain.

An example of this is when we buy, use and dispose of products from suppliers.

Scope 3 emissions include all sources not within the scope 1 and 2 boundaries.

We believe that we do not produce greenhouse gas (GHG) emissions that falls within Scope 3.

We have identified and determined our source of emission is the electricity usage at facilities referenced within organizational boundaries in U.S.A.

We have used EPA Simplified GHG Emissions Calculator (SGEC) for calculating the GHG emission.

For the year ended August 31, 2023, using the SGEC calculator, the total CO2 equivalent GHG emissions is 470.6 metric tons.

Our operations are built on continual improvements in efficiency and clean energy.

From 2012 to 2019, our Cognigen division redesigned its data center to be more energy efficient as part of our ongoing and increasing commitment to reduce our environmental footprint and energy usage.

An example of an upgrade is the installation of an uninterruptible power supply with hot and cold dial separation and regulating the temperature and airflow through in-row cooling units with high efficiency fans based on cooling needs.

• We are also attentive to our energy use in our office operations.

For instance, our Lancaster facility recently switched to renewable energy.

Lancaster Choice Energy (“LCE”) is the locally run power program created by the City of Lancaster, and we now proudly participate in LCE’s Smart Choice 100% renewable energy program.

Our decision to opt into the program not only contributes to the city’s goal of becoming one of the world’s first net-zero cities, but also reflects our dedication to creating positive impacts on the environment and local communities.

We are attentive to energy use in our office operations and strive to only use what is necessary for business purposes.

In 2023, we reduced the footprint of our US-based facilities by 35%, decreasing it from 19,300 sf to 12,400 sf.

We also implemented LearnUpon LMS and Adobe e-signature to reduce travel for in-person training and the need for printed materials, with virtual on-demand programs using only digital materials.

We believe we are in compliance in all material respects with all applicable environmental laws.

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Social Impact and Supporting our Communities

• We donated $100,000 to four different charities selected by our employees.

• We released ILDsym® version 1A, which targets treatments to reduce the progression of ILD in patients with systemic sclerosis (SSc), an underserved condition.

• Our support for the academic community is broad and deep.

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In recent years, we have sponsored several students with awards given by the Society of Toxicology.

In 2022, we provided 245 free software licenses to recipients in 53 countries through our University+ program to support the next generation of scientists.

In 2023, we expanded our University+ program to provide 307 free software licenses to recipients in 51 different countries to further promote education in our industry and support the next generation of scientists.

• We provide sponsorships to numerous conferences, symposia, and associations such as the American Conference on Pharmacometrics ("ACoP"), American Association of Pharmaceutical Scientists ("AAPS"), American Chemical Society ("ACS"), Controlled Release Society ("CRS"), Groupe de Métabolisme et Pharmacocinétique ("GMP"), and the Gordon Research Conferences.

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In recent years, we have joined the global GivingTuesday movement and donated food, clothing, and financial support to several organizations that serve those in need in our communities.

• Our commitment to community, to education, and to gender equity can best be summarized by how we have, for more than a decade, funded a summer scholarship to Tech Trek, a one-week residential science, technology, engineering, and math ("STEM") camp founded and operated by the American Association of University Women ("AAUW") that is designed to inspire young women to attend college, to major in STEM fields, and to pursue STEM careers.

Our own female scientists, who are excellent role models for these young women, have volunteered their time to personally present our Tech Trek scholarship each year.

• We focus on maintaining policies that support our social commitments worldwide.

This past year we updated our Company privacy policy and processes in the PDP Program to reflect changes to global personal data protection laws and developed and implemented a Human Rights Policy to support our Company commitment to all basic human rights around the globe.

• Our commitment to our people lies in our continued efforts to support and value our most important asset, our employees.

• This past year we conducted an employee engagement survey and received over 80% engagement to ensure culture alignment and success of internal programs and to further support their needs.

• In 2023, we established a paid parental leave program to support working parents and implemented a new recognition system to encourage peer to peer and leader to employee recognition.

• We also implemented a program to ensure that all our employee have the opportunity to attend in person employee events to collaborate face to face with their colleagues around the globe.

• This past year, we added additional supplemental benefits to our health benefit offerings increased our focus on physical and mental wellness with all our teams through an online wellness challenge hosted by the Company.

• We continue to engage with our employees and listen to their feedback in order to work toward building a culture of trust, collaboration and transparency.

• We have conducted compensation benchmarking study with external compensation consultant, and aligned all roles to market salary ranges.

Customer Privacy & Data Security

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Our website includes our comprehensive Privacy Policy, which details what and how data are collected, how data are used and stored, and the options for controlling personal data, including opting out, accessing, updating, or deleting it.

• In recognition of the critical importance of Data Security to our operations, including Cybersecurity, Data Protection, and Customer Privacy, our executive leadership team conducts a thorough examination of all elements of Data Security.

• In recognition of the critical importance of Data Security to our operations, including Cybersecurity, Data Protection, and Customer Privacy, our leadership team conducts a thorough examination of all elements of Data Security.

Our objective is to ensure the security, confidentiality, and privacy of our systems and information assets, and to follow and be compliant with all relevant laws, regulations, and guidelines, including, but not limited to:

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The IT department is also responsible for ensuring that corporate IT policies are aligned and compliant with all applicable regulatory provisions and current best practices.

• Our corporate-level Data Protection Officer ("DPO") is responsible for establishing and maintaining a Personal Data Privacy program throughout the Company that is compliant with applicable data privacy laws and legislation at the state and federal levels, as well as the EU’s GDPR, and China’s PIPL.

The DPO is leading our efforts to further build and implement a company-wide Personal Data Protection and Customer Privacy framework, along with appropriate protocols and training.

• Our ongoing program of employee training in security awareness keeps our staff fully informed about potential cyber threats - such as phishing and malware – with periodic random phishing tests .

• We have appointed VeraSafe as our Data Protection Officer ("DPO").

The DPO is responsible for ensuring that we have a Personal Data Protection program that is compliant with data privacy laws such as the EU’s GDPR, UK GDPR, China’s PIPL, and data privacy laws enacted at the state level, as applicable to us.

Our corporate Personal Data Protection program includes policies, practices, and training directed to protecting personal data.

Business Ethics

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◦ Provide clear and well-defined procedures by which employees can easily obtain information, ask questions, and, if necessary, report any suspected violations of any of our Business Ethics policies

• In addition to abiding by all applicable laws, all management and employees are required to comply fully with our Corporate Code of Business Conduct and Ethics which sets forth the Company’s values, business culture, and practices.

• In addition to abiding by all applicable laws, all management and employees are required to comply fully with our Code of Conduct, which sets forth the Company’s values, business culture, and practices.

The Code of Conduct also governs conduct between our employees and our customers and vendors with whom we do business.

Because many of our customers are companies in the pharmaceutical and biotech industries, we have incorporated in our Code of Conduct the principles of the Pharmaceutical Supply Chain Initiative, including Leadership, Partnering, Presence, Consistency & Quality, Learning, and Innovation & Discovery.

• The Company was founded on the belief that our software technologies could lead to important advances in healthcare, thereby improving patient outcomes, advancing and improving global health, and bettering the lives of humankind.

This objective cannot be accomplished without a commitment to Human Rights, and we are committed to ensuring that, in our day-to-day business practices, in our business relationships, and in matters of employment, we will uphold our own principles as delineated in our Corporate Code of Business Conduct and Ethics.

Furthermore, we support the principles set forth in the United Nations International Bill of Human Rights, specifically the Universal Declaration of Human Rights, and the ILO Declaration on Fundamental Principles and Rights at Work.

This objective cannot be accomplished without a commitment to human rights, and we are committed to ensuring that, in our day-to-day business practices, in our business relationships, and in matters of employment, we will uphold our own principles as delineated in our Code of Conduct.

As we evolve this policy, we will look to the UN Guiding Principles on Business and Human Rights ("UNGPs") for guidance.

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Our Board of Directors is responsible for the oversight of risks facing the Company, while our management is responsible for the day-to-day management of risk.

The Board, as a whole, directly oversees our strategic and business risk, including risks related to financial reporting, compensation practices, ESG, and product developments.

More information about our corporate governance features can be found in our Proxy Statement for the 2023 Annual Meeting of Shareholders (the "Proxy Statement" ) , which will be filed within 120 days after August 31, 2022, the close of our fiscal year covered by this Annual Report.

The Board has three committees:

Audit Committee, Compensation Committee, and Nominating & Corporate Governance Committee.

The Board, as a whole, directly oversees our strategic and business risk, including risks related to financial reporting, compensation practices, cybersecurity, ESG, and product developments.

In addition, all our employees, contractors, and vendors are required to follow our Code of Conduct as a part of our good governance practice.

We have increased gender and racial diversity of the Board of Directors with appointment of new independent director.

Our ESG steering committee oversees and executes matters related to ESG.

More information about our corporate governance features can be found in our Proxy Statement for the 2024 Annual Meeting of Shareholders (the "Proxy Statement" ) , which we intend to file with the SEC within 120 days after August 31, 2023, the close of our fiscal year covered by this Report.

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