Item 1. Business
ITEM 1 –BUSINESS
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 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.
OVERVIEW
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 artificial-intelligence- and machine-learning-based technology. We also provide consulting
services ranging from early drug discovery through preclinical and clinical trial development to regulatory submissions in support
of product approval. Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics,
and food industry companies and to academic and regulatory agencies worldwide for use in the conduct of industry-based research.
SLP is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, and Paris, France. The Company’s
common stock trades on the Nasdaq Capital Market under the symbol “SLP”.
We are a global leader focused on improving
the ways scientists use knowledge and data to predict the properties and outcomes of pharmaceutical and biotechnology agents by
providing a wide range of early discovery, preclinical, and clinical consulting services and software. Our innovations in integrating
new and existing science in medicinal and computational chemistry, pharmaceutical science, biology, physiology, and machine learning
into our software have enabled us to be a leading software provider for physiologically based pharmacokinetics (PBPK) modeling
and simulation, pharmacometric modeling and simulation, prediction of molecular properties from structure, and prediction of the
propensity of drugs to induce liver injury or to treat nonalcoholic fatty liver disease. Our scientific consulting staff draw upon
extensive experience across multiple therapeutic areas and a full range of modeling and simulation techniques to assist our clients
across the full spectrum of drug development.
We generate revenue by delivering relevant,
cost-effective software and creative and insightful consulting services. Pharmaceutical and biotechnology companies use our software
programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical,
and clinical development programs, including using our software products and services to enhance their understanding of the properties
of potential new medicines 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.
Simulations Plus acquired Cognigen Corporation
(Cognigen) as a wholly owned subsidiary in September 2014. Cognigen was originally incorporated in 1992. Through the integration
of Cognigen into Simulations Plus, Simulations Plus became a leading provider of population modeling and simulation contract research
services for the pharmaceutical and biotechnology industries. Our clinical-pharmacology-based consulting services include pharmacokinetic
and pharmacodynamic modeling, clinical trial simulations, data programming, and technical writing services in support of regulatory
submissions. We have also developed software for harnessing cloud-based computing in support of modeling and simulation activities
and secure data archiving, and we provide consulting services to improve interdisciplinary collaborations and research and development
productivity.
Simulation Plus acquired DILIsym Services,
Inc. (DILIsym) as a wholly owned subsidiary in June 2017. The acquisition of DILIsym positioned the Company as the leading provider
of Drug Induced Liver Injury (DILI) modeling and simulation software and related scientific consulting services. In addition to
the DILIsym® software for analysis of potential drug-induced liver injury, DILIsym Services, Inc. also has developed a simulation
program for analyzing nonalcoholic fatty liver disease (NAFLD) called NAFLDsym™. Both the DILIsym and NAFLDsym software programs
require outputs from physiologically based pharmacokinetics (PBPK) software as inputs. Outputs generated by the GastroPlus™
PBPK software that are required by DILIsym software can be automatically mapped to DILIsym applications; thus, the integration
of these technologies provides a seamless capability for analyzing the potential for drug-induced liver injury for new drug compounds
and for investigating the potential for new therapeutic agents to treat NAFLD. Since the acquisition, DILIsym has applied its mechanistic
modeling resources in other disease areas including idiopathic pulmonary fibrosis (IPF).
Simulations Plus acquired Lixoft as a
wholly owned subsidiary on April 1, 2020. Lixoft brings to Simulations Plus its powerful software products, Monolix, Simulx and
PKanalix, which can take modeling projects from data exploration to clinical trial simulations. In addition, Lixoft provides training
and focused consulting services which can accelerate pharmacometric studies. Lixoft’s technologies were developed as a result
of a research program led by the French national research institute for digital science and technology (Inria), on nonlinear mixed
effect models for advanced population analysis, pharmacometrics, pre-clinical, and clinical trial modeling and simulation. Lixoft
continues to work with Inria.
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PRODUCTS
General
We currently offer eleven software products
for pharmaceutical research and development: five simulation programs that provide time-dependent results based on solving large
sets of differential equations: GastroPlus®; DDDPlus™; MembranePlus™; DILIsym®; and NAFLDsym™; three
programs that are based on predicting and analyzing static (not time-dependent) properties of chemicals: ADMET Predictor®;
MedChem Designer™; and MedChem Studio™ (the combination of ADMET Predictor, MedChem Designer, and MedChem Studio is
called our ADMET Design Suite™); a program which is designed for rapid clinical trial data analysis and regulatory submissions
called PKPlus™; a program called KIWI™ from our Cognigen division that provides an integrated platform for data analysis
and reporting through our proprietary secure cloud; and in April 2020 with the acquisition of Lixoft, we added the Monolix Suite™
of products – a modeling and simulation solution that allows nonparametric analyses, population PKPD analyses, and modeling
and clinical trial simulation.
GastroPlus®
Our
flagship product, originally introduced in 1998, and currently our largest single source of software revenue, is GastroPlus. GastroPlus
mechanistically simulates the absorption, pharmacokinetics, pharmacodynamics, and drug-drug interactions of compounds administered
to humans and animals and is currently one of the most widely used commercial software of its type by industry, the U.S. Food and
Drug Administration (FDA), the U.S. National Institutes of Health (NIH), and other government agencies in the U.S. and around the
world.
Our
goal with GastroPlus is to integrate the most advanced science into user-friendly software to enable researchers and regulators
to perform sophisticated analyses of complex compound behaviors in humans and laboratory animals. GastroPlus is one of the most
widely used program in the world for physiologically based biopharmaceutics (PBBM)/PBPK modeling with a user base including early
pharmaceutical research and development, biopharmaceuticals, food, cosmetics, and general toxicology. We work to release updated
versions of the program on an ongoing basis.
In June 2019, we released Version 9.7 of
GastroPlus. This version added several important new capabilities, including improvements to population simulations, dissolution,
absorption, PBPK models, and drug-drug interactions, among others.
·
The ability to add lysosomal trapping effect to PBPK tissues
·
New mechanistic pregnancy PBPK model (with fetus compartment)
·
Additional solubility inputs for different drug forms (crystalline, amorphous)
·
New standard compound models (substrates/inhibitors/inducers) in the DDI Module
·
Expanded fed state conditions based on meal type
·
New ability to allow different tissue model types (perfusion- or permeability-limited) between parent and metabolites or victim perpetrator in metabolite tracking/DDI simulations
·
PK/PD model additions to PKPlus Module
·
Updates to the dermal absorption (TCAT) model through our Cosmetics Europe project
·
New effect of immune response with intramuscular injection models
·
Updated default populations for extensive, intermediate, and poor metabolizers based on specific genotypes
In
vitro transdermal model: as part of the Research Collaboration Agreement (RCA) awarded by the FDA in September 2018 to improve
the TCAT model in GastroPlus, we developed a novel simulation tool to analyze data from in vitro skin penetration studies
to better inform in vivo predictions within GastroPlus.
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Because of the widespread use of GastroPlus,
we have been able to enter into both funded and unfunded collaborations with industry and government agencies to drive advances
to modeling and simulation science. In all, Simulations Plus owns the intellectual property developed within the GastroPlus program,
and updates are integrated into future versions and made available to clients:
Ocular absorption model: in September 2014,
we entered into an RCA with the FDA to enhance the Ocular Compartmental Absorption and Transit (OCAT™) model within the Additional
Dosage Routes Module of GastroPlus. The objective of this agreement was to provide a tool for generic drug companies and the FDA
to assess the likely bioequivalence of generic drug formulations dosed to the eye. After a successful second year, the RCA was
extended for two additional years in September 2016, with primary tasks completed in September 2018. Additional functionality was
further requested by the FDA, and a new funded contract was awarded for the 2018-19 period. In May 2020, we were awarded yet another
grant from the FDA to support interspecies translation for ocular drug delivery in GastroPlus.
Long-acting injectable (LAI) product models:
in September 2015, we were awarded an RCA by the FDA to expand the capabilities of GastroPlus to simulate the dosing of long-acting
injectable microspheres for both small and large molecules (biologics). Under this agreement, we developed simulation models to
deal with the very slow dissolution/decomposition of microsphere carrier materials that gradually release active drugs over periods
as long as weeks or months. After a successful second year, the RCA was renewed for the third year in September 2017 and was completed
in September 2018. In September 2019, we entered a new funded collaboration with a clinical-stage biotechnology company to develop
an intra-articular (IA) delivery model, using much of the technology developed through the LAI collaboration with the FDA. This
collaboration enhances the GastroPlus PBBM/PBPK model for drug dosing into joints through IA injection products and incorporates
mechanistic models for different species and population groups that assist in efficient evaluation of IA injection strategies.
Transdermal absorption model: in July 2018
we entered a research collaboration with a large European consortium to further develop and validate the mechanistic Transdermal
Compartmental Absorption and Transit (TCAT™) model in GastroPlus. This project contributed substantially to improvements
in the program, specifically directed toward the predictions of local exposure within the skin layer following topical administration
of various chemicals. In September 2018, we were awarded another funded RCA by the FDA to integrate drug product quality attributes
into the mechanistic TCAT™ model in GastroPlus. This grant award focuses on the incorporation of drug product quality attributes
into PBPK models developed for dermatological topical dosage forms and transdermal delivery systems.
Virtual bioequivalence trials: in October
2019, we entered a new funded collaboration with a large pharmaceutical company to develop the Virtual Bioequivalence (BE) Trial
Simulator™ in GastroPlus. This collaboration will enhance the GastroPlus PBBM/PBPK platform to evaluate population and formulation
variability on the BE of different products. We intend to improve virtual BE trial simulation methodologies and efficiently address
regulatory concerns as model results are reviewed.
Oral absorption – Advanced Compartmental
Absorption and Transit (ACAT™) model: in November 2019, we entered a new funded collaboration with a large pharmaceutical
company to modify the mechanistic ACAT™ model in GastroPlus to support gastrointestinal disease research. This collaboration
will enhance and advance understanding of local drug disposition in gut tissue and improve the accuracy of drug concentration predictions
to assist with the development of new therapies for gastrointestinal diseases.
Unfunded research collaborations: in addition
to the active funded efforts with the FDA and industry described above, we also have two unfunded RCAs with the FDA: one with the
Office of Generic Drugs (OGD) that began in 2014, and one announced in July 2019 with the Center for Veterinary Medicine (CVM).
With OGD, the objective is directed toward the FDA’s evaluation of mechanistic IVIVCs ( in vitro-in vivo correlations)
to determine whether a mechanistic absorption modeling (MAM) can relate laboratory ( in vitro ) dissolution experiment results
to the behavior of dosage forms in humans and animals ( in vivo ) better than traditional empirical methods. With CVM, the
objective is to use GastroPlus, with in vitro and in vivo data, to investigate how bioequivalence (BE) of non-systemically
absorbed products can be evaluated in canines without the need for clinical endpoint trials.
In October 2020, through a joint proposal
with the St. Louis College of Pharmacy at University of Health Sciences and Pharmacy in St. Louis, we were awarded a new funded
cooperative agreement from the FDA to establish novel in vitro/in silico models for the oral cavity route of administration
in GastroPlus to accelerate pharmaceutical research and regulatory assessment of innovative and generic drug products delivered
intraorally.
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DDDPlus™
DDDPlus mechanistically simulates in
vitro (laboratory) experiments that measure the rate of dissolution of a drug as well as, if desired, the additives (excipients)
in a particular dosage form (e.g., powder, tablet, capsule, or injectable solids) under a variety of experimental conditions. This
unique software program is used by formulation scientists in industry and the FDA to: (1) understand the physical mechanisms affecting
the disintegration and dissolution rates of various formulations, (2) reduce the number of cut-and-try attempts to design new drug
formulations, (3) design in vitro dissolution experiments to better mimic in vivo (animal and human) conditions,
and (4) justify product specifications. Version 6.0 of DDDPlus was released in January 2019 and offered a series of new capabilities,
including:
·
simulation of the in vitro dissolution of long-acting injectable dosage forms (funded by an FDA grant supporting GastroPlus development)
·
simulation of the in vitro dissolution of controlled release bead formulations
·
new simulation of artificial stomach-duodenum (ASD) experiments
·
ability to fit models from precipitation experiments
·
new dissolution apparatus models
·
improved output reporting
MembranePlus™
Like DDDPlus, MembranePlus mechanistically
simulates laboratory experiments, but in this case, the experiments are for measuring permeability or clearance of drug-like molecules
through various membranes, including several different standard cell cultures (Caco-2, MDCK), as well as hepatocytes. The value
of such simulations derives from the fact that when the same molecules are measured in different laboratories using (supposedly)
the same experimental conditions, the results are often significantly different. These differences are caused by a complex interplay
of factors in how the experiment was set up and run. MembranePlus simulates these experiments with their specific experimental
details, and this enables scientists to better interpret how results from specific experimental protocols can be used to predict
permeability or clearance mechanisms in human and animals.
In vitro transdermal model: as part
of the RCA awarded by the FDA in September 2018 to improve the TCAT model in GastroPlus, we developed a novel simulation tool to
analyze data from in vitro skin penetration studies to better inform in vivo predictions within GastroPlus.
PKPlus™
The standalone PKPlus program, originally
based on the internal PKPlus Module in GastroPlus that has been available since 2000, provides the full level of functionality
needed by pharmaceutical industry scientists to perform the analyses and generate the outputs needed to fully satisfy regulatory
agency requirements for noncompartmental analysis (NCA) and provides limited support for compartmental PK modeling.
PKPlus version 2.5 was released in July
2019. This version incorporated a wide variety of requested features from current users, including:
·
Import CDISC SEND packages with PC domain as source data
·
Improved command-line functionality
·
64-bit system optimization for improved performance
·
Streamlined auto-reports
·
Additional workflow refinements
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Automated PK/TK data analysis: in November
2019, we entered a new funded collaboration with a large pharmaceutical company to enhance PKPlus. Following a rigorous evaluation
of multiple commercial offerings, our partner selected PKPlus as the pharmacokinetics/toxicokinetic (PK/TK) modeling program to
support the internal data platform that connects their global teams. Our objectives for this project are to design the next-generation
engine that automates the import and mapping of data, selection of calculation templates, and generation of reports within a streamlined,
validated system.
ADMET Predictor®
ADMET (Absorption, Distribution, Metabolism,
Excretion, and Toxicity) Predictor is a top-ranked, chemistry-based computer program that takes molecular structures (i.e., drawings
of molecules represented in various formats) as inputs and uses machine learning technology to predict approximately 175 different
properties for them at an average rate of over 200,000 compounds per hour on a modern laptop computer. This capability allows chemists
to generate estimates for a large number of important molecular properties without the need to synthesize and test the molecules,
as well as to generate estimates of unknown properties for molecules that have been synthesized, but for which only a limited number
of experimental properties have been measured. Thus, a chemist can assess the likely success of a large number of existing molecules
in a company’s chemical library, as well as molecules that have never been made, by providing only their molecular structures,
either by drawing them using a tool such as our MedChem Designer software, or by automatically generating large numbers of molecules
using various computer algorithms, including those embedded in our MedChem Studio™ Module.
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 artificial intelligence (AI) engine we use to build our top-ranked property predictions.
Version 9.5 of ADMET Predictor was released
in April 2019, adding:
·
Novel approaches to calculate uncertainty estimates on all regression models
·
New machine learning models for important metabolism and transporter endpoints
·
New machine learning models for AMES mutagenicity, a primary toxicity endpoint required during risk assessment
·
New Structure Sensitivity Analysis visualization tool to easily map atom-level contributions to model predictions
·
Improved rat-specific models to more accurately inform HTPK Simulation predictions
·
Improved Pipeline Pilot and KNIME components to extend deployment options and enterprise support for ADMET Predictor
·
Updates to output displays in MedChem Designer™
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. Recent publications from pharmaceutical and chemical companies describing how they
have leveraged our ‘Discovery PBPK’ methods to guide lead optimization and risk assessment illustrate how our unique
offerings provide substantial value in these spaces.
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.
High-throughput pharmacokinetic (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.
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MedChem Designer™
MedChem Designer was initially a molecule-drawing
program, or “sketcher”, but now has capabilities far exceeding those of other molecule-drawing programs because of
its integration with ADMET Predictor. We provide MedChem Designer for free because we believe that in the long run it will help
to increase demand for ADMET Predictor. Over 34,000 copies of MedChem Designer have been downloaded by scientists around the world
to date. Our free version includes a small set of ADMET Predictor’s best-in-class property predictions, allowing the chemist
to modify molecular structures and then see a few key properties very quickly. When used with a license for ADMET Predictor, MedChem
Designer becomes a de novo molecule design tool. With it, a researcher can draw one or more molecular structures, then click
on the ADMET Predictor icon and have approximately 175 properties for each structure calculated in seconds, including our proprietary
ADMET Risk™ index which provides a single number that instantly compares the effects of different structural changes in many
dimensions. Researchers can also click on an icon to generate the likely metabolites of a molecule and then predict all the properties
of those metabolites from ADMET Predictor, including each of their ADMET Risk scores.
KIWI™
Drug development programs rely increasingly
on modeling and simulation analyses to support decision-making and submissions to regulatory agencies. To ensure high-quality reliable
analyses, organizations must not only apply high-quality science, but must also be able to support the science with validated and
reproducible results.
KIWI is a cloud-based web application that
provides scientists with a secure, validated, enterprise-scale environment wherein they can efficiently organize, process, maintain,
and communicate the volume of data and results generated over the duration of a drug development program. KIWI enables global teams
to collaborate on model-based decision-making and has been proven to support and encourage interdisciplinary discussions about
the model development process and the interpretation of results.
In addition to providing a structured workflow
for model-based analyses, key features of the application include powerful visualization tools to support exploratory analyses,
a data repository to facilitate management and organization of data and documents, and a Model Wizard module to streamline coding
and model development.
New versions of KIWI are released on a
regular basis. KIWI Version 2 was released in December 2017, KIWI 3 was released in August 2018, and KIWI 4 was released in June
2019. In fiscal year 2020, we have:
·
further improved the visualization tools,
·
introduced kiwiConnect, an R-based API to improve interaction and interconnectivity between R and KIWI, and
·
completed a major update to the Oracle database infrastructure, including new hardware, additional storage, and increased bandwidth.
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DILIsym
The DILIsym software is a quantitative
systems pharmacology (QSP) program that has been in development since 2011. QSP software models are based on the fundamental understanding
of complex biological pathways, disease processes, and drug mechanisms of action, integrating information from experiments and
forming hypotheses for the next experimental model. DILIsym deals with the propensity for some drug molecules to induce temporary
or permanent changes in biological functions within liver cells (hepatocytes) that can result in damage to the liver (i.e., drug-induced
liver injury or DILI).
Version 8A of the DILIsym software was
released in January of 2019. This version is delivered as a secure executable file that incorporates new proprietary code enabling
tighter integration with our GastroPlus PBPK software. A number of important new capabilities were added, including new exemplar
compounds, new biomarkers, and new mechanisms of DILI. DILIsym version X is expected to be released in late Fall of 2020. DILIsym
X will be a completely refactored, much faster, and more user-friendly software tool.
NAFLDsym
Where DILIsym is used to investigate the
likelihood that a known drug molecule would cause injury to the liver, NAFLDsym is concerned with a liver that is already diseased
(NAFLD/NASH) by excess fat, fibrosis, and inflammation, and investigates the likelihood that various molecules might provide therapeutic
benefits to treat or cure the disease. DILIsym can be considered a “shrink wrap” software product, usable across many
companies and drug development projects. NAFLDsym, on the other hand, requires modification for each of a number of different mechanisms
of action that potential new drug compounds could use to treat the disease, and so is a customized tool used in consulting projects
for each new client project. NAFLDsym version 2A was released in the summer of 2019 for licensing and consulting use. The software
now includes the three most important components of NAFLD/NASH: steatosis, inflammation, and fibrosis, along with a host of other
important updates.
RENAsym
RENAsym will be focused on investigating
and predicting drug-induced kidney injury, or acute kidney injury (AKI). RENAsym will be another “shrink wrap” software
product, usable across many companies and drug development projects. The software will utilize predictions of drug exposure in
the kidney from PBPK platforms such as GastroPlus, along with in vitro data related to certain kidney injury mechanisms,
to make predictions. The first expected release of RENAsym will be available in summer of 2021. The initial development is being
funded via an NIH small business grant.
IPFsym
IPFsym is a software tool that will investigate the likelihood
that various molecules might provide beneficial therapeutic benefits to treat or cure idiopathic pulmonary fibrosis (IPF). IPFsym,
like NAFLDsym, requires modification for each of a number of different mechanisms of action that potential new drug compounds could
use to treat the disease, and so is a customized tool used in consulting projects for each new client project. IPFsym is targeted
for release for licensing and consulting use in late 2020. The software will include the most important mechanisms of IPF and will
be closely coupled with GastroPlus for drug concentration predictions within the lungs.
Monolix Suite
The Monolix Suite is a unique solution
for modeling and simulation for pharmaceutical companies, biotechs, and hospitals. It supports nonparametric analyses, population
PKPD analyses and modeling, and clinical trial simulation. The extended MonolixSuite contains three main products: Monolix, Simulx,
and PKanalix. These products are interconnected and interoperable, i.e., the user can go from one application to another one without
changing anything in terms of data set or of biological models.
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The products are used by many pharmaceutical
companies across the globe at each step of drug development, from preclinical to first-in-human, clinical, and post approval.
These products are well established in the research and drug development communities and have been accepted by most regulatory
agencies.
Lixoft's technologies come from an eight-year
research program in modeling and biostatistics led by Inria and sponsored by the pharmaceutical industry. The extended MonolixSuite
was developed in view of the increasing importance of pharmacometrics experts in drug development, taking a modeling project from
the first data exploration up to clinical trial simulations.
Monolix
Monolix (Nonlinear mixed-effects models
or “MOdèles NOn LInéaires à effets miXtes” in French) is a platform of reference for model-based drug
development. It combines the most advanced algorithms with unique ease of use. Pharmacometricians of preclinical and clinical
groups can rely on Monolix for population analysis and to model PK/PD and other complex biochemical and physiological processes. Monolix
is an easy, fast, and powerful tool for parameter estimation in nonlinear mixed-effects models, model diagnosis and assessment,
and advanced graphical representation.
Simulx
Simulx is a powerful and flexible
simulator for clinical trial pharmacometrics that runs on top of the Lixoft simulation engine. It allows simulation of any type
of model output (continuous, event, categorical…). It directly connects with Monolix for seamless modeling and simulation,
or can be used as a standalone application to simulate a new model. Potential applications include comparison of different trial
designs, extrapolation to different populations, non-adherence to treatment, optimal dosing, and dose individualization after
therapeutic drug monitoring.
Simulx is currently available
via the comprehensive R package mlxR. Starting with the 2020 version, it will have a user interface to easily define groups of
simulations as well as simulation outcomes to compare.
PKanalix
PKanalix performs analysis on PK data sets.
Several analyses are performed including:
·
noncompartmental analysis (NCA),
·
compartmental analysis (CA) consisting in finding parameters of a model representing the PK as the dynamics in compartments for each individual. Notice that this compartmental analysis does not include population analysis that could be performed in Monolix.
PKanalix provides
a clear user interface with a simple workflow to perform NCA and CA analysis in an efficient way.
Consulting Services
Our scientists and engineers have extensive
expertise in drug absorption via various dosing routes (oral, intravenous, subcutaneous, intramuscular, ocular, nasal/pulmonary,
and dermal), pharmacokinetics, pharmacodynamics, drug-drug interactions and others related to the drug development process. They
have attended over 200 scientific meetings worldwide in the past four years, often speaking and presenting. We conduct contracted
consulting studies for large customers (including many of the top twenty global pharmaceutical companies) who have particularly
complex problems and who recognize our expertise in solving them, as well as for smaller customers who prefer to have studies
run by our scientists rather than to license our software and train someone to use it. The demand for our consulting services
has been steadily increasing, and we have expanded our consulting teams to meet the increased workload.
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We have a reputation for high-quality
analyses and regulatory reporting of data collected during preclinical experiments as well as clinical trials of new and existing
pharmaceutical products, typically working on 80-100 drug projects per year. Traditionally, model-based analysis of clinical trial
data was different from the modeling analysis offered by GastroPlus or our quantitative systems toxicology/pharmacology software
(DILIsym and NAFLDsym); the former relied more on statistical and semi-mechanistic models, whereas the latter is based on very
detailed mechanistic models. Statistical models rely on direct observation and mathematical equations that are used to fit data
collected across multiple studies along with describing the variability within and between patients. Mechanistic models are based
on a detailed understanding of the human body and the chemistry of the drug and involve deep mathematical and scientific representation
of the phenomena involved in drug dissolution/precipitation, absorption, distribution, metabolism, and elimination. Collectively,
the models support safety and efficacy decisions, first-in-human estimations, formulation optimization, and drug-drug interaction
assessments. Beginning 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, and we have seen the benefit
of having our clinical pharmacology teams across all three divisions working together to achieve this goal. To date, there have
been approximately 40 approved drug products on the market today whose submissions were informed by results from GastroPlus.
PRODUCT DEVELOPMENT
Development of our software is focused
on expanding product lines, designing enhancements to our core technologies, and integrating existing and new products into our
principal software architecture and platform technologies. We intend to continue to offer regular updates to our products and to
continue to look for opportunities to expand our existing suite of products and services.
To date, we have developed products internally,
sometimes also licensing or acquiring products, or portions of products, from third parties. These arrangements at times have required
that we pay royalties to third parties. We intend to continue to license or otherwise acquire technology or products from third
parties when it makes business sense to do so.
MARKETING AND DISTRIBUTION
We distribute our products and offer our
services throughout the world.
We market our pharmaceutical software
and consulting services 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.
At various scientific meetings around the world each year there are numerous presentations and posters reporting research that
was performed using our software. Many of these presentations are from industry and FDA scientists; some are from our staff. Numerous
peer-reviewed scientific journal articles are published, and conference presentations delivered, each year using our software,
mostly by our customers, further supporting its use in a wide range of preclinical and clinical studies.
Our sales and marketing efforts are handled
primarily internally by sales and marketing staff and with our scientific team and several senior management staff assisting our
marketing and sales staff with trade shows, seminars, and customer trainings both online and on-site. We also have independent
distributors in Japan, China, India, and Korea who sell and market our products with support from our scientists and engineers.
We provide support to the GastroPlus User
Group in Japan, which was organized by Japanese researchers in 2009. In early 2013, a group of scientists in Europe and North America
organized another GastroPlus User Group following the example set in Japan. Over 1,000 members have joined this group to date.
We support this group through coordination of online meetings each month and managing the user group website for exchange of information
among members. These user groups provide us valuable feedback with respect to desired new features and suggested interface changes.
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PRODUCTION
Our pharmaceutical software products are
designed and developed by our development teams managed out of offices in California, North Carolina (Research Triangle Park),
New York (Buffalo), and Paris, France. We also employ people who are able to work remotely using collaboration software. Our products
and services are delivered electronically.
COMPETITION
In our pharmaceutical software and services
business, we compete against a number of established companies that provide screening, testing, and research services, and products
that are not based on simulation software. There are also software companies whose products do not compete directly with, but are
sometimes closely related to, ours. Our competitors in this field include some companies with financial, personnel, research, and
marketing resources that are larger than ours. Our flagship product, GastroPlus, is a leading commercial PBPK modeling platform
and has one significant competitor; others could be developed over time, but with the high barrier to entry, it would be difficult
to validate new software to levels required to support regulatory submissions. Our PKPlus software product competes with one major
and a few minor software programs. MedChem Studio, MedChem Designer, and ADMET Predictor/ADMET Modeler operate in a more competitive
environment. Several other companies presently offer simulation or modeling software, or simulation-software-based services, to
the pharmaceutical industry. Lixoft’s Monolix Suite competes with a few established software products offered within the
pharmaceutical software industry. We believe DILIsym and NAFLDsym enjoy a unique market position, with no significant competition.
Major pharmaceutical companies conduct
drug discovery and development efforts through their internal development staffs and through outsourcing. 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 also with the in-house development and scientific consulting teams at some of the larger pharmaceutical
companies.
Although competitive products exist, both
new licenses and license renewals for our software products have continued to grow. We believe that we enjoy a dominant market
share in this segment. We believe our GastroPlus, ADMET Predictor/ADMET Modeler, MedChem Studio, MedChem Designer, DDDPlus, MembranePlus,
PKPlus, KIWI, DILIsym, NAFLDsym and Monolix Suite software offerings are each unique in their combination of capabilities and
remain a focus of our marketing strategy.
Based on our technical knowledge and expertise,
the Company is strategically placed to offer modeling and simulation consulting services to companies. Our clients seek out our
services for multiple reasons: (1) to acquire scientific, therapeutic-area-related modeling expertise that they do not have in-house,
(2) to address a need for modeling and simulation efforts beyond the capacity of in-house resources, (3) to fulfill their modeling
requirements more efficiently than they could do in-house, and (4) to utilize our software when they do not have the in-house expertise
to do so. We apply our software and assist companies in such areas as: physiologically based
pharmacokinetic modeling (PBPK), pharmacokinetic/pharmacodynamic (PK/PD) data analysis; and quantitative systems pharmacology/toxicology
(QSP/T). We compete against numerous service providers, ranging from departments within large contract research organizations (CROs)
to independent consulting organizations of various sizes as well as individual consultants .
We believe the key factors in our ability
to successfully compete in this field are our ability to: (1) continue to invest in research and development, and develop and support
industry-leading simulation and modeling software and related products and services, (2) develop and maintain a proprietary database
of results of physical experiments that serve as a basis for simulated studies and empirical models, (3) continue to attract and
retain a highly skilled scientific and engineering team, (4) aggressively promote our products and services to our global market,
and (5) develop and maintain relationships with research and development departments of pharmaceutical companies, universities,
and government agencies.
In addition, we actively seek strategic
acquisitions to expand both our pharmaceutical software and services business.
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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. We provide in-house seminars at customers’ and potential
customers’ sites, as well at selected universities to train students who will soon be industry scientists. These seminars
often serve as initial training in the event the potential customer decides to license or evaluate our software. 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 free telephone, e-mail, and
web-based support for all of our pharmaceutical software products worldwide from our offices in the United States. Technical support
for pharmaceutical software is provided by our life sciences teams and our inside sales and support staff. Technical support for
pharmaceutical software products is generally minimal, averaging a few person-hours per product sale.
RESEARCH AND DEVELOPMENT
Research and development (R&D) activities
include both enhancement of existing products and development of new products. Development of new products and adding functionality
to existing products are capitalized in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) 985-20, “Costs of Software to Be Sold Leased, or Marketed”. R&D expenditures, which primarily relate to both
capitalized and expensed salaries, R&D supplies, laboratory testing, and R&D consulting, were approximately $5,328,000
during fiscal year 2020, of which $2,353,000 was capitalized. R&D expenditures were approximately $4,268,000 during fiscal
year 2019, of which $1,768,000 was capitalized. R&D expenditures during fiscal year 2018 were approximately $3,936,000 of which
$2,145,000 was capitalized.
CUSTOMERS
Our customers include large, medium-sized,
and smaller biotech and pharmaceutical companies, universities, and regulatory agencies and other government organizations.
We concentrate on serving the needs of our customers in drug discovery, development, clinical trials, and post-patent generic
formulation development. Our current customer base is highly fragmented; in 2020 three of our customers were each 9%, 7% and 7%
of our revenues. With those exceptions, no other customers made up more than 9% of our revenues in the last 3 years.
SEASONALITY
We have traditionally experienced seasonal
revenue weakness during our fiscal fourth quarter (June-August) due to summer vacations and reduced activities at our customers’
sites. Our net sales figures for any quarter are not necessarily indicative of sales for any future period; our pharmaceutical
software is typically licensed on an annual basis which means renewal revenues are usually recognized in the same quarter year
after year. In recent years as we have grown revenues, we have seen a bit of flattening from quarter to quarter and we have reported
seasonally higher revenue in our second and third quarters. 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.
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ENVIRONMENTAL 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.
HUMAN CAPITAL RESOURCES
As of August 31, 2020, Simulations Plus
and its subsidiaries Cognigen Corporation, DILIsym, and Lixoft, employed a total of 137 persons, including 129 full-time employees
and 8 part-time employees, consisting of 95 in scientific, technical, and research and development, 8 in marketing and sales, and
34 in administration and accounting. Currently 73 employees hold PhDs. (including PharmDs) in their respective science or engineering
disciplines, and 26 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.
We believe that our future success will
depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. We continue to seek additions to
our science and technical staff, although the competition for such personnel in the pharmaceutical industry is intense. None of
our employees is represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with
our employees are good.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY
RIGHTS
We primarily protect our intellectual property
through copyrights and trade secrets. Our intellectual property consists primarily of source code for computer programs and data
files for various applications of those programs in the pharmaceutical software businesses. The expertise of our staff is a considerable
asset closely related to intellectual property, and attracting and retaining highly qualified scientists and engineers is essential
to our business.
EFFECT OF GOVERNMENT REGULATIONS
The Company believes that its operations
are substantially in compliance with all applicable laws and regulations, and that it holds all necessary permits to operate its
business in each jurisdiction in which its facilities are located. Laws and government regulations are subject to change and interpretation.
Our pharmaceutical software products are tools used in research and development and are neither approved nor approvable by the
FDA or other government agencies.
COMPANY WEBSITE
We maintain a corporate Internet website
at: www.simulations-plus.com.
The contents of this website are not incorporated
in or otherwise to be regarded as part of this Annual Report. 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. 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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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.