Simulations Plus, Inc. 10-K

ITEM 1 –BUSINESS As used in this Annual Report Form 10-K, 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. 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 both artificial intelligence (“AI”) as well as machine-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. The Company is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, 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 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 development of generic medicines after patent expiration, 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. SEGMENT INFORMATION During the year ended August 31, 2021, our business was organized into four reportable segments, based on the following business divisions: (i) Simulations Plus, (ii) Cognigen, (iii) DILIsym, and (iv) Lixoft. Simulations Plus Simulations Plus is focused on improving the way 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, AI and machine learning into our software have enabled us to be a leading software provider for modeling and simulation, and prediction of molecular properties from structure. Cognigen We acquired Cognigen Corporation (“Cognigen”) in September 2014. With the acquisition of Cognigen, the Company became a leading provider of population modeling and simulation contract research services for the pharmaceutical and biotechnology industries. Our consulting services include modeling, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. Effective September 1, 2021, we merged Cognigen with and into Simulations Plus, Inc. through a short-form merger (the “Cognigen Merger”). To effectuate the Cognigen Merger, we filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Cognigen’s state of incorporation) and California (the Company’s state of incorporation). Consummation of the Cognigen Merger was not subject to approval of our stockholders and did not materially impact the rights of our stockholders. 2 DILIsym We acquired DILIsym Services, Inc. (“DILIsym”) in June 2017. The acquisition of DILIsym positioned the Company as a leading provider of Quantitative Systems Toxicology services including Drug Induced Liver Injury (“DILI”) modeling and related consulting services as well as simulation programs for analyzing nonalcoholic fatty liver disease (NAFLD). DILIsym has subsequently expanded its capabilities to include Quantitative Systems Pharmacology services in areas including idiopathic pulmonary fibrosis (IPF) and Radasym. Effective September 1, 2021, we merged DILIsym with and into Simulations Plus, Inc. through a short-form merger (the “DILIsym Merger”). To effectuate the DILIsym Merger, we filed Certificates of Ownership with the Secretaries of State of the states of Delaware (DILIsym’s state of incorporation) and California (the Company’s state of incorporation). Consummation of the DILIsym Merger was not subject to approval of our stockholders, and did not materially impact the rights of our stockholders. Lixoft We acquired Lixoft as a wholly owned subsidiary in April 2020. Lixoft brings to the Company MonolixSuite ®, which can take modeling projects from data exploration to clinical trial simulations. In addition, Lixoft provides training and consulting services designed to 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). Below is a summary of revenue percentages by reportable segment for the fiscal years ended August 31: 2021 2020 2019 Simulations Plus, Inc. 54% 53% 58% Cognigen 23% 26% 27% DILIsym 13% 17% 15% Lixoft 10% 4% —% Total 100% 100% 100% Going forward, we expect to report segment information based on our two business units (software business and consulting services business) in addition to reporting by division. PRODUCTS General 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 differential equations: o GastroPlus ® o DDDPlus™ o MembranePlus™ · Two products that predict and analyze static properties of chemicals utilizing both artificial intelligence as well as machine learning technologies: o ADMET Predictor ® o MedChem Designer™ 3 · Five products that are based on mechanistic, mathematical models: o DILIsym ® o NAFLDsym ® o IPFsym™ o RENAsym ® o MITOsym ® · Two products designed for modeling and simulation that allow for population analyses and rapid clinical trial data analysis and regulatory submissions: o MonolixSuite ® (the combination of Monolix, PKanalix, and Simulx). o PKPlus™ Software Business Our software business represented 60% of our total revenue during the year ended August 31, 2021, and was primarily generated by the following products: GastroPlus Our flagship product, originally introduced in 1998, and currently our largest single source of software revenue, is GastroPlus. GastroPlus mechanistically simulates the absorption and drug interaction of compounds administered to humans and animals and is currently one of the most widely used commercial software products of its type by industry and regulatory agencies in the U.S. and globally. 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. We work to release updated versions of the program on an ongoing basis. In February 2021, GastroPlus version 9.8.1, 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 new enhancements when importing chemical structures, among others. 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 such collaborations, we own the intellectual property developed within the GastroPlus program, and updates are integrated into future versions and made available to clients. Recent collaborations include: · Virtual bioequivalence trials: in October 2019, we entered a funded collaboration with a large pharmaceutical company to develop the Virtual Bioequivalence (“BE”) Trial Simulator™ in GastroPlus. This collaboration enhances the GastroPlus platform to evaluate population and formulation variability on the BE of different products. · 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. In January 2021, we entered into a new 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. · Oral cavity absorption model : 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. · Unfunded research collaborations : 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”). 4 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. This capability allows chemists to generate estimates for many important molecular properties without the need to synthesize and test the molecules. A chemist can then assess the likely success of many existing molecules in a company’s chemical library, as well as molecules that have never been made. The optional ADMET Modeler™ AIDD (Artificial Intelligence-driven Drug Design) 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 10.2 of ADMET Predictor marketed as APX.2, was released in April 2021, which added many new features including, but not limited to: (i) new capabilities in the High Throughput Pharmacokinetic (“HTPK”) Simulation Module which integrates machine learning and physiologically based pharmacokinetic (PBPK) technologies to guide lead selection, (ii) new intravenous (IV) bolus route of administration to complement oral dosing options, (iii) Multi-dosing for more complex administration regimens, (iv) plasma concentration versus time curve overlay for easy comparison across compounds, (v) Additional options for dose optimization to support universal safety and efficacy definitions. 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 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. · 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. 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. · Artificial Intelligence Drug Discovery (“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 2022. MonolixSuite The MonolixSuite is a unique solution for modeling and simulation for pharmaceutical companies, biotechnology enterprises, and hospitals. It supports nonparametric analyses, population analyses and modeling, and clinical trial simulation. The extended MonolixSuite contains three main products: Monolix, Simulx, and PKanalix. Monolix 2020R1 was released in November 2020, 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. 5 Consulting Services Business General 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. We conduct contracted consulting studies for large customers with complex problems and who recognize our expertise in solving them, as well as for smaller customers. The demand for our consulting services has been steadily increasing, and we have expanded our consulting teams to meet the increased workload. Our consulting services business represented 40% of our total revenue during the year ended August 31, 2021, and was primarily generated by the following services: PBPK 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. New draft guidance documents, which were released in October 2020 focused on additional biopharmaceutics applications for oral drug product development, manufacturing changes, and controls. This has resulted in an increased need for our scientific consulting staff to drawn upon its extensive experience across multiple therapeutic areas of modeling and simulation methods to provide consulting-related services in support of this sophisticated techniqu e. We support Model-Informed Drug Discovery and Development throughout the entire product lifecycle, from discovery through translational research and clinical development when an organization does not have the time or resources to use our software directly. 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. PKPD Our clinical-pharmacology-based consulting services include population pharmacokinetic and pharmacodynamic modeling, exposure-response analyses, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. 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. QSP/T 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. 6 SALES AND MARKETING We market our software and consulting 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. 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 training both online and on-site. We also have independent distributors in Japan, China, India, and Korea as well as in South America who sell and market our products with support from our scientists and engineers. We also launched our MIDD+ (Model-Informed Drug Development) scientific conference in March 2021, where speakers shared their real-world impact using modeling & simulation technology. During the two-day event, representatives from the U.S. FDA Offices of Clinical Pharmacology, New Drug Products, Research and Standards, Translational Sciences, the Center for Drug Evaluation and Research, and the National Center for Toxicological Research, as well as ANVISA and Health Canada, provided case studies and software demonstrations on wide range of topics. The event also featured a panel discussion on the ascent of model-informed drug development and the increasing importance of developing next generation technology. COMPETITION 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 us 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. Major pharmaceutical companies conduct drug discovery and development efforts through their internal development staff and 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. 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: (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. 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/QST). 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: (i) continue to invest in research and development, and develop and support industry-leading simulation and modeling software and related products and services, (ii) develop and maintain a proprietary database of results of physical experiments that serve as a basis for simulated studies and empirical models, (iii) continue to attract and retain a highly-skilled scientific and engineering team, (iv) aggressively promote our products and services to our global market, and (v) 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 portfolio and services offerings. 7 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 as 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 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. Technical support for our software products is generally minimal. 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 1,300 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 for desired new features and suggested interface changes. RESEARCH AND DEVELOPMENT The development of our software is focused on expanding our product portfolio, 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. In certain instances, these arrangements have required that we pay royalties to third parties; we have paid no royalties during the year ended August 31, 2021. We intend to continue to license or otherwise acquire technology or products from third parties when it makes business sense to do so. 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 $6.9 million during fiscal year 2021, of which $2.9 million was capitalized. R&D expenditures were approximately $5.3 million during fiscal year 2020, of which $2.3 million was capitalized. R&D expenditures during fiscal year 2019 were approximately $4.3 million of which $1.8 million was capitalized. Our 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 can work remotely using collaboration software. Our products and services are delivered electronically. CUSTOMERS Our customers include 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 2021, three of our customers each accounted for 11%, 4% and 3% of our revenues, respectively. With the one exception, no other customers made up more than 11% of our revenues in the last four years. 8 SEASONALITY 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. In addition, as revenue has grown in recent years, we have seen some flattening from quarter to quarter due to 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. 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. 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 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. 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; more than half hold doctorate degrees and approximately one-fifth hold master’s degrees. As of Augu st 31, 2021, we employed a total of 146 persons, including 135 full-time employees and 11 part-time employees, consisting of 92 in scientific, technical, and research and development, 10 in marketing and sales, and 44 in administration and accounting. Currently 73 employees hold PhDs. (including PharmDs) in their respective science or engineering disciplines, and 31 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. Diversity, Equity and Inclusion In 2020, we expanded our Human Resources team to implement unified and consistent policies, procedures, and employee training across all of our business units. In our recruitment and hiring, 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 comprise 46% of our workforce and men comprise 54%. Training and Awareness Programs In 2020, we expanded our Human Resources team and broadened our capabilities to include, among other responsibilities, a new focus on training and development. Company-wide, we have analyzed all of our positions, including job descriptions and salary bands, and are creating career paths for the different functions within our organization. We will 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. As we finalize the career paths, we are also committed to conducting a Talent Gap Analysis, a process by which we will design and implement a comprehensive training program to be integrated into the annual Performance Review cycle. This employee training program will include several key components of career development such as technical and soft skills, leadership development, and mandated employee compliance training. 9 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. These monthly sessions serve to familiarize all divisions with the applications and techniques unique to each division and, in so doing, create opportunities to find synergies, expand the knowledge base across all divisions, and build a shared sense of purpose. Health & Safety 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. 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. 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 also consider open and transparent channels of communication to be as a critical component of our employee health and wellness program. Toward this end, on a quarterly basis, we hold a company-wide virtual meeting to keep our employees engaged, informed, and apprised of activities occurring at the company and at each division, including quarterly financial results, future goals, and notable milestones. 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 We believe that our operations are substantially in compliance with all applicable laws and regulations and that it holds all necessary permits to operate our business in each jurisdiction in which our 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. No significant pollution or other types of hazardous emission result from our operations and it is not anticipated that our operations will be materially affected by federal, state or local provisions concerning environmental controls. Our costs of complying with environmental, health and safety requirements have not been material. Furthermore, compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. COMPANY WEBSITE We maintain a corporate 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. 10 ENVIRONMENTAL, SOCIAL, GOVERNANCE We are committed to providing consistent and excellent return to our shareholders, all while maintaining a strong sense of good corporate citizenship that places a high value on the welfare of our employees, the communities in which we operate, and the world as a whole. We believe that effectively prioritizing and managing our Environmental, Social, and Governance (“ESG”) topics will help create long-term value for our investors. We also believe that transparently disclosing the goals and relevant metrics related to our ESG programs will allow our stakeholders to be informed about our progress. 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. More information on our key ESG programs, goals and commitments, and key metrics can be found on our website in our 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 revise our COVID-19 Contingency Plan communication and our Policy for Returning to Work During the Coronavirus Pandemic accordingly. Environmental Matters · We participate in a recycling program through our local waste management facility to divert all recyclable materials – bottles, cans, plastics, paper, and cardboard – from landfills. Across the Company, our facilities provide for recycling, and our electronic waste is sent to local approved e-waste recycling centers. · 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 in to 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 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. 11 Social Impact and Supporting our Communities · Our support for the academic community is broad and deep. We provide certain distinguished professors at academic institutions with free reference site licenses for nonprofit research and teaching, including providing free access to our software in university instruction. In addition to reference site licenses, academic and research institutions are entitled to a 95% discount off commercial license fees, and we offer students and professors either free or substantially reduced fees to attend our training courses and workshops. In recent years, we have sponsored several students with awards given by the Society of Toxicology. · 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. · At the local level, we promote a culture of voluntarism, and we offer our employees the flexibility they need to participate, from sponsoring and participating in charity golf tournaments to volunteering to serve hot meals to the disadvantaged. 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 People · 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. Customer Privacy & Data Security · We value customer privacy and the data we collect are only as needed to deliver company information, software products, and consulting services. 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. 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: o U.S. and State Data Privacy Laws o The EU’s General Data Protection Regulation (“GDPR”) o Pharmaceutical Good Practice Quality Guidelines, including FDA 21 CFR Part 11 o Sarbanes-Oxley Act o Personal Information Protection Law of the People’s Republic of China (“PIPL”) · Our corporate-level IT department brings greater consistency, efficiency, and functional IT support across all divisions. The IT department is responsible for centralizing divisional data processing, storage, and backup capabilities at each of our geographical locations. 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. 12 · 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, 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 . Business Ethics · From the Company’s inception, we have placed the highest emphasis on conducting our business with honesty and integrity. The highest ethical standards are expected of management and employees alike, and we continuously strive to create a corporate culture of honesty, integrity, and trust. Throughout our operations and in our dealings with our stakeholders, we endeavor to engender the confidence that the Company’s conduct is beyond reproach. · The policies we have developed are intended to: o Define and disseminate our core values and the legal requirements applicable to good business conduct and ethical behavior o Offer guidance in understanding Company policies, interpreting laws, and handling Company-related issues and situations o Foster clear, ethical behaviors and conduct to create an atmosphere of respect, trust, cooperation, and collaboration throughout the Company and its activities o 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 (“CCBCE”) which sets forth the Company’s values, business culture, and practices. Human Rights · 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. As we evolve this policy, we will look to the UN Guiding Principles on Business and Human Rights (UNGPs) for guidance. Governance · W e are committed to ensuring strong corporate governance practices on behalf of our shareholders and other stakeholders. We believe strong corporate governance provides the foundation for financial integrity and shareholder confidence. 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 2022 Annual Meeting of Shareholders (the “ Proxy Statement ”) , which will be filed within 120 days after August 31, 2021, the close of our fiscal year covered by this Annual Report. 13