On February 28, 2024 Schrödinger, Inc. (Nasdaq: SDGR), whose physics-based computational platform is transforming the way therapeutics and materials are discovered, reported financial results for the fourth quarter and full-year ended December 31, 2023, and provided its financial outlook for 2024 (Press release, Schrodinger, FEB 28, 2024, View Source [SID1234640612]).

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"I am very pleased with the progress we made in 2023, delivering 20 percent total revenue growth and reporting our largest quarter for software revenue in our history. We also advanced our pipeline of collaborative and proprietary programs and were pleased to see companies we co-founded achieve significant corporate and development milestones, further validating our platform," said Ramy Farid, Ph.D., chief executive officer of Schrödinger. "Looking ahead, we are continuing to focus on investing in the science that underlies our platform, increasing customer adoption, and advancing our proprietary pipeline, which now includes two clinical-stage programs. We expect data readouts from our first two patient studies in late 2024 or 2025 and are on track to progress a third program to the clinic this year."

Fourth Quarter 2023 Financial Results
•Total revenue for the fourth quarter increased 30.4% to $74.1 million, compared to $56.8 million in the fourth quarter of 2022.
•Software revenue for the fourth quarter increased 43.6% to $68.7 million, compared to $47.8 million in the fourth quarter of 2022. Multi-year agreements contributed significantly to revenue in the quarter with additional contribution from larger renewals of annual contracts among existing customers.
•Drug discovery revenue was $5.5 million for the fourth quarter, compared to $9.0 million in the fourth quarter of 2022. The decrease reflects collaboration milestones that favorably impacted the fourth quarter of 2022.
•Software gross margin increased to 87% for the fourth quarter, compared to 83% in the fourth quarter of 2022.
•Operating expenses were $87.2 million for the fourth quarter, compared to $67.2 million for the fourth quarter of 2022.
•Other expense, which includes changes in fair value of equity investments and interest income/expense, was $1.9 million for the fourth quarter, compared to other income of $1.2 million for the fourth quarter of 2022.
•Net loss for the fourth quarter was $30.7 million, compared to $27.2 million in the fourth quarter of 2022.

Three Months Ended
December 31,
2023 2022 % Change
(in millions)
Total revenue $ 74.1 $ 56.8 30.4%
Software revenue 68.7 47.8 43.6%
Drug discovery revenue 5.5 9.0 (39.4)%
Software gross margin 87 % 83 %
Operating expenses $ 87.2 $ 67.2 29.6%
Other (expense) income $ (1.9) $ 1.2 (258.4)%
Net loss $ (30.7) $ (27.2) 12.7%

Full Year 2023 Financial Results
•Total revenue for the full year increased 19.7% to $216.7 million, compared to $181.0 million for 2022.
•Software revenue for the full year increased 17.4% to $159.1 million, compared to $135.6 million for 2022. Multi-year agreements contributed significantly to revenue growth with additional contribution from larger renewals of annual contracts among existing customers.
•Drug discovery revenue for the full year was $57.5 million compared to $45.4 million for 2022. The first quarter of 2023 included a $25.0 million milestone from BMS.
•Software gross margin was 81% for the full year, compared to 78% for 2022.
•Operating expenses were $318.1 million for the full year, compared to $247.8 million for 2022, primarily due to higher research and development expense.
•Other income, which includes gains/loss on equity investments, changes in fair value of such investments and interest income/expense, was $220.4 million for the full year, compared to other expense of $2.3 million for 2022.
•Net income for the full year was $40.7 million, compared to a loss of $149.2 million for 2022.
•At December 31, 2023, Schrödinger had cash, cash equivalents, restricted cash and marketable securities of approximately $468.8 million, compared to approximately $502.5 million at September 30, 2023 and $456.3 million at December 31, 2022. In the first half of 2023, Schrödinger received $147.2 million in cash distributions from Nimbus Therapeutics in connection with Takeda’s acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its tyrosine kinase 2 inhibitor.

Twelve Months Ended
December 31,
2023 2022 % Change
(in millions)
Total revenue $ 216.7 $ 181.0 19.7%
Software revenue 159.1 135.6 17.4%
Drug discovery revenue 57.5 45.4 26.8%
Software gross margin 81 % 78 %
Operating expenses $ 318.1 $ 247.8 28.4%
Other income (expense) $ 220.4 $ (2.3) (9,643.8)%
Net income (loss) $ 40.7 $ (149.2) (127.3)%

For the three and twelve months ended December 31, 2023, Schrödinger reported a net loss of $30.7 million and net income of $40.7 million, respectively, compared to net losses of $27.2 million and $149.2 million for the three and twelve months ended December 31, 2022, respectively.

For the three and twelve months ended December 31, 2023, Schrödinger reported non-GAAP net losses of $23.0 million and $157.8 million, respectively, compared to non-GAAP net losses of $25.9 million and $142.9 million for the three and twelve months ended December 31, 2022, respectively. See "Non-GAAP Information" below and the table at the end of this press release for a reconciliation of non-GAAP net income (loss) to GAAP net income (loss).

Full Year 2023 Key Performance Indicators (KPIs)
Schrödinger today reported 2023 key performance indicators for both the software and drug discovery components of its business.

Software. Total annual contract value (ACV) increased 9.7% to $154.2 million, and the ACV of Top 10 customers also increased 9.7% to $51.0 million. The number of customers with an ACV of at least $1 million increased to 27 from 18, and the number of customers with an ACV of at least $5 million was unchanged at four. Schrödinger’s customer retention rate among customers with an ACV of at least $500,000 was 98% and the number of such customers increased from 52 to 54.

Drug discovery. Schrödinger ended 2023 with 12 ongoing programs eligible for royalties, compared to 15 the previous year. For the year ended December 31, 2023, the number of collaborators since 2018 was unchanged at 17.

Software KPI 2023 2022
Total annual contract value (ACV) $154.2 million $140.6 million
ACV of Top 10 customers $51.0 million $46.5 million
Number of customers with at least $5M in ACV 4 4
Number of customers with at least $1M in ACV 27 18
Number of customers with at least $500,000 in ACV 54 52
Number of customers with at least $100,000 in ACV 222 227
Customer retention rate with at least $500,000 in ACV 98% 100%
Customer retention with at least $100,000 ACV 92% 96%
Number of active customers with ACV of at least $1,000 1,785 1,748

Drug Discovery KPI 2023 2022
Ongoing programs eligible for royalties 12 15
Number of collaborators since 2018 17 17

For additional information about the company’s KPIs, see "Operating Metrics" below.

2024 Financial Outlook
As of February 28, 2024, Schrödinger provided the following expectations for the fiscal year ending December 31, 2024:
•Software revenue growth is expected to range from 6% to 13%.
•Drug discovery revenue is expected to range from $30 million to $35 million.
•Software gross margin is expected to be similar to software gross margin for the full year 2023.
•Operating expense growth in 2024 is expected to range from 8% to 12%.
•Cash used for operating activities in 2024 is expected to be above cash used for operating activities in 2023.

For the first quarter of 2024, software revenue is expected to range from $33 million to $35 million.
"We had a very strong year in 2023, with significant growth in our software and drug discovery revenue and substantial progress in our proprietary pipeline and at our co-founded companies. In 2023 we benefited from the renewal of large contracts with long-term software customers, as well as a significant increase in the number of customers with annual contract values over $1 million," stated Geoff Porges, MBBS, chief financial officer of Schrödinger. "We see many opportunities to drive continuing software revenue growth in 2024 and beyond, and are very excited by the value we are building in our proprietary portfolio, and in our ventures and partnerships".

Key Highlights
Platform

•In February, Schrödinger scientists published commentary in Cell describing how free energy perturbation (FEP+) can be used to validate and optimize ML-predicted structures, increasing the number of targets that can be evaluated and enabling computational drug design against an increasing number of targets and off-targets such as hERG.

•In December, Schrödinger scientists co-authored a paper describing the application of induced-fit docking and FEP+ to significantly improve the utility of predicted structures of certain GPCRs. GPCRs

are an important class of drug targets; however, obtaining experimental GPCR structures has been historically challenging. This research demonstrates the potential to leverage predicted structures, further expanding the domain of applicability for Schrödinger’s platform.

•In November, Schrödinger and AbbVie scientists published a paper demonstrating that FEP+ can be used to accurately predict the thermodynamic aqueous solubility of small molecules, a critical attribute of drug candidates that can impact efficacy and drug formulation. Schrödinger’s FEP+ exhibited better correlations to experimental solubility compared to state-of-the-art machine learning approaches.

Pipeline
•In December, Schrödinger presented initial data showing that its novel MALT1 inhibitor, SGR-1505, was well tolerated in a Phase 1 study of 73 healthy volunteers. No drug-related serious adverse events or dose limiting toxicities were observed in the study. The data also confirmed target engagement, with greater than 90 percent inhibition of IL-2 secretion in activated T cells, a pharmacodynamic goal of the study.

Schrödinger presented preclinical data for SGR-1505 at the American Society of Hematology (ASH) (Free ASH Whitepaper) Annual Meeting in December. The data demonstrated that SGR-1505 has favorable attributes and the potential for combination activity with standard-of-care agents in B-cell malignancies. The company also presented preliminary clinical biomarker information for SGR-1505, showing pharmacodynamic evidence of MALT1 inhibition.

The company continues to advance the Phase 1 dose-escalation study of SGR-1505 in relapse/refractory B-cell malignancy patients, and enrollment is ongoing in the U.S. and EU. The company expects to report initial data from this study in late 2024 or 2025.

•Also at ASH (Free ASH Whitepaper), Schrödinger presented preclinical data for SGR-2921, its CDC7 inhibitor, showing the anti-proliferative effects of SGR-2921 in treatment-resistant acute myeloid leukemia (AML) patient-derived samples, as well as reduction of blasts in multiple AML models. A Phase 1 study of SGR-2921 is ongoing in patients with AML or myelodysplastic syndrome, and the company expects to report initial data from the study in late 2024 or 2025.

•Schrödinger continues to progress SGR-3515, its Wee1/Myt1 inhibitor, through IND-enabling activities and expects an IND submission in the first half of 2024 and start a Phase 1 trial in the second half of 2024.

•Schrödinger is advancing its discovery pipeline, including three recently disclosed novel medicines targeting EGFRC797S, PRMT5-MTA and NLRP3. The company continues to anticipate submitting at least one IND in 2025.

Webcast and Conference Call Information
Schrödinger will host a conference call to discuss its fourth quarter and full year 2023 financial results on Wednesday, February 28, 2024, at 4:30 p.m. ET. The live webcast can be accessed under "News & Events" in the investors section of Schrödinger’s website, View Source To participate in the live call, please register for the call here. It is recommended that participants register at least 15 minutes in advance of the call. Once registered, participants will receive the dial-in information. The archived webcast will be available on Schrödinger’s website for approximately 90 days following the event.