Schrödinger Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 15 speakers on the call.

Operator

You for standing by. Welcome to Schrodinger's Conference Call to review Third Quarter 2023 Financial Results. My name is Eric, and I'll be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Please be advised that this call is being recorded at the company's request. Now I would like to introduce your host for today's conference, Ms. Jaren Madden, Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to today's call during which we will provide an update on the company and review our 2023 financial results. Earlier today, we issued a press release summarizing our results and progress across the company, which is available on our website at schrodinger.com. Here with me on our call today are Rami Farid, CEO Jeff Porges, Chief Financial Officer and Karen Akinsanya, President of R&D Therapeutics. Following our prepared remarks, we'll open the call for Q and A.

Speaker 1

During today's call, management will make statements that are forward looking and made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, Including, without limitation, statements related to our outlook for the full year 2023, our quarter ending September 30, 2023, Our plans to accelerate the growth of our software business and advance our collaborative and proprietary drug discovery programs, the timing of initiation of and relapsed from our clinical trials, the clinical potential and properties of our compounds, the use of our cash resources as well as our future expenses. These forward looking statements reflect Our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially due to a number of important factors, including the considerations described in the Risk Factors section and elsewhere in filings we make with the SEC, including our Form 10 Q for the quarter ended September 30, 2023. These forward looking statements represent our views only as of today, And we caution you that except as required by law, we may not update them in the future, whether as a result of new information, future events or otherwise.

Speaker 1

Also included in today's call are certain non GAAP financial measures. These non GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not a substitute for or superior to GAAP measures. Please refer to the tables at the end of our press release, which is available on our website for reconciliations of these non GAAP measures to the most directly comparable GAAP measures. And with that, I'd like to turn the call over to Rami.

Speaker 2

Thanks, Sharon, and thank you everyone for joining us today. We had a successful and exciting Q3 marked by several important milestones for the company. We reported total revenue of $42,600,000 representing 15% growth compared to the Q3 of 2022 We are on track to deliver on our full year revenue guidance. We began patient dosing for our Phase 1 study of SGR-two thousand nine hundred and twenty one And we received CTA approval to open clinical trial sites for our SGR-fifteen oh five patient study in Europe. Additionally, SGR-three thousand five hundred and fifteen is advancing And we also have a number of exciting discovery programs just behind our lead programs, which we'll discuss at more length at our Pipeline Day in December.

Speaker 2

Today, we reported that rights to 2 related oncology discovery programs within the BMS collaboration reverted to us after BMS elected not to proceed with further development for strategic reasons. These programs were making excellent technical progress and our team is assessing the next steps for these programs in the context of our overall BMS continues to be an important partner. We have 3 active research programs in the collaboration as well as Sauce 1, which reached development candidate status and transitioned to BMS earlier this year. We are also discussing the potential for additional discovery programs with BMS. Collaborations are an important part of our business and we continue to evaluate new partnerships where the science, overall scope and value are consistent with our strategy.

Speaker 2

Turning to our software business, we remain confident about the opportunity for significant revenue growth among our largest software customers this year. The interest in computationally driven drug discovery is quite high and we are seeing more customers increasing their utilization of our platform. We're continuing to invest in the development of new capabilities to enhance the value of our platform and we expect these capabilities to support continued growth and our software business for many years to come. Our latest quarterly software release incorporates a number of key technologies, including the ability to more accurately predict certain ADMET properties such as binding to cytochrome P450s and HERG and technology that allows for prediction of antibody affinity as a function of pH. We are pleased with the progress we have made this year and we're very I will now turn the call over to Jat.

Speaker 3

Thank you, Rami, and good afternoon, everyone. It's been a strong quarter for Schrodinger and this is reflected in our quarterly results and financial guidance. Our software business is growing despite a challenging biopharma industry environment and our proprietary portfolio is progressing nicely. Today, I'll share details of our financial results and then close with some comments about our financial guidance. Our revenue results for the quarter were above our expectations and reflect the impact of the changes in our collaboration portfolio that Rami explained earlier.

Speaker 3

We remain very positive about our outlook for the year I continue to expect significant growth in software revenue in Q4 and in both Bright Discovery and software revenue for the year overall. Software revenue for Q3 was $28,900,000 up 17% compared to Q3 2022. The revenue growth was driven by existing customers increasing their investment in our technology, with a number of additional customers reaching the $1,000,000 per year threshold during Q3. Hosted software grew strongly as some large customers elected to initially increase their access to technology on a hosted basis. Services revenue declined due to the shift away from our structural biology services and towards our proprietary programs.

Speaker 3

And our contribution revenue increased to $1,800,000 driven by the expanded renewal of our battery chemistry research project with Gates Ventures. Drug Discovery revenue increased by 11% to $13,700,000 compared to $12,300,000 in Q3 last year. There was a $10,000,000 contribution in the quarter from the acceleration of previously deferred revenue associated with the 2 BMS programs that reverted to us. There are 4 remaining programs in the BMS collaboration, including the SOS-one program that transitioned to their portfolio in Q1 2023. Total revenue for the quarter was $42,600,000 compared to $37,000,000 in Q3 2022 $35,200,000 in Q2 2023.

Speaker 3

For the 1st 3 quarters of the year, our software revenue was $90,500,000 compared to $88,000,000 for the 1st same period last year, and And our drug discovery revenue was $52,000,000 compared to $36,000,000 for the same period a year ago. Our gross margin performance was positive this quarter with higher revenue producing improved product profitability. Suffrag gross margin was 76% compared to 72% in the same period last year and 77% in Q2 2023. Drug Discovery gross margin was 13% compared to a 5% loss ratio for the same period a year ago. Combined reported gross margin was 56% compared to 47% in the same period in 2022.

Speaker 3

Our software gross margin should continue to improve slowly Novartis Discovery margin will be volatile depending on the timing and amount of milestone payments associated with collaborations. In general, we expect our cost for collaboration programs to trend down, thus increasing the potential gross profitability of successful achievement of milestones and collaborations. R and D expenses were $46,800,000 in Q3 compared to $33,000,000 in the same period a year ago. A significant portion of this increase is due to redeployment our existing employees from collaborations to proprietary programs and from customer facing structural biology services to internal programs. CRO expenses and headcount also contributed materially to the increase as we supported the progress of our most advanced programs into clinical development.

Speaker 3

Compared to Q2 2023, R and D expenses increased by 10%, again driven by shifting allocation of our staff to proprietary programs and by higher CRO expenses. For the 1st three quarters, our R and D expenses were $130,000,000 compared to $92,000,000 in the same period in 2022. Sales and marketing expenses were $9,100,000 in Q3 compared to $7,200,000 in Q3 2022, with most of the increase coming from increased headcount and associated costs to support our software business. Sales and marketing expense was flat compared to Q2 of this year. G and A expense was $24,000,000 in Q3 compared to $23,000,000 in Q3 2022 and $23,000,000 in Q2 2023.

Speaker 3

Increases in headcount were offset by savings in professional services compared to prior periods. Total operating expenses were $80,000,000 compared to $63,000,000 in Q3 2022 and to $75,000,000 in Q2 2023. Operating expenses increased due to higher R and D and somewhat higher sales and marketing expenses. Our reported loss from operations was $56,000,000 in Q3 compared to $46,000,000 in the same period in 2022. Our other income was once again affected by changes in the value of our equity positions in publicly traded biopharma companies.

Speaker 3

Changes in these valuations resulted in a $14,500,000 loss in Q3. Other income also included $5,800,000 in interest income, and our tax provision was a benefit of $3,000,000 which was the anticipated reversal of the tax We reported in Q1 2023 associated with the Nimbus distribution. Our net loss was $62,000,000 or $0.86 per basic and diluted share for the quarter compared to a loss of $39,900,000 or $0.56 per share in Q3 2022. Our non GAAP net loss for the quarter was $50,400,000 compared to a net loss of $44,900,000 in Q3 2022. Our weighted average basic and diluted share count increased by 1% compared to the prior year.

Speaker 3

Our total cash used in operating activities for the quarter was 49,900,000 Our cash and marketable securities decreased from $554,000,000 on June 30 to $503,000,000 on September 30. I'll now turn to our financial guidance for the year. Our guidance for software and drug discovery revenue for 2023 is unchanged. We continue to expect full year software revenue growth to be 15% to 18% and expect drug discovery revenue to be in the $50,000,000 to $70,000,000 range. We continue to expect total operating expense growth in 2023 to be below operating expense growth in 2022.

Speaker 3

We now expect cash used for operating activities to be somewhat higher in 2023 than 2022 based on the mix of revenue, the timing and size of milestones and our expectations for new business development activity this year. Our net cash position at the end of the year is likely to be similar operating activities. The major uncertainties for our financial outlook are our ability to predict changes in the strategic priorities of our partners and customers, the timing and value of new business development activity and the timing and probability of development milestones. These uncertainties are reflected in our updated guidance. Overall, we reported strong financial results for the quarter and are maintaining our revenue guidance for the year.

Speaker 3

Our proprietary portfolio is maturing, Our capital allocation is shifting towards supporting the progress of our proprietary programs and to capturing the value generated by our technology in emerging companies such as Structure and Morphic. I'll now turn the call over to Karen to comment on the progress in our Drug Discovery and Development portfolio. Karen?

Speaker 4

Thank you, Jeff, and good afternoon, everyone. During the quarter, we continued to make strong progress across our pipeline. We are close to completing our SGR-fifteen oh five healthy volunteer study. We initiated dosing in our SGR-two thousand nine hundred and twenty one oncology trial And the IND submission for STR 3515 is on track. We are also preparing to present 4 posters at the ASH Annual Meeting next month.

Speaker 4

These presentations will include data on 1505 and 2,921 as well as 2 clinical trial in progress posters. In addition to our proprietary programs, several collaborative programs are advancing And 9 molecules have transitioned to the clinic through our collaboration. As Rami and Jeff reported earlier, Two collaborative programs which target the same protein reverted to Schrodinger from BMS, and our team is assessing next steps in the context of our overall proprietary portfolio. I'll now review recent progress on several of our proprietary programs in more detail. First, beginning with ALLAMORT 1 inhibitor, FGR1505, we are continuing to advance our development program to further Characterize the clinical profile of our molecule.

Speaker 4

Earlier this year, we initiated a study of SGR1505 in healthy volunteers to assess initial safety, pharmacokinetic and pharmacodynamic relationships. This study is nearing completion, And we expect to share data from this study at upcoming medical, scientific and investor events. In our patient study, we recently opened additional sites Our CDC-seven inhibitor SGR-two thousand nine hundred and twenty one has also entered the clinic with patient dosing underway in the U. S. The primary objectives of this study are to evaluate the safety, pharmacokinetics and pharmacodynamics and establish the recommended Phase 2 dose Preclinically, SGR-two thousand nine hundred and twenty one exhibits monotherapy and combination activity in AML patient derived models Independent of genetic drivers and resensitizes AML models to standard of care agents such as FLT3 inhibitors.

Speaker 4

Turning to SGR 3515. Today, we provided new details on our development candidate. SGR 3515 was selected vulnerability in cancer cells. In addition to this mechanistic advantage termed synthetic lethality, SGR 3515 has a favorable pharmacologic profile. We are on track to submit the IND for SGR 3515 in the first half of twenty twenty four to support initiation of a Phase I study by the end of next year.

Speaker 4

Beyond the disclosed programs, we are working on a number of other programs in oncology and immunology at various stages of discovery. Today, we disclosed that one of these programs is PRMT5 MTA. PRMT5 has been shown to be a synthetic lethal target In summary, our proprietary portfolio is advancing, and we are very excited to be sharing our first clinical data from healthy subjects for SGR1505 later this quarter. We look forward to sharing more information about our proprietary programs at our Pipeline Day on December 14. I'll now turn the call back to Rami.

Speaker 2

Thank you, Karen. As you heard, we've made excellent progress across the business this quarter and we look forward to providing further updates on our discovery and clinical programs later this year. At this time, we'd be happy to take your questions.

Operator

Thank you. Your first question comes from Michael Yee with Jefferies. Please go ahead.

Speaker 5

Hey guys, thank you for the question and appreciate all the detail. Two questions for the team, 1 on Software and 1 on drug discovery. On software, there's been prior commentary around how your customers are accelerating use. Think you mentioned that word utilization. Can you just talk about how much visibility and how you are seeing those things come through both in Q3 and presumably what we would see in the Q4, are there metrics or things that would show that?

Speaker 5

And I ask that in the context of Wall Street likes to see beating numbers and beating by $1,000,000 or $2,000,000 And so I just wanted to understand that because you came in the middle of your guidance for the quarter. And then on Drug Discovery, can you clarify if there was a payment from Bristol in this quarter for the handback of the 2 compounds? And what would explain the large $20,000,000 range for drug discovery than in the Q4, that's a pretty large range? Thank you.

Speaker 6

Thanks Mike for the questions. This is Ravi. I'll take the first one and then hand it over to Jeff for the second one. So first of all, let me be very clear that the visibility we have into the Q4 is very high. We've had very productive discussions that have been going on as we've been saying all year with our Largest customers and there's very clearly significant interest in scaling up their usage.

Speaker 6

And again, I just want to emphasize that we have a lot of visibility into that.

Speaker 7

And Mike, just to answer your question on Drug Discovery, however, of the reported Drug Discovery revenue in Q3, dollars 10,000,000 of that That's from BMS associated with the return of the 2 programs that we disclosed. Now there was also a program decision by them in the prior year in Q3 That contributed then. So that was a smaller payment, but that was a payment in Q3 of last year. And then to the range of the guidance, I think it should be fairly clear by now that our revenue with our Discovery site is chunky. And we've tested the guidance range Why to encompass what we think is a reasonable range of probable outcomes?

Speaker 7

To just say the obvious, we don't think there's going to be a reversion of revenue So low end of the guidance range, but equally, there's still a number of things that can occur in the Q4 that can push us At different points in that range, so that's why we talked the range of tax.

Speaker 5

Okay. I'll let someone else ask if we could go from 52 to 50, Jeff, but assuming that's not happening, it's still a wide range. So I will take a look and figure that out, but look forward to the results for the Q4. Thank you.

Operator

Thank you. Your next question comes from the line of Vikram Parrohit with Morgan Stanley. Please go ahead.

Speaker 8

Hi, this is Steve for free content. Thanks for taking our questions. So I want to ask questions regarding the NILT1 inhibitor. First, what is the current sense of timing towards like Phase 1 data? Because I know you are going to release some data in Ash, what are the Phase 1 data on the patients?

Speaker 8

The timing roughly your sense. And second, what's the bar or hurdle on and efficacy for the data for the initial data set. Thank you.

Speaker 9

Hi. Yes. So the health volunteer study is nearing And we do expect to share data from that study at upcoming medical conferences and investor events. As far as the study in advanced hematologic malignancies is concerned, that study is ongoing And we are continuing to add new sites during support enrollment, but we expect initial data from the patient And so with respect to your question on the ORR hurdle, we will not be discussing that today. I think We do have a pipeline day coming up later on this year, and I think we'll be giving a lot more color on our strategy and thoughts about the program at that time.

Speaker 8

Sure. Thank you.

Operator

Thank you. Your next question comes from the line of Evan Seigerman with BMO Capital Markets. Please go ahead.

Speaker 10

Hi, Nakam Hoffman on for Evan. We just wanted to ask with your recently announced PRMT5 asset, are you able to comment How long this asset has been in development and whether recent interest from other biotech players might have influenced the decision to pursue the program? And then how should we think about the indications or treatment settings you're targeting for this plasma? Thank you.

Speaker 9

Yes, thanks for the question. So we just first of all, we will be providing an update on the progress of our program again at Pipeline Day. However, we had initiated that program some time ago as we stated on the call. This program was one of our Undisclosed programs and today we're updating you on the status of that. Obviously, we and everyone else is pretty excited about The data that's been coming out on that mechanism, and so we're looking forward to progressing the program and updating you all later on this year.

Operator

Thank you. Your next Question comes from the line of David Lebowitz with Citi. Please go ahead.

Speaker 11

Hi, guys. John on for David. Thanks for taking our question. Just a quick one, building off the previous question of the BMS collaboration. Can you Clarify if there are any other potential financial implications of that decision going forward beyond this quarter as well?

Speaker 7

Sure. Thanks for the question. So the first is that For several quarters now, we've been transitioning our employees over from collaboration programs to proprietary programs. That's reflected in our reported expense results, but the cost of services for the drug discovery side Being flat to slightly down and then the R and D expense going up, that's a result of that shift in deployment of Those employees in the R and D organization. That's going to continue in the future after this BMS decision, but that Trend is going to continue going forward.

Speaker 7

The second is, of course, that we are no longer eligible for the downstream milestones associated with this Those programs from BMS, and as Karen mentioned in her remarks, we still believe there are opportunities for us to capture value from those programs, Either it's proprietary or potential partnering opportunities in the future. We still have to resolve that and come to So I'm sort of final decision, but that's an opportunity for us that could potentially offset the milestones that will be foregone because they're no longer in the BMS Collaboration.

Speaker 11

Got it. Thank you very much.

Operator

Thank you. Your next question comes from the line of Michael Ryskin with Bank of America. Please go ahead.

Speaker 12

Great. Thanks for taking the question guys. First, I want to ask on The updated guide, I just want to make sure I'm understanding everything properly, maintain revenues across the various segments, maintain margins, etcetera. But You are talking about more cash operating cash used than last year. I think you flagged mix, milestones, new business activity.

Speaker 12

But clarify why is that showing up on the cash flows, but not on the P and L? Or maybe it is showing up on the P and L and it's just sort of not moving that basket of operating expense growth being lower than last year. Any color there?

Speaker 7

Absolutely, really good question. It's because of the disconnect between when we Book actual get cash from our partners in part and when we actually recognize revenue, that's the first thing. It's also to do with The actual mix of revenue that we reported during the Q3, the shift between, for example, prior payments or That versus new business development activity, for example. So it's really in the mix of revenue as I said in the prepared remarks, But also the timing and size of milestones and our expectations for business development activity, all three of those things contributed. I will say that the operating cash use in the 3rd quarter was around $50,000,000 And that's so year to date through the Q3, it's roughly $100,000,000 We do expect the 4th quarter cash operating cash used to be lower than the Q3, which is giving you a sense of what the outlook for the year is.

Speaker 7

But It's really those factors that I mentioned to might sort of change the outlook on the cash side even though we've maintained revenue and OpEx The operating expense outlook.

Speaker 12

Okay. Thank you. And then if I can take a follow-up on the Software side of the business, again, I know that you reiterated the guide and 3Q was pretty much right down the middle of your outlook, but still there's been a lot of chatter, Had a lot of updates among other biofaunal players in terms of program reprioritization, Some cost cutting, some reevaluating of their spend across various baskets. Obviously, when They use short under software. It's a very small part of their total OpEx spend.

Speaker 12

But I'm just wondering anything you're hearing from your customers in terms of reevaluating spend levels, whether it is company specific updates or something related to IRA or whatnot. Could you just talk about those conversations?

Speaker 6

Yes. So first, I just want to emphasize again that we have very high confidence in Achieving the implied growth in Q4 that's implied from the maintaining of the 15% to 80% overall growth for the year. And what I'll tell you is the same thing that we've been talking about before. We think in this environment of This cost cutting, as you described, an environment, it appears, and again, I don't think this is surprising, to be resulting in higher demand for technology that improves efficiency and reduces costs and improves probabilities of success. So, we certainly are aware of what you're talking about, but we can tell you that it does not appear to be having an impact on The interest in scaling up of the usage of our software and it is not impacting our sort of confidence in achieving the growth That's required in Q4 to hit the 15% to 18% overall growth for the software business.

Speaker 12

Super helpful. Thanks so much.

Operator

Thank you. Your next question comes from the line of Matt Hewlett with Craig Hallum. Please go ahead.

Speaker 13

Good afternoon. Thanks for taking the questions. Kind of following up on that regarding the software and you've commented on this a couple of different times, but significant growth I just want to clarify that it's not just about this year, you're also talking about the conversations you're having with your larger customers and what that will mean for next Cheers, commitments from those same customers, correct?

Speaker 7

So We're definitely not giving financial guidance for next year or giving you an indication about next year. The discussions that we've been having throughout the year have been very positive, continue to be very positive, very supportive of The revenue guidance that we provided were updated related today, but equally about the opportunity for us Continue to grow the deployment of our software into our largest customers going forward. I also want to highlight in the comments that I provided about the 4th quarter, We did see a number of smaller customers actually stepping up their use of our software. So even in a part of the market that many people think is Particularly stressed as a result of capital markets, etcetera, we are seeing customers coming forward and stepping up their use of our technology To become larger customers, not necessarily at the scale of the global customers, but definitely contributing. Yes.

Speaker 6

And let me add one more thing. That's very important to keep in mind. Remember, we are advancing the platform very aggressively. We continue to make Very important scientific breakthroughs. We continue to improve the software.

Speaker 6

As we said many times, we have 4 releases a year. So there are Many more opportunities associated with just continued improvements to the platform, expanding its domain of applicability, expanding the types Targets we can work on, expanding them or properties we can predict. We actually made a statement about that in our prepared remarks. So that's another important thing to

Speaker 13

That's really helpful. And to hear that you're even having smaller customers stepping up that Actually, it's not what we're hearing from other companies. Other companies are talking about the scaling back, the cutting of Perceived cost places. So that's actually a very positive development. I guess the second question for me regarding The 2 BMS programs that have reverted back to you, and I realize this might be still early days, but is this something where you will now take over Those programs and look to re out license those or repartner those?

Speaker 13

Or do you put them on the shelf and kind of wait for the market to improve or change? What happens to those two assets? Thank you.

Speaker 9

Yes. Thanks for the question. So These programs actually address unprecedented targets and we were progressing according to the agreed upon target product profile. As we've discussed, BMS selected not to proceed with further settlement for strategic reasons. We have a high degree of confidence in the work that's been done in this collaboration, and we are going to evaluate as we discuss the of those programs with our portfolio, but as you point out, the targets are very interesting and We believe that there may well, as Jeff put it, be an opportunity to create additional value from those programs.

Speaker 9

So we're not we're still discussing that internally.

Speaker 13

Understood. Thank you.

Speaker 5

Thanks.

Operator

Thank you. Your next question comes from the line of Joe Catanzaro with Piper Sandler. Please go ahead.

Speaker 14

Great. Hi, everybody. I appreciate you taking my question. Maybe just one quick one for me on the pipeline side. So for For 3515, I think this is the first time you're disclosing that it's actually a dual inhibitor of V1 and PKMIP1.

Speaker 14

So just wanted to see whether this feature was An explicit goal of your drug discovery efforts or whether this was kind of serendipitously realized after the fact and What benefit do you see over hitting both of these targets relative to 1 or the other? Thanks.

Speaker 9

Yes, sure. Actually, we identified MYT-one as an important synthetically talented gene for WE1 inhibition In our patient derived model during the course of the program, we ended up selecting SGR 3515 From a number of series that were in our discovery lab, as our development candidate, we chose it because of its We won and MYP-one activity, but also because of its differentiated pharmacological properties. We're obviously excited about this because of the information on synthetic lethality and we decided to disclose it Because of that activity and our excitement is about taking us into the clinic.

Speaker 14

Okay, great. That's helpful. Thanks for taking my question.

Operator

Thank Your next question comes from the line of Chris Shibutani with Goldman Sachs. Please go ahead.

Speaker 11

Great. Thank you very much. Jeff, I know that Q4 has seasonally tended to be the time of year when you're getting renewals happen with your existing customers. If I'm going to read into your comments about confidence and visibility and while I know you're not going to be guiding on 2024, we are now at A month in, can you give us any sense for particularly maybe the higher velocity, those greater than 5,000,000 average kind of Utilization customers, how is that going? And that would be helpful.

Speaker 11

And then to be absolutely clear for your December mid December analyst event, We should expect the focus to be entirely on the pipeline. Definitively, the timing for when you would expect to provide that 2024 guidance Would be when? Would it be the Q4 report? Is there a chance at the annual kickoff conference in January? Just some perspective would be helpful.

Speaker 11

Thanks.

Speaker 7

Thanks for the questions, Chris. Look, I think we've made it clear throughout the year that we're having very constructive discussions with our largest customers. And I think Rami has made it clear that those discussions have progressed very nicely throughout the year and give us a lot of confidence about our guidance for the year. Equally, if we were certain that we were going to be outside the guidance range, We'll obviously be updating our guidance. And we think that those discussions position us well for next year, But we're certainly not in a position to be providing guidance for next year.

Speaker 7

In terms of the timing for that guidance, Because so much of our revenue or at least our renewal activity is at the very end of the year where our large customers say, okay, We've used our licenses for this year and this has the level of activity and utilization and therefore we're going to step up what changed whatever next year. That happens at the very end of the year. So I certainly don't have a certain expectation that there will be a financial component On the pipeline day, in terms of any sort of revenue commentary, we need to close out the year and we'll be Providing financial guidance when we report the 4th quarter in part because the 4th quarter outcome influences the outlook for next year as well.

Speaker 11

And can I ask one expense follow-up question? You talk about redeploying within R and D Sort of your employees from the collaborations to proprietary programs, can we get a sense for sort of What that relative balance and that shift that's ongoing, is that more or less complete? Is that going to be a continuous process? I know that Karen is working to develop the proprietary pipeline, but just some perspective there because it does sound as if the sort of cost per head When you go to the proprietary programs, it's incrementally more costly, I believe, versus being in the collaboration? Thanks.

Speaker 7

Yes. But just a quick comment, Chris, the cost ahead is the same. It's just that They run through the income statement in a different part of the income statement, if they're working on a collaboration project versus if they're working on a proprietary program. So There's sort of it's to a certain extent, it's accounting convention shifting from a cost of goods line to an R and D line. In terms of your question about the trajectory, I do think that I would suggest that in the 4th quarter, That trend is going to continue because obviously we have some programs that we were actively deployed on In the Q3, that will not be actively deployed on collaboration programs in the Q4 and beyond.

Speaker 7

But equally, I think we still believe in collaborations. We still think that's an important part of our business mix. So we will continue to be engaged in collaborations So there will continue to be expense for the therapeutics group going through that line in the income statement. I hope that gives you at least a directional answer.

Speaker 11

Yes. No, that's helpful perspective. Thank you.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. This concludes today's conference call. Thank you all for joining and you may now disconnect your lines.

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