Thank you for standing by. Welcome to Schrödinger's Conference Call to review Fourth Quarter and Full Year 2022 Financial Results. My name is Liz, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that this call is being recorded at the company's request. I would now like to introduce your host for today's conference is Ms. Jaren Madden, Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to today's call during which we will provide an update on the company and review our fourth quarter and full year 2022 financial results. Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at schrödinger.com. Here with me on our call today are Ramy Farid, Chief Executive Officer; Geoff Porges, Chief Financial Officer; and Karen Akinsanya, President of R&D, Therapeutics. Following our prepared remarks, we will open the call for Q&A. I'd like to remind you that during today's call, management will make statements related to our business 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 and for the first quarter ending March 31, 2023, our strategic plans to accelerate the growth of our software business and advance our collaborative and proprietary drug discovery programs, the timing of potential IND submissions and the initiation of clinical trials for our proprietary drug discovery programs, the clinical potential and favorable properties of our compounds, our expectations related to the use of cash resources, as well as our future operating expenses. These forward-looking statements reflect our 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 from what we project today due to a number of important factors, including the considerations described in the Risk Factors section and elsewhere in the filings we make with the SEC, including our Form 10-K for the year ended December 31, 2022. These forward-looking statements represent our views only as of today and we caution you that we may not update them in the future, whether as a result of new information, future events or otherwise. With that, I'd like to turn the call over to Ramy.

Thanks, Jaren, and thank you everyone for joining us today. Our strong fourth quarter performance exceeded our revenue expectations and capped a tremendous year at Schrödinger. In 2022, we continued to expand and enhance the capabilities of our computational platform, made strong progress in our existing collaboration, entered into new collaborations and advanced our first internal development candidate SGR-1505 to the clinic. Total revenue for the year was $181 million, a 31% increase over 2021. Software revenue grew by 20% year-over-year, as we successfully implemented a number of commercial initiatives for facilitating broader adoption and scale up of our platform. We are also seeing an inflection in drug discovery revenue with drug discovery revenue of $45.4 million in 2022, which is nearly double that of the prior year. Progress at collaborator companies in which we hold equity stakes further validates our platform and underscores the strength of our business model. Earlier this month, we received a $111.3 million cash distribution from Nimbus following Takeda's acquisition of Nimbus' TYK2 inhibitor following positive results from Phase 2b trial in psoriasis. We began working with Nimbus in 2009. We are delighted to see this program partnered with Takeda and advancing toward pivotal trials. We are also co-founders of Structure Therapeutics, a clinical stage company that successfully completed an IPO, earlier this month. As you will hear from Karen, our pipeline continues to progress and has expanded into neurology. We now have 15 collaborative projects and 18 proprietary programs. We expect to provide additional details around some of our undisclosed programs later this year. Our computational platform is the foundation of our company and a key driver for our continued success. We have world-class computational chemistry, computer science and machine learning development teams that continue to push the boundaries of molecular design to advance our platform. This includes advances to increased hit rates and hit discovery to enhance the predictive accuracy of a wide range of key drug-like properties and to broaden our exploration of available chemical space. We are also advancing technology to further enable the discovery of novel biologics. Looking ahead, we are very excited about the opportunities we have this year. We believe we can continue to grow our software business by increasing adoption among the largest companies in the pharmaceutical and materials industries, as well as increasing the adoption by emerging biotech companies. We also have a growing number of both collaborative and proprietary programs and expect continued progress across the pipeline this year. Before turning the call over to Geoff to review our fourth quarter and full year 2022 financial results, I'd like to take the opportunity to express my deep gratitude to our exceptionally talented and dedicated employees, who are absolutely critical to our overall success. Geoff?

Thanks, Ramy and good afternoon, everyone. As Ramy explained, we had a great fourth quarter an excellent year in 2022. Revenue growth was strong and ultimately exceeded our expectations, software profitability increased, drug discovery revenue almost doubled, our portfolio expanded and advanced, and we added two new collaborations. Our operating expense growth was lower than we forecast at the start of the year and our cash burn was towards the low end of the range of our expectations for the year. Our balance sheet remains strong and with the addition of the cash distributions from Nimbus and our expectations for declining cash burn in the future, we believe that we have sufficient capital to fund our operations for the foreseeable future. I will start off by outlining our Q4 results and will then take you through the highlights of our full year 2022 results and conclude with our initial financial guidance for 2023. Software revenue for Q4 was $47.8 million, an increase of 24% compared to Q4 2021. This increase reflect significant step-ups in adoption of our technology by existing customers, as well as the effect of combined collaboration software agreements and other new commercial strategies implemented during the quarter. Increases in adoption and multiyear contract renewals late in the quarter were significantly above our expectations at the start of the period and more than offset the previously expected headwind to revenue growth from multiyear contract signed in Q4 2021. Drug discovery revenue for the quarter was $9 million, compared to $7.6 million in the same quarter of 2021. Revenue increased in the quarter compared to the prior year due to the progress of projects in recognition of revenue for new collaborations found in the period. Total revenue was $56.8 million in the quarter, an increase of 23% which is…

Thank you, Geoff, and good afternoon, everyone. We continue to make important progress across our pipeline throughout the year. We ended 2022 with 15 ongoing programs, eligible for royalties, up from 30 in the previous year. The number of collaborators since 2018 has increased to 17, up from 15 in the prior year. Our strategy is to have a mix of collaborative projects and proprietary programs, some of which are wholly-owned and some of which are partnered to create a balanced portfolio and help manage R&D risk across the pipeline. I will start with an update on our most advanced wholly-owned programs beginning with SGR-1505, our MALT1 inhibitor. A Phase 1 dose escalation study is open to patient enrollment across multiple sites in the U.S. and the team expects to open additional sites globally in the coming months. This study is designed to evaluate the safety pharmacokinetics, pharmacodynamics and early signs of clinical activity of SGR-1505 as a monotherapy in patients with relapsed or refractory B-cell malignancies. Once the recommended dose is determined, an expansion cohort is planned to evaluate SGR-1505 in combination with other therapies such as BTK and BCL-2 inhibitors. As a result of the significant number of investigational drugs for advanced B-cell malignancies, recruiting relapsed refractory patients into our Phase 1 trial is challenging. Our sites are working hard on screening patients and we are looking forward to the initiation of dosing. Our team is actively evaluating opportunities to accelerate gathering safety and pharmacology data for SGR-1505. Moving to our CDC7 program, a target in the DNA repair pathway, we presented new preclinical data at the American Society of Hematology or ASH Annual Meeting in December. The data demonstrated that SGR-2921 exhibit strong anti-tumor activity in vivo across multiple preclinical tumor models, including cell derived xenograft model…

Thanks, Karen. As you can hear, we are very excited about the year ahead, and at this time, we would be happy to take your questions.

[Operator Instructions] Our first question comes from the line of Do Kim with Piper Sandler.

Great. Good afternoon and thanks for taking my questions. First, on the fourth quarter software sales and 2023 guidance, looking at the renewals and the multiyear agreements that drove fourth quarter upside. How should we think about the range of years for these multiyear agreements and the dynamics of those renewals, was the interest driven by the customer in renewing early and should we assume that the renewals for next year would be lower?

Hi, Do. Thanks. This is Ramy. Thanks for the question. So, first, the beginning part of your question, a typical multiyear deals are two years to three years and while it is the case that some of the growth in Q4, the sort of extraordinary growth that we saw in Q4 came from some multiyear deals, it's important to understand that, actually, that wasn't all of them, all of the source of the growth. We had a number of opportunities and believe me, it was hard work, it wasn't easy and we think that the strength of the business, the strength of the technology sort of allowed us to close a number of deals at the end -- before the end of the year that we are -- we took quite a bit of work. So let me emphasize also, these multiyear deals has been going on, we have been doing them for a while, we do them for strategic reasons. It's often something of mutual interest for us and the customer. But we still feel very confident that despite the lumpiness that the multiyear deals cause, we still feel very good about the guidance that we are giving 13% to 17% growth for the year, despite some of the lumpiness, maybe you can call out headwinds that some of the multiyear deals, given the reason is, because we have been doing them for a while, right? So they at some multiyear deals may be happening in 2022, there were some 2020 and 2021 that of course not come up for renewal in 2023. Hope that make sense?

Yeah. That’s helpful.

Yeah. Geoff can add something, sorry. Yeah.

Sorry, Do. First thing is, we signaled that multiyear deals were something of a headwind coming into the fourth quarter compared to the fourth quarter of 2021 and I think you can see that we more than overcome -- overcame those that particular headwind and indeed some of the others we flagged up at the start of the quarter. As Ramy pointed out, we did sign some multiyear deals in the fourth quarter of 2022 that I have indicated more or less very broad boundaries offset the multiyear deal contribution in the fourth quarter of 2021, but obviously there was significantly more growth than that in what we reported in the fourth quarter. And that was very much from existing customers and those customers believe that they indicated interest in stepping up their deployment of our software and this is very important. They -- in all cases went from being significant customers to being I'd would say significantly larger customers. And I don't want to specifically identify them, but we have indicated for the first time that we have four customers with annual contract value over $5 million in 2022 and had two in 2021. So that trend is headed in the right direction and is consistent with what I have alluded to in the fourth quarter which is existing customers having positive experiences with the technology and stepping up their purchases. Now, in a fraction of those cases, they elected to implement multiyear agreements, but the biggest driver of the step up in the fourth quarter was customers saying, we want to step up our purchase of software that scale of deployment of the technology. So I hope that gives you a little bit more color. And then quickly for a commentary on 2023, clearly, we are going to have to once more overcome the effect of the multiyear contracts in 2022, when we get to the end of 2023 and indeed we have some multiyear contracts from 2021, obviously, given what Ramy said about two years and even through 2020 given three years, but I think, you could see that the trends in the business is sufficiently strong that we are confident that we can overcome those contracts. And in many cases to be standard, our expectation is that those customers will renew their multiyear agreements and we are optimistic that they will renew their multiyear agreements at a higher level, because clearly once they have been using our technology for three years on a pretty expansive basis, it will be quite disruptive for them to stop using the technology at the end of the calendar year. So I hope that gives you more color.

Yeah. That's definitely helpful to make things a lot more clear. I just want to follow up on the drug discovery side of the guidance, it sounded like the guidance is more of a probability adjusted range and the goal remains at $100 million. Does that unadjusted if you hit on all these milestones come to $100 million or more?

Yeah. That's clearly an important question, Do. We -- there are multiple paths to the greater than $100 million and we knew that at the start of 2022 and those path still exist now in 2023. And so if we are successful with both the execution of projects within our control and if our partners complete projects in their control and we are successful with business development initiatives then, yes, we would achieve that objective. But at this stage of the year, we think it's sensible to be giving guidance about what we really know and have a highly degree of certainty about and that's the basis for the guidance that we provided today.

Great. Perfect. Congrats on all the progress and thanks for taking my questions.

Thanks, Do.

Our next question comes from the line of David Lebowitz with Citi.

Thank you very much for taking my question. I guess first, on the TYK2 asset, those licensed and you receiving via equity payments and gains for, how would the guidance for drug discovery have been different, if at all, had that deal not occurred?

Hi, David. The TYK2 distribution doesn't have any effect on the drug discovery revenue. So our cash outlook would be quite different have the TYK2 distribution not occurred, but that is not reported through our discovery revenue line. As I indicated in my prepared remarks, it will be reported through our other income line, so…

What I meant to say was, had it been kept binding this, the deal never occurred, would the guidance for drug discovery have been potentially different?

No.

No is the answer, sorry.

Yeah. I mean, yeah, it's no.

Yes.

Okay.

But now we understand your question. Yeah.

Yeah. And then back on the multiyear partnerships. I know the dynamic of lot of these partnerships is tend to be a larger upfront payment, and over time, it's more steady beyond that. Is it the same dynamic what the multiyear versus the single year? Is there a mechanism for the customers to I guess upsize mid contract if so. I am just trying to figure out how to look at this and impact going forward?

Yeah. Absolutely. That's a great question. Because it may not seem obvious that there -- that if you sign a multiyear deal, let's say, it's a three-year deal that, we are sort of, there is no more interaction with the customer for three years. That's absolutely not the case and we have many, many examples of customers in the middle of that term recognizing what essentially every customer is recognizing at some point, which is that they don't have access to enough licenses. This is what's happening, this is where the growth is coming from, that remember, this is what Geoff said in his prepared remarks, the majority of our customers are under utilizing the software. They all -- once they start using it at a sufficient scale and they are trying to get the kind of results that they are seeing some of their colleagues that are using it at a -- not colleagues but their peer companies and us, then there is a need to increase the number of licenses to the software, so they get access to more of the technology and those discussions are happening continuously. It's not -- and that can happen in the middle of the year, in the middle of the term even if it's a multiyear term and we have examples of that actually happening.

Got it.

Yeah.

And last question on enrollment in your study, do you have any thoughts on when we might actually be able to see data based on what you have seen thus far?

Hi, David. So as we described in our remarks, the enrollment is ongoing, sites are being activated and we are working hard with our sites and investigators to bring in patients and gather the data that we have described safety, pharmacology and preliminary efficacy data. I suspect that by the end of this year into next year, we will be in a position to talk more about the data that's available to us that we will be able to describe in more detail with you and others. So we are working on it and we look forward to sharing updates in the future.

Thank you for taking my questions.

Thanks a lot, David.

Our next question comes from the line of Michael Yee with Jefferies.

Hey, guys. Thanks for taking my question and congrats on the quarter. This is Yi Chen [ph] on for Mike. I want to ask on the pipeline assets two related questions. I guess, does the new guidance for drug discovery include. Is it consistent with the previous $100 million, you said that doesn't include out licensing the three lead oncology assets. Is that still the case here for with the new drug discovery guidance? And on the -- on MALT1, it would be really nice if you could talked about, ultimately, how you think about the development of the drug moving forward, are you expecting single agent activity or is this more of a combination with existing drugs sort of play, you guys are going forward? Thank you.

Go ahead, Karen?

Thanks a lot. So, as you pointed out, the guidance that we have given to drug discovery does not include revenue from out licensing any of our mature assets, as Geoff described it from a range of ongoing discovery collaboration, as well as completed collaborations where we are eligible for future milestones. On your second question, with regard to MALT1, as you know, we are pretty excited about this target. We believe that based on our preclinical data, as well as what we are understanding is occurring in the clinic and other programs, we do expect to see some monotherapy activity from MALT1. However, we do also believe that based on data in the public domain and work that we are doing, that there is a substantial opportunity for MALT1 in combination with BTK inhibitors, with BCL2 inhibitors and potentially other agents that are being improved for the treatment of B-cell malignancies. So we remain very enthusiastic about MALT1 and look forward to sharing more about our program in the future.

Got it. Got it. Thank you. And just one quick follow-up, has the thinking of around the strategy of outlicensing the mature assets changed at all or are you still thinking of outlicensing after obtaining some initial human data?

So as we shared in the past, we think this is very asset and landscape dependent. I think in general, we view ourselves as very capable of generating early clinical data. We also believe that some of our assets will do very well in partnership with other companies who have combination agents. However, I do want to emphasize that on an asset-by-asset basis, we will continue to evaluate whether it makes sense for Schrödinger to continue investing in these programs through development or whether it makes sense to partner them. So I think we will obviously have an opportunity to review that as these asset continue to progress in the clinic.

Understood. Thank you.

Our next question comes from the line of Gary Nachman with BMO Capital Markets.

Hi, guys. Good afternoon. So, first, just following up on the multiyear deals, I just want to be clear is that pulling forward some revenue and weighing a little bit on the 2023 software growth of 13% to 17%. And did you offer any discounts and rebate to encourage closing those agreements, maybe in the latter part of the year. And with respect to the 13% to 17% growth, Geoff, you said most of that is expected to be from existing customers, but could you potentially have some new customers as well that would help drive some of that growth. Just comment how much is out there in terms of some of the new customers potentially? Thanks.

Yeah. Okay. . So let me start off with the question about the multiyear deals. So in a certain way, a multiyear deal does pull revenue forward compared to annual deals, because depending upon the nature of the deal, but in most cases, you do get a more than one-third, let's say, for your deal, just to be recognized in the period in which you sign the deal and so there is a greater than one third contribution in the first year or greater than pro rata contribution in the first year. So I mentioned that a proportion of the revenue upside in the fourth quarter, but by no means the majority of it came from multiyear deals the majority of the revenue upside came from existing customers. And bear in mind that we have said we continue to say that all of the top 20 pharmaceutical companies are our customers and we confirms the very high level of customer retention. Our total customer number went from 1600 to 1750 that's customers with over more than $1,000 a year in annual contract value. So the universe biopharma is our customer base. So, mathematically, if we -- all the big pharmas are our customers, so if we have 20 more customers and these whole customers, it's really not going to move the needle. So moving will have to be increasing the adoption of that technology in those large customers and that's why I flagged up that, there are a handful who are at that $5 million plus annual contract value, but that is a relatively small minority of the global pharma landscape. So we see opportunities for those largest customers to sell increase they use, but also to move their peers towards that range really the principal drivers. So, to summarize, longer answer, a small contribution to Q4 from revenue that might otherwise have been reported in future periods, have they been annual contracts and lots of opportunity to continue to grow, that's encompassed within our guidance and we are very confident that we will be able to overcome the effects of the multiyear deals that was signed in 2022. The last part of your question about sort of rebates and discounts that sort of thing. We don't want to be commenting publicly about our commercial strategies, but suffice to say that we are very excited about the interest in our customers in ramping up the scale of deployment of that technology. We think they will see advantages to that and we think that that's beneficial for us as well. So of course we are going to be working pretty diligently to try and facilitate that and we think that's in everybody's interest to be getting the benefit of large scale deployment of the technology.

And I will just say that's perfect and I will just add one extra thing just to remind you and we talked a lot about this before. Of course we have the material science business and there the growth really does come mostly of course given that's a younger business from adding new customers. And we continue to see that happening, we continue to expect, we expect that to continue to happen this year and beyond.

Okay. Great. That's helpful. And then just one other follow-up Ramy too, just talk a little bit more about the initiatives that have been progressing to accelerate the software utilization and adoption with your existing customers and just how much more of that's going to continue in 2023 and how much spend is associated with that if that's going to be ramping up as well in order to push some of those initiatives forward.

Yeah. Here's what the challenge we have, which we have talked about before. So we -- our customers, of course, will scale up when they see impact it has on their programs. But in order to see the impact, you have to use the software to high scale. So we have this kind of chicken and egg cycle right there, we have to break into. And what we have found is incredibly effective, there are two things. One is they are starting to become really overwhelming validation or data to show that this using the software at this really high scale has a profound impact on the timelines of projects, on the likelihood of their success, on the quality of the molecules. That's happening from our own programs. You heard Karen talk about speed. We talk a lot about the quality molecules. You see the success of Nimbus and Morphic and structure and other companies, we have been involved and it's becoming sort of overwhelming and a little hard to ignore, right? I mean, the validation is very clear. So that's become a very, very effective way to convince customers that they have to scale up. Now, the other what -- the other strategy involves, making sure that our customers once they get access to it. Remember, this is somewhat of a transformation of the way drug discovery is done. That's what this is about. This is about shifting chemistry resources to relying more on computation, it's making it so that smaller teams can work on more programs, because so many more calculations are running. Where are they going to learn all of that, that's by us engaging with them in a little bit and transferring that knowhow and in how we do things and we have been very successful in doing that product validation that training. But I have to tell you that what we are seeing, and Geoff talked about this is, we don't think this requires very significant extra resources. A customer scaling up their usage of the software by factor of 10 doesn't require us to spend that -- anywhere near that that amount of increase in effort, if that makes sense. So we continue to be able to see this kind of operational leverage and we are coming up with pretty clever ways we think of breaking into that sort of chicken and egg problem, which is clearly working, as you heard from some of the new KPIs that we have reported.

Yeah. That's great. Thank you.

Yeah. Yeah.

Our next question comes from the line of Vikram Purohit with Morgan Stanley.

Hey, guys. This is Will [ph] on for Vikram. Thanks for taking our question and congrats on the quarter. Just one from us on the new development candidate 3515, could you walk us through how you believe the candidate is differentiated at all or what aspects in particular the molecule you have been working to optimize?

Yeah. Happy too. So 35 -- SGR-3515 is a very potent Wee1 inhibitor, so it has similar characteristic to other Wee1 inhibitors. But we believe and this is what we have been working on for the past few years is that it has a optimized selectivity profiles, so you are well aware the previous Wee1 inhibitors have off target kinase activities. We believe, we have optimized that kinase profile and that correlates very nicely with the in vivo data that we are seeing that really, I think, validates the profile and replicate what's been seen all the way through Phase 2 in terms of the activity and efficacy of Wee1 inhibitors in the clinic. Furthermore, we believe that we believe that Wee1 inhibition is going to be used in the clinic and on the marketplace eventually in combination with other agents. As a result of that, we think the drug like properties including things like drug-drug interactions, other physical chemical properties are really important to maximize the potential opportunity for Wee1 inhibitors. We have been working on all of those aspects using the platform and we are very happy with the profile of the compound. So we look forward to moving this forward and studying its profile in the clinic.

Okay. That's great. Thanks very much and congrats again.

Thanks

Thanks.

Our next question comes from the line of Chris Shibutani with Goldman Sachs.

Hi, everyone. This is Charlie [ph] on for Chris. Thank you so much for taking our questions and congrats on the great quarter and year. Just regarding the guidance, we had one quick one, regarding the expected reduction in year-over-year operating expenses. Just wondering what the drivers are there and where are you -- where you see yourself saving on the spend during the course of the year there?

Yeah. Charlie, let me be clear, what we have said is the growth rate will be significantly lower. We reported 40% OpEx growth in 2022, 42% in 2021. We think in 2023, it will be significantly lower than that 40% and we expect it to be in line with revenue growth. We do think that we have opportunities to continue to deliver more operating leverage going forward. So it's not an absolute reduction. It's a reduction in growth. But let me then just address your question about where that reduction in growth is, I think, the greatest reduction in growth will be in the G&A line. The least reduction in growth, I think, the most growth will be continue to be in R&D as we support the platform and the portfolio that Karen has described and then somewhere in between will be the sales and marketing expense growth, and of course, that's going to be most closely tied to the revenue growth result.

Got it. That's really helpful. Thank you so much for the clarification there. And then, I guess, regarding the R&D spend and moving forward with the Wee1 inhibitors, that happy and excited to hear about the progress there. Just wondering and piggybacking off of the last question. I am just curious how you are thinking about the indications that you might pursue, whether you are thinking of the proof of concept that we have seen from competitors in the Wee1 space is kind of the way to think about it in terms of indications like uterine carcinoma or should we expect to be pressing into maybe some newer indications and then regarding the potency of Wee1, just on a relative basis is 3515 kind of -- should we be thinking about in terms of like a higher potency versus the competitors that are out there or is it really more of like a comparable potency, but it's more selective, so that you might be able to achieve higher doses and not be limited by toxicities. Thank you so much for taking our questions.

Yeah. So on 3515 and Wee1 inhibition, you are correct -- quite correct that, there has been really impressive data in uterine serous carcinoma or in ovarian cancer, as well as a number of other solid tumors. We have been working with MD Anderson over the last two years and we basically launch that collaboration to understand more about the potential for sensitive population, sensitive tumor type. That collaboration is going very well and while we do believe that there is enough data in the public domain to enrich our Phase 1 trial with patients that we know respond based on existing clinical data, we are also excited to test some of the opportunities coming out of that collaboration. With respect to the potency, we do believe that compound is more potent. But more importantly, we think the combination of the on-target binding, as well as some of the optimized selectivity is leading to the profile that we actually presented at AACR, where we are seeing an ability to dose this compound intermittently and maintain efficacy, while being able to stop dosing. So we think that actually this dosing regimen, as well as the characteristics of this molecule has the potential to be quite interesting in the clinic, and of course, we need to test it in the clinic to see if that's the case, but it does have a differentiated profile relative to existing compounds, as well as being able to replicate what's already been seen in the clinic.

I think he might have…

Thank you, guys.

Yeah. Well, sorry, we are going to next question.

Our next question comes from Michael Ryskin with Bank of America.

Hi. This is Wolf Chanoff on for Mike. Thanks for taking the question. So I wanted to ask more about higher level market one. I know that you have signaled recently that you have seen trends with large pharma customers stabilize a bit, low biotechs remain under pressure due to the capital market environment. I am wondering if you can provide a little more color on each cohort and how they trended both in 4Q and how you expect them to perform throughout 2023? And then I have a quick follow-up.

Sure. So, I think, we have been clear in the commentary and in the prepared remarks that, that existing customers really stepped up their purchases and grow the revenue upside in the fourth quarter and the continuation of those trends is captured in our guidance. Now I also indicated that they are mostly, not exclusively, pharmaceutical companies, but of course, there are significant biotech companies in that universe as well. And the reason that I like to point that out, to be honest, just because companies that are really committed to using our technology even with a relatively small number of projects can achieve annual contract value or purchase annual use that in the same range as very large companies that have dozens, if not hundred or more development project. So that's what gives us the conviction that many -- that most large companies still have a long way to go in terms of the step up in the deployment of that technology as they attempt to become increasingly digital in their approach to drug discover. So I don't want to -- I think there's some color there mostly pharma, some biotech. Now, we go back to your question about the issues that we saw. We flagged up three issues going into the beginning of the quarter. One was international, so temporary effects of exchange, and I think, you would see that, if you look at our K, the contribution from international markets was slightly less in 2022, than had been in 2021. We think that that is at least trying to stabilize if not start to reverse itself in 2022, because those customers in those locations won't face the headwinds that our technology become materially price more expensive, higher priced as a result of exchange. So we have said…

It does. And just on a related note, I was wondering, if you have seen any shift in client behavior spending tied to the Inflation Reduction Act. Has it changed your longer term internal pipeline strategy? I know you have spoken about this a bit, but we have heard some mixed messaging from across the industry recently.

Yes. Look, again, if you look at the 10-K that we filed today, we definitely flagged this up for something that we hear as well. But it's not something that we hear in our direct discussions with our customers. It's something we hear through the same channels that you hear, conference calls like this, investor events, press releases, things coming out of trade groups, et cetera. But it's not something that we are seeing to a significant degree from our customers. Now, I will add that adapting our technology and expanding its capabilities to biologics is a strategic priority for us. And as you have heard from Ramy and maybe he can comment on this now, we have made a lot of progress there. And there's no doubt that companies are adding to the biologics component of their portfolios, but there aren't companies that are saying no small molecules. So we think that our technology has a lot of utilities. Ramy, if you want to add to that.

Yeah. No. I think you said it perfectly. And we are looking forward to continuing to report on progress we are making on extending the technology to biologics. We have been in that space for a long time. We continue to invest in it. These physics based methods are agnostic to the modality and we are starting to leverage that fact, and I think, you will be hearing from us in the coming years on pretty significant progress and the ability to use the software to design better biologics.

Great. Thank you, guys.

Yeah.

[Operator Instructions] Our next question comes from the line of Jack Sedell [ph] with Craig Craig-Hallum.

Hi. This is Jack on for Matt. Thanks for taking our question. I was curious, last quarter you discussed your cash burn moderating a bit as revenues continue to grow, and at that time, you had probably about four years of cash on the balance sheet. With the infusion you are receiving from the TYK2 sale, it puts you closer to five years of cash on hand. Does that increase your interest in M&A opportunities or funding additional internal candidates, your plans for new infusion of cash?

I apologize, Jack. I didn't hear you terribly well, but I think what you are asking is that, our capital allocation priorities changing as a result of the additional capital that we are receiving from Nimbus, is that…

In particular M&A

Yeah. Is that the right.

Yeah. That's correct.

Great. So, well, I think that, we are very happy about the cash distribution. I think that with both our cash burn moderating and with the additional distribution, we think -- I think your math is not incorrect, but at a certain point, we have five years, we have got six years, it's a long time, right, and a lot of things are going to happen between now and then. So our highest priorities for our capital allocation are continuing to innovating the platform and add to the capabilities of that technology, which we think is highly proprietary and highly differentiated and value creating. And secondly, to continue to invest in the opportunities that emerge from the deployment of the technology, both in our own portfolio and in the portfolios of companies that we have partnered with or being co-founders of in the case of, for example, structure. So those are the highest priorities. Now, we are certainly going to be curious and open-minded and opportunistic if opportunities emerge that bring us technology that we think is highly complementary to our current technologies or accelerate our path forward and the clinical development organization or add very exciting targets that we can deploy our technology against. We are certainly going to be receptive to that, but that's not the primary direction of our capital allocation strategy.

That's very helpful. Thank you.

I am showing no further questions at this time. That concludes today's call. You may now disconnect.