You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A. “Risk Factors” of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For further information regarding our forward-looking statements, see “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report. Overview We are transforming the way therapeutics and materials are discovered. Our differentiated, physics-based computational platform enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly and at a lower cost, compared to traditional methods. Our software platform is licensed by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world. We are applying our computational platform to advance a broad pipeline of drug discovery programs in collaboration with leading biopharmaceutical companies. In addition, we use our computational platform to discover novel molecules for our pipeline of proprietary drug discovery programs, which we are advancing through preclinical and clinical development. We offer our customers a variety of software solutions that accelerate all stages of molecule discovery, design, and optimization. Since our founding, we have been primarily focused on developing our computational platform, which is capable of predicting critical properties of molecules with a high degree of accuracy, as well as advancing drug discovery programs both with our collaborators and on our own. We have devoted substantially all of our resources to introducing new capabilities and refining our software, conducting research and development activities, recruiting skilled personnel, and providing general and administrative support for these operations. Over the last decade, we have entered into a number of collaborations with leading biopharmaceutical companies that have provided us with significant revenue and have the potential to produce additional milestone payments, option fees, and future royalties. In 2018, we began to develop a pipeline of proprietary drug discovery programs with the goal of using our platform to produce a portfolio of novel, high value therapeutics. Financial Overview; Software Revenue and Collaborations We have funded our operations to date from the sale of our equity securities, including our initial public offering and our follow-on public offering, from sales of our software solutions and from upfront payments, research funding and milestone payments from our drug discovery collaborations, and from distributions on account of, or proceeds from the sale of, our equity stakes in our collaborators. In June 2026, Eli Lilly and Company, or Lilly, acquired Ajax Therapeutics, Inc., or Ajax, a company co-founded by us. Under the terms of the agreement, Ajax shareholders could receive up to $2.3 billion in cash, inclusive of an upfront payment and subsequent payments upon the achievement of certain clinical and regulatory milestones. In connection with the completion of the acquisition, we received a cash payment of approximately $57.2 million, comprised of $47.2 million on account of our equity stake in Ajax and $10.0 million from a collaboration milestone payment. We are also eligible to receive additional cash payments upon the achievement by Ajax of specified clinical and regulatory milestones, as well as potential cash payments currently held in escrow related to the closing. We currently conduct our operations through two reportable segments: software and drug discovery. The software segment is focused on selling our software to transform drug discovery across the life sciences industry, as well as to customers in materials science industries. The drug discovery segment is focused on generating revenue from a diverse portfolio of preclinical and clinical programs, internally and through collaborations, that have advanced to various stages of discovery and development. Our software segment generates revenue from software product licenses, hosted software subscriptions, software maintenance, professional services, and contributions. The revenue we generate through our software solutions from each of our customers varies largely depending on the type and number of software licenses our customers purchase from us. The licenses that our customers purchase from us provide them the ability to perform a certain number of calculations used 30 in the design of molecules for drug discovery or materials science. The amount we charge per license depends on the specific software products our customers purchase from us, and the number of licenses needed to perform calculations per software product varies. With the exception of certain limited products, the number of licenses a customer requires is typically based on the scale at which they are running our software products and is not based on how many users have access to the software. As customers increase the number of licenses they purchase from us, they will typically be able to run a greater number of simultaneous instances of our products, thereby increasing the number of calculations they will be able to perform in parallel, subject to having enough computational capacity. We deliver our software through either (i) a product license that permits our customers to install the software solution directly on their own in-house hardware and use it for a specified term, or (ii) a subscription that allows our customers to access our cloud-based software solution on their own hardware without taking control of licenses. Our collaboration agreements typically include upfront consideration, discovery, development, commercial and regulatory milestones, and royalties from future sales of commercialized products. We generate drug discovery revenue through the performance of specified research and development activities under our collaboration agreements and upon the achievement of specified discovery and development milestones, and we have the potential to generate drug discovery revenue from commercial and regulatory milestones, option fees, and royalties under our collaboration agreements. In the future, we may also derive drug discovery revenue from our collaborations from option fees, the achievement of regulatory and commercial milestones, and royalties on commercial drug sales. In addition to revenue from our collaborations, we may also derive drug discovery revenue from collaborating on or out-licensing our proprietary drug discovery programs when we believe it will help maximize the clinical and commercial opportunities for the program. We are party to an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which we and BMS agreed to collaborate in the discovery, research and development of small molecule compounds for biological targets in the oncology, neurology and immunology therapeutic areas. After mutual agreement on the targets(s) of interest, we are responsible for the discovery of development candidates. Once a development candidate meeting specified criteria for a target has been identified, BMS will be solely responsible for the development, manufacturing and commercialization of such development candidate. We are eligible to receive up to $482.0 million in total milestone payments for the one remaining neurology target currently subject to the collaboration, of which we have recognized $32.0 million as of June 30, 2026, as well as a tiered percentage royalty on net sales of each product commercialized by BMS ranging from mid-single digits to low-double digits, subject to certain specified reductions. See "Collaboration and License Agreements" in Note 3 to our unaudited condensed consolidated financial statements for additional information relating to this agreement. In September 2022, we entered into a collaboration with Lilly under which we are responsible for the discovery and optimization of small molecule compounds addressing an immunology target. Lilly is responsible for the completion of preclinical development, clinical development and commercialization. Under the terms of the agreement, we received an upfront payment and we are eligible to receive up to $420.0 million in discovery, development and commercial milestone payments for the target. We are also eligible to receive low single- to low double-digit royalties on net sales of any products emerging from the collaboration in all markets. In February 2025, we expanded our research collaboration with Lilly to add an undisclosed target to the collaboration, which was subsequently terminated by Lilly in March 2026 for strategic reasons. The collaboration remains active with respect to the initial target. In November 2024, we entered into a research collaboration and license agreement with Novartis Pharma AG, or Novartis, pursuant to which we and Novartis agreed to collaborate on the discovery, research and preclinical development of small molecule compounds for targets in certain specified therapeutic areas. The agreement is intended to advance multiple development candidates for development and commercialization by Novartis. Under the terms of the research collaboration and license agreement, Novartis paid us an initial upfront fee of $150.0 million in January 2025 and we are eligible to receive up to $2.272 billion in total milestone payments across the initial programs. Such milestones consist of up to $892.0 million in discovery and development milestones and up to $1.38 billion in commercial milestones. We are also entitled to a tiered percentage royalty on net sales of each product commercialized by Novartis ranging from mid single-digits to low double-digits on products commercialized by Novartis under the agreement, subject to certain specified reductions. No milestone revenue has been recognized as of June 30, 2026. In November 2024, we also entered into an expanded three-year software agreement with Novartis that substantially increases Novartis' access to our computational predictive modeling technology and enterprise informatics platform. See "Collaboration and License Agreements" in Note 3 to our unaudited condensed consolidated financial statements for additional information relating to the research collaboration and license agreement. 31 We generated revenue of $58.9 million and $54.8 million during the three months ended June 30, 2026 and 2025, respectively, representing a year-over-year increase of 8%. Our net income for the three months ended June 30, 2026 was $6.0 million and our net loss for the three months ended June 30, 2025 was $43.2 million. Our net income for the three months ended June 30, 2026 was primarily due to the $57.2 million cash payment we received in connection with the completion of Lilly’s acquisition of Ajax discussed above. Our annual contract value, or ACV, was $29.6 million for the three months ended June 30, 2026, compared to $23.3 million for the three months ended June 30, 2025. With respect to contracts that have a duration of one year or less, or contracts of more than one year in duration that are billed annually, we define ACV as the contract value billed during the applicable period. For contracts with a duration of more than one year that are billed upfront, ACV in each period represents the total billed contract value divided by the term. We present ACV as a supplemental operating metric because it provides a consistent measure of the underlying performance of our software business that is not affected by differences in revenue recognition timing across contract types, delivery models, or billing structures. ACV is particularly useful during our ongoing transition of customers from on-premise software arrangements to hosted software contracts. ACV should be viewed independently of revenue and does not represent revenue calculated in accordance with U.S. GAAP on an annualized basis, as it is an operating metric that can be impacted by contract execution start and end dates and renewal rates. ACV is not intended to be a replacement for, or forecast of, revenue. Bunsen — Agentic AI Co-Scientist In July 2026, we announced the launch of the early access version of Bunsen, our new agentic artificial intelligence, or AI, co-scientist that helps researchers understand scientific objectives, develop computational strategies, execute sophisticated molecular discovery workflows and interpret results. By combining AI with physics-based simulation, we believe Bunsen allows researchers to apply their expertise at greater scale, enabling them to explore more scientific possibilities, prioritize the most promising opportunities with greater confidence and accelerate discovery decisions. We expect to release the full commercial version of Bunsen by the end of 2026. Initiative with Gates Foundation In July 2024, we launched an initiative to expand our computational platform to predict toxicity associated with binding to off-target proteins. The goal of this initiative is to develop a computational solution designed to improve the properties of drug development candidates and reduce the risk of development failure associated with binding to off-target proteins, which can be associated with serious side effects. The project is being funded by $24.5 million in grants from the Gates Foundation. We continue to advance our predictive toxicology initiative, which encompasses approximately 50 representative kinases in addition to multiple key anti-targets. We recently launched our predictive toxicology solution commercially and began making it available more broadly to our customers during 2026. Proprietary Drug Discovery Programs In June 2022, the U.S. Food and Drug Administration, or FDA, cleared our first investigational new drug application, or IND, for our MALT1 inhibitor, which we refer to as SGR-1505. Our ongoing Phase 1 clinical trial of SGR-1505 is designed as an open-label, multi-center dose escalation trial in patients with relapsed or refractory B-cell malignancies. The trial is designed to evaluate the safety, pharmacokinetics, pharmacodynamics, maximum tolerated dose, maximum administered dose and/or recommended dose of SGR-1505. Backfill cohorts evaluate additional pharmacokinetics, pharmacodynamics, preliminary anti-tumor activity, and safety to support the recommended dose. In April 2024, the FDA cleared the IND we submitted for our novel Wee1/Myt1 inhibitor, which we refer to as SGR-3515. In July 2024, we initiated dosing in a Phase 1 clinical trial of SGR-3515 in patients with advanced solid tumors. The trial is a dose-escalation trial designed to evaluate the safety, tolerability and recommended Phase 2 dose of SGR-3515. Secondary and exploratory objectives of the trial include evaluating the pharmacokinetics and preliminary anti-tumor activity of SGR-3515. Beyond our planned investments to complete our ongoing Phase 1 dose-escalation clinical trials of SGR-1505 and SGR-3515, we do not intend to initiate additional clinical trials or advance our other proprietary preclinical programs into clinical trials independently. We plan to explore strategic partnerships for the SGR-1505 and SGR-3515 programs to advance the development of these programs beyond our ongoing Phase 1 clinical trials. The phasing out of independent 32 clinical development activities and associated cost reductions, together with the restructuring of our operations we announced in May 2025, are expected to result in savings of approximately $70 million, when fully completed and further improve and enhance our operational efficiency. Components of Results of Operations Software Products and Services Revenue Our software business generates revenue from four sources: (i) on-premise software license fees, (ii) hosted software subscription fees, (iii) software maintenance fees, and (iv) professional services fees. On-premise software. Our on-premise software license arrangements grant customers the right to use our software on their own in-house servers or their own cloud instances for a specified term, typically for one year, though in recent years, we have entered into a small number of large multi-year on-premise software license agreements. We recognize revenue for on-premise software license fees upfront, either upon transfer of control of the license or the effective date of the agreement, whichever is later. Hosted software. Hosted software revenue consists primarily of fees to provide our customers with hosted licenses, which allows these customers to access our cloud-based software solution on their own hardware without taking control of the licenses, and is recognized ratably over the term of the arrangement, which is typically one year, though in recent years, we have entered into a small number of large multi-year hosted software license agreements. When a customer enters into a hosted arrangement for which revenue is recognized over time, the amount paid upfront that is not recognized in the current period is included in deferred revenue in our statement of financial position until the period in which it is recognized. We have accelerated our efforts to transition customers from on-premise software arrangements to hosted software contracts. As a result of this transition, we expect future quarterly and annual revenue trends to be impacted, as revenue associated with hosted software arrangements is generally recognized over the term of the contract, rather than at a point in time, and may differ in timing and pattern from revenue recognized under on-premise software arrangements. While this transition has not had a material impact on our historical results to date, it is expected to affect the timing and mix of revenue recognition in future periods and as a result, we expect revenue to decline in the near-term as the transition progresses. Software maintenance. Software maintenance includes technical support, updates, and upgrades related to our on-premise software licenses. Software maintenance revenue is recognized ratably over the term of the arrangement. Software maintenance activities are performed in connection with the use of our on-premise software, and may fluctuate from period to period. Professional services. Professional services include training, technical setup, installation or assisting customers with modeling services, where we use our software to perform tasks such as virtual screening on behalf of our customers. These services are generally not related to the core functionality of our software and are recognized as revenue when resources are consumed. Since each professional services agreement represents a unique, ad hoc engagement, professional services revenue may fluctuate from period to period. Drug Discovery Revenue We generate drug discovery revenue through the performance of specified research and development activities under our collaboration agreements and upon the achievement of discovery and development milestones, and we have the potential to generate drug discovery revenue from commercial and regulatory milestones, option fees, and royalties under our collaboration agreements. The majority of our current collaborations are in the discovery and preclinical development stages. Milestone payments typically increase in magnitude as a program advances. In addition to revenue from our collaborations, we may also derive drug discovery revenue from out-licensing our proprietary drug discovery programs when we believe it will help maximize the development, clinical and commercial potential of the program. Beyond our planned investments to complete our ongoing Phase 1 dose-escalation clinical trials of SGR-1505 and SGR-3515, we do not intend to initiate additional clinical trials or advance our other proprietary preclinical programs into clinical trials independently. Overall, we expect that our drug discovery revenue will fluctuate from period to period due to the inherently uncertain nature of the timing of milestone achievements and our dependence on the program decisions of our collaborators. 33 Contribution Revenue Software contribution revenue. Software contribution revenue consists of funds received under non-reciprocal agreements, as amended, with Gates Ventures, LLC and the Gates Foundation. The agreement with Gates Ventures, LLC was originally entered into in June 2020 and further extended through August 13, 2027. The agreement is an unconditional non-exchange contribution without restrictions. Revenue is recognized annually, when invoiced, in accordance with Accounting Standard Codification, or ASC, Topic 958, Not-for-Profit Entities, or Topic 958, as the agreement is not an exchange transaction. In July 2024, we entered into a one-year agreement with the Gates Foundation, which was subsequently extended through April 2027, to initially fund our initiative to accelerate the expansion of our computational platform to predict toxicity associated with binding to off-target proteins. Revenue is recognized as costs are incurred and conditions are met in accordance with Topic 958. Drug discovery contribution revenue. Contribution revenue primarily consists of funds received under agreements with the Gates Foundation on a cost reimbursement basis, to perform services aimed at accelerating drug discovery in women’s health. Revenue is recognized as costs are incurred and conditions are met in accordance with Topic 958. Cost of Revenues Software products and services. Cost of revenues for software includes personnel-related expenses (comprised of salaries, benefits, and stock-based compensation) for employees directly involved in the delivery of software solutions, maintenance and professional services, royalties paid for products sold and services performed using third-party licensed software functionality, and allocated overhead (facilities and information technology support) costs. Pursuant to various third-party arrangements, we license technology that is used in our software. These arrangements require us to pay royalties based on sales volume. Drug discovery. Cost of revenues for drug discovery includes personnel-related expenses and costs of third-party contract research organizations, or CROs, that support discovery activities in our collaborations, royalties paid for services performed using third-party licensed software functionality, allocated compute capacity and overhead costs. While we have incurred costs associated with discovery efforts since late 2017, we have recognized and expect to continue to recognize revenues in the future if and when milestones are considered probable of achievement and there is not a risk of significant revenue reversal, or when they are achieved. Generally, drug discovery cost of revenues for collaborations are incurred in advance of the revenue milestone achievement. We expect our drug discovery cost of revenues to fluctuate from period to period depending on the number and mix of collaborative and proprietary programs and their respective stages of development. Contribution. Cost of revenues for contribution includes personnel-related expenses, costs of third-party contract research organizations that support software development and drug discovery activities under our non-reciprocal agreements with the Gates Foundation, and allocated compute capacity. Contribution cost of revenues are recorded as costs are incurred under the agreements. We expect our contribution cost of revenues to fluctuate from period to period depending on the timing and progress of work completed. Gross Profit and Gross Margin Gross profit represents revenue less cost of revenues. Gross margin is gross profit expressed as a percentage of revenue. Our software products and services gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of changes in sales mix between on-premise and hosted software solutions due to timing of recognition. For example, the cost of royalties due for sales of our hosted software arrangements are recognized upfront, whereas the associated hosted software revenue for these arrangements is recognized over the term of the underlying agreement. While the gross margin of our drug discovery business will fluctuate significantly from period to period depending on factors such as the timing of recognition of milestones, the number and mix of collaborative programs, and their respective stages of development, we expect the gross margins to generally trend higher over time as more programs advance to later stages of development, the milestones increase in size and our ongoing research and development obligations to such programs decline in cost. We expect contribution gross margin to approximate breakeven over time as revenue is recognized as costs are incurred and conditions are met. 34 Research and Development Expense Research and development expense accounts for a significant portion of our operating expenses. We recognize research and development expense as incurred. Research and development expense consists of drug discovery and development program costs and costs incurred for continuous development of the technology and science that supports our computational platform, primarily: •personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation for employees engaged in research and development functions; •expenses incurred under agreements with third-party CROs and consultants involved in our proprietary drug discovery programs; and •allocated compute capacity on our proprietary drug discovery programs and overhead (facilities and information technology support) costs. We expect our research and development expense to stabilize in regards to our investment in activities related to discovery and development of our proprietary drug discovery programs, in advancing our computational platform, and in hiring additional personnel directly involved in such efforts. The amount to which our research and development expense may fluctuate in the future will also be dependent on our development plans for our proprietary drug discovery programs, including the timing of any partnering, collaboration or out-licensing decisions. At this time, we do not know, nor can we reasonably estimate, the nature, timing, or costs of the efforts that will be necessary to complete the development of any of our proprietary drug discovery programs. Sales and Marketing Expense Sales and marketing expense consists primarily of personnel-related costs for our sales and marketing staff and application scientists supporting our sales efforts, including salaries, benefits, bonuses, and stock-based compensation. Other sales and marketing costs include promotional events that promote and expand knowledge of our company and platform, including industry conferences and events and our annual user group meetings in the United States and Europe, advertising, and allocated overhead costs. Due to the inherent scientific complexity of our software solutions, a high level of scientific expertise is needed to support our sales and marketing efforts. We plan to make focused investments in sales and marketing over the foreseeable future to foster the growth of our business as we aim to expand software sales to existing customers and increase our customer base. General and Administrative Expense General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and stock-based compensation. General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses. We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. In addition, as a public company, we expect to continue to incur increased expenses such as insurance and professional services. As a result, we expect the dollar amount of our general and administrative expense to increase for the foreseeable future. Change in Fair Value of Equity Investments Fair value gains and losses consist of adjustments to the fair value of our equity investments, which may include Nimbus, Structure Therapeutics, and Ajax Therapeutics. We remeasure our investments at each period end. Fair value gains and losses may fluctuate significantly in future periods. Other Income Other income consists of interest earned on our cash equivalents and marketable securities, interest expense, and transactional foreign exchange gains and losses. 35 Income Tax Expense Income tax expense consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Results of Operations Comparison of the Three and Six Months Ended June 30, 2026 and 2025 The following table summarizes our unaudited results of operations data for the three and six months ended June 30, 2026 and 2025: Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % (in thousands) (in thousands) Revenues: Software products and services $ 32,544 $ 36,031 $ (3,487) (10)% $ 68,104 $ 81,003 $ (12,899) (16)% Drug discovery 22,986 13,940 9,046 65% 45,865 24,176 21,689 90% Contribution 3,359 4,788 (1,429) (30)% 3,507 9,131 (5,624) (62)% Total revenues 58,889 54,759 4,130 8% 117,476 114,310 3,166 3% Cost of revenues: Software products and services 9,449 8,787 662 8% 20,312 17,899 2,413 13% Drug discovery 15,794 15,140 654 4% 32,104 29,592 2,512 8% Contribution 1,214 4,674 (3,460) (74)% 3,081 9,537 (6,456) (68)% Total cost of revenues 26,457 28,601 (2,144) (7)% 55,497 57,028 (1,531) (3)% Gross profit 32,432 26,158 6,274 24% 61,979 57,282 4,697 8% Operating expenses: Research and development 40,998 43,138 (2,140) (5)% 84,822 88,982 (4,160) (5)% Sales and marketing 10,266 10,734 (468) (4)% 21,869 21,101 768 4% General and administrative 22,715 25,189 (2,474) (10)% 45,629 50,991 (5,362) (11)% Total operating expenses 73,979 79,061 (5,082) (6)% 152,320 161,074 (8,754) (5)% Loss from operations (41,547) (52,903) 11,356 (21)% (90,341) (103,792) 13,451 (13)% Other income (expense): Change in fair value of equity investments 45,868 4,579 41,289 N/M 32,381 (8,516) 40,897 N/M Other income 3,026 5,438 (2,412) N/M 5,689 9,642 (3,953) N/M Total other income 48,894 10,017 38,877 N/M 38,070 1,126 36,944 N/M Income (loss) before income taxes 7,347 (42,886) 50,233 N/M (52,271) (102,666) 50,395 N/M Income tax expense 1,372 287 1,085 N/M 1,780 315 1,465 N/M Net income (loss) $ 5,975 $ (43,173) $ 49,148 N/M $ (54,051) $ (102,981) $ 48,930 N/M N/M – not meaningful 36 Revenues Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % (in thousands) (in thousands) Revenues: Software On-premise software $ 9,297 $ 15,743 $ (6,446) (41)% $ 23,477 $ 41,167 $ (17,690) (43)% Hosted software 15,150 11,128 4,022 36% 27,230 22,000 5,230 24% Software maintenance 4,878 6,778 (1,900) (28)% 11,540 13,573 (2,033) (15)% Professional services 3,219 2,382 837 35% 5,857 4,263 1,594 37% Total software revenue 32,544 36,031 (3,487) (10)% 68,104 81,003 (12,899) (16)% Drug discovery 22,986 13,940 9,046 65% 45,865 24,176 21,689 90% Contribution Software contribution 2,921 4,513 (1,592) (35)% 2,921 8,357 (5,436) (65)% Drug discovery contribution 438 275 163 59% 586 774 (188) (24)% Total contribution revenue 3,359 4,788 (1,429) (30)% 3,507 9,131 (5,624) (62)% Total revenues $ 58,889 $ 54,759 $ 4,130 8% $ 117,476 $ 114,310 $ 3,166 3% Software Products and Services Revenue On-premise software. The decrease in revenues for on-premise software for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily attributable to customers switching from on-premise to hosted software purchases as well as the timing and size of multi-year customer contracts with upfront revenue recognition in the comparable period versus the current period. The decrease in revenues for on-premise software for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily attributable to the timing and size of multi-year customer contracts with upfront revenue recognition in the comparable period versus the current period as well as customers switching from on-premise to hosted software purchases. Hosted software. The increase in revenues for hosted software for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025 was primarily due to customers switching from on-premise to hosted software purchases, as well as increased spend from existing hosted customers, for which revenue is recognized ratably over the period of the contract. Software maintenance. The decrease in revenues for software maintenance for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025 was primarily due to customers switching from on premise to hosted software purchases. Professional services. The increase in revenues from professional services for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025 was primarily related to fluctuations in the timing of progress and completion of technology and modeling service projects. Drug Discovery Revenue The increase in revenues for drug discovery services for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily due to a $10.0 million collaboration milestone payment received from Lilly's acquisition of Ajax and the progress of existing collaborations. The increase in revenues for drug discovery services for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily due to a $10.0 million collaboration milestone payment received from Lilly's acquisition of Ajax and Lilly's election not to proceed with further development for one program under the collaboration, which resulted in increased revenue recognition due to the accelerated completion of our obligations related to such program, as well as the timing and amount of milestones achieved, and the progress of existing collaborations. 37 Contribution Revenue Software contribution revenue. The decrease in revenues from software contribution during the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025 was due to a decrease in funds spent during the period as a result of depletion of allocated funds under the agreements with the Gates Foundation aimed at accelerating the expansion of our computational software platform during 2025. Drug discovery contribution revenue. The increase in drug discovery contribution revenue for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily due to an increase in funds spent during the period as a result of additional funding approval under an agreement with the Gates Foundation, aimed at accelerating drug discovery in women’s health. The decrease in drug discovery contribution revenue for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily due to a decrease in funds spent during the period as a result of depletion of allocated funds under an agreement with the Gates Foundation, aimed at accelerating drug discovery in women’s health. Cost of Revenues Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % (in thousands) (in thousands) Cost of revenues: Software products and services $ 9,449 $ 8,787 $ 662 8% $ 20,312 $ 17,899 $ 2,413 13% Gross margin 71 % 76 % 70 % 78 % Drug discovery 15,794 15,140 654 4% 32,104 29,592 2,512 8% Contribution 1,214 4,674 (3,460) (74)% 3,081 9,537 (6,456) (68)% Software products and services. The increase in cost of revenues for software products and services during the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was attributable to increases of approximately $0.6 million in cloud computing expense and approximately $0.1 million in personnel-related expense. The increase in cost of revenues for software products and services during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was attributable to increases of approximately $1.9 million in cloud computing expense, approximately $0.4 million in personnel-related expense, and approximately $0.1 million in other expenses. Software products and services gross margin. Software products and services gross margin decreased during the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 primarily due to a decrease in software revenue and an increase in expenses. Drug discovery. The increase in cost of revenues for drug discovery during the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was attributable to increases of approximately $0.9 million in CRO expense and approximately $0.2 million in personnel-related expense, partially offset by decreases of approximately $0.4 million in cloud computing expense. The increase in cost of revenues for drug discovery during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was attributable to increases of approximately $3.5 million in CRO expense, approximately $0.2 million in royalty expense, and approximately $0.2 million in personnel-related expense, partially offset by decreases of approximately $1.0 million in cloud computing expense and approximately $0.4 million in other expenses. Contribution. The decrease in cost of revenues for contribution during the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was attributable to decreases of approximately $1.7 million in CRO expense, approximately $1.4 million in personnel-related expense, and approximately $0.4 million in cloud computing expense. 38 The decrease in cost of revenues for contribution during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was attributable to decreases of approximately $3.3 million in personnel-related expense, approximately $1.7 million in cloud computing expense, and approximately $1.5 million in CRO expense. Research and Development Expense A significant portion of our research and development costs have been external preclinical and clinical CRO costs, which we track on a program-by-program basis related to a product candidate, once the candidate has been identified. Our internal research and development costs are primarily personnel-related costs, rent expense, and other indirect costs and are not tracked on a program-by-program basis. All other research and development costs are related to non-program related costs. The following table summarizes our research and development expense for the three and six months ended June 30, 2026 and 2025: Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % (in thousands) (in thousands) External costs by program: SGR-1505 $ 1,682 $ 2,518 $ (836) (33)% $ 3,443 $ 6,338 $ (2,895) (46)% SGR-2921(1) 20 2,540 (2,520) (99)% 88 4,919 (4,831) (98)% SGR-3515 1,352 1,810 (458) (25)% 2,849 3,459 (610) (18)% Other early development candidates and unallocated costs 6,184 4,899 1,285 26% 12,569 9,761 2,808 29% Total external costs for programs in preclinical and clinical development 9,238 11,767 (2,529) (21)% 18,949 24,477 (5,528) (23)% Internal costs for discovery, preclinical and clinical development: Employee compensation and benefits 8,118 8,182 (64) (1)% 16,773 16,955 (182) (1)% Facility and other 1,399 593 806 136% 1,895 1,125 770 68% Total internal costs 9,517 8,775 742 8% 18,668 18,080 588 3% All other research and development 22,243 22,596 (353) (2)% 47,205 46,425 780 2% Total research and development expense $ 40,998 $ 43,138 $ (2,140) (5)% $ 84,822 $ 88,982 $ (4,160) (5)% (1)The development of SGR-2921 was discontinued in August 2025. The decrease in external costs of $2.5 million during the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily attributable to a decrease in external research costs related to the discontinuation of the clinical development program for SGR-2921, as well as decreases in external research costs for SGR-1505 and SGR-3515 due to the timing of work performed, partially offset by higher costs for our early-stage product candidates. The decrease in external costs of $5.5 million during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily attributable to a decrease in external research costs related to the discontinuation of the clinical development program for SGR-2921, as well as decreases in external research costs for SGR-1505 and SGR-3515 due to the timing of work performed, partially offset by higher costs for our early-stage product candidates. The increase in internal costs for programs in discovery, preclinical and clinical development of $0.7 million during the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily attributable to an increase in facility and other expenses. The increase in internal costs for programs in discovery, preclinical and clinical development of $0.6 million during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily attributable to an increase in facility and other expenses. 39 The decrease in all other research and development expense of $0.4 million during the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was attributable to decreases of approximately $1.0 million related to office facilities and approximately $0.1 million related to professional services, partially offset by increases of approximately $0.4 million in cloud computing expense and approximately $0.3 million in personnel-related expense. The increase in all other research and development expense of $0.8 million during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was attributable to increases of approximately $1.3 million in personnel-related expense and approximately $0.9 million in cloud computing expense, partially offset by decreases of approximately $1.0 million related to office facilities, approximately $0.3 million related to professional services, and approximately $0.1 million in travel and entertainment expenses. Sales and Marketing Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % (in thousands) (in thousands) Sales and marketing $ 10,266 $ 10,734 $ (468) (4)% $ 21,869 $ 21,101 $ 768 4% The decrease in sales and marketing expense during the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was primarily attributable to decreases of approximately $0.5 million in personnel-related expense, approximately $0.2 million in travel and entertainment expense, and approximately $0.1 million in other expenses, partially offset by increases of approximately $0.2 million in cloud computing expense and approximately $0.1 million related to office facilities. The increase in sales and marketing expense during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was primarily attributable to increases of approximately $0.3 million in travel and entertainment expense, approximately $0.3 million in cloud computing expense, approximately $0.1 million related to office facilities, and approximately $0.1 million in other expenses. General and Administrative Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 $ % 2026 2025 $ % (in thousands) (in thousands) General and administrative $ 22,715 $ 25,189 $ (2,474) (10)% $ 45,629 $ 50,991 $ (5,362) (11)% The decrease in general and administrative expense during the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was attributable to decreases of approximately $1.3 million in personnel-related expense, approximately $1.0 million in professional services expense, approximately $0.1 million related to office facilities, and approximately $0.1 million in other expenses. The decrease in general and administrative expense during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was attributable to decreases of approximately $3.1 million in personnel-related expense, approximately $1.5 million in professional services expense, approximately $0.5 million in other expenses, approximately $0.2 million in travel and entertainment expense, and approximately $0.1 million related to office facilities. Change in Fair Value of Equity Investments Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Change 2026 2025 Change (in thousands) (in thousands) Change in fair value of equity investments $ 45,868 $ 4,579 $ 41,289 $ 32,381 $ (8,516) $ 40,897 40 The change in fair value of equity investments during the three months ended June 30, 2026 was due to an unrealized gain of approximately $42.1 million on our investment in Ajax Therapeutics in connection with the completion of Eli Lilly and Company’s acquisition of Ajax, as well as an approximately $3.7 million unrealized gain on our investment in Structure Therapeutics. The change in fair value of equity investments during the three months ended June 30, 2025 was due to an unrealized gain of approximately $4.6 million on our investment in Structure Therapeutics. The change in fair value of equity investments during the six months ended June 30, 2026 was due to an unrealized gain of approximately $42.1 million on our investment in Ajax Therapeutics in connection with the completion of Eli Lilly and Company’s acquisition of Ajax, partially offset by an unrealized loss of approximately $9.7 million on our investment in Structure Therapeutics. The unrealized loss related to the Structure Therapeutics investment consisted of a mark-to-market loss of approximately $10.8 million on the portion of the investment held as of June 30, 2026, partially offset by a mark-to-market gain of approximately $1.1 million on the portion of the investment sold during the period. The change in fair value of equity investments during the six months ended June 30, 2025 was due to an unrealized loss on our investment in Structure Therapeutics of $8.5 million. Other Income Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Change 2026 2025 Change (in thousands) (in thousands) Other income $ 3,026 $ 5,438 $ (2,412) $ 5,689 $ 9,642 $ (3,953) The decrease in other income during the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was attributable to a decrease of approximately $2.1 million of interest related to our investment portfolio and unfavorable currency fluctuations of approximately $0.6 million, partially offset by an increase of approximately $0.3 million related to an interest income reclassification. The decrease in other income during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was attributable to a decrease of approximately $2.7 million of interest income related to our investment portfolio and unfavorable currency fluctuations of approximately $1.6 million, partially offset by an increase of approximately $0.3 million related to an interest income reclassification. Income Tax Expense Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Change 2026 2025 Change (in thousands) (in thousands) Income tax expense $ 1,372 $ 287 $ 1,085 $ 1,780 $ 315 $ 1,465 During the three and six months ended June 30, 2026 and 2025, we continued to recognize a full valuation allowance on our U.S. federal and state tax assets. Our income tax expense primarily represents our income tax obligations in certain states and taxes in foreign jurisdictions in which we conduct business. Critical Accounting Estimates Detailed information about our critical accounting estimates is set forth in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on February 25, 2026. There were no material changes to our critical accounting estimates during the six months ended June 30, 2026. Liquidity, Capital Resources and Funding Requirements We have a history of significant operating losses and have primarily incurred negative cash flows from operations from inception through the three months ended June 30, 2026. As of June 30, 2026, we had an accumulated deficit of $682.9 million. We have funded our operations to date from the sale of our equity securities, including our initial public offering and our follow-on public offering, from sales of our software solutions and from upfront payments, research funding and 41 milestone payments from our drug discovery collaborations, and from distributions on account of, or proceeds from the sale of, our equity stakes in our collaborators. Our operating cash flows are impacted by the magnitude and timing of our software sales and by the magnitude and timing of our drug discovery milestone achievements and research funding fees. On February 28, 2024, we filed a universal shelf registration statement on Form S-3 which allows us to offer and sell an indeterminate number of shares of common stock, preferred stock, depositary shares or warrants, or an indeterminate principal amount of debt securities, from time to time pursuant to one or more offerings at prices and terms to be determined at the time of the sale. In February 2024, we entered into an amended and restated sales agreement with Leerink Partners LLC, or Leerink Partners, as sales agent, with respect to an at-the-market offering program, or the ATM, under which we could offer and sell, from time to time pursuant to our Registration Statement on Form S-3, shares of common stock, having an aggregate offering price of up to $250.0 million through Leerink Partners. The amended and restated sales agreement amends and restates the original sales agreement that we entered into with Leerink Partners with respect to the ATM in May 2023, which is no longer in effect. No shares of common stock were sold under the ATM during the three and six months ended June 30, 2026 and 2025. As of June 30, 2026, we had $241.1 million of common stock remaining available for sale under the ATM. As of June 30, 2026, we had cash, cash equivalents, restricted cash, and marketable securities of $418.8 million. We believe our existing cash, cash equivalents, and marketable securities as of June 30, 2026 will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 24 months. Our future capital requirements will depend on many factors, including the growth of our software revenue, the timing and extent of spending to support research and development efforts, the continued expansion of software sales and marketing activities, the timing and receipt of milestone payments from our collaborations, as well as spending to support, advance, and broaden our proprietary drug discovery programs, including the impact of tariffs and trade restrictions on such spending. Furthermore, our capital requirements will also change depending on the timing and receipt of any distributions we may receive from our equity stakes in our drug discovery collaborators. The potential for these distributions, and the amounts which we may be entitled to receive, are difficult to predict due to the inherent uncertainty of the events which may trigger such distributions. We plan to utilize the existing cash, cash equivalents, and marketable securities on hand primarily to fund our software and drug discovery activities. With respect to our proprietary drug discovery programs, we plan to strategically evaluate on a program-by-program basis advancing them into and through preclinical development ourselves, entering into collaborations to co-develop them with leading industry partners, or out-licensing them to maximize their development, clinical and commercial potential. Beyond our planned investments to complete our ongoing Phase 1 dose-escalation clinical trials of SGR-1505 and SGR-3515, we do not intend to initiate additional clinical trials or advance our other proprietary preclinical programs into clinical trials independently. We plan to explore strategic partnerships for the SGR-1505 and SGR-3515 programs to advance the development of these programs beyond our ongoing Phase 1 clinical trials. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to maintain or expand our operations and invest in our platform, we may not be able to compete successfully, which would harm our business, operations and financial condition. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. Our contractual obligations as of June 30, 2026 include lease obligations of $155.5 million, consisting of our continuing rent obligations through December 2037, primarily for our office located in New York, New York for $121.8 million, which expires in December 2037. In addition, see Note 5, “Commitments and Contingencies” to our unaudited condensed consolidated financial statements for information relating to our operating lease obligations. In December 2022, we entered into an agreement with a third-party to establish an exclusive integrated drug discovery dedicated facility in Hyderabad, India. The agreement contains a minimum payment obligation, which totals $21.8 million over five years after the date of first occupancy. 42 In December 2025, we entered into a three-year agreement with a third-party cloud provider for compute power. The agreement contains a minimum payment obligation, which totals $82.0 million over the three years after the date we entered into the agreement. We also enter into agreements in the normal course of business with CRO vendors for research, preclinical studies, and clinical trials, professional consultants for expert advice, and other vendors for various products and services. These contracts do not contain any minimum purchase commitments and are cancellable at any time by us, generally upon 30 days prior written notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. We have also agreed to pay volume-based royalties to third-parties for use of software functionality under various licensing and related agreements. See Note 2, "Significant Accounting Policies" to our audited consolidated financial statements appearing in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2025 for more information relating to our royalty obligations. Cash Flows The following table presents a summary of our cash flows for the periods shown: Six Months Ended June 30, 2026 2025 (in thousands) Net cash (used in) provided by operating activities $ (48,904) $ 91,865 Net cash provided by (used in) investing activities 103,216 (24,969) Net cash provided by financing activities 1,219 2,427 Net increase in cash and cash equivalents and restricted cash $ 55,531 $ 69,323 Operating activities During the six months ended June 30, 2026, operating activities used approximately $48.9 million of cash, primarily due to a net loss of $54.1 million, which included a $32.4 million non-cash gain on changes in fair value of equity investments. These items were partially offset by $17.9 million of stock-based compensation, changes to our operating assets and liabilities of $16.9 million, and $2.8 million of non-cash operating expenses, depreciation, and investment accretion costs. During the six months ended June 30, 2025, operating activities provided approximately $91.9 million of cash, primarily due to changes to our operating assets and liabilities of $162.7 million driven by cash collections from the Novartis collaboration, $22.2 million of stock-based compensation, a $8.5 million non-cash loss on change in fair value of equity investments, and $1.5 million of non-cash operating expenses, depreciation, and investment accretion costs. These items were partially offset by a net loss of $103.0 million. Investing activities During the six months ended June 30, 2026, investing activities provided approximately $103.2 million of cash, consisting of $67.0 million from the disposition and sale of equity investments and $39.1 million from marketable securities maturities, net of purchases. These items were partially offset by $2.9 million in cash used for purchases of property and equipment. During the six months ended June 30, 2025, investing activities used approximately $25.0 million of cash, consisting of $24.1 million used for the purchase of marketable securities, net of maturities, and approximately $0.9 million in cash used for purchases of property and equipment. Financing activities During the six months ended June 30, 2026, financing activities provided approximately $1.2 million of cash, primarily attributable to proceeds received upon stock option exercises. During the six months ended June 30, 2025, financing activities provided approximately $2.4 million of cash, primarily consisting of $2.5 million attributable to proceeds received upon stock option exercises. 43