Release Date: August 05, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ACV growth of 27% in Q2 2026, driven by broad-based demand across large pharma, biotech, and materials science customers.
- Successful launch of Bunsen, an agentic AI co-scientist, with early access and a strategic deployment agreement with Bristol Myers Squibb, expanding platform usage.
- Predictive toxicology solution is gaining traction, with commercial evaluations going well and already contributing to 2026 ACV.
- Strong balance sheet with $419 million in cash and marketable securities, providing financial stability for strategic initiatives.
- Drug discovery revenue increased significantly to $23 million in Q2 2026, driven by a $10 million collaboration milestone from Ajax Therapeutics, and full-year guidance raised to $65-$75 million.
- Operating expenses decreased 6% year-over-year, reflecting disciplined expense management and improved efficiency.
- Therapeutics portfolio continues to generate value, with over $750 million realized since 2020, including recent milestones from the Lilly-Ajax acquisition.
- Hosted revenue percentage increased to 47% of software revenue, indicating successful transition to recurring revenue model.
- Improved biotech sector conditions, with increased IPO activity and reduced customer funding challenges compared to the prior year.
- New global collaboration with Simcere Pharmaceutical Group to advance discovery programs into clinical stages, with potential for milestones and royalties.
Negative Points
- Software gross margin declined to 71% in Q2 2026 from 76% in Q2 2025, due to the accelerated transition to hosted licensing.
- Contribution revenue decreased to $3.4 million in Q2 2026 from $4.8 million in Q2 2025, due to completion of initial Gates Foundation funding for predictive toxicology.
- Total revenue growth is negatively impacted by the planned transition to hosted licenses, which recognizes revenue ratably over contract life.
- The company expects a temporary negative impact on reported revenue from the hosted transition, with each 1% increase in hosted revenue reducing revenue by $2-$3 million.
- Full-year ACV guidance remains at 10%-15% growth, which is lower than the 27% growth seen in Q2, indicating potential slowdown in the second half.
- Predictive toxicology and other new products have long lead times for customer adoption, requiring extensive evaluation and validation, which may delay revenue contributions.
- The company's reliance on a few large customers, such as BMS, for significant platform deployments could concentrate risk.
- Operating expenses, while reduced, remain high at $74 million for the quarter, and the company expects them to be less than 2025 but still substantial.
- The drug discovery revenue increase is partly due to a one-time milestone payment, which may not be recurring.
- The company's net income was boosted by a one-time gain from the Lilly-Ajax acquisition, which may not be sustainable in future quarters.
Q & A Highlights
Q: Can you provide more color on end market health in biopharma and biotech, as well as customer activity overall? How much has predictive tox contributed to ACV so far, and what are the expectations for that going forward?
A: Ramy Farid (CEO) noted that the biotech sector is healthier this year than last, citing a doubling of IPOs and fewer companies struggling to raise funds. Regarding predictive tox, he stated the company is not disclosing the specific ACV breakdown by product, but confirmed it has contributed to ACV this year and is included in the full-year guidance.
Q: What does the pipeline look like for Bunsen, and can you provide details on the pricing model? Is it similar to the rest of the software?
A: Ramy Farid (CEO) highlighted the new agreement with Bristol Myers Squibb (BMS), a longtime customer, which significantly scaled up their access to the technology. He explained that the value of Bunsen is recognized through increased demand for their core technologies, as demonstrated by the BMS collaboration, rather than a separate pricing model.
Q: As you convert customers to hosted licenses, what is the feedback? Can you achieve a majority of conversions within the first two years, or will it take longer?
A: Richie Jain (CFO) confirmed the company is on track to reach its goal of 75% hosted revenue by the end of 2028. He noted that the hosted revenue percentage reached 47% this quarter, partly due to some customers transitioning early, and that customer engagement has been strong.
Q: How much of the ACV growth is a function of new product launches, and what areas should we expect for the next wave of product launches to unlock more budget?
A: Ramy Farid (CEO) stated that new products are a major contributor to growth in the first half of the year and are expected to remain so in the second half. He cited predictive tox and RetroSynth as examples, noting that the company's R&D group continuously develops new products based on feedback from its internal therapeutics group and thousands of users.
Q: Can you talk about the areas where you are able to gain efficiencies and reduce operating expenses?
A: Richie Jain (CFO) explained that operating expenses decreased 6% year-over-year and sequentially, driven by reductions in personnel costs, CRO costs, and professional services fees. This reflects the company's disciplined expense management and execution against its plans.
Q: Can you speak to the specific areas of your workflows where you are seeing the greatest benefits from Bunsen?
A: Karen Akinsanya (President, Head of Therapeutics R&D) highlighted that Bunsen is accelerating structure-based drug design workflows, including analyzing structures and binding sites. Ramy Farid (CEO) added that Bunsen acts as a true co-scientist, enabling users to run multiple tasks in parallel and handle routine tasks, significantly boosting efficiency. Patrick Lorton (CTO) noted that Bunsen can monitor and restart failed jobs, preventing the loss of overnight or weekend work on expensive supercomputers.
Q: Does the 10% to 15% medium-term growth expectation factor in assumptions about predictive tox? How are you thinking about predictive tox relative to the core software business?
A: Ramy Farid (CEO) reiterated that the company is not breaking down the growth component tied to predictive tox but confirmed that evaluations are going well and there is real demand. He noted that safety issues are a major source of drug discovery failures, and predictive tox addresses this. He expects the technology to contribute to growth for several years, given the typical long lead time for customers to evaluate and validate new technologies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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