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Schrodinger (SDGR): Leveraging Computational Power to Transform Drug Discovery
Published on September 24, 2024 | Ticker: SDGR

Schrodinger, Inc. (NASDAQ:SDGR) is a leading provider of computational solutions for the life sciences and materials science industries. The company has developed a differentiated, physics-based computational platform that enables the discovery of high-quality, novel molecules for drug development and materials applications more rapidly and at a lower cost compared to traditional methods.

Business Overview

Schrodinger's business is divided into two main segments: software and drug discovery. The software segment focuses on licensing the company's software solutions to transform molecular discovery, while the drug discovery segment is dedicated to generating revenue from a diverse portfolio of preclinical and clinical programs, both internally and through collaborations.

Financials

In the fiscal year ended December 31, 2023, Schrodinger reported annual revenue of $216.7 million, a 20% increase from the prior year. The company's net income for the year was $40.7 million, and it generated annual operating cash flow of $10.5 million and annual free cash flow of -$2.9 million.

For the second quarter of 2024, Schrodinger reported total revenue of $47.3 million, a 35% increase compared to the same period in 2023. Software revenue for the quarter was $35.4 million, up 21% year-over-year, while drug discovery revenue was $11.9 million, up 104% compared to the prior-year quarter. The company's net loss for the quarter was $54.0 million.

Software Business Performance

Schrodinger's software business continues to be a key driver of the company's growth, with strong demand from both existing and new customers. The company has been successful in scaling up the adoption of its software solutions at large global pharmaceutical companies, as well as established biotech firms. This strategy has resulted in increased revenue from these customers, offsetting some challenges in the smaller biotech segment.

Drug Discovery Progress

The company's drug discovery business has also made significant progress, with the advancement of its proprietary pipeline and continued collaborations with partners. Schrodinger's MALT1 inhibitor, SGR-1505, is currently in a Phase 1 clinical trial for the treatment of patients with relapsed or refractory B-cell lymphomas, and the company expects to present initial data from this study in the first half of 2025. Additionally, the company's CDC7 inhibitor, SGR-2921, is in a Phase 1 study for the treatment of acute myeloid leukemia or myelodysplastic syndrome, with initial data expected in the second half of 2025. Schrodinger has also recently initiated a Phase 1 trial for its Wee1/Myt1 co-inhibitor, SGR-3515, in patients with advanced solid tumors.

Geographic Distribution

Geographically, Schrodinger has a global footprint, with customers in the United States, Europe, and the Asia-Pacific region. In the second quarter of 2024, the company generated 35% of its revenue from customers outside the United States, with the APAC region contributing 18% and the EMEA region contributing 16% of total revenue.

Outlook

Looking ahead, Schrodinger is maintaining its previously provided guidance for the full year 2024. The company expects software revenue to be in the range of $132 million to $138 million, and drug discovery revenue to be between $30 million and $35 million. The company also expects its operating expenses to grow by 8% to 10% for the full year, a slight improvement from its previous guidance of 8% to 12% growth.

Recent Developments

One of the key initiatives Schrodinger has recently launched is the development of a computational solution designed to reduce the risk of development failure associated with binding to off-target proteins, which can be a significant source of serious side effects. This project is being funded by a $10 million grant from the Bill & Melinda Gates Foundation and is expected to contribute to the company's software revenue growth in the coming years.

Conclusion

Schrodinger's strong performance in the first half of 2024, coupled with its robust pipeline of proprietary drug candidates and continued collaborations, positions the company well for future growth. The company's focus on leveraging its computational platform to drive efficiency across the drug discovery and development continuum, as well as its efforts to expand the application of its technology to address critical challenges in the industry, make Schrodinger a compelling investment opportunity in the life sciences sector.

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