Executive Summary / Key Takeaways

• Biosimulation Leadership Amplified by AI: Certara stands as a global leader in Model-Informed Drug Development (MIDD), leveraging proprietary biosimulation software and technology-driven services. Recent strategic investments in AI, including the Vyasa acquisition and new products like CertaraIQ and CoAuthor, are enhancing its core offerings and expanding its market reach into drug discovery.
• Strategic Expansion into Discovery and Preclinical: The acquisition of Chemaxon and the launch of CertaraIQ are pivotal in extending Certara's influence into earlier stages of drug development, a large addressable market. This move is strategically timed with regulatory shifts, such as the FDA's push to phase out animal testing, creating significant new opportunities.
• Mixed Market, Resilient Performance: Despite macroeconomic headwinds, including cautious spending from large pharma and an erratic biotech funding environment, Certara has demonstrated resilient revenue growth, particularly in software. The company's Q3 2025 revenue of $104.6 million (up 10% year-over-year) and adjusted EBITDA margin of 34% reflect strong operational execution and profitability outperformance.
• Innovation Driving Competitive Edge: Certara's continuous R&D, exemplified by the EMA qualification for Simcyp and new product launches like Phoenix Cloud and Pinnacle 21 Enterprise Plus, reinforces its competitive moat. These technological advancements aim to reduce drug development costs and accelerate timelines, solidifying Certara's position as a preferred partner.
• Focused Capital Allocation and Outlook: With a $100 million share repurchase program and a strategic review of its regulatory services business underway, Certara is actively managing capital to enhance shareholder value. The 2025 guidance projects total revenue of $415 million to $420 million, with an adjusted EBITDA margin around 32%, reflecting ongoing investments in growth amidst a stabilizing, though still challenging, market.

The Foundation of Future Medicines: Certara's Biosimulation Imperative

Certara, Inc. (NASDAQ:CERT) operates at the vanguard of biopharmaceutical innovation, providing essential software and technology-driven services that underpin Model-Informed Drug Development (MIDD). In an industry where the average cost to bring a new medicine to market can exceed $6.2 billion and R&D spending tops $270 billion annually, Certara's mission is clear: to increase the probability of success, reduce development costs, and accelerate the delivery of safe and effective therapies to patients. The company's journey, rooted in over two decades of scientific advancement in biosimulation, has seen it evolve from a specialized tool provider to a comprehensive platform, strategically expanding its capabilities through organic innovation and targeted acquisitions since its founding in 2008.

Certara's core strategy revolves around creating and applying validated software applications that are broadly adopted across the life sciences industry. This is complemented by technology-enabled services delivered by a deep bench of scientists, aiding clients in applying biosimulation and MIDD to their specific projects. This integrated approach has yielded impressive results, with customers leveraging Certara's solutions contributing to 90% or more of all new drug approvals by the FDA since 2014. The company serves over 2,400 life sciences companies and academic institutions globally, with its software licensed by more than 94,000 users and utilized by 23 global drug regulatory agencies, including the FDA and Japan's PMDA.

Technological Edge and AI-Driven Innovation

Certara's competitive moat is deeply entrenched in its proprietary biosimulation software and its aggressive integration of artificial intelligence (AI) and machine learning (ML). These technologies are not merely incremental improvements but represent a fundamental shift in how drug development decisions are made, offering tangible and quantifiable benefits over traditional methods.

At the heart of Certara's offerings is the Simcyp Simulator, a mechanistic biosimulation platform for physiologically-based pharmacokinetic (PBPK) modeling. This technology allows scientists to predict drug behavior in the human body, optimizing dosing, efficacy, and toxicity analysis. A significant differentiator for Simcyp is its EMA Qualification Opinion for PBPK Modeling, a first-of-its-kind designation for any software platform. This qualification streamlines drug submission processes in the EU by pre-validating the platform's credibility for specific drug-drug interaction (DDI) scenarios, covering 6 CYP enzymes and 2 inhibition mechanisms. This effectively reduces the need for numerous clinical DDI studies, offering customers a faster and more consistent regulatory pathway.

The Phoenix PK/PD platform is another cornerstone, providing non-compartmental analysis and population pharmacokinetics. Recent updates to Phoenix (version 8.7) have focused on improving the speed and efficiency of NCA setup, data preparation, and nonlinear mixed-effect algorithms. The transition to Phoenix Cloud further enhances this, offering faster performance and lower back-end IT costs for customers by moving from on-premise to cloud-based deployment.

Certara's commitment to data integrity and regulatory compliance is evident in Pinnacle 21, a critical data standardization and validation tool. The recent launch of Pinnacle 21 Enterprise Plus aims to accelerate regulatory submissions by enabling clinical and statistical programmers to efficiently create, reuse, and manage data specifications for CDISC SDTM and ADaM datasets. This no-code interface is expected to deliver a 50% reduction in time spent drafting mapping specifications, significantly shortening cycle times.

The company's strategic move into AI began with the 2022 acquisition of Vyasa Analytics, which provided the foundational distributed data fabric technology essential for integrating AI across Certara's platforms. This has culminated in the development of a next-generation AI-enabled MIDD platform. Key products emerging from this initiative include:

• CertaraIQ: Launched in October 2025, this scalable, AI-powered Quantitative Systems Pharmacology (QSP) solution is designed to expand biosimulation across discovery and clinical phases. It features an intuitive model-building interface and prevalidated QSP models. CertaraIQ addresses historical QSP adoption challenges like minimal model reuse and long simulation times, with its AI-driven software reducing manual work and enhancing reproducibility, making QSP modeling faster, easier, and more impactful.
• CoAuthor: Introduced in Q2 2024, this generative AI product is used for drafting regulatory documents and medical publications. It leverages AI to automate and speed up the process of generating initial drafts, potentially reducing the time for completion from days to minutes for tasks like turning tables, figures, and listings into draft PK reports.

These technological advancements are not just about new features; they are about fundamentally transforming drug development. By integrating AI, Certara aims to expand the number of data sources utilized, better predict outcomes, and streamline reporting, ultimately decreasing the cost and increasing the odds of new drug approval and commercial success. The "so what" for investors is a strengthened competitive moat, higher customer stickiness through integrated workflows, and the potential for accelerated revenue growth as these innovative solutions gain wider adoption and become indispensable to the biopharmaceutical industry.

Competitive Landscape and Strategic Positioning

The market for biosimulation products and related services is competitive and highly fragmented. Certara faces direct competition from specialized software providers like Simulations Plus (SLP) and Schrödinger (SDGR), as well as larger clinical research organizations (CROs) with data analytics capabilities such as IQVIA (IQV).

Certara's strategic positioning emphasizes its comprehensive, end-to-end offerings across the entire drug development lifecycle, from discovery to market access. This contrasts with Simulations Plus, which primarily focuses on modeling and simulation software, and Schrödinger, which specializes in computational platforms for early-stage drug discovery and molecular modeling. While Simulations Plus is recognized for its expertise in PBPK modeling and reliable software, Certara's broader suite, including regulatory writing and data standardization tools, offers a more integrated solution for clients. Certara's EMA qualification for Simcyp further differentiates it, providing a regulatory endorsement that streamlines processes for its customers in a way competitors currently cannot.

Against Schrödinger, Certara's platforms offer broader regulatory and market access features, making them more appealing for later-stage development. While Schrödinger is known for its cutting-edge AI-driven molecular simulations, Certara's strategy of embedding AI into its biosimulation and data management tools (e.g., CertaraIQ, CoAuthor) aims to enhance efficiency and explainability across the entire development continuum, a critical factor for regulatory acceptance.

Compared to IQVIA, a behemoth in clinical research and data analytics, Certara maintains a competitive edge in specialized biosimulation software. Certara's platforms offer materially greater efficiency in areas like model-based meta-analysis and regulatory writing, potentially reducing time-to-market. While IQVIA's vast global network and integrated data platforms provide a strong competitive advantage in comprehensive analytics, Certara's focused, technology-driven solutions allow it to be more agile and innovative in its niche.

Certara's competitive advantages, or "moats," include its proprietary biosimulation software and its global operational network. Its platforms provide enhanced data integration and predictive accuracy, leading to stronger customer loyalty and recurring revenue. This technological edge, particularly in mechanistic biosimulation tools, allows Certara to offer superior efficiency in data compliance and regulatory submissions, differentiating it from rivals. However, Certara's vulnerabilities include its relatively smaller scale compared to IQVIA, which could lead to higher customer acquisition costs and potentially lower margins in broader service areas. The company's strategic response involves continuous R&D investment to maintain technological leadership and expand its addressable market, particularly in the high-growth areas of AI and preclinical development.

Financial Performance and Operational Momentum

Certara's recent financial performance reflects a company executing its strategy amidst a challenging macroeconomic backdrop. For the three months ended September 30, 2025, total revenues increased by 10% year-over-year to $104.6 million. This growth was primarily driven by a $5.8 million contribution from business acquisitions and increased demand for both technology-enabled services and software product offerings from existing and new customers. Software revenues, a key growth driver, surged by 22% to $43.8 million in Q3 2025, with organic growth of 6% led by strong performance from Simcyp. The Chemaxon acquisition, completed in October 2024, contributed $5.6 million to software revenue in the quarter, exceeding expectations. Services revenues also saw a 3% increase to $60.8 million, primarily from continued growth in technology-enabled services.

Profitability metrics highlight Certara's operational effectiveness. The company outperformed internal profitability expectations in Q3 2025, delivering adjusted EBITDA of $35.2 million, representing a robust 34% margin. This improvement was partly attributed to productivity gains from services-side reductions in the prior year and a favorable mix shift towards higher-gross-profit software. Cost of revenues increased by 7% to $39.7 million, driven by higher intangible asset amortization and professional/consulting expenses, partially offset by reduced employee-related costs. Operating expenses saw a 15% rise in sales and marketing and a 24% increase in research and development, reflecting Certara's strategic investments in headcount growth and AI integration.

Liquidity remains strong, with Certara consistently generating positive cash flow from operations. For the nine months ended September 30, 2025, net cash provided by operating activities was $67.5 million, a significant increase from $31.1 million in the same period of 2024. This was driven by increased cash-adjusted net income and improved working capital management.

The company ended Q3 2025 with $172.7 million in cash and cash equivalents. Certara's capital allocation strategy includes a $100 million stock repurchase program authorized in April 2025, under which $38.7 million of common stock had been repurchased by September 30, 2025. The company also proactively managed its debt, executing a Sixth Amendment to its Credit Agreement in October 2025 to reduce interest rates, expected to save $700,000 annually in interest expense starting in 2026.

Outlook, Guidance, and Growth Catalysts

Certara's guidance for 2025 reflects a pragmatic view of the market, anticipating a "mixed operating environment" similar to 2024 for clinical R&D spending. The company has narrowed its revenue guidance to $415 million to $420 million, representing 8% to 9% growth over 2024. Chemaxon is expected to contribute $23 million to $25 million in software revenue for the full year. Adjusted EBITDA margin guidance has been raised to approximately 32%, at the high end of the previous range, reflecting continued outperformance against profitability targets and the impact of share repurchases. Adjusted EPS is projected in the range of $0.45 to $0.47 per share.

Despite cautious spending from Tier 1 (large pharma) customers, which has led to elongated decision-making timelines, particularly in services bookings, Certara is not dependent on a macro-economic recovery for its growth. Management expects services revenue to be in the low single digits for the upcoming year, while organic software growth is projected to be in the range of 6% to 8%.

Several powerful growth catalysts are expected to drive Certara's performance:

• FDA's Shift to New Approach Methodologies (NAMs): The FDA's announcement regarding phasing out animal testing requirements for monoclonal antibodies and other drugs is a significant tailwind. This initiative, stemming from the FDA Modernization Act 2.0, encourages the use of computer modeling and AI to streamline drug development. Certara's "Non-Animal Navigator" solution, combining Simcyp and QSP modeling, directly addresses this need, leading to significant inbound customer interest. The company views this as a multibillion-dollar addressable market opportunity over the next decade, incremental to its traditional biosimulation market.
• Expanding QSP Market: Quantitative Systems Pharmacology (QSP) is rapidly becoming a cornerstone of modern drug discovery, with QSP-based FDA submissions nearly doubling every 1.4 years since 2013. Certara's QSP services have grown ahead of the broader biosimulation business, and the launch of CertaraIQ, its AI-powered QSP software, is poised to democratize access to this critical modeling capability.
• AI Integration and Platform Development: Certara's continuous investment in AI, from the Vyasa acquisition to new products like CoAuthor and CertaraIQ, is enhancing its predictive capabilities and streamlining workflows. The development of a next-generation AI-enabled MIDD platform aims to integrate various software solutions, enabling multi-parameter drug optimization and better decision-making for customers.

Risks and Challenges

While Certara's outlook is compelling, investors should be mindful of several risks. Macroeconomic conditions, including inflation, rising interest rates, and geopolitical conflicts, continue to foster cautious spending among large pharmaceutical companies, potentially extending deal timelines and impacting services bookings. The biotech funding environment, though slightly improved, remains below historical trends, which could affect demand from smaller customers.

Changes in government or regulatory policy, such as those related to drug pricing (e.g., IRA price controls) or trade (e.g., potential tariffs), could create uncertainty for Certara's customers, indirectly affecting R&D budgets. While Certara itself is not directly subject to tariffs as it sells into an R&D market, any broader industry impact could trickle down. The ongoing strategic review of the regulatory services business, while aimed at optimizing the portfolio, introduces a degree of uncertainty regarding its future structure and contribution.

Conclusion

Certara stands as a pivotal enabler in the evolving landscape of drug development, with its proprietary biosimulation software and AI-powered solutions driving efficiency and accelerating the path to new medicines. The company's strategic expansion into discovery and preclinical phases, coupled with its leadership in areas like QSP and PBPK modeling, positions it to capitalize on significant industry tailwinds, particularly the FDA's push towards non-animal testing methodologies. Despite a mixed macroeconomic environment that has tempered some customer spending, Certara's consistent revenue growth, robust profitability, and proactive capital management underscore its operational resilience.

The ongoing investments in AI-enabled platforms and new product launches are not merely incremental but represent a foundational shift, strengthening Certara's competitive moat and enhancing its value proposition to a discerning investment audience. As the biopharmaceutical industry increasingly embraces data-driven and model-informed approaches, Certara's technological leadership and integrated offerings make it a compelling long-term investment, poised to unlock greater value for both its customers and shareholders.