Q1 2025 Schrödinger Inc Earnings Call

May 7, 2025

Advised that this call is being recorded at the company's request now.

Speaker Change: Now I would like to introduce your host for today's conference Ms. Sharon Madden Senior Vice President of Investor Relations and corporate Affairs. Please go ahead.

Speaker Change: Thank you and good afternoon, everyone welcome to today's call during which we will provide an update on the company and review our first quarter 2025 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 shredding or Dot Com hears me on our call today are rami.

Speaker Change: <unk>, Chief Executive Officer, Geoff Porges, Chief Financial Officer, and Karen <unk> President of R&D Therapeutics. Following our prepared remarks, we'll open the call for Q&A. During today's call management will make statements that are forward looking and made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095, including the.

Speaker Change: Without limitation statements related to our financial outlook for the full year 2025 in the second quarter 2025, our plans to accelerate the growth of our software business and advance our collaborative and proprietary drug discovery programs, the timing of an initiation of and Readouts from our clinical trials the clinical potential in properties of our compounds the use of <unk>.

Speaker Change: Our cash resources as well as our future expenses. These forward looking statements reflect our current 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 due to a number of important factors, including the considerations described in the risk factors section and elsewhere in the.

Speaker Change: The filings, we make with the SEC, including our Form 10-Q for the quarter ended March 31, 2025. These forward looking statements represent our views only as of today and we caution you that except as required by law, we may not update them in the future whether as a result of new information future events or otherwise also included in today's call are certain non-GAAP financial measures.

Speaker Change: These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not a substitute for or superior to GAAP measures.

Speaker Change: Please refer to the tables at the end of our press release, which is available on our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and with that I'd like to turn the call over to Rami. Thanks.

Rami: Thanks, John and thank you everyone for joining US today, we are pleased with our progress during the first quarter, which builds on the positive momentum from 2020 for our software and drug discovery revenue demonstrated strong growth. We are confident about our revenue outlook for the year and are reiterating our full year financial guidance.

Rami: We are having productive discussions with customers are encouraged about the opportunities for increased adoption of our software even with the potential challenges of the macroeconomic environment total revenue for the quarter was $59 6 million software revenue was $48 8 million, representing 46% growth drug discovery revenue for the.

Rami: Quarter was $10 $7 million with growth driven by milestones from collaborative programs and the recognition of upfront revenue from our collaboration with Novartis.

Rami: We are encouraged by the Fda's recently stated goal to reduce preclinical animal testing, we have been pioneering computational molecular discovery for nearly 35 years and continue to develop new solutions that integrate physics with machine learning to accelerate the discovery of safer drugs, we already offer our customer solutions that can be used to reduce.

Speaker Change: That except as required by law, we may not update them in the future whether as a result of new information future events or otherwise also included in today's call are certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not a substitute for or superior to GAAP.

Rami: The potential for toxicity associated with binding to off targets. We're also continuing to advance our predictive toxicology initiative. We are structurally enabled more than 50 off targets and had been leveraging this technology within our collaborative and proprietary programs with highly encouraging results.

Measures.

Speaker Change: These refer to the tables at the end of our press release, which is available on our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and with that I'd like to turn the call over to Ronny.

Rami: We expect to proceed with a beta release of the solution to select customers later this year and expect to make it broadly available to customers. Once beta testing is completed we are optimistic about its potential to contribute meaningfully to our long term revenue growth trajectory. We are also continuing to advance the science underlying other aspects of our platform.

Ronny: Thanks, John and thank you everyone for joining US today, we are pleased with our progress during the first quarter, which builds on the positive momentum from 2020 for our software and drug discovery revenue demonstrated strong growth. We are confident about our revenue outlook for the year and are reiterating our full year financial guidance, we are having productive discussions.

Rami: This week, we released our second software update of the year major enhancements include new Crystal structure prediction software to identify stable Crystal Polymorph, which has important applications for drug formulation and we have also expanded support for protein to greater modeling and launched new capabilities to enable machine learning based T cell receptor struck.

Ronny: <unk> with customers are encouraged about the opportunities for increased adoption of our software even with the potential challenges of the macroeconomic environment total revenue for the quarter was $59 6 million software revenue was $48 8 million, representing 46% growth drug discovery revenue for the quarter was 10.

Rami: Prediction, which is important for biologics discovery were also continuing to advance our collaborative and proprietary pipeline. We look forward to sharing initial phase one data from our three lead clinical programs, starting this quarter with STR 15, O five or Mt. One inhibitor.

Ronny: $7 million with growth driven by milestones from collaborative programs and the recognition of upfront revenue from our collaboration with Novartis.

Ronny: We are encouraged by the Fda's recently stated goal to reduce preclinical animal testing, we've been pioneering computational molecular discovery for nearly 35 years and continue to develop new solutions that integrate physics with machine learning to accelerate the discovery of safer drugs, we already offer our customer solutions that can be used to reduce.

Rami: Overall, we are well positioned to advance all aspects of our business. In 2025. This is a pivotal year for the company and we look forward to providing updates throughout the year I will now turn the call over to Jeff. Thank you Robin and good afternoon, everyone.

Ronny: The potential for toxicity associated with binding to off targets. We're also continuing to advance our predictive toxicology initiative, we have structurally enabled more than 50 off targets and had been leveraging this technology within our collaborative and proprietary programs with highly encouraging results.

Jeff: Very happy with our financial results for Q1 software revenue growth was robust drug discovery revenue was higher than last year as we benefited from the recognition of revenue from our collaboration with Novartis as well as the recent expansions to other collaborations.

Jeff: Our operating expenses declined year over year, and our cash position was boosted by selections from contracts closed late in Q4, including receipt of the upfront payment from Novartis.

Ronny: We expect to proceed with a beta release of the solution to select customers later this year and expect to make it broadly available to customers. Once beta testing is completed we are optimistic about its potential to contribute meaningfully to our long term revenue growth trajectory. We are also continuing to advance the science underlying other aspects of our platform.

Jeff: Our financial position is very strong and our business is relatively protected from the turmoil, but we are seeing in the capital markets across many parts of the economy.

Jeff: Technology continues to prove its value and even in these challenging conditions, our customers are increasing their investment in our platform, enabling them to meet their renovation goals at lower cost and with better outcomes.

Ronny: This week, we released our second software update of the year major enhancements include new Crystal structure prediction software to identify stable Crystal Polymorph, which has important applications for drug formulation and we have also expanded support for protein to greater modeling and launched new capabilities to enable machine learning based T cell receptor struck.

Jeff: We remain very positive about the outlook for the year and we're excited to be advancing towards our first clinical data disclosure this quarter for.

Jeff: For Q1 total revenue was $59 6 million, an increase of 63% compared to Q1 2020 for.

Ronny: Sure prediction, which is important for biologics discovery were also continuing to advance our collaborative and proprietary pipeline. We look forward to sharing initial phase one data from our three lead clinical programs, starting this quarter with STR 15, O five or Mt. One inhibitor.

Jeff: The increase was driven by higher software and drug discovery revenue.

Jeff: Software revenue was $48 8 million, an increase by 46% compared to Q1 2020 for the increase was driven by increased revenue from larger customer renewals in Q4, but were partially recognized in Q1.

Ronny: Overall, we are well positioned to advance all aspects of our business. In 2025. This is a pivotal year for the company and we look forward to providing updates throughout the year I will now turn the call over to Jeff. Thank you Rami and good afternoon, everyone.

Jeff: That was early expansions and additions to pre existing multiyear contracts and the increasing contribution of recurring revenue from hosted software contracts.

Jeff: As expected most of the growth in our software revenue came from increasing scale of deployments with global accounts the growth contribution from new accounts and small and emerging biotech customers was minimal.

Jeff: Very happy with our financial results for Q1 software revenue growth was robust drug discovery revenue was higher than last year as we benefited from the rush of additional revenue from our collaboration with Novartis as well as the recent expansions to other collaborations.

Jeff: On Prem software increased by 44% to $25 4 million and hosted revenue grew by 52% to $10 9 million minus.

Jeff: Our operating expenses declined year over year, and our cash position was boosted by collections from contracts close late in Q4, including receipt of the upfront payment from Novartis.

Jeff: Maintenance revenue increased by 15% in growth was lower due to the continued effect of the transition from on Prem to hosted contracts in prior periods.

Jeff: Our financial position is very strong and our business is relatively protected from the turmoil, but we are seeing in the capital markets across many parts of the economy.

Jeff: Professional services revenue declined by 31% of service contracts from prior periods were completed and contribution revenue was 3.8 million. This quarter as we continued to recognize revenue from the gates funded predictor talks project.

Jeff: Drug discovery revenue was $10 7 million compared to $3 2 million in Q1 last year revenue. This quarter was increased based on recognition of the upfront payment from Novartis collaboration and from other recently expanded collaborations.

Jeff: We remain very positive about the outlook for the year and are excited to be advancing towards our first clinical data disclosure this quarter for.

Jeff: For Q1 total revenue was $59 6 million, an increase of 63% compared to Q1 2024 to.

Jeff: Software cost of revenue was 13.5 move in Q1 compared to eight nine in Q1 of 'twenty 'twenty four the increase was due to the expenses associated with gates predictive talks initiative.

Jeff: The increase was driven by higher software and drug discovery revenue.

Jeff: Software revenue was $48 8 million, an increase by 46% compared to Q1 'twenty 'twenty four the increase was driven by increased revenue from a larger customer renewals in Q4 that will partially recognized in Q1.

Jeff: We also recognized increases in royalties associated with the Novartis software license and collaboration.

Jeff: Our software gross margin was 72% compared to 76% in Q1 2020 for.

Jeff: The lower gross margin was due to the change in revenue mix associated with the carriage grant.

Jeff: I was early expansions and additions to pre existing multiyear contracts and the increasing contribution of recurring revenue from hosted software contracts.

Jeff: Apart from this effect software gross margin would've been consistent with the prior year.

Jeff: As expected most of the growth in our software revenue came from increasing scale of deployments are global accounts the growth contribution from new accounts and small and emerging biotech customers was minimal.

Jeff: Drug discovery cost of revenue increased from $9 7 million to $14 9 million with the increase being driven by the high costs associated with the initiation of work on the projects and the Novartis collaboration as well as increased allocation of research to after collaborations overall.

Jeff: On Prem software increased by 44% to $25 4 million and hosted revenue grew by 52% to 10.99.

Jeff: Our overall gross margin was 52% and was very similar to the overall gross margin in Q1 2024.

Jeff: Maintenance revenue increased by 15% in growth was lower due to the continued effect of the transition prolonged prompt a hosted contracts from prior periods professional services revenue declined by 31% of service contracts from prior periods were completed on contribution revenue was 3.8 million. This quarter as we continue to recognize revenue from the gates.

Jeff: R&D expense declined from $50.6 million in Q1 last year to 46 million in Q1 2025.

Jeff: The decrease was due to the shift in allocation of staff from proprietary drug discovery collaborations and also lower preclinical CRO expenses for proprietary programs to advance to the clinic or being discontinued.

Jeff: <unk> predictor talks project.

Jeff: Sales and marketing expense increased by 2% to $10 4 million based on slightly higher FTE expenses G&A increased by 1% to 25.8 million driven by slight increases in professional services total operating expenses were 82 million compared to 86 million in Q1 2024, the reduction was mainly due to lower R&D.

Jeff: Software cost of revenue was 13.5 months in Q1 compared to 8 million in Q1 of 'twenty 'twenty four the increase was due to the expenses associated with gates predictive talks initiative.

Jeff: There were no gains in equity method investments in the quarter and the change in fair value of equity method investments was a loss of $13 million based on the mark to market of our shareholding in structured therapeutics.

Jeff: We also recognized increases in royalties associated with the Novartis software license and collaboration.

Jeff: This compares to a gain in value of $8 million in Q1 of 2020 for.

Jeff: Our software gross margin was 72% compared to 76% in Q1 'twenty 'twenty four.

Jeff: Other income was $4 2 million in Q1 compared to $5 million in Q1, 'twenty 'twenty four for lower other income was due to a lower cash balance and lower yields partially offset by a favorable effect of currency fluctuations on foreign currency balances total other expense was a loss of important 9 million compared to a gain of 13 million in Q1 last year.

Jeff: The lower gross margin was due to the change in revenue mix associated with the gates Grant.

Jeff: Apart from this effect software gross margin would've been consistent with the prior year.

Jeff: Our discovery cost of revenue increased from an awkward 7 million to $14 9 million, which increase being driven by the high costs associated with the initiation of work on the projects and the Novartis collaboration as well as increased allocation of research to after collaborations overall.

Jeff: Axis were minimal, resulting in a net loss after taxes of 60 million or 82 cents a share compared to a net loss after taxes of $54 7 million or 76 cents per diluted share in Q1 'twenty to 'twenty four.

Jeff: Our overall gross margin was 52% and was very similar to the overall gross margin in Q1 2024.

Jeff: The fully diluted share count for Q1 was 73 million compared to $72 3 million in Q1, 'twenty 'twenty four.

R&D expense declined from $50.6 million in Q1 last year to 46 mining to October 25.

Jeff: Our net operating cash flow was 144 million in Q1 compared to cash use of 39 million in Q1 2020 for the reversal of our quarterly cash burn was driven by the receipt of the upfront payment from Novartis in Q1 as well as collections with other receivables that were outstanding at year end accounts receivable declined by $215 million.

Jeff: A decrease was due to the shift in allocation of staff from proprietary drug discovery to collaborations and also lower preclinical CRO expenses for proprietary programs. So the advance to the clinic or being discontinued.

Jeff: Sales and marketing expense increased by 2% to 10.4 million based on slightly higher FTE expenses G&A increased by 1% to $25 8 million driven by slight increases in professional services total operating expenses were 82 million compared to 86 million in Q1 2024, the reduction was mainly due to lower R&D.

Jeff: Between year ended March 31st and as a result, our cash marketable securities balance increased from 367 million on December 31st two 512 million at the end of Q1 current liabilities decreased by 14% and total deferred revenue declined by 5% and remains $210 million.

Jeff: I'll now provide some comments on the risks and opportunities for our business associated with the ongoing political and economic uncertainty.

Jeff: As technology and business is built on a licensee and use platform.

Jeff: This compares to a gain in value of $8 million in Q1 of 2020 for.

Jeff: As such at the present time, we do not expect any direct impact on our revenue outlook from U S tariffs it.

Jeff: Other income was $4 2 million in Q1 compared to $5 million in Q1, 'twenty 'twenty four for lower other income was due to a lower cash balance and low yields partially offset by a favorable effect of currency fluctuations on foreign currency balances total other expense was a loss of very important 9 million compared to a gain of 13 million in Q1 last year taxes were men.

Jeff: It is unclear what form retaliatory tariffs or trade barriers could have and for that reason it is impossible to forecast before when they could have a meaningful impact in the future.

Jeff: We are aware of the risks of new tariffs being applied to the pharmaceutical industry and the impact they could have on industry profitability.

Jeff: <unk>, resulting net loss after taxes of 60 million or 82 cents a share compared to a net loss after taxes of $54 7 million or 76 cents per diluted share in Q1, 'twenty 'twenty four.

Jeff: At this stage, we're not encountering resistance or reluctance to purchase in our customer conversations but of course, we all watch carefully could your policies or regulations that might affect the industry's outlook and R&D investments.

Jeff: A fully diluted share count for Q1 was 73 million compared to $72 3 million in Q1, 'twenty 'twenty four.

Jeff: Our direct exposure to revenue from China is small with low single digit percentage of our revenue for software in 'twenty 'twenty four coming from as he is based in China.

Jeff: Although our software is ubiquitous and academic institutions are revenue from that segment is also small with U S academic institutions and government affiliated organizations such as the NIH contributing less than 4% of software revenue in 2024.

Jeff: Between year ended March 31st and as a result, our cash marketable securities balance increased from 367 million on December 31st to 512 million at the end of Q1.

Jeff: Additionally, we are encouraged by the Fda's public statements about the importance of adopting alternative approaches, including computation for drug discovery and development and believe that our technology is uniquely suited to supporting these goals, while the uneven treatment of biologics and small molecules has been a headwind for our software sales in certain.

Jeff: Current liabilities decreased by 14% entitled to vote for our revenue declined by 5% and remains 210 nine.

Jeff: I'll now provide some comments on the risks and opportunities for our business associated with the ongoing political and economic uncertainty.

Jeff: Trading is technology and business is built on a licensee and use platform.

Jeff: Accounts in recent years that headwind could also be reduced by the executive order regarding the duration of the non negotiation period for Medicare part D.

Jeff: As such at the present time, we do not expect any direct impact on our revenue outlook from U S tariffs.

Jeff: Finally currency has been a drag on our reported revenue growth from ex U S markets for several years and with the change in exchange rate, we could see some modest benefit to our reported sales from international markets later in the year.

Jeff: It is unclear, what former tonnage or tariffs or trade barriers could have and for that reason it is impossible to forecast if or when they could have a meaningful impact in the future.

Jeff: We are aware of the risks of new tariffs being applied to the pharmaceutical industry and the impact they could have on industry profitability.

Jeff: Overall, the effect of these variables, it's hard to quantify at this stage and they're largely excluded from our financial guidance for the year.

Jeff: At this stage, we're not encountering resistance a reluctance to purchase in our customer conversations but of course, we are watching carefully could you policies or regulations that might affect the industry's outlook and R&D investments.

Jeff: Our quarterly guidance reflect our latest and highest confidence expectations for the near term trends and out.

Jeff: Looking at our financial guidance for the full year 2025 is unchanged, we still expect our software revenue growth to be 10% to 15% and we expect drug discovery revenue to be in the range of $45 million to $50 million. We continue to expect our full year software gross margin to be in the range of 74% to 75%.

Jeff: Our direct exposure to revenue from China is small with low single digit percentage of our revenue for software in 'twenty 'twenty four coming from asset based in China.

Jeff: Our operating expense growth to be less than 5% for the year.

Jeff: Our cash burn this year is expected to be significantly below our cash burn last year I remain very confident about our current capital position and our long range financial outlook.

Jeff: We expect software revenue in Q2 to be in the range of 38 to 42 million.

Jeff: We expect that the majority of the years remaining software revenue will be recognized in Q4 with a balance of drug discovery revenue likely to be approximately evenly distributed through the remaining quarters to conclude shredding you had an excellent Q1 with strong financial performance building on the positive announcements from Q4 and building.

Jeff: Accounts in recent years that headwind could also be reduced by the executive order regarding the duration of the non negotiation period for Medicare part D.

Jeff: Q1, we remain very confident about the outlook for the year and see our business being relatively protected from the volatility and uncertainty affecting capital markets and other businesses and industry segments. We are excited about our approach and clinical data presentations and look forward to talking to you all about the first of those presentations in the coming weeks.

Jeff: Overall the effect of these variables is hard to quantify at this stage and they are largely excluded from our financial guidance for the year.

Jeff: With that I'll turn the call over to Karen to discuss our therapeutics R&D. Thank you, Jeff and good afternoon, everyone. Our therapeutics team continues to advance our pipeline of collaborative and proprietary medicines across our collaborations we are making important progress in the discovery of preclinical and clinical candidates for several high value.

Jeff: There are quarterly guidance reflects our latest denials confidence expectations for the near term trends and outlook.

Speaker Change: We are pleased with the growing number of imagine the medicines designed using our platform across programs initiated at companies. We co founded such as nimble small thick Ajax and structure as Rami mentioned this is a pivotal year for Schrodinger with initial phase one clinical data are expected across three proprietary program.

Jeff: Can you to expect a full year software gross margin to be in the range of 74% to 75% unexpected operating expense growth to be less than 5% for the year.

Jeff: Our cash burn this year is expected to be significantly below our cash burn last year I remain very confident about our current capital position and our long range financial outlook.

Jeff: Beginning with S. J F 15 F. Five Alamo one inhibitor a phase one trial in patients with relapsed refractory B cell malignancies is progressing and we look forward to reporting initial clinical data from this study at the European Hematology Association meeting in mid June.

Jeff: We expect software revenue in Q2 to be in the range of $38 million to $42 million we.

Jeff: We expect that the majority of the years remaining software revenue will be recognized in Q4 with a balance of drug discovery revenue likely to be approximately evenly distributed through the remaining quarters to conclude shredding you have an excellent Q1 with strong financial performance building on the positive announcements from Q4 early in.

Jeff: As a reminder, this is an open label dose escalation study we plan to provide initial data describing the clinical profile of S. G. F 15 F EIS.

Jeff: This data cut will include safety, pharmacokinetic and pharmacodynamic data across doses and schedules as well as PK PD relationship and preliminary efficacy data from patients across a number of b cell malignancies and dose levels.

Jeff: Q1, we remain very confident about the outlook for the year and see our business being relatively protected from the volatility and uncertainty affecting capital markets and other businesses and industry segments. We are excited about our approaching clinical data presentations and look forward to talking to you all about the first of those presentations in the coming weeks.

Jeff: Look forward to sharing the abstract when the Ehow embargo lifts next week.

Jeff: The Ehow poster will include additional data collected after the cutoff date for the abstract submission.

Jeff: Following <unk>, we will also present data at the International conference on malignant lymphoma, taking place later in June in the second half of this year. We expect initial data readouts from the ongoing phase one clinical studies of our C. D. C. Seven inhibitor S. T. R 29, 21 and above all we want one co inhibitory S. G authority.

Jeff: <unk>, we are pleased with the growing number of imaging the medicines designed using our platform across programs initiated at companies. We co founded such as Nimbus Morphic Ajax and structure as Rami mentioned this is a pivotal year for Schrodinger with initial phase one clinical data are expected across three proprietary program.

Jeff: 515 S. T. R. 29, 21 is advancing in a dose escalation study in patients with acute myeloid leukemia or Myelodysplastic syndrome. We are also evaluating S. G. F 35, 15 in patients with advanced solid tumors is predicted to be sensitive to we won met one inhibition, including ovarian youth.

Jeff: Beginning with S. G F 15 F. Five Alamo one inhibitor our phase one trial in patients with relapsed refractory B cell malignancies is progressing and we look forward to reporting initial clinical data from this study at the European Hematology Association meeting in mid June.

Jeff: Aaron and breast cancer. In addition to other solid tumors. These studies are progressing well with multiple dose escalation steps completed as with ESG out 15 in five phase one trial. The goal of the 291 and 35 15 studies is to evaluate safety tolerability and preliminary clinical activity and to determine the <unk>.

Jeff: As a reminder, this is an open label dose escalation study we plan to provide initial data describing the clinical profile of S. G. F 15 O five.

Jeff: I commend it phase two dose and schedule and we look forward to updating you on the progress of these studies later this year last week at the annual American Association for Cancer Research meeting, we presented preclinical data demonstrating the S. J F. 35, 15 showed improved antitumor activity in preclinical models compare.

Jeff: Look forward to sharing the abstract when the Ehow embargo lifts next week. The Ehow poster will include additional data collected after the cutoff date for the abstract submission.

Jeff: With other known we won and make <unk>. One inhibitors. We also presented preclinical data showing how the dosing schedule for S. J R. 35, 15 can be optimized to preserve efficacy, while also allowing for complete recovery from target related side effects. Additionally, at ACR last week, we reported preclinical.

Jeff: Following <unk>, we will also present data at the International conference on malignant lymphoma, taking place later in June in the second half of this year. We expect initial data readouts from the ongoing phase one clinical studies of our C. D. C. Seven inhibitor S. G. R 29, 21 and above all we want one co inhibitor S. G. Arthur.

Jeff: Data for S. T. R 41, 74, our sauce, one inhibitor, demonstrating differentiated potency selectivity and drug like properties as well as evidence of monotherapy in additive activity in combination with Mac inhibitors, Oh, Gee 12, CK mass inhibitors. These data along with the well tolerated profile of.

Jeff: 515 F. G. R. Twenty-nine twenty-one is advancing in a dose escalation study in patients with acute myeloid leukemia or Myelodysplastic syndrome. We are also evaluating S. G. F 35, 15 in patients with advanced solid tumors is predicted to be sensitive to we won 20 inhibition, including ovarian.

Jeff: S. J F 0174 in G. L. P. Tox studies supports further development potential over the past three years, we have advanced several programs into the clinic and partners. Some of our early stage programs. We continue to see additional opportunities for value creation from our portfolio throughout licensing new ventures and collab.

Jeff: Uterine and breast cancer. In addition to other solid tumors. These studies are progressing well with multiple dose escalation steps completed as with ESG. Our 15 in five phase one trial. The goal of between 91 and 35 15 studies is to evaluate safety tolerability and preliminary clinical activity and to determine.

Jeff: <unk>.

Jeff: 2025 is poised to be an exciting year for Schrodinger, we expect broad pipeline progress and are very much looking forward to sharing phase one data from all three clinical programs throughout the year I'll now turn the call back to Rami. Thank you Karen.

Jeff: The recommended phase two dose and schedule and we look forward to updating you on the progress of these studies later this year last week at the annual American Association for Cancer Research meeting, we presented preclinical data demonstrating the S. J F. 35, 15 showed improved antitumor activity in preclinical models can.

Jeff: As you heard we are off to a strong start in 2025 I'm optimistic about the rest of the year and look forward to updating you on our progress at this time, we'd be happy to take your questions.

Jeff: Pad with other known we won and make <unk>. One inhibitors. We also presented preclinical data showing how the dosing schedule for S. G. R. 35, fifteen's can be optimized to preserve efficacy, while also allowing for complete recovery from target related side effects. Additionally, at ACR last week, we reported preclinical.

Speaker Change: We're now going to start the Q&A session. If you would.

Speaker Change: I'd like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question Press Star one again.

Speaker Change: If you are called upon to ask your question or listening via loud speaker UE device. Please pick up your handset and ensure that your phone is not on mute and asking your questions. Thank you.

Jeff: <unk> data for S. G. O 41, 74, our sauce, one inhibitor, demonstrating differentiated potency selectivity and drug like properties as well as evidence of monotherapy in additive activity in combination with Mac inhibitors, Oh, Gee 12, CK Ras inhibitors. These data along with the well tolerated profile.

Speaker Change: The first question comes from the line of Michael Yee with Jefferies. Please go ahead.

Jeff: Yeah.

Speaker Change: Hey, guys great. Thanks.

Speaker Change: We're taking two questions one is thinking about your first ever presentation of.

Jeff: All of S. G F 0174 in G. L. P. Tox studies supports further development potential over the past three years, we have advanced several programs into the clinic and partners. Some of our early stage programs. We continue to see additional opportunities for value creation from our portfolio throughout licensing new ventures and <unk>.

Speaker Change: <unk> 2025 is poised to be an exciting year for Schrodinger, we expect broad pipeline progress and are very much looking forward to sharing phase one data from all three clinical programs throughout the year I'll now turn the call back to Rami. Thank you Karen as you heard we are off to a strong.

Speaker Change: Start in 2025, I'm optimistic about the rest of the year and look forward to updating you on our progress at this time, we'd be happy to take your questions.

Speaker Change: Questions as we come up on this data thank you.

Speaker Change: Okay.

Speaker Change: Operator can use to up the questions.

Speaker Change: Where we've been exploring.

Speaker Change: And initial five activity, we're excited is to present that and.

Speaker Change: Operator.

Speaker Change: Speaking of our somebody else's speaking, we can't hear anybody on our end.

Speaker Change: Yes.

Speaker Change: Yeah.

Operator, Janine will allow us to speak and we will read out the questions submitted to us but E mail.

Speaker Change: So getting a specific time guidance or range for next year I think that we're in very good shape and I don't see a significantly greater draw cash next year coming investment, we're making the expenses this year.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Perfect. Thank you.

Brendan Smith: [noise]. Your next question comes from the line of Brendan Smith T D. Cowen. Please go ahead.

Speaker Change: Yes.

Brendan Smith: Great. Thanks for taking the questions everyone and congrats on the quarter I did want to actually ask about the upcoming predictive talks model that you referenced a few times now so when you look at what Fda's initiating with the new animal testing guidance and kind of the broader implications there.

Speaker Change: Yes.

Brendan Smith: About potential points of differentiation for your offering versus maybe some of the other frequ.

Brendan Smith: Yeah, Yeah. We're we're obviously very excited about the fda's.

Speaker Change: Yes.

Brendan Smith: Of reducing animal testing.

Brendan Smith: Okay, great and and any thoughts on how you might price it relative to what you do today, yeah, we have not.

Brendan Smith: Not talked about pricing.

Brendan Smith: As we often do with solutions like this is first get feedback from customers on the level of accuracy on the impact and then we make determinations on the price after that as we said in our prepared.

Speaker Change: [noise] got it Okay makes sense. Thanks guys. Thanks. The next question comes from the line of Manny Foohor with lyric partners. Please go ahead.

Manny Foohor: Yeah. Thanks, taking the question congrats on another great quarter [noise], a couple of quick ones. Some of your competitors admittedly are more levered towards late stage elemental drug development have reported challenges customer dynamics, there's pointed to placema.

Manny Foohor: Making and some smaller players facing budget constraints hasn't shown through in your numbers could you elaborate a little bit on the trends you'd observe the year to date and how you'd compare these dynamics versus what you're seeing where you play and then I have a.

Manny Foohor: I think we're sort of level paying in terms of the customers that are growing as I'll see your customers as declining the new new customers are offsetting the customers, who who terminate their contracts and scaling back on their Rd, So I'd say well.

Manny Foohor: No just in response to all the issues that we're seeing right now but for their own reasons because of portfolio status of things. So we think that the level of spend on our software is small compared to the sale of their Rd budget.

Manny Foohor: I think they generally view this as necessary to have not nice to have and for those reasons. We are seeing that that pushback and that's consistent with the guidance that we maintain so hopefully that's helpful.

Speaker Change: That is and you have told me approximately 1100 times. The Schrodinger is not an AI company, but as a company that is native that natively uses a I.

Speaker Change: Obviously, we've seen you know a lot of concerns around incumbents industry being disrupted by a I fast followers et cetera, even 'cause it's largest Google slash slash Apple and today's news how do you think about threats that you might face from companies Native that are also native AI users and how do you think about threats to your base business or growth and what's and what metrics do you follow to make sure that you are defending yourself from these emerging threats, what's effectively yeah. Thanks for the question.

Speaker Change: So first of all of course, there's no evidence of any threat at the moment, where very well aware of what other people are working on.

Speaker Change: And I think the other thing that's really important to keep in mind is.

Speaker Change: That we have a very deep understanding of what the domain of applicability of a is whereas advantages are and what is limitations are and I think we address that very well.

Speaker Change: I developing well first of all remember we have we have.

Speaker Change: Tens of thousands of users of our software we have all these internal programs that we're working on so we have a really good understanding of what's required to advance programs and what's required to make accurate predictions. So I think our.

Speaker Change: Mainthesis that machine learning is only as powerful as the training set is is not something that's all of a sudden gonna change. That's a fundamental fact of machine learning whether it applies to chachi PT L. L M self driving cars imaging.

Speaker Change: Learning is only as powerful as the training sets and nobody can just sort of magically produce a training set that.

Speaker Change: L replace the kinds of predictions and the level of accuracy as possible with the physics based methods that we've been developing over the last 35 years. So I think the key is that deep understanding of the mental aspect of the technology.

Speaker Change: And making sure that we're always using the state of the art technology both in the in the in the physics, but also of course in machine learning AI.

Speaker Change: Thank God I'll I'll hop off I know, you've got a lot of other questions in the line. Thanks Ma'am.

Speaker Change: The next question comes from the line of E. Evan Segreman with B M O capital markets. Please go ahead.

Evan Segreman: Hi, guys. Thank you so much for taking my questions I want to follow up on some comments that you may Jack around your conversations with your farmer partners. Let me ask differently, you know what what could break there sentiment and maybe change their you know approach to investment in a platform like yours like what are they really looking for.

Evan Segreman: Early when you look kind of the FDA guidance on reducing animal testing can you just remind us what you guys have done in the space contribute to this goal. Thank you so much.

Evan Segreman: What our customers looking for we'll start there.

Evan Segreman: What they're looking for is impact is is the technology.

Evan Segreman: Allowing them to design better molecules with a higher success probability and that takes a little bit of time to determine that and it requires using the technology on a really large scale as we talked about many times so.

Evan Segreman: In order to scale up the usage, but in order to scale up your usage you need to be convinced that it's that's gonna have an impact. So what we're finding is of course, we succeeded in doing that quite a number of times, but what we're finding now is.

Evan Segreman: That's something new is happening, which is the company's that are taking a little bit longer than other companies are to to sort of break that cycle and and start using the technology to large scale are listening to those other companies. These companies now that are using the technology.

Evan Segreman: North impact are starting to talk about the impact of technology's, having more widely and we think that's going to start to have a a really big impact on transforming the industry and how how how.

Evan Segreman: That's just happening right now so I think the other question you asked was about predicting your talks but I don't remember.

Evan Segreman: Ah Okay, yes, because we did me yeah sure of course.

Evan Segreman: Yeah. We you know obviously the predictive talks initiative that we've been focusing on is going to have you know, we think a really dramatic impact on that and.

Evan Segreman: N N like I like we said you know we're already seeing a pretty big impact from that on our collaborative and proprietary programs, but there are many properties of molecules that dictate the success in pre clinical studies and animal studies.

Evan Segreman: And and we have many solutions in that area Biovalability oral biovaliability solubility permicacy by the way. So efficacy is has a big impact on therapy of window. So.

Evan Segreman: Something that.

Evan Segreman: Is going to have a really big impact on the success in preclinical and clinical studies in in the area of.

Evan Segreman: Predictive toss is som.

Evan Segreman: Iron channel that has disrupted preclinical and clinical trials quite a bit by momenting to it. So we already have solutions available for predicting selectivity against some of the really bad actors like like her.

Evan Segreman: Is a good example of course the predictive top project is meant to scale that one or two off targets that we already have to to hundreds. That's that's the goal of the project.

Speaker Change: The next question comes from the line of Michael Ricekin with Bank of America. Please go ahead.

Speaker Change: Hey, Thanks, guys and congrats on the quarter, a strong start to the year I want to follow up on one of the earlier questions that kind of touched on opportunity for incremental spend but I want to I want to phrase different I think that question was sort of in regards to.

Speaker Change: C. D C. Seven you know the the various programs that are already in the clinic, where you've got phase one readouts upcoming this year, but you've also got you know pretty healthy pipeline a lot of which you you haven't disclosed openly just talk about given T.

Speaker Change: The hundred 50 million you brought in from Navartis, you know thoughts on sort of broadening.

Speaker Change: Broadening that pipeline moving you know moving more programs sort of your ability to scale. Your your Rd expense into expand your your clinical assets.

Speaker Change: I don't foresee that investment having to step up materially.

Speaker Change: Research group has been very productive already and frankly between what we're advancing ourselves and overputting into collaborations I think we're getting a good deal from that but we're not sensing that we need to make that much larger so I think that we're as I said responsible.

Speaker Change: With a clinical programs and then also with that next wave of preclinical programs. So.

Speaker Change: Yes.

Speaker Change: For the next batch I think what I'll say with Super focused on the releases that will be making a clinical portfolio. This year the decision around what to do because next programs in oncology I think we will continue to avalate that and we'll provide you with updates.

Speaker Change: Already been funded to some degree through the next stages and we have a ready maze partner and those programs complete discovery and so obviously those will not necessarily be transparent because they're partnered already.

Speaker Change: And we will consider as they progress whether to art with them early on in discovery or whether to advance them. So I think yeah more accounts over time.

Speaker Change: Okay. That's all really helpful. And then for my follow up I I hate asking this question, but I still want to make sure I get it right. It's gonna be about the quarterly pacing through the year I know we've talked about this at nauseam, just sort of how we shouldn't worry too.

Speaker Change: The volatility both in software and drug discovery think about it on a more you know 12 month basis, but still one Q software came in a little bit better than the guide and then that we had expected once you drug discovery came in a little bit better Jeff I think I caught in your prepared remarks, saying that you.

Speaker Change: Okay for the rest of the year to be a little bit more even throughout the year. Two key 342, and then you got it to about 40 million at the mood point on software. So just you know in terms of where how those quarters fall versus how they may have looked three months ago. This.

Speaker Change: I mean is this just the usual some of the noise and unpredictability or is there any significant change in how we should think about quarterly pacing timing yeah. No. Good question I understand.

Speaker Change: We still think that the majority of the remaining revenue for the year will come in the fourth quarter, but if I was looking ahead I'd be saying that maybe there was a.

Speaker Change: Still and then recognizes.

Speaker Change: Okay very helpful. Thanks, a lot.

Speaker Change: The next question comes from the line of Scott Schoenhaus with Keybanc. Please go ahead, hey team. Thanks for taking my question I guess, the really a follow up Jeff on that last question that you noted the a large customer push forward new.

Speaker Change: Fourth quarter can you maybe give us color on why they just that customer decided to do that and then is the second part of that was that contract or newell shifted to a hosted versus on prem. Thanks.

Speaker Change: Yeah no. Good question. So the that particular contract had multiple elements to it and most of the real occurred in the fourth quarter and then there was a part of that contract that was stood up and reviewed in the first quarter.

Speaker Change: Principally to what extremely portion of the growth in the on Framps revenue in Q1 compared to the five year and then separately discovery side of course, there was a significant step up as we started.

Speaker Change: Once we get.

Speaker Change: Thanks, and then a following up on just the phasing app potential phasing out animal testing are you seeing more demand or inbounds from interest in parties clients broad based is it more product even.

Speaker Change: Antibody first kind of direction here or is it is it broad based in in large pharma also coming to you guys. Just curious about sort of how broad based that demand is thanks.

Speaker Change: And a solution like the one that we're building and I think there's exciting because of course, they're hearing that we've enabled already 50 targets and that the beta is coming out soon so that has drummed up interest I think you're asking something else, though an additional.

Speaker Change: Somehow increased interest in antibodies is that what you're not asking that okay. Good just predictive time go ahead, John No I was just seeing if the man if yeah, yeah, what I, what I said answered your question right.

Speaker Change: Yeah.

Speaker Change: Well I was wondering if it was more if if he was more pronounced by tear of your clients. Like is it is is it broad based or is it more are you seeing more demand than one specific faction of your client base, Yeah, I think it I'm not sure I would call it demand.

Speaker Change: Significant interest in the solution from biotech companies I think the pharma companies were already so deeply engaged in those discussions we've already been talking to them for quite a while actually about this so nothing has changed we've been talking to them about it since last year actually.

Speaker Change: Was actually announced.

Speaker Change: Got it thanks Yep.

Speaker Change: Your next question comes from the line of Ikram Furrohid with Morgan Stanley. Please go ahead.

Ikram Furrohid: Hi, good afternoon, thanks for taking our questions. We had two the first on the small one day expected in the next couple of months here understood that it's regarding to the it being bit of an early read but what sort of read through do you think is fair to here.

Ikram Furrohid: On visit development and partnerships outside of your currently internal oncology programs. What is your appetite towards B D. Broadly throughout the year end are there specific therapeutic areas that you would find more interesting than others. Thanks.

Ikram Furrohid: So first of all on the clinical update we are sharing initial data you point out monotherapy dose escalation study a something that sees the S. G. R. 15 advice, we will be sharing as we said earlier a safety P K and PG we.

Ikram Furrohid: Let's just try back.

Ikram Furrohid: But it is that I'll be it is across multiple dose levels multiple different temor types and so it is just that initial read but we are excited to share. The update now your second part question with respect to how this reads through potentially to the other studies.

Ikram Furrohid:

Speaker Change: With respect to B D. I mean, I think we say, it's often but it's correct that we are constantly in conversation because of the nature of shoddy now obviously, having a platform that is embedded so broadly across the industry, we constantly with other companies.

Speaker Change: I mean, I think I've said in the past that new Ro is a tough space with respect to translation because there aren't great benchmarks in the clinic or on the approved landscape and we like to do those types of targets in particular.

Speaker Change: Fair enough. Thank you appreciate your taking the questions.

Speaker Change: Once again, if you are zyalden and would like to ask a question. Please press are followed by the number one on your telephone keypad.

Speaker Change: Next question comes from the line of David Bebowitz with CD. Please go ahead.

Speaker Change: Hi, there this is icli on for day the Levelwoods. Thanks for taking our question two for us.

Speaker Change: One your gross margins on the software side have come down slightly from years ago used to be in the low Eighty's now we're looking at guiding for mid seventies in the short term into long term as you're looking to add on these additional products you know the pre the pre.

Speaker Change: Toxicology product and other software products in the future. What do you expect gross margins will be on the software side and then two with regards to the FDA guidance on shifting attention away from animal testing other than theoretical benefit.

Speaker Change: Your company and the programs you've had have you had any conversations with regulators before or after the announcement as to what that actually means for a different business segments you might be thinking about thank you.

Speaker Change: Alright, I'll I'll jump in on on the gross margin question, we think that our gross margin should revert to that prior range. After we have completed the gates funded prega.

Speaker Change: So and then we have a longer term I would expect the gross margin to be similar to the range that you mentioned or perhaps slightly better time I think is the scale of our software deployments go up and also.

I'll take that one.

Like that's just tied back to the healthy volunteer study.

The results, we saw that analysis that patients, but it is an early lead it is across multiple dose levels much different tumor types.

Speaker Change: Yep and with regard to speaking with the FDA, absolutely just very simply we are cor.

It is just that initial need but we are excited to share. The update now your second question with respect to how this read through potentially to stay out of a study I will say that almost half best R&D. Therefore, it is a bit more thoughtful in the office well what we are proposing.

Speaker Change: And it seems that there are no further questions. At this time that concludes today's question and answer session. In today's conference call. You May now disconnect your lines at this time.

To share across all three of these programs is really just the initial profiles of these compounds.

But nobody's more advanced.

We've obviously makes it a bit more data there and so that will be the first one would be sure and then later this year, we'll have the opportunity to share an update on I would say just a preliminary again PK PD safety and we will determine whether there is additional information that will be able to share about this molecule.

Of these three assets often different indications so ah well.

Well see D C seven of Montblanc, both hemo, they all have different affecting so AML classes b cell malignancy. So it's very difficult to compare and contrast that but I think that we feel these molecules are performing well and that will give people a sense of the original.

The goals of the program, how we use the platform and so that will be something that will be something we can comment on as we go through to get here with respect to BD I mean, I think we say this often but it's correct that we are constantly in conversation because of the knee.

And obviously, having a platform that is embedded so broadly across the industry with constant conversation with all of the company that.

That is across disease areas I think he will elaborate we have programs across many disease areas.

Including immunology and our wholly owned pipeline.

We are partnering across disease, there is a historic day.

The deals that we've done.

I mean, I think I've said in the past the new rose a tough space with respect to translation.

Their ops right benchmark index.

Any of the clinical and the approved landscape as we like to do those types of a target or a topic of particular collaboration but that doesn't restrict us from o'clock, reaching a whole different therapeutic areas.

Fair enough. Thank you I appreciate you taking the questions.

Speaker Change: Once again, if you have dialed in and would like to ask the question. Please press star followed by the number one hundreds on the food to keep at it.

Speaker Change: The next question comes from the line of David Lebowitz with Citi. Please go ahead.

Speaker Change: Hi, there this is likely on for David Lebowitz, Thanks for taking our question.

Speaker Change: Two for us.

Speaker Change: One that your gross margins on the software side have come down slightly from years ago used to be in the low <unk> now we're looking at guiding for mid Seventy's in the short term ended long term measure looking to add on these additional products you know the pre.

Speaker Change: You mentioned the toxicology products in other software products in the future. What do you expect gross margins will be on the software side and then two with regards to the FDA guidance on shifting attention away from animal testing other than a theoretical benefit to your company.

Speaker Change: The programs you've had have you had any conversations with regulators before or after the announcement.

Speaker Change: As to what that actually means for different business segments, you might be thinking about thank you.

Speaker Change: Alright, I'll jump in on the gross margin question.

Speaker Change: Think that gross margin should revert to that prior range. After we have completed the gates funded predictor talks project.

Speaker Change: We had signaled.

Speaker Change: The revenue contribution.

Speaker Change: Contribution was starting to negatively affect gross margin for the period.

Speaker Change: Recognizing that revenue funding that project.

Speaker Change: Currently we are expecting that should be mostly completed by the middle of next year unless of course it does.

Speaker Change: <unk> spending for some reason, which would be fine too.

Speaker Change: So and then.

Speaker Change: Longer term.

Speaker Change: I would expect gross margin to be similar to the range that you mentioned or perhaps slightly better.

Speaker Change: Over time as teachers the scale of our software deployments go up.

Ronny: And also some of the royalties stop away a little bit.

Ronny: We could see.

Ronny: Slot.

Ronny: Multiple percentage points, but a slight increase in our gross margin performance.

Ronny: And with regard to speaking with the FDA absolutely just very simply we are of course engaged with them at multiple levels and we fully expect to continue to increase that engagement as our predictive talk solution.

Ronny: Essentially comes online.

Ronny: Yeah.

Speaker Change: And it seems that there are no further questions at this time that could cause today's question and answer session. In today's conference call. You May now disconnect your lines at this time.

Ronny: No chance to do it.

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