Q2 2025 Schrödinger Inc Earnings Call
Thank you for standing by.
Welcome to Schrodinger's conference. Call to review, second quarter 2025 Financial results. My name is Rob and I'll be your operator for today's call all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press star 1, please be advised, that this call is being recorded at the company's request. Now, I would like to introduce your host for today's conference Miss jarn Madden, Chief corporate Affairs, officer and head of investor relations. Please go ahead.
Thank you and good afternoon everyone. Welcome to today's call during which we will provide an update on the company and review, our second quarter 2025 Financial results. Earlier today, we issue the press release summarizing our financial results and progress the company, which is available on our website at Schrodinger. Calm here with me on our call today are Ramey. Fared chief executive officer, Richie, Jane Chief Financial Officer and Karen.
Not in Sia, president head of Therapeutics R&D and chief strategy officer Partnerships following our prepared. Remarks will open the call for Q&A. During today's call management will make statements that are forward-looking and met pursuant to the safe harbor, provisions of the private Securities. Litigation Reform Act of 1995 including without limitation statements related to our financial outlook for the full year, 2025 and third quarter, 20
25, our plans to accelerate the growth of our software business and Advance our collaborative and proprietary drug Discovery programs, the timing of initiation of and readouts from our clinical trials, the clinical potential and properties of our compounds. The use of our cash resources as well as our future expenses. These forward-looking statements represent our current views and reflect 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 the number of important factors, including the considerations described in the risk factor section and elsewhere. In the filings. We make with the SEC, including our form, 10 Q for the quarter ended June 30 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 or
<unk> and should be considered only in addition to and not a substitute for or superior to GAAP measures. 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.
Thanks, Sharon and thank you everyone for joining US today, we've made very solid progress in the first half of 2025 total revenue was $54 8 million in the second quarter, a 16% increase from the second quarter of 2024.
Software revenue was $40 5 million, representing 15% year over year growth drug discovery revenue was $14 2 million highlighting the progress and growth of our collaborative portfolio.
While the macroeconomic environment has been highly uncertain, we continue to see demand of our software platform driven by the industry's need for a validated computational approaches that are critical for innovation and efficient R&D. We believe we are uniquely positioned at the forefront of the ongoing transformation of integrating predicted.
Methods into all stages of molecular discovery.
We are maintaining our full year software revenue growth guidance, reflecting the productive conversations we're having with our software customers around renewals and scale ups in the second half of the year as you will hear from Karin we continue to make progress across our pipeline and recently presented encouraging phase one data from STR 15 O.
Our proprietary <unk> inhibitor, the emerging profile of STR 15 O five shows best in class potential and we are exploring strategic opportunities to accelerate clinical development and maximize the potential of this program. We expect to report initial phase one data from our other two clinical programs STR <unk>.
921, and STR at $35 15 in the fourth quarter, we are continuing to make significant improvements to the performance and usability of our software platform and continue to add streamlined workflows to enhance the user experience and make our software more accessible to scientists without a computational chemistry background.
We are also advancing our predictive toxicology initiative in support of the Fda's efforts to modernize drug discovery through its new alternative methods program to reduce reliance on animal models, including through the development and deployment of predictive computational models to this end. We recently released the beta version of a virtual kind.
<unk> panel to prospectively identify potential liabilities for an initial set of approximately 50 representative kinases are platform. Now also supports prediction of binding to the known off targets heard T. XR and three common sips, we expect to expand the number of supported <unk>.
If targets as we continue to advance the technology overall, we have made considerable progress during the quarter and we are excited about the opportunities ahead I want to thank our employees, who are critical to achieving our goals for their hard work and dedication I will now turn the call over to Ritchie Jane who was appointed Chief Financial Officer in May.
Richie has made significant contributions during his tenure at schrodinger, including working across the company to pursue strategic initiatives and secure and expand strategic collaborations and I'm very pleased to have him on the call today Ritchie. Thank.
Thank you Rami and good afternoon, everyone I'm happy to join my first earnings call as shown here CFO.
I'll leave the industry is navigating a complex macroeconomic landscape, including regulatory and tariff uncertainties challenging capital markets and drug pricing pressures such as most favored nation provisions.
Notwithstanding this backdrop, we are very pleased to deliver strong results for the second quarter of 2025.
Total revenue for the quarter was $54 8 million, an increase of 16% compared to Q2 2024. The increase was driven by both higher software and drug discovery revenue.
Software revenue was $40 5 million, an increase of 15% compared to Q2 2024 and in line with our expectations for the quarter the.
The increase was primarily driven by higher revenue from hosted contracts and contribution revenue from the Gates Foundation grant related to our predictive toxicology initiative.
Revenue from on Prem contracts was slightly lower year over year, primarily due to the timing and size of renewals.
Consistent with prior periods, our growth primarily reflects increasing utilization and adoption at existing accounts with minimal contribution from new customers given the persistent biotech environment challenges.
Drug discovery revenue was $14 2 million, an increase of 19% compared to Q2 2020 for the.
The increase reflects continued recognition of the $150 million upfront payment from the Novartis collaboration that began in late 2024 and execution across the collaboration portfolio that we continue to expand.
Software gross margin was 68% compared to 80% in Q2 of 2020 for this lower margin reflects the change in revenue mix and an investment associated with the predictive toxicology initiative, which began in the third quarter of 2024.
R&D expenses were $43 1 million in Q2, 2025, a greater than 15% decrease from the $58 million in Q2 of 2024.
This decrease was primarily due to the continued shift in expenses from the predictive toxicology initiatives into software cost of goods sold from proprietary R&D programs into collaborations and lower cero in FTE spend following the 30 million expense reduction initiatives announced in May sales.
And marketing expense was $10 7 million an increase of approximately 11% primarily due to higher FTE expenses G&A increased by 7% to $25 2 million driven by higher professional services.
Total operating expenses were $79 million in the quarter, a decrease of 6% compared to Q2 2024, largely due to lower R&D expenses.
Total other income was a gain of $10 million compared to a loss of $1 2 million in Q2 last year due to mark to market changes in our equity investments taxes were minimal resulting in a net loss of 43 million or <unk> 59 per share versus a net loss of $54 million or 74 per diluted share.
<unk> in Q2 2020 for.
The fully diluted share count for Q2 was $73 4 million compared to $72 7 million in Q2 2024.
We remain well capitalized with $462 million in cash and equivalents as of June 30th.
We are maintaining our software in drug discovery revenue guidance for the year of software revenue growth of 10% to 15% and drug discovery revenue of $45 million to $50 million. We continue to have encouraging discussions with customers about scale ups at renewal most of whats take place in the fourth quarter.
Shifting to operating expenses, we now expect them to be lower in 2025, then in 2024 driven.
Driven primarily by our $30 million expense reduction initiative that we announced in May.
Cash used in operating activities in 2025 is still expected to be significantly lower than in 2024.
For the third quarter, we expect software revenue to be in the range of $36 million to $40 million. We continue to expect the balance of drug discovery revenue to be approximately evenly distributed through the third and fourth quarters with that I'll turn the call over to Karen to discuss our therapeutics R&D and pipeline updates. Thank you Rick.
G and good afternoon, everyone. We achieved strong pipeline progress during the quarter reporting our first clinical data and advancing our portfolio of collaborative and proprietary programs.
Our platform empowers, our scientists to discover differentiated molecules with remarkable efficiency to date 15 development candidates from our collaborative and proprietary portfolio have entered phase one clinical development six of these are advanced to phase two and one is currently in phase III. These programs <unk>.
Present distinct value creation opportunities for schrodinger offering the potential for additional future milestones royalties and cash distributions from equity.
Turning now to our proprietary pipeline I'll begin with SGI 15 O five Alamo one inhibitor. The presentation of initial phase one clinical data was an important milestone for the program and our conversations with Ehealth and ICM out reaffirmed our belief that Mt. One inhibition represents a promising novel.
Patrick strategy in the hematology armamentarium beyond PTK Bcl, two and standard of care agents. The initial phase one dose escalation data were highly encouraging showing a well tolerated profile with clear monotherapy signals and heavily pre treated chronic lymphocytic leukemia, where three.
Of 17 patients responded and in Weldon's drums macro global anemia, where all five patients responded importantly, two of the three CLO responders with double exposed to Beachy can bcl two inhibitors and all five walgreens from patients with loss treated with a beachy can habitat providing early.
Evidence supporting an opportunity for S. J F 15 O five in patients with refractory disease.
The FDA fast track designation for STL 15 O five for the treatment of adult patients with relapsed refractory Wm.
Have failed at least two lines of therapy, including a beachy can habitat also reflects the medical need.
The emerging best in class profile of STL, 15, O five and preliminary activity in indolent and aggressive lymphoma solidifies our conviction in the potential of Mt. One inhibition is a well tolerated oral approach to treat patients with limited options.
The strength of the early development package, including current PK PD safety and efficacy data supports our plans to align with the FDA on the recommended phase two dose.
To ensure S. J F 15 F. Five receives the dedicated focus and resources required to pursue mid and late stage development. We are exploring a range of strategic opportunities for this program rather than initiating these studies independently in the meantime, we expect to provide an update on the <unk>.
<unk> dose escalation study translational data and feedback from the regulatory interactions later this year.
We are also advancing phase one dose escalation studies for S. J 029 to one our C. D C. Seven inhibitor and S. G. F 35, 15 hour. We won one co inhibitor, we expect to share initial phase one data from both programs in the fourth quarter of 2025 S. J O 291 is.
Evaluated in patients with acute myeloid leukemia, and Myelodysplastic syndrome, while S. G. F. 35, 15 is being evaluated in patients with advanced solid tumors predicted to be sensitive to we won one inhibition, including ovarian and uterine and breast cancer. In addition to other solid tumors.
The primary goal of both studies is to evaluate the safety tolerability and preliminary clinical activity.
Both studies are progressing with multiple dose escalation steps completed.
Turning to our advancing portfolio of discovery stage assets in the fourth quarter of 2024, we licensed an undisclosed early stage program to Novartis, which continues to advance along with other joint discovery programs.
Earlier this year, we expanded our collaborations with Lilly and Otsuka, and we recently announced the expansion of our relationship with Ajax Therapeutics a company we co founded.
The expansion builds on our joint success with a J 111, 095, which is in phase one for myelofibrosis and adds another JAK family target for ultra immune and inflammatory disease to the collaboration.
We also recently established a collaboration with the Nova Nordisk Foundation Center for basic metabolic research at the University of Copenhagen.
We have a strong track record for delivering differentiated clinic ready molecules, which underpins the growing number of new collaboration programs across a range of therapeutic areas and target classes working on high potential targets.
In summary, we are pleased with the progress we have made this quarter and expect continued advancement in our proprietary and collaboration pipelines over the remainder of 2025, we look forward to updating you on our progress I'll now turn the call back to Rami. Thank you Karen we are pleased with the advancements we've made.
Across all aspects of our business, we have reported very promising data for STR of 15 O five and are exploring strategic opportunities to expand and accelerate clinical development for this potentially best in class molecule. We expect to report data from our other two clinical programs S. G. R 29, 21, and STR 35, 15 in the fourth quarter, we can.
You need to invest in our platform to strengthen our leading position in computation of molecular discovery and we are encouraged by the tenor of conversations we are having with customers collaborators and partners. We look forward to updating you on our progress in the coming months at this time, we are happy to take your questions.
Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad you raise your hand to join the queue. If you would like to withdraw your question simply press Star one again.
Our first question comes from the line of Evan <unk> from BMO capital markets. Your line is open.
Hi, guys. Thank you so much for taking my question two for me. One you know as you think about kind of your conversations with your customers how has the tone and tenor change with regard to investments kind of in your platform I don't know if at all.
A question on a prior quarter Justine, how that's changed and secondarily as you think about outlet.
Why did you decide to out license the product either.
Our development program.
Early phase two trial. Thank you so much.
I think we picked up on that it's a little hard to you, but I think we got it yes as far as the tenor of the discussions with customers. It's a good question because.
Course theirs.
Concerned about sort of macroeconomic conditions and what we can tell you right now is that the discussions are quite positive.
There is a clear and demand for.
Advanced technology predictive technologies.
And so far we're really pleased with the discussions.
And if I heard you correctly oven.
Question I think it was about the potential out license.
Phase one program at this stage.
Yes.
Alright, thank you.
Yes, we are we have been discussing this program with partners for.
A very long time, obviously, it's really important that we align with companies around the strategy.
Now the development phase.
With respect to 15 or by <unk>.
We believe that this.
Is best developed in banks in late stage development or by a partner he has expertise and.
Nationalization and hematology.
And that includes the opportunity to expand into different indications.
We think the partnership as we've said in the call is probably the best approach to accelerate the program and realize the full potential.
Great. Thank you so much.
Your next question comes from the line of Scott <unk> from Keybanc capital markets. Your line is open.
Hey team. Thanks for taking my question. It seems like your model is resilient on the software side despite the macro.
Uncertainties and what's going on.
Regulatory wise, but.
My question I guess is on the back half setup and the demand that you're currently seeing.
Now by cohort is it you know is it pretty consistent with what you thought 90 days ago across you know from large pharma all the way down to biotech has things changed and then you mentioned in your prepared remarks about encouraging discussions on renewal season in fourth quarter. Just wanted more color they are making on the cohort of clients.
Our renewal.
That Ritchie.
Thanks for your call I think.
Demand for our technology remains strong.
Delivering deliver proven value lower cost for our customers and drives efficiency.
If you break that down by cohort, we continue to have really good conversations with our customers about the renewal of the potential for scale ups. Most of those as you know did take place in the fourth quarter.
The biotech segment of the market has been more challenging for us that's not anything new we've seen that the last couple of quarters.
I think some of the macroeconomic landscape has impacted that cohort more than the others.
Within pharma.
Obviously, a lot of uncertainty between.
Policy and tariffs and drug pricing, we're obviously monitoring all of that very carefully.
But the conversations continue to be constructive.
Heading into year end around some of the big renewals that were expecting.
Great. Thanks, and as my follow up more of a housekeeping question, but you mentioned that the quarter I think Joe on inbound travel was down year over year.
And that implies that your cloud is now is probably a bigger percentage just kind of housekeeping on about where we stand.
On the cloud versus on premise percentage will be.
Software revenue book Thanks.
Yeah, I think on Prem being lower year over year. This was really due to some of the deals we signed last year in Q2 that were just multiple year deals. So the comparison year over year looks lower there Buddy.
In this quarter, we had strong growth in wholesale revenue.
We are continuing to grow those relationships with our existing customers. So these are things that you'll see quarter over quarter bounce around but overall, we're happy with.
The trend.
Increased growth across both wholesale and our direct revenue.
Great. Thanks.
Yeah.
Your next question comes from the line of Manny <unk> from Leerink Partners. Your line is open.
Hi, Good afternoon. This is mainly Newfangle oncor Mani Thank you for taking our question.
On the software side of thing can you just have to question. There can you give us a little bit.
How the predictive talk feature.
How much reduction you've seen there and how much growth you expect from it in the mid to short term and then secondly, you mentioned that most of them most of the growth on the software side come from existing customers like wondering if you could quantify that how much more room is there for increased usage among the average customer.
Yeah.
So with regard to predictive Tox as we said, we're very pleased that we.
Had the beta release.
Which was pretty pretty recent we have users now.
And it's very clear that there's a lot of excitement around this technology is by demand for it. We're of course very pleased to see the FDA sort of interesting.
That the industry develop a predictive technologies too.
Yes, Ted to lower the or reduce the use of animal models.
So that's progressing well get the feedback that's how beta releases work and.
And look forward to reacting to that to that feedback.
The second question I think was I think about just the growth within existing customers I think there's a lot of excitement about computational discovery.
Central to that theme and there's a lot of excitement about the solutions that we're developing.
This has been a focus of ours is growing within existing customers, we continue to see.
Kind of different levels of adoption within our within our largest customers and our focus is to.
ROE customers from our smaller and medium tiers into the larger tiers.
Thank you.
Your next question comes from the line of David Lebowitz from Citi. Your line is open.
Hi, guys. Thank you for taking our question. This is Lee on for David Lebowitz.
Have one regarding your predictive toxicology solution. There is a few parts to this so wondering how many clients overall have access to the beta version.
How do you think about pricing those products in relation to your currently existing software as a bundled as their discounts on what are the setup like and then you mentioned getting feedback from the beta version of our goes what's the timeline for doing that and potentially rolling out the full version as well. Thank you.
Yes, thanks for the questions with regard to how many clients.
That's really not something that we disclose what.
What we can tell you, though and we said this before is there.
All of our collaborators have access to the technology through the collaboration so we've been using it internally and.
As we've said before we can share with you that it's having an impact.
Worse.
There's still a lot of work to be done.
Expand the.
Number of targets that are supported.
But.
Yes, so so I'm sorry.
Talking about.
The number of clients now with regard to pricing what we can tell you.
Without obviously getting into the details is that it will be separately price. This is not this is an add on module. It would not be it won't just be that customers will automatically get access to it.
I think there was a third question about that.
The payback on the beta testing and feedback on the base. If there is feedback is that what the yes.
No no not yet other than what I, just mentioned earlier about the feedbacks order from collaborators, but it is a little.
Early for that.
It was really released Barry Reece.
Innovative one got it.
The last part was mostly about the timeline.
Im line forgetting the feedback in rolling out this fall.
Especially as it pertains to the gross margins, you're saying your gross margins are being impacted by the spend right. So just wondering.
How long should we look for those gross margins to remain depressed because of that.
Yes separate concepts here, yes, so with regard to beta feedback really well.
We don't know that's that'll happen on the pace that that had happened now with regard to the margins of that is tied really to the grant and the time period of the grants Omega Ritchie.
As we said before I think the.
Congrats on the J.
Our efforts around predictive toxicology that are related to the data.
Gates Grant.
Those expenses are realized within cost of goods sold.
The timing of that grant.
In Q3 of last year on is roughly about two years. So you can you can model that out on the gross margin impact from that.
Correct.
Got it thank you.
Yes.
Your next question comes from a line of Michael Riskin from Bank of America. Your line is open.
Great. Thanks for taking my question guys I wanted to go back a little bit to your.
Announcement from May wait to mid May the restructuring the headcount reductions just kind of thinking of that in context of the quarter. You. Just reported you are having steady results you reiterated the.
All the coupon for the full year guide it sounds like you're more resilient on the pharma customer front than a lot of your peers and at a level. We expect just put the headcount reduction in that context of you've got a strong balance sheet, you don't really need to implement cost savings to save cash. So just what's the the walk us through the rationale and the thought process there.
Yeah.
Try and take a crack at that and then I'll hand, it over to Richie if there's something more to add.
As we said when we announced this.
This debt.
The productive reduction ores.
Did it have.
It wasn't focused on a particular project.
It's sort of across the board and it didn't have an impact on our sort of strategic initiatives and strategic direction and we said this at the time two we felt that we had.
After the red.
The right team to deliver on the software growth to advance.
The.
Software in the platform and to advance the collaborative and proprietary programs. So.
I think I might be answering your question, but if.
Richard you want to add I'll, just add I think we've been really disciplined on cost management, you are starting to see the impact of.
Those expense reductions in Europe.
Financials that we just reported and some of the reductions in operating expenses in R&D.
It's also one of the main drivers behind the change in guidance for 2025, and reducing your expectation and operating expenses to be lower than 2021.
Okay and for my follow up just real quick I apologize if I missed this in the prepared remarks.
Further for SCR 29, 21% and $35 15, the CDC seven and we won that one.
I think previously you were talking about second half 'twenty five for initial data announced <unk> I know it's not.
Per say, a delay, but it feels a little bit of delays I'm just wondering.
Anything anything specific going on there I know there's been a lot of concerns on.
FDA ability to process data or if theres anything going on from the regulator front just could you talk about the refinement of the timeline there.
Yeah. Thanks, Mike.
These are ongoing phase one dose escalation studies, where as you may recall with collecting safety PK PD and efficacy data.
He needs to progress.
We just provide a little bit more clarity that we expect now based on where we are collection of data now for that to be shared with them.
Chad in the fourth quarter really because of where we are in the development of these based on trial, while we are obviously guiding.
During two discussions with the FDA on S. G often five inches are completed.
The dose escalation studies, we're not in that position yet to all these other two programs.
Nothing about the SG&A.
And I think is impacting 290 <unk> at this time.
Okay. Thanks, I'll leave it there.
Yeah.
Your next question comes from the line of Sean Lehmann from Morgan Stanley. Your line is open.
Good afternoon hope everyone's well thanks for taking my question.
On the proprietary pipeline. So is there a bit more granularity what kind of data you are going to present in in <unk> and <unk>.
Can we expect at some point that these molecules might go the same way as the program for $15 five and Youre going to look for strategic partners all strategic opportunities on those two programs.
Yeah. So just in a way that some sort of think about where we were in may once we've finished the dose escalation study.
Five we provided a comprehensive update on the results that we had from that trial.
Those two programs to enhance your blog that slide 15.
Behind <unk> bye.
And so we're still assessing the extent to which we will be able to share complete data, but we do plan on providing an update on the data that we've collected so far by the net debt.
Yeah.
And as we just said on the previous question.
Please.
<unk> safety.
J D.
Really very preliminary data around clinical activity.
The second part of your question was about the strategic opportunities that we're pursuing.
<unk> five.
511.
Something that will evolve.
Assuming all 79 to 1035.
Let me take the opportunity just to say that we are looking at a range of transactions and collaboration arrangements.
And so that's not a number of different approaches.
But I will just reiterate that we've been consistent I think since the initiation of this program.
The combination opportunity with financial Glaxo with standard of care agents.
All three of these programs, we believe our best accelerated further.
The make generic stage development.
King with partners and so I think we still have that view.
Obviously, we need to look at all the data, but I think that consistency that we aim to work with other companies.
Around.
The development of these assets.
Great. Thank you and a quick follow up if I may just the expanded <unk>.
<unk> with <unk>.
The impact future milestones and revenue if you can say.
Yes sure.
Thanks for the question I think.
We're going to as well.
These collaborations as we execute against that is recognized as revenue so there'll be some impact of that into our discovery revenue the impact of that in 2025 is very modest.
Over time, there will be milestones in this program that we've added there is also the opportunity for later stage commercial milestones royalties, but those are all further out in time.
Hmm.
Our next question comes from the line of Matt Hewitt from Craig Hallum. Your line is open.
Hello, Thanks for taking the question. This is telephone for Matt. So are you guys still seeing when you call that last quarter's level pegging with customers where.
Some customers will increase spending and others will decrease kind of just netting it all out.
Yes.
<unk>.
Very unusual for a customer to decrease spend.
To be clear.
We generally see increases of different amounts.
But very very very rare for there to be a decrease.
And we have a 100% retention rate.
Customers ready then.
Yeah.
Yeah.
Okay.
Alright, thank you.
Again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Brendan Smith from TD Cowen Your line is open.
Great. Thanks for taking my questions and congrats on the quarter I actually wanted to ask just a follow up on the predictive tuck conversation from earlier and really in the context of the push on animal testing.
Sorry, if I missed it but have you all been in touch with the agency at all about.
Their proposed pilot study that Theyre looking to initiate and just kind of comparing some of the competition of modeling approaches with actual animal testing data I'm. Just wondering if that's something you all could or would be involved with and maybe with kind of the potential timing for any of that might look like.
Yes.
The intention of course is to engage with the FDA at the appropriate time when the technology is in the state where we can get with that.
Appropriate.
And.
We have had I.
I would say sort of informal discussions is probably the way to say it right.
And they are aware of the work that we're doing.
But.
It's premature of course to talk about.
<unk> adopting the technology, obviously until maybe after the <unk>.
After we get feedback from for example from beta testers.
Yes.
Yes, Okay got it fair enough thanks, guys.
And I'm showing no further questions in queue that concludes today's call you may now disconnect.