8-K: Schrödinger Reports Strong Q4 and Full-Year 2024 Results, Expects Continued Software Revenue Growth in 2025

Schrödinger announces positive Q4 and full-year 2024 financial results, highlighted by a 13.3% increase in software revenue for the year, and anticipates further growth in 2025, along with an expanded research collaboration with Eli Lilly.

Summary

• Schrödinger reported a 19.1% increase in total revenue for the fourth quarter of 2024, reaching $88.3 million.
• Software revenue for Q4 2024 increased by 16.0% to $79.7 million, driven by hosted revenue from large customers and new multi-year agreements.
• Drug discovery revenue for Q4 2024 was $8.7 million, up from $5.5 million in Q4 2023, due to milestone recognition.
• For the full year 2024, total revenue decreased by 4.2% to $207.5 million, compared to $216.7 million in 2023.
• However, software revenue for the full year increased by 13.3% to $180.4 million.
• Drug discovery revenue for the full year was $27.2 million, a decrease from $57.5 million in 2023, which included a $25 million milestone from BMS.
• The company expects software revenue growth of 10% to 15% in 2025 and drug discovery revenue between $45 million and $50 million.
• Schrödinger had approximately $367.5 million in cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2024.
• In January 2025, the company received a $150 million upfront payment from Novartis for a drug discovery collaboration.
• The company is progressing with clinical studies for its proprietary pipeline, with initial Phase 1 data expected in 2025.

Sentiment

Score: 7

Explanation: The sentiment is positive due to strong software revenue growth, expanding collaborations, and promising clinical trial progress, despite the overall net loss for the year.

Positives

• Software revenue growth exceeded expectations in 2024.
• Drug discovery collaboration portfolio is expanding with new agreements with Novartis and expanded collaborations with Otsuka and Lilly.
• The company expects to report initial clinical data from its three lead proprietary programs this year.
• Total annual contract value (ACV) increased 23.7% to $190.8 million.
• Customer retention rate among customers with an ACV of at least $500,000 was 100%.

Negatives

• Total revenue for the full year 2024 decreased by 4.2% compared to 2023.
• Drug discovery revenue for the full year decreased significantly due to the absence of a large milestone payment like the one from BMS in 2023.
• Net loss for the full year was $187.1 million, compared to a net income of $40.7 million in 2023.
• Software gross margin decreased to 83% for the fourth quarter, compared to 87% in the fourth quarter of 2023, primarily reflecting higher cost of revenue associated with the predictive toxicology initiative.

Risks

• The company's future performance is subject to uncertainties inherent in drug development and commercialization.
• Reliance on third-party providers of cloud-based infrastructure could pose a risk.
• Fluctuations in the value of the U.S. dollar and foreign currencies could impact financial results.
• The company's reliance on third-party drug discovery collaborators could affect its revenue streams.
• The company's ability to retain and hire key personnel could impact its operations.

Future Outlook

Schrödinger expects software revenue growth of 10% to 15% and drug discovery revenue of $45 million to $50 million in 2025. Software gross margin is expected to range from 74% to 75%. Operating expense growth in 2025 is expected to be less than 5%. Cash used for operating activities in 2025 is expected to be significantly lower than cash used for operating activities in 2024.

Management Comments

• We are delighted with Schrdingers excellent financial performance in 2024.
• Software revenue growth exceeded our expectations, showing the resilience of our business through changing industry cycles and the impact of large contract renewals.
• Our drug discovery collaboration portfolio is expanding, driven by our new agreement with Novartis and expanded collaborations with Otsuka and Lilly, and we expect to report initial clinical data from our three lead proprietary programs this year.
• We continue to see increasing momentum and conviction around our validated computational methods and are committed to remaining scientific leaders in this area.
• With our platform, our collaborations, our programs, and our strong financial position, we believe we are well positioned to deliver across all facets of our business in 2025 and beyond.

Industry Context

Schrödinger's focus on computational methods for drug discovery aligns with the growing trend of leveraging AI and machine learning in the pharmaceutical industry. The expanded collaborations with major pharmaceutical companies like Eli Lilly, Novartis and Otsuka highlight the increasing value placed on computational platforms in accelerating drug development.

Comparison to Industry Standards

• Schrödinger's software revenue growth of 13.3% is a solid performance in the competitive computational drug discovery market.
• Companies like Dassault Systèmes (BIOVIA) and Certara are also key players in this space, but their specific growth rates for comparable software offerings are not always directly disclosed.
• Schrödinger's 100% customer retention rate for high-value clients (ACV >= $500,000) is a strong indicator of customer satisfaction and the value proposition of its platform, exceeding industry averages.
• The $150 million upfront payment from Novartis is a significant deal, reflecting the high value placed on Schrödinger's technology and expertise in drug discovery collaborations, and is comparable to other major licensing deals in the pharmaceutical industry.

Stakeholder Impact

• Shareholders may react positively to the software revenue growth and expanded collaborations.
• Employees may be motivated by the company's progress and future outlook.
• Customers will benefit from the continued development of the software platform.
• Collaborators will benefit from the company's expertise in drug discovery.

Next Steps

• Report initial Phase 1 data from three proprietary programs in 2025.
• Continue to progress the Phase 1 clinical study of SGR-1505.
• Continue to enroll patients in the Phase 1 study of SGR-3515.
• Advance the science underpinning its platform, including advancing its predictive toxicology initiative.

Key Dates

Keywords

Schrödinger, financial results, software revenue, drug discovery, ACV, clinical trials, collaboration, pharmaceutical, biotechnology