Schrodinger Inc is a life sciences company with two distinct business units. One part of the business is focused on drug discovery, whilst the other half produces a software platform that enables drug compound creation.
SchrodingerSeptember 27, 2020
Thesis - Schrodinger is a recently public business with two distinct units. First, they are a software company that builds a platform that allows scientists to develop molecules for drugs quicker, cheaper and more successfully. They have 1,300 customers on a recurring revenue model that has software margins and 96% retention. The second unit is in drug discovery itself, partnering with others to create molecules as well as a wholly owned pipeline. I like the business model as they “drink their own medicine” so to speak, using their software platform in the drug discovery process itself. Unlike most drug discovery companies, their software business gives them a recurring revenue base. Whilst this is a young business with a lot of risk, the price has fallen 47% from its highs in July providing an entry point. The Gates Foundation is a significant shareholder.
Financials & Performance - The company has only been public for a year, so we don’t have many quarterly reports to go on. The company is still loss making. However, both business units did grow revenues from the first half of 2019 to the second half of 2020 by 24% (drug discovery) and 25% (software) respectively. For the software business, the top 10 customers make up 28% of revenue and no one customer contributes more than 5%. For a young company, they are relatively diversified. On the drug discovery side, they have 2 compounds which are FDA approved and stand to earn royalties.
Risks - As mentioned the company is still not profitable and the drug discovery side of the business is particularly risky. On the software side, there are other AI driven platforms in the space (not yet public).