How does Schrödinger make money?

Steven Loeb · July 6, 2022 · Short URL: https://vator.tv/n/5458

The company makes the majority of its revenue from fees for the use of its software

The cost of drug development is incredibly high: a study published in JAMA Network found that the estimated median capitalized research and development cost per product was $985 million, with an the average cost of $1.3 billion. That is on the low end, as some studies have put it as high as $2.8 billion.

Drug discovery software company Schrödinger is on a mission is to change that, providing software to biopharmaceutical and industrial companies, academic institutions, and government laboratories, enabling discovery of novel molecules for drug development and materials applications.

"Over the past 30 years and with the concerted efforts of hundreds of our scientists and software engineers, we have developed a physics-based computational platform that is capable of predicting critical properties of molecules with a high degree of accuracy. This key capability enables drug discovery teams to design and selectively synthesize molecules with more optimal properties, reducing the average time and costs required to identify a development candidate and increasing the probability that a drug discovery program will enter clinical development," the company wrote in its S-1 filing with the SEC.

"Furthermore, we believe that development candidates with more optimized property profiles will have a higher probability of success in clinical development. Additionally, since the physics underlying the properties of drug molecules and materials is the same, we have been able to extend our computational platform to materials science applications in fields such as aerospace, energy, semiconductors, and electronic displays."

The company breaks its revenue down into two buckets, the largest being what it calls, "Software Products and Services Revenue." This leg is then broken down into four sources: on-premise software license fees, hosted software subscription fees, software maintenance fees, and professional services fees.

On-premise software license arrangements grant customers the right to use Schrödinger's software on their own in-house servers for a specified term, typically for one year, while hosted software subscription fees to provide its customers with hosted licenses, meaning they can access its software on their own hardware without taking control of licenses.

Software maintenance includes technical support, updates, and upgrades for those licenses, and professional services refers to services it provides, including training, technical support, installation, or assisting customers with modeling.

"The revenue we generate through our software solutions from each of our customers varies largely depending on the number of software licenses our customers purchase from us. The licenses that our customers purchase from us provide them the ability to perform a certain number of calculations used in the design of molecules for drug discovery or materials science," the company wrote.

In 2021, Schrödinger made $113 million from its software products and services leg, up 22% from $92.5 million in 2020. This represented 82% of the company's total revenue for the year.

The second revenue source for the company is what it calls "drug discovery,:" which comes from discovery collaboration arrangements, including upfront payments, research funding payments, and discovery and development milestones.

"We have teamed up with venture capitalists, leading academics, and biopharma companies around the globe to establish research collaborations and co-found startups. These collaborations have to date resulted in two FDA approved drugs and multiple programs that have advanced into clinical trials," Schrödinger says on its website.

Those collaborators include Ajax Therapeutics, Nimbus Therapeutics, and Sanofi.

In 2021, the company made $25 million from this segment, and while that represented just 17% of revenue, it was also up 58% from the $15.5 million it made from drug discovery in 2020.

Schrödinger went public in February 2020, raising $232 million at a $1.1 billion valuation. It is now trading $30.12 a share, up 77% up from its IPO price.

(Image source: schrodinger.com)