Schrödinger, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Schrödinger develops and licenses computational software and applies its platform to partnered and proprietary drug discovery programs. Financial figures below are in millions of dollars unless stated otherwise.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $37.0 | $29.9 | $124.1 | $91.8 |
| Software revenue | $24.7 | $24.3 | $87.8 | $74.7 |
| Drug discovery revenue | $12.3 | $5.6 | $36.4 | $17.1 |
| Gross profit / gross margin | $17.2 / 46.5% | $11.1 / 37.2% | $62.3 / 50.2% | $39.3 / 42.8% |
| Operating expenses | $63.4 | $45.8 | $180.6 | $128.2 |
| Operating loss | $(46.2) | $(34.7) | $(118.3) | $(88.9) |
| Net loss attributable to stockholders | $(39.9) | $(35.0) | $(122.0) | $(69.7) |
| Net loss per share | $(0.56) | $(0.49) | $(1.71) | $(0.99) |
| Cash used in operating activities | Not separately stated | Not separately stated | $(94.7) | $(50.9) |
Financial position and liquidity
- At September 30, 2022, cash and cash equivalents were $102.8 million, restricted cash $5.8 million, and marketable securities $370.7 million; together, these totaled $479.4 million.
- Total assets were $662.0 million and stockholders’ equity was $463.1 million. The filing reports no borrowings; lease liabilities were $95.8 million, including $8.7 million current. Future minimum lease payments totaled $149.6 million before $53.7 million of imputed interest.
- Management said existing cash, cash equivalents, and marketable securities were expected to fund operating expenses and capital expenditures for at least 24 months. The company has a history of operating losses; accumulated deficit was $351.9 million.
- Cash and restricted cash decreased by $14.6 million over the first nine months. Investing activities provided $78.5 million, largely reflecting marketable-security maturities net of purchases and an $11.8 million receipt related to termination of potential earnout rights.
Changes versus comparable periods
- Q3 revenue increased 24%; nine-month revenue increased 35%. Drug discovery revenue more than doubled in both comparisons, while Q3 software revenue grew only 2%.
- Q3 software revenue included 19% lower on-premise revenue, partly offset by growth in hosted software and professional services. Nine-month software growth was 18%.
- Q3 gross margin rose to 46.5% from 37.2%; software gross margin was 72% versus 73%. Nine-month software gross margin was 76% in both years.
- Operating expenses rose 38% in Q3 and 41% for the nine-month period. Research and development, sales and marketing, and general and administrative expenses all increased.
- Nine-month net loss widened to $122.0 million from $70.5 million. Results were affected by a $16.6 million fair-value loss in 2022 versus a $19.3 million fair-value gain in 2021; 2022 also included an $11.8 million gain on equity investments.
Outlook, management commentary, and risks
- Management expects research and development and other operating expenses to increase as the company advances proprietary programs, develops its platform, and expands commercial and operating capabilities. The filing provides no specific financial revenue or earnings guidance.
- SGR-1505 received FDA IND clearance in June 2022, and a Phase 1 trial had opened sites for screening and enrollment; no patients had yet been dosed as of the filing. Management expected to submit an IND for the CDC7 inhibitor in the first half of 2023 and for WEE1 in the first half of 2024, subject to data; a CDC7 Phase 1 trial was planned for the second half of 2023, subject to regulatory clearance.
- COVID-19-related CRO and CMO capacity constraints, including in China, had delayed CDC7 IND-enabling work. The company said it was seeking supplemental or substitute capacity. Management reported no material overall business impact from COVID-19 during the periods, but further effects remained uncertain.
- Drug discovery revenue is inherently variable and depends on collaboration progress, milestones, and collaborator decisions. Q3 growth partly reflected accelerated recognition of deferred BMS revenue after BMS elected not to proceed with a target; rights to that program reverted to Schrödinger.
- Schrödinger entered a Lilly collaboration in September 2022: it received an upfront payment, amount not specified in the filing text, and may receive up to $425 million in milestones plus royalties. It also acquired structural biology services provider XTAL in January 2022 for approximately $7.4 million, including acquired cash.
- Revenue and receivables show customer concentration: one customer represented 28% of Q3 revenue and 42% of accounts receivable at September 30, 2022. Fair-value changes in equity investments, especially Morphic, can materially affect reported results.
- Other principal risks include continued losses and cash burn; dependence on software renewals and life-sciences customers; early-stage clinical and regulatory execution; collaborator decisions and milestone uncertainty; competition; intellectual-property and cybersecurity risks; and the potential need for additional capital. Routine legal matters were not expected by management to have a material adverse effect; the company reported no material legal proceedings.
Important facts for investors to verify
- Whether software growth, renewals, hosted subscriptions, and margins can offset higher operating expenses.
- How much of drug discovery revenue reflects recurring research activity versus milestone, contribution, or accelerated BMS revenue recognition.
- Progress and actual timing for SGR-1505 patient dosing, CDC7 IND submission, and other clinical-development milestones.
- Cash burn relative to management’s stated 24-month liquidity expectation, including the impact of lease commitments and other contracted spending.
- The significance of customer concentration and the potential volatility of equity-investment fair values.