Schrödinger, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also presents unaudited fourth-quarter results. Schrödinger sells computational software for drug discovery and materials science and conducts partnered and wholly owned drug-discovery programs.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $181.0 million | $137.9 million |
| Software revenue | $135.6 million (+20%) | $113.2 million |
| Drug-discovery revenue | $45.4 million (+84%) | $24.7 million |
| Gross profit | $101.0 million | $65.6 million |
| Software gross margin | 78% | 77% |
| Operating expenses | $247.8 million (+40%) | $177.1 million |
| Operating loss | $146.8 million | $111.4 million |
| Net loss | $149.2 million; $2.10 per share | $101.2 million; $1.42 per share |
| Cash used in operating activities | $119.7 million | $70.7 million |
Fourth-quarter 2022 revenue was $56.8 million, compared with $46.2 million in Q4 2021; net loss was $27.2 million, versus $30.7 million. On-premise software revenue is seasonal and contributed to quarterly variation.
At year-end, cash, cash equivalents, restricted cash and marketable securities totaled $456.3 million, down from $579.5 million in 2021. Current assets were $534.0 million and current liabilities $108.8 million. The filing reports no borrowings; lease liabilities were $116.5 million, including $11.0 million current. Management expected year-end liquidity, together with a subsequent Nimbus distribution, to fund operating expenses and capital expenditures for at least 24 months.
Changes, outlook and material items
- Revenue grew 31%, led by software expansion and collaboration progress, while net loss widened by $48.0 million. R&D expense rose 39% to $126.4 million; sales and marketing rose 38% to $30.6 million; and G&A rose 42% to $90.8 million.
- Cash used in operations increased by $49.0 million year over year. Investing activities provided $90.0 million, principally reflecting net marketable-security maturities and an $11.8 million distribution related to an equity investment. Financing activities provided $2.1 million.
- Management expects continued losses and higher spending as it advances its platform and drug programs. The company reported no approved drug products or product-sale revenue. It planned an SGR-2921 IND submission in the first half of 2023 and a Phase 1 start in the second half, subject to regulatory clearance; an SGR-3515 IND submission was targeted for 2024, subject to study results. SGR-1505’s Phase 1 trial had begun, but no patients had yet been dosed.
- BMS collaboration terms include up to $2.7 billion in potential milestones and tiered royalties; these are contingent opportunities, not assured revenue. Management expected a development-candidate milestone in Q1 2023. BMS had elected to discontinue one target in 2022, with rights reverting to Schrödinger.
- After year-end, Schrödinger received $111.3 million from Nimbus in February 2023 following Takeda’s acquisition of a Nimbus subsidiary and expected a further $36.0 million in Q2 2023. The company said it would record a gain in Q1 2023.
- The company reported a material weakness in revenue controls for assessing whether collaboration milestones were probable. This caused a $1.7 million understatement of revenue and contract assets, corrected before the financial statements were issued. Management’s and KPMG’s conclusions were that internal control over financial reporting was ineffective; KPMG gave the financial statements an unqualified audit opinion but an adverse opinion on internal controls.
- Other notable commitments include $187.1 million of future minimum operating lease payments, a $21.8 million minimum payment obligation for a dedicated drug-discovery facility, and a $60 million five-year cloud-computing minimum commitment. The filing states there were no material legal proceedings.
Principal risks
Key risks include persistent operating losses and cash burn; dependence on software renewals and a concentrated customer base (one customer represented 16% of 2022 revenue); uncertain collaboration milestones and equity-investment values; early-stage clinical and regulatory execution; competition in software and drug development; and cybersecurity, intellectual-property, talent, and control-remediation risks. Drug-discovery revenue and fair-value changes in equity investments may fluctuate materially.
Facts investors should verify
- Whether the revenue-control remediation is completed and operating effectively, and whether any further adjustments are needed.
- Actual operating cash use, investment balances, and liquidity runway relative to management’s 24-month estimate.
- Receipt and accounting treatment of the expected $36.0 million Nimbus distribution and the Q1 2023 gain.
- Progress, patient dosing, safety and enrollment in SGR-1505, and whether SGR-2921 and SGR-3515 meet stated development timelines.
- Renewals and expansion among large software customers, customer concentration, and realization of collaboration milestones and royalties.