Schrödinger, Inc. — Q1 2021 Form 10-Q
Business context and period. Schrödinger develops and licenses computational software for molecular discovery and uses its platform in collaborative and internal drug discovery programs. This unaudited report covers the three months ended March 31, 2021; comparisons are with Q1 2020. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Software revenue | $26.3 | $23.8 |
| Drug discovery revenue | $5.8 | $2.4 |
| Total revenue | $32.1 | $26.2 |
| Gross profit / total gross margin | $16.2 / 50.3% | $15.6 / 59.7% |
| Operating expenses | $40.1 | $27.4 |
| Loss from operations | $(23.9) | $(11.8) |
| Net loss attributable to Schrödinger stockholders | $(0.03) | $(13.8) |
| Operating cash flow | $(10.9) | $(5.8) |
- Revenue rose 23% year over year: software increased 11% and drug discovery increased 145%. Management attributed drug discovery growth principally to the BMS collaboration, research funding, and milestone timing.
- Software gross margin declined to 78% from 83%, which management attributed to investment supporting large-scale platform deployments. Drug discovery segment gross profit was a loss of $4.3 million, compared with a $4.2 million loss.
- R&D expense increased 57% to $21.4 million, largely from personnel and CRO costs. G&A increased 50% to $13.4 million, primarily reflecting personnel and public-company infrastructure costs.
- Although the operating loss widened, a $24.8 million noncash fair-value gain, primarily on the Morphic investment, contributed to a consolidated net loss of only $0.5 million. Schrödinger’s attributable net loss was $0.03 million after allocating $0.5 million of net loss to noncontrolling interest. The gain is investment-value dependent and should not be treated as recurring operating earnings.
- Cash, cash equivalents, restricted cash, and marketable securities totaled approximately $649.0 million at March 31, 2021, versus $643.2 million at December 31, 2020. Cash and cash equivalents alone fell to $133.1 million from $202.3 million, while marketable securities rose to $515.4 million from $440.4 million; much of the cash movement reflects purchases and maturities of securities.
- Investing activities used $61.9 million, including net purchases of marketable securities, partly offset by $15.7 million of proceeds from the Relay investment sale. Financing activities provided $3.7 million, mainly from option exercises.
- No financial debt borrowings are reported in the supplied filing text. Operating lease liabilities totaled $10.4 million; current liabilities were $67.6 million and total liabilities were $112.4 million, including deferred revenue. The company also disclosed a five-year cloud-provider agreement with a $60 million minimum payment obligation, not included in the contractual-obligations table.
Material changes and significant items
- Deferred revenue was $78.1 million at March 31, 2021, including $51.6 million related to the BMS agreement. The company recognized $2.4 million of BMS-related revenue in the quarter from research activities. Approximately 52% of total deferred revenue was expected to be recognized within 12 months.
- The BMS collaboration covers five targets. Schrödinger received a $55 million upfront payment and may receive up to $2.7 billion in contingent milestones plus tiered royalties. These potential payments depend on future research, development, regulatory, and commercial outcomes; they are not guaranteed revenue.
- In January 2021, Schrödinger sold its Relay equity stake for $15.7 million, recording a $1.8 million loss. Its Morphic investment was valued at $52.8 million at quarter-end, following a $24.8 million quarterly fair-value gain.
- Subsequent events: in April, the company signed a New York headquarters lease through January 2038, with a 16-month rent-abatement period and stated annual base rent starting at $7.6 million thereafter. In May, it expanded its Portland lease at an additional base rent of approximately $23,000 per month.
Outlook, commentary, and risks
- Management stated existing cash, cash equivalents, and marketable securities should fund operations and capital expenditures for at least the next 12 months. It expects operating losses to continue and R&D, sales and marketing, and G&A spending to increase. No specific financial guidance for future periods is provided in the supplied filing text.
- Management reported no material business impact from COVID-19 in the quarter, but noted potential customer budget pressure, limits on in-person sales activity, and possible delays to drug programs and related milestones.
- Key risks include persistent losses and uncertain path to profitability; dependence on software renewals and life-sciences customers; unpredictable collaboration and milestone timing; the early stage of internal drug programs and lack of clinical-development experience; competition; cybersecurity and customer-data risks; and reliance on key personnel and third parties.
- The company reported no material legal proceedings and no material change in reported market risks. Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2021.
Important facts for investors to verify
- How much of future revenue growth is recurring software revenue versus collaboration funding, milestones, and other timing-sensitive items.
- The noncash nature and volatility of the Morphic fair-value gain, and the accounting and cash consequences of future equity-investment changes.
- The BMS revenue-recognition schedule, remaining deferred revenue, and the conditions and timing for any milestone or royalty payments.
- Cash burn relative to management’s 12-month liquidity assessment, including the $60 million cloud commitment and the financial impact of the new long-term office leases.
- Whether rising operating expenses and lower software gross margin translate into improved platform scale, customer retention, and sustainable economics.