Schrödinger (SDGR) Morgan Stanley 22nd Annual Global Healthcare Conference summary

Business environment and industry trends

• No significant negative impact from macro trends like AI/ML adoption, shifting biopharma priorities, or biotech funding; continued enthusiasm for scaling software use.

• Software is seen as a cost-saving tool, reducing the need for lab-made molecules and accelerating discovery.

• Software spend is a tiny fraction of large pharma R&D budgets, making it less vulnerable to cost-cutting.

• Industry-wide adoption is still in early stages, with cultural shifts, expertise, and IT infrastructure as key enablers for growth.

• Growing use of cloud computing and structural biology is expanding the addressable market.

Growth drivers and technology adoption

• Multi-parameter optimization in drug discovery is driving increased software and hardware demand.

• Advances in protein structure determination and computational methods are fueling broader adoption.

• Early adopters in biotech are using the technology at scale, influencing larger companies to follow suit.

• Fear of missing out is motivating pharma companies to accelerate adoption.

• Competitive advantage is rooted in proprietary physics-based training sets, not just algorithms.

Financial outlook and guidance

• Strong confidence in 2024 outlook, with Q2 revenue exceeding guidance and Q3 expected to show growth.

• Revenue is heavily weighted to Q4 due to annual purchasing cycles of large pharma customers.

• High-end guidance depends on multi-year renewals and significant contract step-ups; low-end reflects smaller renewals.

• Drug discovery revenue is milestone-driven and variable, but current expectations are positive for hitting targets.