UBS Global Healthcare Conference - SCHRODINGER INC

Financial Performance:

• Software Annual Contract Value (ACV) guidance for the current year indicates 12-17% growth, increasing from $198 million.
• Revenue recognition is impacted by an ongoing strategic transition from on-premise to hosted contracts, causing accounting noise but expected to clarify reporting once 75% of software is hosted by 2028.
• The equity investment portfolio has generated approximately $500 million in distributions since IPO.
• Profitability remains a concurrent goal with innovation investment; management asserts the company has sufficient cash on hand to reach profitability while funding R&D and platform expansion.

Guidance and Future Outlook:

• Management targets 75% of software business to be hosted by 2028 to improve revenue visibility and customer onboarding.
• The company positions itself as a "market plus" grower, expecting to outpace industry growth through continuous innovation in product accuracy and new module launches (e.g., formulations, biologics).
• Long-term trajectory includes expanding domain applicability from small molecules to biologics and formulations, and increasing the user base from computational chemists to the larger population of medicinal chemists.

Business Segments and Product Lines:

• The core business remains weighted toward life sciences, though material science is a growing segment; monetization is primarily via software licensing, with secondary revenue from therapeutics and collaborations.
• Launch of "Bunsen," an AI agent designed to act as a "co-scientist," allowing non-expert users to run complex calculations and workflows, solving the bottleneck of limited computational chemist availability.
• New product developments include "Predictive Talk" (now profiling 80 off-targets) and crystal structure prediction modules.
• Formation of "Tektora," a joint venture where Schrodinger contributed two programs and raised $55 million while retaining equity and providing ongoing R&D services.

Market and Competitive Landscape:

• Schrodinger differentiates itself through a "physics-first" deep calculation approach rather than relying solely on black-box AI, aiming for high accuracy (90%+) to prevent error compounding in autonomous AI agents.
• Competitors face hurdles in replicating Schrodinger's 30-year proprietary code base, which includes billions in investment and internal feedback loops from a 200-person therapeutics team.
• Industry trend shows a shift toward "predict-first" computational drug discovery, with top pharma companies seeking efficiency and speed to optimize R&D spending.
• The biotech funding environment is showing signs of improvement compared to the previous two years, driving renewed software adoption.

Risks and Challenges:

• Adoption hurdles exist due to the technical complexity of the platform; Bunsen aims to mitigate this by simplifying workflows for junior chemists and medicinal chemists.
• Revenue timing risks associated with the transition to hosted contracts, which alters the timing of revenue recognition and creates short-term reporting volatility.
• Dependence on the successful advancement of proprietary therapeutic programs to generate future milestone and royalty revenue streams.

Management Commentary and Tone:

• Management tone is highly confident and bullish, particularly regarding the "Bunsen" AI agent, which they view as transformational for industry efficiency.
• CFO Richie Jane and CTO Pat Lorton emphasize that the company is trusted by the industry as a "physics-first" leader rather than an over-hyped AI vendor, aligning with customer skepticism of generic AI tools.
• Management asserts that AI is not replacing computational chemists but is instead empowering them to act with the output of a "team of postdocs," significantly increasing throughput.

Analyst Questions and Answers:

• Bristol-Myers Squibb Engagement: Details were limited due to NDAs, but the partnership involves Bunsen acting as a virtual postdoc to accelerate molecule selection, with value capture driven by increased throughput licensing.
• Licensing Model: Bunsen is licensed based on throughput (number of parallel calculation instances) rather than per-seat/user counts.
• Economics of Partnerships: Revenue is generated via service fees, milestones, royalties, and equity; milestones are disclosed in aggregate ranges but are difficult to forecast precisely on a line-item basis.
• Customer Acquisition: The sales pitch targets a mix of C-suite, R&D visionaries, and digital transformation officers, supported by grassroots adoption among users.
• Visual Interface: Bunsen features a chat interface with isolated file systems for security, allowing natural language queries to trigger complex workflows on the company's supercomputer.

Other Key Points:

• The company's internal supercomputer can generate 30,000 to 40,000 accurate binding affinity calculations daily, vastly exceeding the data volume collected by external customers.
• Schrodinger views the transition to hosted software as critical for enabling trial licenses, faster onboarding, and better support, despite short-term accounting friction.
• Management highlights that the "predict-first" approach is now a standard expectation for drug discovery to achieve speed and efficiency in a cost-conscious market.