UBS Global Healthcare Conference - SCHRODINGER INC

Explicit Guidance:

• Annual Contract Value (ACV): Targeted to increase 12–17% in the current fiscal year, up from a 2023 baseline of $198M.
• Hosted Software Mix: Management targets a 75% hosted contract mix by 2028 to improve revenue clarity and reporting alignment with ACV.
• Equity Portfolio Returns: Current distributions from equity investments in portfolio companies total approximately $500M since IPO.
• Milestone and Royalty Disclosure: Management does not provide specific quantitative guidance on future milestone or royalty payments due to their non-discretionary nature; however, expects these to become more repeatable and recurring as the collaboration portfolio matures.

Business-Segment Outlook:

• Bunsen (AI Agent): Currently in beta; anticipated to drive license growth by enabling higher throughput of calculations. Adoption expected to expand user base from specialized computational chemists to medicinal chemists (estimated 100x larger addressable market).
• Therapeutics & Partnerships: Continued focus on early-stage discovery with optionality to advance programs via partnerships or NUCOs (e.g., Tektora). Revenue recognition will increase for services provided to partner entities alongside equity stakes.
• New Product Expansion: Continuous platform evolution including:
  • Predictive Talk: Already profiled 80 off-targets; further expansion expected.
  • Formulations: Moving beyond small molecules into biologics and formulation sciences.
  • Crystal Structure Prediction: Identified as a new growth area.
• Customer Cohorts: Observed strength in the biotech funding market (better than last 1–2 years) and sustained growth among top 20 pharma customers alongside new customer acquisition.

Market and Competitive Outlook:

• Industry Trend: Shift toward "predict-first" computational approaches in drug discovery; increased industry recognition of the necessity for high-accuracy simulation to complement AI models.
• Competitive Moat: Differentiation via proprietary, high-accuracy physics-based simulations (generating 30,000–40,000 accurate binding affinity calculations/day internally) combined with real-world experimental feedback from an internal 200-person therapeutics team.
• Adoption Velocity: AI agents like Bunsen expected to accelerate software adoption by reducing the learning curve for medicinal chemists and allowing non-experts to run complex simulations, transitioning from service-heavy contracts to SaaS/throughput licensing.
• Market Position: Positioned as a "market-plus" grower driven by internal innovation and new product introductions rather than purely market expansion.

Macro / Industry Outlook:

• Biopharma Funding: Sector funding environment is improving ("better than last couple of years"), supporting software adoption among biotech clients.
• Efficiency Demand: Macro pressure on R&D efficiency and speed (getting "first-in-class" faster) drives demand for high-throughput, accurate computational tools to reduce failure rates and synthesis costs.
• AI Maturity: Market consensus shifting from AI skepticism to adoption, driven by the realization that AI requires accurate simulation data (generated by Schrödinger's platform) to function effectively at scale.

Strategic Initiatives:

• Business Model Transition: Formalizing shift from on-premise to hosted contracts starting this year; expected to resolve accounting noise and better align revenue reporting with fundamentals by 2028.
• Tektora Formation: Established new entity with $55M raised (contributing two programs); Schrödinger retains equity and continues to earn service revenue for advancing molecules.
• Platform Expansion: Investing in expanding domain applicability from small molecules to biologics and formulations.
• R&D Investment: Maintaining culture of heavy investment in R&D and platform accuracy to drive long-term profitability rather than short-term margin maximization.

Risks and Headwinds to Outlook:

• Guidance Volatility: Potential accounting noise and revenue recognition fluctuations during the transition to hosted contracts.
• Customer Adoption Lag: Bunsen and new products require customer security reviews and evaluation cycles; revenue impact may be delayed as customers move from beta to full transaction.
• Milestone Uncertainty: Milestone and royalty revenues are external and non-discretionary, creating forecasting challenges.
• Execution Dependency: Growth remains dependent on the company's ability to innovate and sell new products alongside market conditions.
• AI Limitations: Current AI tools still require expert oversight; Bunsen is described as a "co-scientist" rather than a fully turnkey solution, requiring expert knowledge for complex tasks.

Management Tone on the Future:

• Confidence Level: High and bullish on AI integration; management expresses strong conviction that Bunsen solves critical bottlenecks (lack of computational chemists, data scale).
• Strategic Clarity: Clear pivot toward a platform-centric, hosted SaaS model with a defined 2028 target for hosted mix.
• Growth Narrative: Emphasis on "market-plus" growth driven by continuous innovation rather than passive market beta; optimistic about the expanding addressable market (medicinal chemists) via AI simplification.
• Profitability Stance: Views profitability and innovation as equally important; prioritizes top-line growth and product advancement as the path to profitability rather than immediate cost-cutting.

Miscellaneous:

• Licensing Model: Bunsen and platform access monetized via throughput-based licensing (per instance/calculation) rather than per-seat or per-user, scaling with customer usage intensity.
• Internal Capacity: Internal GPU supercomputer capability cited as a key differentiator, generating data at a scale (12 drug discovery programs' worth of data daily) unreplicable by customer experimental efforts.