Schrodinger S-1 2020
Applying machine learning to drug and molecule discovery
[disclaimer: Although 10Ks and S1s are snapshots of the company in question, I am interested in the nature of the business and economics of the industry / sector. These articles will not go into financial analysis of companies but highlight interesting business models, macro and microeconomic insights of the industry and companies, interesting accounting issues, riska and any interesting tidbits I can discern. These are not recommendations to buy or sell any securities of the company in question.]
While the company has been around for almost 20+ years they went public earlier this year. This is probably one of the first public companies that is applying machine learning techniques to traditional molecule discovery for drugs and materials science. The team that spun out of Columbia University has taken the traditional physics / materials property based approach and scaled it using AI and ML techniques. The diagram below explains the advantages and process.
Learnings about the Industry / Sector
Traditionally drug discovery has been the domain of pharmaceutical companies and Schrodinger seems to be a unique player where they want to become the software platform of choice in molecule discovery.
Learnings about the Company
Schrodinger has several licensing / royalty agreements with Columbia University whereby the company agrees to pay the University low-single digit to low-double digit percentages based upon the contribution of Columbia University generated code to the applicable program on their and their affiliates, gross revenues from the sale, licensing, or renting of the software program.
As part of the licensing agreements with biotech companies Schrodinger often takes equity stakes in these companies, essentially a call option should the company achieve success with the drug molecule. To date they have several equity stakes as shown below
Ajax Therapeutics, Inc. 8.7%
Bright Angel Therapeutics Inc. 33.3%
Faxian Therapeutics, LLC (JV) 50.0%
Morphic Holding, Inc. 2.7%
Nimbus Therapeutics, LLC(1) 7.6%
Petra Pharma Corp. 5.5%
ShouTi Inc. 12.8%
Schrodinger is following the traditional enterprise software model of land and expand. This is best demonstrated by the increasing number of customers with an ACV (annual contract value) over $100,000. They had 87, 103, and 122 of such customers for the years ended December 31, 2016, 2017, and 2018, respectively.
D.E Shaw and the Bill & Melinda Gates Foundations were major investors in the company prior to the IPO.
Schrodinger employs 400+ people, more than half of whom have Ph.D’s.
Conclusion
This is certainly an interesting new player in the area, I am certain we will see others applying AI and ML techniques in new areas like drug discovery and others. This company is one to keep an eye out on as more and more pharmaceutical companies feel the pressure to lower costs and speed up the time to market.