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Schrodinger (1990 – )

As those of you who have read my articles for a long time know, I said that the paradigm of treatment will shift from synthetic drugs to biomedical drugs such as gene therapy, and in the future it will be the era of electronic drugs. I believe that the era of convergence between artificial intelligence and pharmaceutical bio will come in the future. Of course, this stock, which I will introduce today, does not make electronic drugs. However, since it is a company that shows the possibility of fusion of artificial intelligence (AI) and pharmaceutical bio, I think it is a stock that will bring about a new paradigm shift.​ Schrödinger, I remember Schrödinger’s Cat,’ famous for experiments related to quantum mechanics.

I don’t know if the company name comes from it. Currently, Schrödinger’s business models are largely twofold. Schrödinger’s software platform business and drug discovery business. Already, the software is said to be an industry-reading software, working with more than 1300 companies.

As for drug discovery, we are collaborating with more than 25 partners, and Schrödinger is developing itself with five pipelines. Revenue continues to grow at an annual average of 24%, and most of the revenue is currently coming from the software business, but the drug discovery business is increasing at an alarming rate. And compared to the 1Q of 2019, it is said that it showed a revenue of $26.2m and a growth of 26% in 1Q of 2020. First of all, looking at the software business, there are 1266 customers with an ACV of over $1,000, and the total annual contract value (ACV) is growing at an annual average of 16%. It is said that ACV has maintained 96% of customers over $100,000 over the past 6 years. And the top 20 pharmaceutical companies have been using Schrödinger’s software, and have been maintaining it for an average of 15 years. It is already deserved to be called the strongest software platform. Perhaps more notable is the drug discovery section.​ Drug designing is a very, very difficult part. It’s complicated, it takes a long time to develop, and there is money pressure and the probability of failure is very high. And it is necessary to clarify each molecule to balance its anti-correlated properties. The potency of drugs, drug interactions, selectivity and solubility. Because it is so complicated and difficult, 66% of the programs actually do not even go to IND and are not successful. In this difficult drug discovery process, if all properties can be calculated with complete accuracy, then designing a drug will be much faster, cheaper, and produce high quality molecules.​

AI is winning chess, recognizing faces in photos, and driving cars automatically, but there is no reason why AI can’t design it as a drug ​ ​ Randomly selecting 1000 molecules from 1 billion molecules, and through machine learning. It is said that 1 billion molecules are synthesized using the ML model, top 5,000 good molecules are found, these iterations are performed to find 10 combinations, and 8 or fewer molecules go through the process of proceeding to a new drug development program. Do it. Through this process, it is said that when using the Schrödinger platform, the development period is reduced compared to the traditional drug design, and the cost naturally decreases, and the quality is improved. Therefore, it can increase the success rate in developing drug candidates.

The development of existing new drug candidates is very difficult and takes a long time, and the probability of success is unknown. However, it is considered a great attraction point that the combination with this ai system can speed up drug development in the future. As you can see, Schrödinger is currently working with a variety of companies. Agios’ anticancer drug has already been approved by FDA, Nimbus has already done LOL at Gilead, and global big farms such as Sanofi and Takeda are working together. And Schrödinger owns the stakes in the companies that collaborate in this way, so the research fee, milestones for drug development and clinical stages, milestones for future commercialization, and sales after approval It is structured to receive single digit royalties from multiple programs. As a representative example, Nimbus did an L-O to Gilead, and it is said that 46m of cash was distributed.​ Through numerous collaborations, drug discovery is carried out to receive milestones and royalties, and in the case of bio-ventures, it can be considered stable because it has a stake, and it seems that the scalability for future beneficiaries is very high.​ If you simply do a software platform business and support drug discovery through ai, you may not have an identity as a pharmaceutical company, but Schrödinger is a definite new drug development venture that is developing new drugs on its own. There are 5 pipelines from SDGR1 to 5, and anticancer drug pipelines such as esophageal cancer, lung cancer, and kidney cell tumor are being developed. We will explain each drug in the next opportunity. The slide from the top, but looking at the financial side, the software business and drug discovery business are constantly growing. We achieved great growth in 1q in 2020. Although it is a new drug development company that is already making sales, it can be said that it is an attractive part. About half of the global business is in the US, and it is also expanding in Europe and Japan. In terms of software business revenue, the top 10 customers account for 28% of total revenue, indicating that they are doing well in top customer retention. It seems very attractive that it has a business model that can create synergy between the business divided into two major categories and the new drug pipeline that we have internally. As the current cmt treatment, Panext’s pxt3003 is also a drug made by combining three types of previously approved drugs through ai, and it is expected that new drugs made based on such ai will increase in future drug development.​ Gene therapy will go to the concept of a fundamental therapy, and synthetic chemical drugs seem to have no choice but to choose a business model that can speed up the development of new drugs and reduce costs. It is a leading ai-based drug discovery company, and it is also a new drug development company that is trying to develop its own new drug anticancer pipeline in a short time. It’s attractive.

This is a summary of all of the above, and it is a company that is highly expected to grow in the future. These days, Schrödinger is hot enough to be called the second Tesla, but I think it’s a company with reason to be hot enough.​ Looking at investors, it is a company that Bill Gates invested in, and it is said that Bill Gates owns a significant number of shares. For reference, August 4th is the lockup release date. It is a day when the funds tied up after listing will be released, so I was expecting a decline. Personally, I will be watching with great interest.

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