Thread by @Biotech2k1

Taking a look at $SDGR:

This is my updated look at Schrodinger.

1/ Management:

I have been a bit cautious on the management of Schrodinger. I think Ramy Farid is a software guy and doing a good job with the software business. I don't own the company because of the software as I don't believe it will be that big of a business.

2/ I do see what the software could do for the company with its own drug discovery business. I think Karen Akinsanya is doing an excellent job on the biotech side of things.

3/ I just wonder how well they will do at navigating both the software business and a fully commercial biotech company.

4/ I suspect they will partner away all of these programs to big pharma if they succeed to avoid the commercial side of the biotech company. That will significantly limit their potential.

5/ Science:

Schrodinger is using Computer Aided Design (CAD) and AI to develop software that can predict how proteins and enzyme move and work. They license this software to hundreds of companies.

6/ They also use the software to develop their own clinical programs. They are highly focused on intracellular signaling. Many of their targets are in the pathways of the cell cycle or cell messaging.

7/ They have 3 drugs in preclinical development for MALT1, CDC7 and WEE1. They have very little preclinical data so far for their programs.

8/ Potential:

The software side of the company does have some decent potential for growth. They have over 1,600 clients; of which, only 16 of them use $1 million or more worth of the software services of Schrodinger.

9/ They could drive more adoption of program use as companies use the software and see how it can benefit them. They also have multiple partners who use their software for drug development where Schrodinger gets downstream benefits.

10/ They have potential for milestones and royalties across partners like Bristol Myers, Takeda and ZaiLabs.

11/ The big potential is in drug development where their programs could yield over a billion in sales each. I could see them growing to $1.5 billion sales long term on the software side if they continue to drive usage with current clients.

12/ I could see the drug development side doing at least $2 billion in long term revenues if all their current programs work out. They just announced 2 new programs that will be added soon.

13/ Value:

Schrodinger has a valuation of just over $2 billion market cap. They have about $580 million in cash. They had $138 million in software revenues in 2021. Their cash burn was about $110 million.

14/ They have plenty of cash to last them at least 2 years even with development costs going up as they advance drugs into the clinic. I think this valuation is very attractive as they are only at about 11x trailing 12 months revenues once you back out the cash.

15/ That puts them at the low end of valuation for a software company let alone having a preclinical pipeline. You are basically buying the software company at a reasonable value and getting the preclinical pipeline for free.