Schrödinger Sets Course for IPO to Support Growing Internal Pipeline

Xconomy New York — 

Scan the landscape of experimental medicines in development today and you’ll spot Schrödinger’s handiwork. The company’s software has helped discover compounds that are now advancing in the pipelines of several drug developers.

Schrödinger isn’t shying away from that work. But as it continues building its own drug pipeline, it’s now laying out plans to go public. In documents filed with securities regulators, the New York company has set a preliminary $100 million goal for its IPO.

Schrödinger has developed software intended to make the process of discovering and developing drugs faster and more efficient. The company describes its technology as “physics based,” explaining that it predicts critical properties of molecules with accuracy. It says that this capability enables drug researchers to design and synthesize molecules that have the properties they want in a drug. In traditional drug discovery, thousands of molecules are synthesized in order to identify a single drug candidate, taking four to six years. Schrödinger says its technology can evaluate billions of molecules and find the top ones to synthesize and test, shaving the process down to two to three years.

In 2018, Schrödinger says all of the top 20 pharmaceutical companies (measured by revenue) used its software. That business accounted for $22 million, or 33 percent, of Schrödinger’s sales for the year. The company says it is currently collaborating on more than 25 programs with more than 10 companies, including a number of companies Schrödinger co-founded, such as Nimbus Therapeutics and Morphic Therapeutic. Other publicly disclosed partners include Sanofi (NYSE: SNY) and Takeda Pharmaceutical (NYSE: TAK). Collaborations with these partners could yield additional revenue as programs make progress.

Schrödinger can also point to two FDA-approved products that stemmed from its technology. The company says its collaboration with Agios Pharmaceuticals (NASDAQ: AGIO) supported the development and eventual approval of cancer drugs ivosidenib (Tibsovo) and enasidenib (Idhifa). But the company notes in the filing that it is not receiving any financial payments linked to these therapies.

Schrödinger reported $66.6 million in revenue for 2018, a 19.7 percent increase compared to 2017. Most of those sales came from its software products and services. For the nine-month period ending Sept 30, 2019, revenue was $59.7 million, a 21 percent increase over the same period in the prior year. Despite the growing revenue, Schrödinger is not yet profitable. In 2018, the company’s net loss was $28.4 million. Last year through the third quarter, it reported an $18.5 million net loss.

Drug discovery is Schrödinger’s main focus. But the capability to address challenges in designing molecules also has applications in other industries, such as energy, aerospace, semiconductors, and electronic displays. Schrödinger says in the filing that it already has some of these customers, but it’s not yet a big part of the business. The materials science industry is in the very early stages of recognizing the potential of computational methods for molecular discovery, it says.

Schrödinger’s IPO filing comes a little more than a year after the company announced an $85 million round of financing led by The Bill & Melinda Gates Foundation Trust and WuXi AppTec Corporate Venture Fund. Last May, the company closed the financing, which had added investors to expand to $110 million. In addition to supporting its computational drug discovery software, the company said at the time that it planned to hire staffers to build its internal drug pipeline.

Since its founding in 1990, Schrödinger has mainly helped other companies discover and develop their own drugs. But in 2018, the company started to apply its technology internally. The Schrödinger pipeline now has five wholly owned discovery-stage programs, all of them in cancer. Two of the programs address targets that mediate cell replication or the repair of DNA damage in cancer cells. The three remaining programs are being developed for certain genetically defined cancers. Schrödinger is developing programs for solid tumors and lymphomas. The company says in its filing that in the first half of next year it plans to start the preclinical work that will enable it to file for the FDA go ahead to start tests of its compounds in humans.

Schrödinger has raised $192.6 million total, according to the IPO filing. Schrödinger’s largest shareholders, owning greater than 5 percent of the company, are the Bill & Melinda Gates Foundation Trust and David E. Shaw and affiliates. The filing does not specify the percentage of Schrödinger that they own.

Schrödinger says the main purpose of going public is to boost its capitalization and financial flexibility, and to create a public market for its shares, which will enable it to tap the public markets for future funding. Beyond that, the company says it can’t specify how it will use the IPO proceeds, other than that the funds will be used to advance its software and  internal drug discovery programs. If the company completes its IPO, it expects to trade on the Nasdaq under the stock symbol “SDGR.”

Photo by Flickr user Jens karlsson via a Creative Commons license