SEC Filing | Schrödinger, Inc.

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sdgr-10q_20210331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39206

Schrodinger, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	95-4284541
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

120 West 45^th Street, 17^th Floor New York, NY	10036
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 295-5800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

SDGR

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2021, the registrant had 61,340,937 shares of common stock, $0.01 par value per share, and 9,164,193 shares of limited common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (Unaudited)	5
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (Unaudited)	6
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020 (Unaudited)	7
	Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2021 and 2020 (Unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report include, among other things, statements about:

•

the potential advantages of our physics-based computational platform;

•

our strategic plans to accelerate the growth of our software business;

•

our research and development efforts for our internal drug discovery programs and our computational platform;

•

the initiation, timing, progress, and results of our internal drug discovery programs or the drug discovery programs of our collaborators;

•

our plans to discover and develop product candidates and to maximize their commercial potential by advancing such product candidates ourselves or in collaboration with others;

•

our plans to leverage the synergies between our businesses;

•

the timing of, the ability to submit applications for and the ability to obtain and maintain regulatory approvals for any product candidates we or one of our collaborators may develop;

•

our drug discovery collaborations and our estimates or expectations regarding any milestone or other payments we may receive from such collaborations, including pursuant to our collaboration with Bristol-Myers Squibb Company;

•

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents, and marketable securities;

•

the potential advantages of our drug discovery programs;

•

the rate and degree of market acceptance of our software solutions;

•

the potential impact of the COVID-19 pandemic on our business, operations, liquidity and prospects;

•

the rate and degree of market acceptance and clinical utility of our products;

•

our estimates regarding the potential market opportunity for our software solutions and any product candidate we or any of our collaborators may in the future develop;

•

our marketing capabilities and strategy;

•

our intellectual property position;

•

our ability to identify technologies with significant commercial potential that are consistent with our commercial objectives;

•

our expectations related to the use of our cash, cash equivalents, and marketable securities;

•

our expectations related to the key drivers of our performance;

•

the impact of government laws and regulations;

•

our competitive position and expectations regarding developments and projections relating to our competitors and any competing products, technologies, or therapies that are or become available;

•

our ability to maintain and establish collaborations or obtain additional funding;

•

our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel; and

•

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart our Business Startup Act of 2012.

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We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in “Risk Factor Summary” below and Part II, Item 1A. “Risk Factors”, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures, or investments we may make or enter into.

You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission, or the SEC, with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Unless the context otherwise requires, we use the terms “company,” “we,” “us” and “our” in this Quarterly Report to refer to Schrödinger, Inc. and its consolidated subsidiaries.

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RISK FACTOR SUMMARY

Our business is subject to a number of risks of which you should be aware before making an investment decision. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this Quarterly Report.

•

We have a history of significant operating losses, and we expect to incur losses over the next several years.

•

If we are unable to increase sales of our software, or if we and our current and future collaborators are unable to successfully develop and commercialize drug products, our revenues may be insufficient for us to achieve or maintain profitability.

•

Our quarterly and annual results may fluctuate significantly, which could adversely impact the value of our common stock.

•

If our existing customers do not renew their licenses, do not buy additional solutions from us, or renew at lower prices, our business and operating results will suffer.

•

A significant portion of our revenues are generated by sales to life sciences industry customers, and factors that adversely affect this industry could also adversely affect our software sales.

•

The markets in which we participate are highly competitive, and if we do not compete effectively, our business and operating results could be adversely affected.

•

We may never realize a return on our investment of resources and cash in our drug discovery collaborations.

•

Although we believe that our computational platform has the potential to identify more promising molecules than traditional methods and to accelerate drug discovery, our focus on using our platform technology to discover and design molecules with therapeutic potential may not result in the discovery and development of commercially viable products for us or our collaborators.

•

We may not be successful in our efforts to identify or discover product candidates and may fail to capitalize on programs, collaborations, or product candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.

•

As a company, we do not have any experience in clinical development and have not advanced any product candidates into clinical development.

•

A widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively affect various aspects of our business and make it more difficult to meet our obligations to our customers, and could result in reduced demand from our customers as well as delays in our drug discovery and development programs.

•

If we fail to comply with our obligations under our existing license agreements with Columbia University, under any of our other intellectual property licenses, or under any future intellectual property licenses, or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business.

•

If we are unable to obtain, maintain, enforce, and protect patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.

•

Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel.

•

We are pursuing multiple business strategies and expect to expand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our multiple business units and our growth, which could disrupt our operations.

•

Our actual operating results may differ significantly from our guidance.

•

Our executive officers, directors, and principal stockholders, if they choose to act together, have the ability to significantly influence all matters submitted to stockholders for approval.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except for share and per share amounts)

Assets	March 31, 2021			December 31, 2020
Current assets:
Cash and cash equivalents	$	133,122		$	202,296
Restricted cash		500			500
Marketable securities		515,372			440,395
Accounts receivable, net of allowance for doubtful accounts of $60 and $60		11,270			31,423
Unbilled and other receivables, net for allowance for unbilled receivables of $20 and $0		7,020			3,955
Prepaid expenses		7,954			4,409
Total current assets		675,238			682,978
Property and equipment, net		4,799			5,140
Equity investments		52,931			45,664
Right of use assets		8,865			10,129
Other assets		2,356			2,352
Total assets	$	744,189		$	746,263
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,220		$	8,398
Accrued payroll, taxes, and benefits		10,345			12,000
Deferred revenue		40,759			45,403
Lease liabilities		3,576			4,543
Other accrued liabilities		5,721			2,861
Total current liabilities		67,621			73,205
Deferred revenue, long-term		37,356			41,164
Lease liabilities, long-term		6,836			7,221
Other liabilities, long-term		600			654
Total liabilities		112,413			122,244
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; zero shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		—			—
Common stock, $0.01 par value. Authorized 500,000,000 shares; 61,300,675 and 60,713,534 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		613			607
Limited common stock, $0.01 par value. Authorized 100,000,000 shares; 9,164,193 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		92			92
Additional paid-in capital		760,574			752,558
Accumulated deficit		(129,588	)		(129,559	)
Accumulated other comprehensive income		77			317
Total stockholders’ equity of Schrödinger stockholders		631,768			624,015
Noncontrolling interest		8			4
Total stockholders’ equity		631,776			624,019
Total liabilities and stockholders’ equity	$	744,189		$	746,263

See accompanying notes to unaudited condensed consolidated financial statements.

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SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except for share and per share amounts)

	Three Months Ended March 31,
	2021			2020
Revenues:
Software products and services	$	26,340		$	23,812
Drug discovery		5,787			2,362
Total revenues		32,127			26,174
Cost of revenues:
Software products and services		5,906			4,001
Drug discovery		10,057			6,548
Total cost of revenues		15,963			10,549
Gross profit		16,164			15,625
Operating expenses:
Research and development		21,448			13,700
Sales and marketing		5,239			4,789
General and administrative		13,389			8,936
Total operating expenses		40,076			27,425
Loss from operations		(23,912	)		(11,800	)
Other (expense) income:
Loss on equity investments		(1,781	)		—
Change in fair value		24,824			(3,079	)
Interest income		420			699
Total other income (expense)		23,463			(2,380	)
Loss before income taxes		(449	)		(14,180	)
Income tax expense		74			91
Net loss		(523	)		(14,271	)
Net loss attributable to noncontrolling interest		(494	)		(445	)
Net loss attributable to Schrödinger common and limited common stockholders	$	(29	)	$	(13,826	)
Net loss per share attributable to Schrödinger common and limited common stockholders, basic and diluted:	$	—		$	(0.34	)
Weighted average shares used to compute net loss per share attributable to Schrödinger common and limited common stockholders, basic and diluted:		70,071,625			40,666,970

See accompanying notes to unaudited condensed consolidated financial statements.

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SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2021			2020
Net loss attributable to Schrödinger common and limited common stockholders	$	(29	)	$	(13,826	)
Changes in market value of investments, net of tax:
Unrealized loss on marketable securities		(240	)		(458	)
Comprehensive loss	$	(269	)	$	(14,284	)

See accompanying notes to unaudited condensed consolidated financial statements.

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SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except for share amounts)

																																																			Accumulated
	Series E preferred stock						Series D preferred stock						Series C preferred stock						Series B preferred stock							Series A preferred stock							Common stock					Limited common stock					Additional paid-in			Accumulated				other comprehensive					Non controlling				Total stockholders’
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount				Shares			Amount				Shares		Amount			Shares		Amount			capital			deficit				loss (income)					interest				equity (deficit)
Balance at December 31, 2020		—		$	—			—		$	—			—		$	—			—			$	—			—			$	—			60,713,534		$	607		9,164,193		$	92		$	752,558		$	(129,559	)			$	317			$	4			$	624,019
Change in unrealized loss on marketable securities		—			—			—			—			—			—			—				—			—				—			—			—		—			—			—			—					(240	)			—				(240	)
Issuances of common stock upon stock option exercise		—			—			—			—			—			—			—				—			—				—			587,141			6		—			—			3,650			—					—				—				3,656
Stock-based compensation		—			—			—			—			—			—			—				—			—				—			—			—		—			—			4,366			—					—				—				4,366
Contributions by non-controlling interest		—			—			—			—			—			—			—				—			—				—			—			—		—			—						—					—				498				498
Net loss		—			—			—			—			—			—			—				—			—				—			—			—		—			—			—			(29	)				—				(494	)			(523	)
Balance at March 31, 2021		—			—			—			—			—			—			—				—			—				—			61,300,675			613		9,164,193			92			760,574			(129,588	)				77				8				631,776


Balance at December 31, 2019		73,795,777		$	109,270			39,540,611		$	22,000			47,242,235		$	19,844			29,468,101			$	9,840			134,704,785			$	30,626			6,121,821		$	61		—		$	—		$	11,655		$	(105,096	)			$	16			$	41			$	(93,323	)
Change in unrealized loss on marketable securities		—			—			—			—			—			—			—				—			—				—			—			—		—			—			—			—					(458	)			—				(458	)
Issuances of common stock upon stock option exercise		—			—			—			—			—			—			—				—			—				—			57,581			1		—			—			176			—					—				—				177
Stock-based compensation		—			—			—			—			—			—			—				—			—				—			—			—		—			—			1,775			—					—				—				1,775
Issuances of common stock upon initial public offering, net of issuance costs of $22,667		—			—			—			—			—			—			—				—			—				—			13,664,704			136		—			—			209,497			—					—				—				209,633
Conversion of convertible preferred stock into common stock		(73,795,777	)		(109,270	)		(17,844,124	)		(9,928	)		—			—			—				—			(134,704,785	)			(30,626	)		30,278,832			303		—			—			149,521			—					—				—				149,824
Exchange of convertible preferred stock into limited common stock		—			—			(21,696,487	)		(12,072	)		(47,242,235	)		(19,844	)		(29,468,101	)			(9,840	)		—				—			—			—		13,164,193			132			41,624			—					—				—				41,756
Contributions by non-controlling interest		—			—			—			—			—			—			—				—			—				—			—			—		—			—						—					—				435				435
Net loss		—			—			—			—			—			—			—				—			—				—			—			—		—			—			—			(13,826	)				—				(445	)			(14,271	)
Balance at March 31, 2020		—			—			—			—			—			—			—				—			—				—			50,122,938			501		13,164,193			132			414,248			(118,922	)				(442	)			31				295,548

See accompanying notes to unaudited condensed consolidated financial statements.

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SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(523	)	$	(14,271	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on equity investments		1,781			—
Noncash revenue from equity investments		(5	)		(46	)
Fair value adjustments		(24,824	)		3,079
Depreciation		887			877
Stock-based compensation		4,366			1,775
Noncash research and development expenses		498			435
Noncash investment accretion		1,955			83
Loss on disposal of property and equipment		19			—
Decrease (increase) in assets:
Accounts receivable, net		20,153			2,404
Unbilled and other receivables		(3,065	)		5,154
Reduction in the carrying amount of right of use assets		1,264			1,299
Prepaid expenses and other assets		(3,549	)		(1,106	)
Increase (decrease) in liabilities:
Accounts payable		(1,230	)		2,110
Accrued payroll, taxes, and benefits		(1,655	)		(2,289	)
Deferred revenue		(8,447	)		(3,378	)
Lease liabilities		(1,352	)		(1,266	)
Other accrued liabilities		2,806			(638	)
Net cash used in operating activities		(10,921	)		(5,778	)
Cash flows from investing activities:
Purchases of property and equipment		(513	)		(843	)
Purchases of equity investments		—			(2,869	)
Distribution from equity investment		40			—
Proceeds from sale of equity investments		15,735			—
Purchases of marketable securities		(143,671	)		(127,109	)
Proceeds from maturity of marketable securities