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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 June 30, 2022 

OR

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.)

 

 

1540 Broadway, 24th 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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 July 28, 2022, the registrant had 62,028,442 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

 

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

6

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)

6

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (Unaudited)

7

 

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2022 and 2021 (Unaudited)

8

 

Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 (Unaudited)

9

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (Unaudited)

10

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

39

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults Upon Senior Securities

75

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

76

Item 6.

Exhibits

77

 

 

 

 


Table of Contents

 

 

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 “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “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 drug discovery programs, preclinical studies and clinical trials of ours and those of our collaborators;

 

our plans to submit investigational new drug applications to the U.S. Food and Drug Administration for our internal drug discovery programs;

 

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 continued 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 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; and

 

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

2

 


Table of Contents

 

 

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.


3

 


Table of Contents

 

 

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, discover or develop 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 candidate into clinical development.

 

Conducting successful clinical trials requires the enrollment of a sufficient number of patients, and suitable patients may be difficult to identify and recruit.

 

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 internal information technology systems, or those of our third-party vendors, contractors, or consultants, may fail or suffer security breaches, loss or leakage of data, and other disruptions, which could result in a material disruption of our services, compromise sensitive information related to our business, or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.

 

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.

4

 


Table of Contents

 

 

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

 

Our actual operating results may differ significantly from our guidance.

5

 


Table of Contents

 

 

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

 

June 30, 2022

 

 

December 31, 2021

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

127,319

 

 

$

120,267

 

Restricted cash

 

 

3,500

 

 

 

3,000

 

Marketable securities

 

 

382,246

 

 

 

456,212

 

Accounts receivable, net of allowance for doubtful accounts of $124 and $108

 

 

18,767

 

 

 

31,744

 

Unbilled and other receivables, net for allowance for unbilled receivables of $40 and $30

 

 

12,978

 

 

 

8,807

 

Prepaid expenses

 

 

12,062

 

 

 

5,030

 

Total current assets

 

 

556,872

 

 

 

625,060

 

Property and equipment, net

 

 

11,524

 

 

 

10,025

 

Equity investments

 

 

21,903

 

 

 

43,167

 

Goodwill

 

 

4,791

 

 

 

 

Intangible assets, net

 

 

853

 

 

 

 

Right of use assets

 

 

90,133

 

 

 

75,384

 

Other assets

 

 

1,804

 

 

 

2,851

 

Total assets

 

$

687,880

 

 

$

756,487

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,263

 

 

$

8,079

 

Accrued payroll, taxes, and benefits

 

 

16,533

 

 

 

18,405

 

Deferred revenue

 

 

47,440

 

 

 

55,368

 

Lease liabilities

 

 

7,180

 

 

 

2,042

 

Other accrued liabilities

 

 

9,174

 

 

 

7,317

 

Total current liabilities

 

 

85,590

 

 

 

91,211

 

Deferred revenue, long-term

 

 

20,105

 

 

 

30,064

 

Lease liabilities, long-term

 

 

88,112

 

 

 

77,827

 

Other liabilities, long-term

 

 

1,000

 

 

 

300

 

Total liabilities

 

 

194,807

 

 

 

199,402

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value. Authorized 10,000,000 shares; zero shares issued and

   outstanding at June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.01 par value. Authorized 500,000,000 shares; 62,027,061 and 61,834,515

    shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

620

 

 

 

618

 

Limited common stock, $0.01 par value. Authorized 100,000,000 shares; 9,164,193 shares

    issued and outstanding at June 30, 2022 and December 31, 2021

 

 

92

 

 

 

92

 

Additional paid-in capital

 

 

807,827

 

 

 

786,964

 

Accumulated deficit

 

 

(312,078

)

 

 

(229,952

)

Accumulated other comprehensive loss

 

 

(3,403

)

 

 

(651

)

Total stockholders’ equity of Schrödinger stockholders

 

 

493,058

 

 

 

557,071

 

Noncontrolling interest

 

 

15

 

 

 

14

 

Total stockholders’ equity

 

 

493,073

 

 

 

557,085

 

Total liabilities and stockholders’ equity

 

$

687,880

 

 

$

756,487

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

6

 


Table of Contents

 

SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

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

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software products and services

 

$

30,011

 

 

$

24,052

 

 

$

63,092

 

 

$

50,392

 

Drug discovery

 

 

8,458

 

 

 

5,732

 

 

 

24,040

 

 

 

11,519

 

Total revenues

 

 

38,469

 

 

 

29,784

 

 

 

87,132

 

 

 

61,911

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software products and services

 

 

7,101

 

 

 

5,641

 

 

 

14,612

 

 

 

11,547

 

Drug discovery

 

 

14,234

 

 

 

12,163

 

 

 

27,403

 

 

 

22,220

 

Total cost of revenues

 

 

21,335

 

 

 

17,804

 

 

 

42,015

 

 

 

33,767

 

Gross profit

 

 

17,134

 

 

 

11,980

 

 

 

45,117

 

 

 

28,144

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

31,123

 

 

 

21,092

 

 

 

58,945

 

 

 

42,540

 

Sales and marketing

 

 

7,428

 

 

 

5,380

 

 

 

14,099

 

 

 

10,619

 

General and administrative

 

 

22,056

 

 

 

15,850

 

 

 

44,189

 

 

 

29,239

 

Total operating expenses

 

 

60,607

 

 

 

42,322

 

 

 

117,233

 

 

 

82,398

 

Loss from operations

 

 

(43,473

)

 

 

(30,342

)

 

 

(72,116

)

 

 

(54,254

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on equity investments

 

 

11,828

 

 

 

 

 

 

11,828

 

 

 

(1,781

)

Change in fair value

 

 

(15,700

)

 

 

(4,918

)

 

 

(21,864

)

 

 

19,906

 

Other (expense) income

 

 

(296

)

 

 

357

 

 

 

32

 

 

 

777

 

Total other (expense) income

 

 

(4,168

)

 

 

(4,561

)

 

 

(10,004

)

 

 

18,902

 

Loss before income taxes

 

 

(47,641

)

 

 

(34,903

)

 

 

(82,120

)

 

 

(35,352

)

Income tax expense

 

 

33

 

 

 

67

 

 

 

5

 

 

 

141

 

Net loss

 

 

(47,674

)

 

 

(34,970

)

 

 

(82,125

)

 

 

(35,493

)

Net income (loss) attributable to noncontrolling interest

 

 

12

 

 

 

(326

)

 

 

1

 

 

 

(820

)

Net loss attributable to Schrödinger common and

   limited common stockholders

 

$

(47,686

)

 

$

(34,644

)

 

$

(82,126

)

 

$

(34,673

)

Net loss per share attributable to Schrödinger

   common and limited common stockholders, basic and

   diluted:

 

$

(0.67

)

 

$

(0.49

)

 

$

(1.15

)

 

$

(0.49

)

Weighted average shares used to compute net loss

    per share attributable to Schrödinger common and

    limited common stockholders, basic and diluted:

 

 

71,161,892

 

 

 

70,582,062

 

 

 

71,106,470

 

 

 

70,328,254

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7

 


Table of Contents

 

 

SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss attributable to Schrödinger common and

   limited common stockholders

 

$

(47,686

)

 

$

(34,644

)

 

$

(82,126

)

 

$

(34,673

)

Changes in market value of investments, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(746

)

 

 

(1

)

 

 

(2,752

)

 

 

(241

)

Comprehensive loss

 

$

(48,432

)

 

$

(34,645

)

 

$

(84,878

)

 

$

(34,914

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

8

 


Table of Contents

 

 

SCHRÖDINGER, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except for share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Common stock

 

Limited common

stock

 

Additional

paid-in

 

Accumulated

 

other

comprehensive

 

Non

controlling

 

Total stockholders’

 

 

Shares

 

Amount

 

Shares

 

Amount

 

capital

 

deficit

 

income (loss)

 

interest

 

equity

 

Balance at December 31, 2021

 

61,834,515

 

$

618

 

 

9,164,193

 

$

92

 

$

786,964

 

$

(229,952

)

$

(651

)

$

14

 

$

557,085

 

Change in unrealized loss on

   marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,006

)

 

 

 

(2,006

)

Issuances of common stock upon

   stock option exercise

 

137,885

 

 

2

 

 

 

 

 

 

906

 

 

 

 

 

 

 

 

908

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

9,134

 

 

 

 

 

 

 

 

9,134

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(34,440

)

 

 

 

(11

)

 

(34,451

)

Balance at March 31, 2022

 

61,972,400

 

 

620

 

 

9,164,193

 

 

92

 

 

797,004

 

 

(264,392

)

 

(2,657

)

 

3

 

 

530,670

 

Change in unrealized loss on

   marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

(746

)

 

 

 

(746

)

Issuances of common stock upon

   stock option exercise

 

54,661

 

 

 

 

 

 

 

 

396

 

 

 

 

 

 

 

 

396

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

10,427

 

 

 

 

 

 

 

 

10,427

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(47,686

)

 

 

 

12

 

 

(47,674

)

Balance at June 30, 2022

 

62,027,061

 

$

620

 

 

9,164,193

 

$

92

 

$

807,827

 

$

(312,078

)

$

(3,403

)

$

15

 

$

493,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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