SDGR - Schrodinger: Buy The Drug-Discovery Platform And Get The Pipeline Nearly For Free

2024-06-04 11:20:58 ET

Summary

• Schrödinger is a hybrid biopharma company specializing in physics-based computational chemistry and traditional drug development.
• The company aims to utilize computational methods to create better drug candidates and improve strategic decision-making in clinical trials.
• Schrödinger has attracted substantial investment from strategic partnerships and has a diverse pipeline of drug candidates in clinical development.
• The company has suffered setbacks over the past year, but near 52-week lows, the stock presents substantial value.
• A discounted cash flow approximates the software business to be slightly above Schrödinger's enterprise value. In a sense, investors are buying the software business and getting the pipeline nearly for free.

Schrödinger, Inc. ( SDGR ) is a biotech company specializing in physics based computational chemistry, along with a traditional pipeline of new medicines being tested in clinical trials. The company went public in February 2020 , but had existed before that as a private company since 1990. Over this time, Schrödinger built a differentiated physics-based computational platform to enable the discovery of molecules for drug development. Based on the growth of the software business, the market may be undervaluing Schrödinger's collaborations and proprietary pipeline. Upcoming milestones for the company's key pipeline assets in the coming year may provide a catalyst for the market to price in this value.

Traditional drug development efforts are complex, lengthy and capital intensive, while still prone to high failure rates. On average, it takes 10 to 15 years and around one billion dollars to advance a drug candidate that still suffers a 90% chance of failure in the clinic. Drugs can fail over 3 stages of clinical trials for a variety of reasons, including: efficacy, toxicity and pharmacokinetics, among others. During each successive stage of clinical development, failure narrows the "pipeline" of drugs, until only very few reach commercialization. The dream of a company like Schrödinger is to fully utilize modern computational methods, thus creating better drug candidates and improving strategic decision making....

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