Q2 2024 Earnings Summary
- Strong growth and market adoption of the Monolix software platform, with revenue increasing by 38% year-over-year in Q2, making it the company's fastest-growing software platform. Another large pharma company has committed to transition entirely to Monolix, displacing the incumbent competitor, indicating continued momentum and potential for future growth.
- Significant increase in adoption of ADMET Predictor, with a quadrupling of new customers and tripling of upsells compared to the previous quarter. This growth is driven by recognition of its best-in-class technology and its adoption by AI biotech companies, affirming the company's strong position in AI-enabled biosimulation and its ability to attract cutting-edge biotech firms. ,
- Positive impact from strong biotech funding, especially for companies with drug candidates in the clinic, which can benefit from Simulations Plus' comprehensive suite of modeling and simulation capabilities. The company expects that within 6 to 9 months, many funded companies will advance their candidates, leading to increased demand for their products and services.
- Fee retention decreased from 100% in Q1 to 94% in Q2, suggesting potential customer churn or challenges in maintaining customer relationships. Management acknowledged that the previous quarter's performance was extraordinary and that the current rate is more typical, operating at a mid-90s level.
- Softness in the Asian market, especially in China, is causing a pullback in spending and impacting sales of key products like GastroPlus. Management noted that year-over-year growth in GastroPlus was not tremendous due to this regional slowdown.
- Uncertainty and cautiousness among large pharmaceutical clients are affecting spending decisions. Factors like patent exposure and program restructuring have led to significant cutbacks in some companies, such as Pfizer, resulting in "a lot of churn and cautiousness" in drug program investments, which could negatively impact SLP's revenues.
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ADMET Predictor Sales Surge
Q: What drove the strong increase in ADMET Predictor sales?
A: The company saw a significant rise in ADMET Predictor sales, with the number of new customers quadrupling and upsells tripling compared to last quarter. This surge was driven by increased market acceptance of the technology and recognition of its value in lead optimization. Notably, an AI startup biotech licensed ADMET Predictor to supplement their own development, indicating that SLP's tools are not being displaced by new AI technologies. -
Biotech Funding Impact on Bookings
Q: How quickly does biotech funding improvement affect bookings?
A: The impact of increased biotech funding on bookings varies, but significant effects are typically seen within six to nine months. While sales cycles can range widely, companies receiving funding are expected to advance their drug candidates to the next level within that timeframe, leading to purchasing decisions. -
Differentiation from New AI Players
Q: How does SLP differentiate from new AI drug development companies?
A: SLP maintains a competitive edge through years of data curation and development, offering best-in-class AI technology in property prediction with ADMET Predictor. Their extensive experience and access to both public and private curated data sets provide an advantage that is not easily replicated. Recent adoption of their tools by AI startup biotechs supports their continued relevance and competitiveness. -
GastroPlus Revenue Growth
Q: Can you provide more color on GastroPlus revenue increase?
A: GastroPlus performed well, with a sequential increase reflecting a new seasonality pattern after last year's harmonization process. Although year-over-year growth was modest, momentum remains strong despite some softness in the Asian market, particularly China. -
Monolix Performance and Clinical Trials
Q: What drove the significant year-over-year growth in Monolix?
A: Monolix experienced over 30% year-over-year growth. This was due to continued displacement of competitor products and adoption by large pharma companies. While not directly tied to clinical trial counts, increased development programs and modeling activities indirectly contribute to Monolix's growth. -
Fee Retention Rate Explanation
Q: Why did the fee retention rate decrease from 100% to 94%?
A: The fee retention rate of 94% this quarter is consistent with the company's typical mid-90s level. Last quarter's 100% rate was extraordinary, and the current rate reflects normal renewal patterns, including some renewals that slipped into the next quarter. -
New Corporate Development Initiative
Q: What is the focus of the new corporate development effort?
A: The company is exploring investments in companies with complementary technologies that are not yet acquisition candidates. This initiative aims to enhance their technology offerings and possibly benefit from the success of partners' drug development programs. The focus remains on technologies that add value to SLP's business model of software license and service revenue. -
Sales Organization and Integration
Q: Can you discuss the sales team and recent integrations?
A: The sales organization includes about 12 quota-carrying salespeople and 6 or 7 in marketing. The company has consolidated sales and marketing efforts across divisions to improve efficiency and present a unified approach to clients. Recent additions include Dan Zout as Chief Revenue Officer. -
Reclassification of Costs and Operational Focus
Q: Why were G&A costs reclassified into COGS, and what benefits resulted?
A: The reclassification allowed for better clarity on costs and profitability drivers. It helped align the organization and focus on areas to improve utilization rates, leverage best practices, and drive future profitability. This also supports their strategy for future M&A integration. -
Large Pharma Influence on Biotech Sales
Q: Do large pharma companies help in selling to biotech clients?
A: There is no direct influence where large pharma companies aid in selling to biotech clients. However, when employees move from large pharma to biotech firms, they often bring experience with SLP's products, which can lead to new sales opportunities.