Summary of Certara (CERT) FY Conference Call - June 04, 2025 Company Overview - **Company**: Certara (CERT) - **Industry**: Pharmaceutical Drug Development - **Focus**: Model-informed drug development and biosimulation to improve drug development efficiency and success rates Key Points and Arguments 1. **Drug Development Challenges**: Nearly 90% of new medicines entering clinical trials fail, with development costs ranging from $2 to $3 billion, primarily due to unsuccessful trials [3][4] 2. **Impact of Improvements**: A mere 3% improvement in drug development success rates could save approximately $300 million per approved drug [5] 3. **Biosimulation Platform**: Certara's biosimulation platform allows for modeling disease and drug interactions, helping clients save time and costs while enhancing scientific understanding [6] 4. **Client Base**: Certara serves around 2,400 customers, including all major pharmaceutical companies, with over 90% of FDA-approved drugs in the last decade utilizing their technology [7] 5. **Financial Performance**: The company operates with an EBITDA margin in the low 30s and is profitable, with ongoing investments in software growth [8] 6. **Market Potential**: Certara estimates a total addressable market (TAM) of approximately $4 billion for biosimulation services, with significant growth opportunities [16] 7. **Regulatory Support**: The FDA has increasingly recognized and approved the use of biosimulation in drug development, with a rise in guidance documents over the years [15] 8. **Shift from Animal Testing**: Recent FDA announcements to phase out animal testing, particularly for monoclonal antibodies, present a favorable environment for Certara's biosimulation models [17][19] 9. **Product Suite**: Certara's offerings include: - **SimShip Simulator**: Models drug kinetics across diverse human populations [22] - **Phoenix**: An analytics tool for fitting clinical trial data to models [28] - **Pinnacle 21**: A data standardization tool used by the FDA for clinical trial submissions [30] - **ChemAxon**: A chemical informatics platform acquired to enhance drug discovery processes [31] 10. **AI Integration**: Certara is incorporating AI into its biosimulation products, enhancing usability and productivity, with AI-related revenue already in the millions [32][33] 11. **Acquisition Strategy**: The company has made strategic acquisitions to bolster its capabilities, including Pinnacle 21, Applied Biomath, and ChemAxon [35] 12. **Growth Strategy**: Certara is focusing on increasing its software revenue, which has a high barrier to entry, while reviewing its services segment for potential restructuring [40][41] Additional Important Insights - **Clinical Trial Efficiency**: Certara's technology has enabled clients to avoid numerous costly clinical trials, demonstrating significant cost savings [26] - **Market Trends**: The increasing adoption of biosimulation in the pharmaceutical industry is reflected in the exponential growth of related publications over the past 25 years [14] - **Regulatory Landscape**: The FDA's evolving stance on biosimulation and data standardization is crucial for the future of drug development and Certara's business model [15][30] This summary encapsulates the critical insights from the conference call, highlighting Certara's role in transforming drug development through innovative technologies and strategic growth initiatives.

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $106 million, representing a 10% year-over-year growth [19] - Total bookings for the first quarter were $118.2 million, which is a 12% increase from the prior year [19] - Adjusted EBITDA for Q1 2025 was $34.8 million, up from $29.1 million in Q1 2024, with an adjusted EBITDA margin of 33% [24][25] - Net income for Q1 2025 was $4.7 million, compared to a net loss of $4.7 million in Q1 2024 [25][26] Business Line Data and Key Metrics Changes - Software revenue was $46.4 million in Q1 2025, an 18% increase year-over-year, driven by biosimulation software and Pinnacle 21 [20] - Services revenue was $59.6 million in Q1 2025, up 4% compared to the prior year [22] - Software bookings were $40.8 million, a 23% increase from the prior year, including $4.9 million from Chemaxon [21] - Regulatory services showed strong performance with double-digit growth in bookings year-over-year [22] Market Data and Key Metrics Changes - The current market has headwinds such as IRA price controls and a challenging capital raising environment for biotechs, but also tailwinds from FDA announcements regarding animal testing [8][9] - There is significant inbound interest from customers regarding the non-animal navigator product, indicating a broad market engagement [48] Company Strategy and Development Direction - The company is focusing on integrating AI into software solutions, expanding biosimulation model development, and enhancing drug development processes [9][10] - Certara aims to capitalize on the FDA's plan to phase out animal testing, which is expected to drive demand for their modeling and simulation tools [11][14] - The company is actively pursuing M&A opportunities and organic investments to drive long-term growth [16][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting commercial goals despite a muted end market environment [12][17] - The FDA's recent announcements are seen as long-term tailwinds for the adoption of modeling and simulation tools [11][14] - The company anticipates continued growth in revenue and adjusted EBITDA margins, with guidance for total revenue in the range of $415 million to $425 million for 2025 [27][28] Other Important Information - The company announced a $100 million share repurchase authorization, with $25 million already repurchased [26][27] - New leadership was welcomed in the services group, indicating a focus on enhancing capabilities [15] Q&A Session Summary Question: What common themes are seen in the inbound interest for the non-animal navigator? - Management noted that companies are eager to understand FDA expectations and the potential for reduced animal usage in drug development [33] Question: What is the expected net retention ratio (NRR) for Certara? - The current NRR is 102%, which is lower than historical averages, but expected to improve as software revenue increases [34][36] Question: What is the scope of commercial engagement regarding the non-animal navigator? - Customers are inquiring about what can be replaced today and the potential for future applications [40] Question: How are potential pharma tariffs impacting customer behavior? - Management indicated that while there is slowness in decision-making, Certara is insulated from direct tariff impacts [49] Question: What is the key to moving pharma off its current practices? - The FDA's clear signals and potential discouragement of animal model usage are crucial for industry adoption [55] Question: How does the FDA's recent announcement compare to previous regulatory changes? - The current FDA announcements have generated more industry interest compared to the past, where the FDA was less proactive [66] Question: What is the timeline for the financial impact of the non-animal navigator product? - It is too early to determine specific timelines for financial impact, but interest is building [70] Question: How is the company leveraging AI in its products? - The company has launched AI products that enhance regulatory reporting and attract customer interest [72][74]