KeyBanc downgrades Simulations Plus stock rating on biopharma challenges

Investing.com - KeyBanc downgraded Simulations Plus (NASDAQ:SLP) from Overweight to Sector Weight following the company’s fiscal third-quarter results and forward outlook. The stock, currently trading near its 52-week low of $16.72, has declined nearly 59% over the past year.

The downgrade reflects ongoing challenges in the biopharma end market environment, which KeyBanc believes affects Simulations Plus more severely due to its customer concentration and biotech exposure. InvestingPro data shows 4 analysts have recently revised their earnings estimates downward, suggesting broader market concerns.

KeyBanc noted that Simulations Plus reported $2 million in cancellations from a single biotech customer, highlighting the vulnerability of the company’s revenue stream in the current market conditions.

Despite previous optimism that the recent Proficiency acquisition could help organic revenue growth re-accelerate to high-single digits in fiscal year 2026, KeyBanc now sees weaker customer demand continuing in the near-to-mid-term with no recovery expected in biotech end markets.

KeyBanc sharply lowered its estimates for Simulations Plus and reduced its valuation target multiple, citing difficulties in underwriting multiple expansion and estimate re-acceleration given the current risks and uncertainties.

In other recent news, Simulations Plus reported third-quarter fiscal 2025 earnings that surpassed analyst expectations. The company announced adjusted earnings per share of $0.45, significantly beating the projected $0.25. However, revenue for the quarter was $20.4 million, which fell short of the $21.84 million consensus estimate, despite showing a 10% year-over-year increase. The company also reported a net loss of $67.3 million due to a one-time non-cash impairment charge of $77.2 million. Simulations Plus has updated its fiscal 2025 guidance, forecasting revenue between $76 million and $80 million, and adjusted earnings per share of $0.93-$1.06. In another development, the company invested $1 million in Nurocor, a firm specializing in cloud-based clinical trial optimization software. This investment is part of Simulations Plus’ strategy to support early-stage technology companies in the pharmaceutical sector. The company has also transitioned to a functionally-driven operating model to streamline operations and focus on growth opportunities.

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