Certara at Bank of America Conference: FDA Shift Boosts Prospects

On Tuesday, 13 May 2025, Certara Inc. (NASDAQ:CERT) presented at the Bank of America 2025 Healthcare Conference, providing an optimistic outlook amid industry challenges. The discussion highlighted the positive impact of the FDA’s directive to reduce animal testing, while also addressing hurdles such as funding difficulties for smaller biotech firms.

Key Takeaways

• Certara’s Q1 performance met expectations, with software growth bolstered by the Chemaxon acquisition.
• The FDA’s move to reduce animal testing is seen as a significant growth driver for Certara.
• AI technologies are being integrated to enhance efficiency, notably through the CoAuthor product.
• Certara continues to prioritize M&A, focusing on software to boost revenue proportions.
• Despite challenges, the company remains optimistic about future growth prospects.

Financial Results

• Q1 2025 saw Certara’s software business perform in line with expectations, aided by Chemaxon.
• Services business achieved mid-single-digit growth, driven by regulatory business recovery.
• Software accounted for 45% of Q1 revenue, with a target of 50% by year-end 2025.

Operational Updates

• The FDA’s directive is a major tailwind, expected to boost revenue in SIMSIP and QSP areas.
• Certara launched the Non Animal Navigator to assist customers in moving away from animal testing.
• A webinar and the CertainT conference focused on the FDA’s shift, drawing significant customer engagement.
• AI integration includes the CoAuthor product for regulatory writing and enhancements to existing platforms.
• The Chemaxon integration is progressing well, presenting growth opportunities through product synergies.
• Transitioning the Phoenix software platform to a cloud-based version hosted by Certara.

Future Outlook

• 2025 end markets are expected to mirror 2024, with challenges from tier one customer reprioritizations.
• The funding environment for tier three biotech customers remains difficult.
• M&A remains a core strategy, with a focus on acquiring software companies to drive growth.

Q&A Highlights

• Certara maintains a strong relationship with the FDA, continuing collaboration on biosimulation tools.
• Capital allocation will emphasize R&D investment, particularly in AI enhancements.
• The value proposition of biosimulation lies in its ability to save time and money in drug development.
• Certara aims to increase the software revenue proportion, leveraging historical clinical data for efficiency.

Readers are invited to refer to the full transcript for a detailed account of the conference call.

Full transcript - Bank of America 2025 Healthcare Conference:

Matthew Guvenbiller, Analyst, BofA: Welcome to day one of the twenty twenty five BofA Healthcare Conference. My name is Matthew Guvenbiller. I’m an analyst on the US BioPharma team, And it’s my pleasure to be joined today by John Gallagher, the CFO of Certara. Welcome, and thanks for coming.

John Gallagher, CFO, Certara: Thanks for having me, Matthew. Appreciate it.

Matthew Guvenbiller, Analyst, BofA: Of course. Let’s jump right in. Maybe first, could you just provide an overview of Certara, sort of key takes from the 1Qprint and things you’re looking forward to for the end of the year?

John Gallagher, CFO, Certara: Yeah, sure. So Certara is a software and services company that focuses on biosimulation or model informed drug development. And we are approximately 45% of our business is software, with the remaining piece being services. During the quarter, we performed in line with our expectations on software, which were aided by our acquisition in Q4 of Chemaxon. And the services business performed in line with our expectations as well in about the mid single digit growth rate, which was helped by regulatory business that returned to growth in Q4 of last year.

And then in Q1 also saw additional year on year growth. So we were pleased with the quarter overall in an end market environment that continues to be challenged, as we know.

Matthew Guvenbiller, Analyst, BofA: Sure. So maybe jumping into biosimulation. Obviously, the focus of a lot of investor attention, especially after the recent FDA announcements, that they were looking to reduce animal testing requirements. Maybe just high level, you know, first thoughts on that, announcement from the FDA, your understanding of the path forward, etcetera?

John Gallagher, CFO, Certara: Yeah. I mean, are Certara is very well positioned given the announcement by the FDA to shift away from animal testing. And we have existing products and services that play really well into this directive. And we’re excited about the opportunity and the tailwind that it provides to the company in both the near term and over the long term as well. And specifically, what we see is, one, it’s a strong endorsement by a regulatory body, which helps smooth the pathway for our customers to further adopt biosimulation software and services that they’re currently buying from us.

It also provides an avenue to add new customers to our portfolio, generally in the tier three category. And so those are some of the key opportunities. We think that we can drive incremental revenue inside of this year associated with the directive, and that would show up, generally speaking, in two of our product areas. That would be in SIMSIP and in QSP, which is quantitative systems pharmacology, which is a biosimulation services practice that we’ve been building out with the help of our acquisition of Applied Biomath in 2023. That’s great.

Matthew Guvenbiller, Analyst, BofA: And I know you mentioned in the past that regulators have used your platform. Curious if you’ve seen any changes in the use of your platform or interaction with the agency on that end.

John Gallagher, CFO, Certara: That’s right. Yeah, we do. We have a long standing relationship with the FDA. They are a big user of our software. We hold webinars to train them on software and we continue to have constructive dialogue with them going forward.

Obviously, given this directive too, it only furthers the partnership that we have between the two organizations. And so, no, there’s been no change. In fact, I’d say there’s additional collaboration, but definitely no change or reduction in use of Sertar’s biosimulation by the FDA.

Matthew Guvenbiller, Analyst, BofA: That’s great. Maybe moving to large pharma companies. I know that you’re already involved with most, if not all of them. How do you think about driving growth in this area, especially with this recent announcement? You know, what does biosimulation do that is attractive to these companies?

Where do you see it going in the next five years?

John Gallagher, CFO, Certara: Right. So there’s they are it’s true. The so each of the largest pharma companies are already our customers. And so the key to unlocking growth is just further penetration and adoption. The directive that we just spoke about regarding shifting away from non animal or away from animal testing rather just further enables us largely, historically, Certara has been clinically focused.

And I mentioned our acquisition of Chemaxon last year. That gets us into the discovery phase of drug development. This directive is going to help expand our footprint further into the preclinical stage. So we’re excited about that opportunity. The other key way that we’re trying to advance the penetration and adoption with our largest customers is through our commercial model.

So we have been investing over the last couple of years in the sales and marketing line, which you saw in our P and L, And we’ve built out a commercial organization that we feel really good about. They executed very well in Q1. We talked about the execution in the face of challenging end markets being a highlight on the quarter’s performance. And the other opportunity that we have as it relates to these largest customers is to take this commercial model and escalate the call point. So really move up the ladder within each of these organizations to have an opportunity to talk to key enterprise capital allocation decision makers that we can really have a discussion about the value proposition that Certara’s biosimulation can offer them in drug development?

Matthew Guvenbiller, Analyst, BofA: Sure. So maybe moving to some of the smaller companies. What do you see as the key headwinds there for, you know, continued uptake or growth in that area? Is it sort of macro headwinds, funding, you know, ability to spend, or what do you sort of see as the path forward?

John Gallagher, CFO, Certara: Yeah. So we call the biotechs our tier three customers. And a very important part of our overall revenue achievement are these tier three customers. And, you know, I mentioned our commercial team and the execution we saw in Q1 was strong. And that was thanks to, you know, a focus on the commercial model with the tier three customers.

But I would balance that, and we were pleased with that performance, but I would balance that with the funding environment that’s out there. So I think everybody’s well aware that the capital markets funding environment for biotechs right now is difficult. And so although our Tier three performance has been strong, and we said that on the call last week, we’re pleased with that. But we are cautious about the fact that the funding environment is challenged for the for the tier three customers. And so that’s something for us

Matthew Guvenbiller, Analyst, BofA: to keep our eye on as we proceed through this year. Sure. So maybe sort of stepping back for a minute. You know, do you see the impact or the continued uptake of AI based platforms happening sort of gradually? Or is it sort of these big events like the recent announcement that will sort of drive, you know, quick rapid growth?

John Gallagher, CFO, Certara: Yeah. So AI development is something that we’ve been working on for the last two years. We did an acquisition of a company called Viasa back at the tail end of 2022. So during ’twenty ’3 and ’twenty four, we’ve been working on putting that AI technology into Certara’s existing software service offerings. That culminated with a product offering late last year called Co Author, which is AI for regulatory writing.

So we have high hopes for that. And we’re generating bookings, we’re generating revenue on coauthor. The next step and a step we’ve already been working on is how to integrate this AI technology into our other software platforms and even into the shift of quantitative systems pharmacology from purely services based into software also. And so the next step is how can we accelerate some of the core biosimulation software and services that we have today, leveraging the AI technology to be able to create software or enhance the existing software that we have. Yeah.

Matthew Guvenbiller, Analyst, BofA: And then maybe just speak to, you know, sort of your capital allocation priorities and sort of business structure as to how you’re, you know, prepared to make these changes in response to a very changing environment, to sort of continue to drive growth.

John Gallagher, CFO, Certara: Yeah. Yeah. So we have from a capital allocation perspective, we have been investing in the organization even in times where the end markets are challenged, like we’ve had this year, we had that last year, and to some degree we’ve had that in 2023 also, we’ve chosen to invest through those cycles. I talked about the commercial investment that we made. This year, the focus now that we’ve built that commercial team, this year more of the focus is on R and D investment And some of the enhancements to AI are the R and D investments that we’re making this year.

In addition, we’re also making investments in each of the existing software platforms to add features and functionality that will be attractive to our customers and drive sustained software growth over the long term. So in this cycle of industry turbulence, we’re continuing to invest, and we think that’s going to really help us catalyze growth into the future. And when the end markets recover, we think that’s a significant opportunity for us to catalyze additional growth at that point in time too.

Matthew Guvenbiller, Analyst, BofA: Sure. So I want to dial in on, you know, maybe one specific. I know that you launched the animal non animal navigator recently. Maybe speak to sort of how that was developed. Was it the culmination of a lot of internal systems coming together?

Was there, you know, sort of novel innovations that happened? Maybe speak through the development process there.

John Gallagher, CFO, Certara: Yes. Yeah. So non animal navigator, we launched right on the heels of the FDA announcement of the shift away from animal testing. And we’re excited about this opportunity. Again, as I mentioned earlier, we think there’s, an opportunity in front of us to drive incremental revenue inside of this year associated with SimShip, associated with QSP.

And really the way to help do that is to we’ve created this offering called Non Animal Navigator, which effectively helps translate for our customers the existing platforms that I mentioned and how those can be used in these specific use cases to help shift away from animal testing. And so we’re excited about that opportunity and we see that. Two days after we launched Non Animal Navigator, we held a webinar for customers. We had hundreds of customers join the webinar to learn about the product and learn about how they could begin to shift their business toward modeling and model informed drug development and away from animal testing. So that was really the first stage.

And then even last week, we hold an annual customer conference that we call CertainT. And last week, we had two fifty customers come together in one place for a two day conference, and these were customers across all three of our customer tiers. And as you can imagine, there was a lot of conversation about non animal navigator, about the shift in the FDA directive, and how our products and services can help them change their priorities as it comes to drug development.

Matthew Guvenbiller, Analyst, BofA: Sure. And maybe on that point, have you seen most of the interaction with non animal navigator from tier one versus tier three companies, sort of a mix of all of them? Is it applicable to all of them, or do you see this as sort of predominantly focused on capturing one tier?

John Gallagher, CFO, Certara: Yeah. No. It’s across all three tiers. And the engagement that we had with our customers even just last week was across tiers one, two, and three. And the help that we can offer to customers on navigating, you know, this new directive is applicable really to each of

Matthew Guvenbiller, Analyst, BofA: the customers. Sure. So maybe switching to Comaxon now. I know that was a recent acquisition that adds some capability that you didn’t have before. Maybe speak to what that capability is and if you’re sort of looking to go further in that area of maybe, you know, preclinical drug discovery versus your sort of historical clinical, you know, precedent.

John Gallagher, CFO, Certara: Yeah. That’s right, Matthew. So historically, Certara’s footprint in the drug development cycle was predominantly in the clinical phases. And although we did have a small presence in discovery with our D360 product, adding Chemaxon to the Certara portfolio is an important step to really expand our footprint beyond clinical and into discovery also. And so we’re very excited about bringing Chemaxon into the Certara family.

The integration has been going very well. The business has performed ahead of our expectations, as you’ve seen in the Q4 and now the Q1 results. And I’d say that what we’re focused on right now from an integration perspective is some of the commercial opportunity that’s in front of us in introducing the Chamaxon products to Certara’s many, many customers that we have. So that’s a significant opportunity. And the other opportunity that we have associated with Chemaxone is bringing existing products together.

So I mentioned, Cerqara had had D360 in the past, and selling that independent from Chemaxon, you know, growth was somewhat limited in that respect. And so having the Chemaxon offering and combining Chemaxon offerings with D360 is powerful combination for us to drive additional growth on top of the initiatives that we’re working on with the sales team. So I’d say that it’s been going really well and it puts Certara footprint as an expansion into discovery. And then everything that we just talked about related to the FDA directive away from animal testing expands our footprint even further into the preclinical where we had done some work, but this is really going to advance our opportunity to do a whole lot more work in that phase of drug development.

Matthew Guvenbiller, Analyst, BofA: Sure. So maybe just, you know, speaking to the synergy between the preclinical and the clinical side, how do you see that working, you know, from a user basis? And sort of do you have an example of, you know, customers that have been using both preclinical and clinical programs and sort of the success they’ve seen? Yeah.

John Gallagher, CFO, Certara: The opportunity here is that where historically there’s been animal testing, then there’s an opportunity to use modeling. And as I mentioned, our footprint in preclinical had been somewhat limited pre announcement. And now that we’ve got an opportunity in front of us to expand that footprint, we’ve got Discovery also. I think Certara is very well positioned to be able to gain a larger share of wallet as we look at the customer base. Having off product offering, product or service offerings in discovery, preclinical, the clinical phases, all the way through submission with our Pinnacle 21 software product.

So that helps change the conversation and helps change the use cases that some of these customers can see. Because these are different populations inside of the very largest organization. These are, you know, different populations and departments that are focused on different areas that may or may not have had exposure to us in the past. So it’s a nice opportunity for Certara.

Matthew Guvenbiller, Analyst, BofA: Yeah, that’s helpful. And maybe, you know, thinking about those customers who are sort of potentially new to Certara. I know the FDA announcement mentioned, you know, sort of organoids, organ on a chip, as well as biosimulation. Maybe speak to sort of why you view biosimulation as potentially, you know, the best out of those options or what advantages that has versus, you know, organ on a chip, etcetera. Yeah.

John Gallagher, CFO, Certara: So, you know, the advantage that biosimulation has is the fact that it’s been around. So, you know, there’s a long track record in history, including the data and the clinical studies associated with biosimulation that proves the efficacy of the modeling as a good replacement. Now that’s not to say organ on a chip, I think, does present an interesting opportunity. It’s just an earlier it’s an earlier stage technology and use case that, you know, that we’re certainly taking a look at that and trying to understand it better and may have some very good use cases as it relates toxicology. But I think that the larger opportunity here is with proven track record and the data associated with biosimulation from many years of use that and importantly, by the regulator also.

So we’ve talked a lot about the FDA. We talked about their use of our software. That’s also an important pathway for the adoption of customers and their use of biosimulation.

Matthew Guvenbiller, Analyst, BofA: Yeah. So maybe towards that point, you know, what do you see as needed for even wider spread uptake of biosimulation? Is it sort of the cumulative approval of drugs that were developed using this technology, or is it sort of regulator interaction, sort of both?

John Gallagher, CFO, Certara: Those those two dynamics play hand in hand. So what we see as the long term driver of growth of biosimulation, setting aside some of the industry dynamics that are headwinds in the present moment, but the long term driver truly is the adoption and penetration of biosimulation, meaning just use more utilization of technology and software and the use of drug development than is used today. And so one of the key opportunities to be able to open up that adoption and accelerate it is for our customers to feel very comfortable that as use the technology, they adopt it in their drug development programs, that it will be accepted by the regulator. And that’s why guidances by the FDA, including the directive that we just saw recently, are very important to smooth the pathway for adoption of biosimulation. That’s what gets us very excited about the recent, very specific mentioning of modeling and drug development in the recent

Matthew Guvenbiller, Analyst, BofA: directive? Sure. So, you know, looking at the drug development process from preclinical all the way to approval and potential launch, a lot of the issues that, you know, many investors have are the time it takes to get to a potential launch, you know, the quality of assets, something like one in 12,500, you know, preclinical candidates end up actually being approved. Where do you see biosimulation coming in and improving the process? Is it, you know, the speed to get to approval?

Is it the quality of assets? Is it the cost that’s associated with running, you know, animal studies preclinically? Sort of all of them. Yeah.

John Gallagher, CFO, Certara: So the core value proposition for biosimulation is using technology to save time and save money in the drug development process. And while that, you know, obviously one of the key ways that that happens is accelerating successful drugs through the development cycle. But the other key important avenue of learning that we have in this process is the failure of drugs too. So the sooner that you can understand if there’s going to be a failure and biosimulation has been in place long enough now that, you know, there’s many instances that have informed the models into the future, that even understanding the failure points is a key point in the overall development and how you can accelerate drug development in the future. So obviously the successes and the speed to success is important, but the speed to failure is another key metric that we think biosimulation can really help drive efficiencies in saving that time and saving that money that otherwise would have been spent on something that that may or may

Matthew Guvenbiller, Analyst, BofA: not have worked. Yeah. So maybe speaking to that, you know, I know a lot of people focus on the data behind these models to sort of understand, you know, the amount of data, what these models can and can’t predict, the probability of success success, excuse me. Maybe speak to the data that’s driving your model, what you’re using, and sort of what you’ve seen be most beneficial? Is it toxicology?

Is it sort of preclinical properties, PKPD, etcetera? Right. So

John Gallagher, CFO, Certara: again, historically for Certara, the key data that we had was clinical. So if you think about, and we have many, many years of that data that helped inform the models that have evolved into what they are today, which is the most sophisticated models in the industry. So now that’s not to say that that data can obviously be transferred and help inform preclinical uses too. And that’s why we think that the products that we’re offering today, meaning again, QSP services as well as SimSip, PPPK services, helpful in shifting from a clinical focus into a preclinical focus. That’s helpful.

Maybe switching to R and D.

Matthew Guvenbiller, Analyst, BofA: I know this is a big focus point for you guys. A lot of time, effort, and money spent in this. What are the biggest pain points you’re hearing from customers in terms of what you’re thinking about for potential innovation in R and D?

John Gallagher, CFO, Certara: Yeah. Yeah. So our focus on R and D is how we can provide features and functionality on our software platforms that are going to help drive efficiencies at the customers. So like a good case in point for that one is on the Phoenix software platform for us. We are in the process right now of transitioning Phoenix from an on premise version that the customer hosts to a Phoenix hosted or a Phoenix cloud version that we will host for them.

And that is a significant value to the customer in the sense that they don’t have to host the software. And that’s something that, you know, they’re willing to pay for also. So it’s a good opportunity for Certara to transition and help hit, you know, a key pain point at our customers while driving additional growth and value at Certara. And maybe when

Matthew Guvenbiller, Analyst, BofA: do you expect to see that shift sort of fully realized, you know,

John Gallagher, CFO, Certara: maybe in revenues? Right. So we’re doing that transition this year, but we view that as a multiyear adoption cycle. And like, you think about our software is generally speaking, most of our software is on an annual renewal. And so as these renewals pop up, which is, you know, throughout each of the quarters of the year, we’re seeking to do that transition.

But we think that it’s a multiyear kind of transition from on premise to

Matthew Guvenbiller, Analyst, BofA: the cloud. That’s helpful. Maybe taking a step back, I know you guys have been active on M and A in the past. Balance sheet looks healthy. Any thoughts on what you’re pursuing here if you’re continuing to pursue M and A activity?

John Gallagher, CFO, Certara: Yeah. Yeah. So that’s right. We’ve been acquisitive. The balance sheet’s in good shape.

We have just recently gotten approval and executed partially on a share repurchase authorization, which, you know, in our minds just provides another avenue of capital allocation, but doesn’t take our our eye off of, you know, what we think is sort of the the core capital allocation vector for us is continues to be M and A and searching for good candidates to add to our portfolio, just like we did with Chemexon last year. And, you know, we do look towards software as a key area as we continue to drive the mix of software. I said at the beginning of the call today that the mix of software at Q1 was about 45%. We think that by the time we get to the end of this year, that’ll be 50%. And, you know, we’re continuing to drive a higher proportion of our overall revenue achievement in software.

And so that’s a key component. So although we’ve now added another avenue for capital allocation with share repurchase, and we executed some against that, and we think that’s a good use of some of the cash. The key focus continues and will continue to be a focus on M and A opportunities. Gotcha.

Matthew Guvenbiller, Analyst, BofA: So just double clicking on that share buyback. I know that was before the FDA announcement, I believe. Is this sort of the strategy moving forward, at least, you know, in some portion to continue the share buybacks? We have to evaluate it in the con

John Gallagher, CFO, Certara: just like I was saying, we have to evaluate it in the context of what all of the opportunities are and, you know, what is the value capture that we’re gonna get on each dollar that we’re allocating out. And so, you know, it’s good to have another avenue for capital allocation, and we think that’s important, especially we’re a company that generates cash. We have cash on the balance sheet, and we want to deploy that cash meaningfully each and every year. So share repurchase is one avenue, But as I mentioned, I think, you know, we would balance that, and you’ve seen us balance that with acquisitions as well.

Matthew Guvenbiller, Analyst, BofA: That’s helpful. And maybe, you know, last question as we think forward into 2025. Obviously, things are changing all the time, but maybe, you know, provide sort of an overview of your expectations for the rest of 2025, what you’re looking forward to drive growth.

John Gallagher, CFO, Certara: Yeah. So we talked a lot about the opportunity in front of us. We’re very excited about that, optimistic about, the incremental revenue we can drive from this near term opportunity. But the counterbalance to that, of course, is that the end market environment continues to be challenged. That’s not really a surprise to us.

So we had contemplated in our guidance that 2025 end markets would be similar to what we saw in 2024, and that’s, you know, pretty much how it’s playing out. So we had challenges with tier one customers last year with some slowness, some portfolio reprioritization, and that happened last year. And, you know, that’s happening again this year. So that’s playing out in line. And then I’d say in the tier three customers, so the biotechs last year, although the funding environment was a little better last year, and I think we’re seeing that show up in our recent tier three customer performance results.

And this year, the funding environment appears to be a little bit worse than than than what we saw last year’s. But, you know, net net, then it’s it’s sort of playing out in line with our expectations and in line with the way

Matthew Guvenbiller, Analyst, BofA: that we had guided the year. That’s helpful. Unfortunately, I think we’re coming up on time, but I wanna thank John for the very insightful conversation and look forward to following the story for the rest of the year.

John Gallagher, CFO, Certara: Thank you, Matthew. Appreciate it. Yep.

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