Simulations Plus at KeyBanc Forum: Strategic Growth Amid Challenges

On Tuesday, 18 March 2025, Simulations Plus (NASDAQ: SLP) participated in the KeyBanc Annual Healthcare Forum. The company’s CEO, Sean O’Connor, outlined a strategic roadmap focused on software and consulting services in the biopharmaceutical sector. While the company is optimistic about growth, challenges such as client budget constraints and integration of recent acquisitions were also highlighted.

Key Takeaways

• Simulations Plus is integrating its recent acquisition, Proficiency, to enhance its software revenue mix and improve margins.
• The company aims for a 35%+ EBITDA margin, though current guidance is set at 31% to 33% due to acquisition impacts.
• Growth in the biosimulation industry is promising, with average growth rates of 12% to 14%, outpacing R&D spend growth.
• Proficiency is expected to contribute $15 million to $18 million in revenue, with full integration by fiscal year 2026.
• The company is focusing on expanding into new budget areas and potential M&A to consolidate the biosimulation market.

Financial Results

• Revenue is split approximately 60% from software licensing and 40% from services.
• Despite a temporary slowdown in service revenue due to client budget constraints, services bookings rose 22% sequentially last quarter.
• The legacy business is projected to grow by 10% to 15%.
• Simulations Plus expects to achieve a 60/40 software/services revenue split for Proficiency by fiscal year 2026.

Operational Updates

• The Proficiency acquisition, completed in June, is being integrated to align with Simulations Plus’s model.
• Cost synergies have been realized by reducing overhead costs, including back office and HR roles.
• Proficiency’s transition from a film studio approach to AI and avatars for training modules aims to improve cost efficiency.

Future Outlook

• Simulations Plus plans to expand its reach into clinical operations and medical affairs budgets.
• The company is targeting improvements in gross margins for Proficiency’s software business from 80%+ towards 90%.
• M&A activities are expected to continue as part of the strategy to consolidate the market.

Q&A Highlights

• The adoption of biosimulation is growing steadily, though scientific and regulatory challenges remain.
• Opportunities for cross-selling and market consolidation through tuck-in acquisitions were discussed.

For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - KeyBanc Annual Healthcare Forum 2025:

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: Welcome everyone. I’m Scott Schoenhaus, the Healthcare Technology Analyst at KeyBanc. Happy to have Sean O’Connor, CEO of Simulations Plus with me in our fireside chat. Sean, welcome. Sean, let’s just kick off, I guess, perhaps people that are doing your story, what software and services you offer to biopharma companies?

And then within that, what are like the main software applications that you are selling into large pharma?

Sean O’Connor, CEO, Simulations Plus: Sure, Scott. Hey, thanks for having us at your conference today. Appreciate it. Simulations Plus supports the biopharma industry with the provision of software platforms in the biosimulation space and a consulting service to support our clients use of those platforms. Our revenue is driven about 60% by those software platform licensing and about 40% from provision of services and support of our our clients.

Four primary software platforms in our portfolio, they range in terms of their application from early discovery through to and beyond regulatory approval. Some applications in the after approval market place as well. Our target here is the biopharma’s drug development process which we all know is ten to twelve year duration to get a drug to market, a billion dollars plus in terms of the average cost. The real challenge here is the predictability, the batting average of success in terms of those molecular structures that are taken into the clinic and ultimately gain approval and introduction into the marketplace which drives the average cost of a drug to be developed. Our platforms, I’ll run through them.

Admet Predictor is a product that supports the discovery department, those early stage, earliest of stages in a drug sponsor’s effort to identify molecular structures which might hit their target with a reasonable efficacy and toxicity profile assessed upfront. It’s a process that is historically a very trial and error process with that process being identifying a molecular structure, taking it into the lab, perhaps synthesizing it and getting early information. Admet predictor provides 150 different property predictions for that molecular structure before you go through that cycle of taking it into the lab for testing, which each instance may be $100,000 to $200,000 in terms of that effort and a time duration that is shortened tremendously by utilizing the property predictions that come out of our tool. The next platform is a platform called GastroPlus or GPX. Modeling and simulation in support of drug development takes many different forms.

PBPK, physiologically based pharmacokinetics is one of those approaches and that is what the Platform GastroPlus supports. It is a combination of disease and biological models along with drug profile models. The use cases for the platform began in preclinical phases and run through beyond regulatory approval. But the sweet spot is in the first in human or first in species animal testing, setting up the protocols for the animal test, translating animal results into predictive human results which supports the initial protocol for a first in human test. And then supports through beyond the clinical process and ultimately as an example supports bioequivalency studies aftermarket in terms of changing formulations in drug recipes if you will in the manufacturing process.

GastroPlus has applications out as far as that point in time. The third platform in our portfolio is a PKPD tool pharmacokinetic pharmacodynamic tool. Monolix is the name of that product. PKPD tools are used to profile drug profiles, pharmacokinetic pharmacodynamic. When you ingest a molecular structure, how much of that gets into your system and what’s the profile of its disposition, duration of time in the system and how does it meter itself out.

This is an important ingredient in the preparation of dosing regimens and patient stratification, two key characteristics of the developing of a clinical trial and allowing for the simulation of that clinical trial identifying predictive outcomes of the trial and the iterative process of going back and tweaking the protocol to ensure highest likelihood of success. The fourth platform in our portfolio is, again, a predictive analytical tool. In this case, it is a training and education platform for drug sponsors in their enactment of a clinical trial protocol. The number one citation from the FDA at the end of a clinical trial is for lack of adherence to the protocol. The patient hasn’t been administered the trial specifications according to the protocol and obviously disrupts the success and outcome of that clinical trial.

Our proficiency platform provides a very unique use of science and technology and educational science in improving what has historically been a PowerPoint presentation education structure to the sites and participants in the clinical trial. Takes that to a more sophisticated level that has a proven track record of being more successful in training participants in the clinical trial. And most importantly, the platform provides the direct sponsor with an ability to track the training efforts and the success of the trainees such that the drug sponsor can proactively address issues before they become clinical trial issues either by upping the training activity or redirecting patients to clinical sites that are adhering to the protocol in a more accurate fashion. So those four platforms drive our software revenue stream. We also license models out of our QSP QSP practice as well.

And in total, the software side of our business represents about 60%, sixty % plus of our revenue drive.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: Within the software modules you mentioned, where do you see the most growth in clients currently, Sean?

Sean O’Connor, CEO, Simulations Plus: Yeah. Modeling and simulation and its various domains are at different stages of adoption. I’ll walk through them from left to right again in the same sequence, the Admet predictor product and discovery. Discovery with the advent of AI successes and technology development is a big focus in life science. How do we get more selective more quickly and more accurately with molecular structures to put into the clinical process?

So, AdmetPredictor being a contributor based upon machine learning technology, that is an area of good strong growth for us today. The PBPK platform, GastroPlus, is in a area and covers enough of that drug development continuum in which use cases are being developed. New use cases are being developed quite frequently. So that’s growing fairly well in the marketplace today. QSP models are a very new area of of application in the world of biosimulation.

And so on a small base, newly introduced, that’s growing quite well. The PKPD platform Monolix is in a little bit more older market in terms of that approach to modeling and simulation. Its origins date back to the earliest of biosimulation introduction in the early 90s. Our product, however, is a relatively newcomer seven years in the making into the marketplace and is growing probably our fastest growing software platform as it is rapidly taking market share from the incumbent application in that segment. And finally, proficiency, the educational platform there is again growing faster than our other applications, our other platforms as it really revolutionizes and and takes into a world of new technology that training sequence ahead of clinical trials.

So, you know, all four platforms are growing quite well, seeing great interest in terms of the Admet predictor side, very strong growth where we’re replacing an old incumbent product in the Monolix area And GastroPlus and Proficiency are growing quite nicely as well.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: Moving on to the services, I think bookings were up 22% sequentially this last quarter, but you had some revenue, a light revenue in the quarter from some client driven billings. Just go over again what drove that, and sort of what your expectations are moving forward for this year on the services side, Sean?

Sean O’Connor, CEO, Simulations Plus: Yeah. Yeah. In a world in which our end to market pharma companies, biotech companies, it has been an environment of cost constraint for a whole host of reasons. Our software business is really an infrastructure play. And as costs are constrained, our clients aren’t dismantling infrastructure.

So our software business renewal rates are high and steady and that revenue stream is not as disrupted as the service side of the business which is it’s not discretionary but it’s more manageable on the part of our clients in terms of start and stop in terms of consulting projects according to their budget. And so, our service business can be a little bit more sawtooth in terms of its growth quarter to quarter. Specifically, you referenced a very good bookings quarter in our first quarter. Now our first quarter with a fiscal year that ends in August, our first quarter ended in November. And that is the timeframe of budget setting in our client base.

And the bookings in our first quarter were very good as they began to close out their budgets for calendar year ’25 and began contracting that business which would be implemented, initiated. Those projects populate the calendar year ’25. And so we’re quite pleased with our bookings in our first quarter. The revenue in that quarter was at the end of their calendar year, a timeframe in which they had pretty well consumed their budgets for spend in calendar twenty four. And so, a softer quarter for us on the service side in the first quarter.

But that bookings bode well in terms of their level of use of our consulting practice into the calendar year of ’25, the back half of our fiscal year 2025. Do

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: you view services as a leading indicator of your software? Or how should we think about the relationship between services and software? Obviously, there’s implementation that needs to be done on the front end on this software to on the services side. So, yes, just help us like navigate between the services and the software segments.

Sean O’Connor, CEO, Simulations Plus: Yes. In some cases, when you’re talking about small biotech, smaller pharma entities, you know, often they will, don’t have the internal staff to do this type of work and will outsource to simulations plus to do that work on a service basis as they mature, get more drugs in the program, grow in size. They will build internal infrastructure and begin licensing our software to do it themselves. Now that said, our consulting practice, disproportionate of our services are private are provided, to larger, not not only the top 20, but larger pharma, that have modeling and and and and simulation resources internal to their organization and license our software already. But typical sort of strategy on the part of our clients of that profile.

They don’t staff up internally to meet a % of their needs, and they will license our software and undertake a portion of their modeling and simulation requirements, perform it in house, and they will also have budget to hire and supplement their internal capabilities with services from Simulations Plus. So, yeah, there is a leading indicator to some degree in some accounts and the smaller accounts that start out as a consulting client that then acquire our software down the road. But it’s not a prevailing the way in which either software finds a new logo or consulting business is attracted as well.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: You mentioned proficiency seeing some nice growth there. Let’s drill in there more. You acquired this beginning of how long ago was this now? A year ago?

Sean O’Connor, CEO, Simulations Plus: June. A lot of time flies. Not quite a year yet, but it’s the months are ticking away here already. Yes.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: So let’s talk about, how it’s progressing. I mean, I think the main two issues or challenges was there was it was two services heavy versus software. I think the mix was inverse of your ratio and there was ability obviously with that mix shift to increase margins, but I think there was cost opportunities as well. So walk us through what you’re seeing. Has revenue has software revenue growth accelerated towards your legacy profile yet?

And are we seeing some margin expansion happening?

Sean O’Connor, CEO, Simulations Plus: Yes. No, it has been a quick six months. We’ve certainly from a synergy impact on the business model perspective, first and foremost, internal integration has allowed us to shed a lot of the overhead of the acquired company in terms of back office, HR, finance, that sort of part of the world, integration elsewhere in the organization has been accomplished. The business development team there, business development people have been integrated into our team as a whole. We’ve trained across the group and have a singular go to market strategy across all of our portfolios including proficiency now.

In terms of impact on our financial model as you referred to, yeah, a couple of things. You know, their their mix was, you know, sixtyforty in the direction of services to our sixtyforty in the direction of software and their software growth within their revenues growing faster than services. And that has continued. And, you know, it is a transition that should move to our profile of 6040, but probably isn’t accomplished in in fiscal year twenty five for us and probably get more approximate to our model in in in fiscal year twenty six time frame. Also had within their two segments of their business, their software margin where we enjoy 90% plus gross margin on our software business.

They’re They’re probably 80% plus round use around member. And that’s indicative of the fact that they have to build the training modules before they’re licensed to our clients. So they probably will always be a little bit less, but they’ve been very adept at translating a process that in its origin, included a film studio and the hiring of actors and and film editors, etcetera. And the vast majority of that work is being done using AI and avatars and technology and the studio is getting a little dusty. Still needs to be opened up when there’s a intricate training module that can’t be replicated just yet with AI.

But that obviously is much more cost efficient build of those training modules and that will continue and 80% will, will will move upwards. Probably don’t have an endpoint that is at or 90%, but it’ll improve. The service margin, service side of the business, there, the the value added services that they provide in medical communications, pretty comparable margins to our service margins overall. In that business, however, they it’s very typical for the drug sponsor. In medical communications, you know, one significant piece of the work that they do is KOL management and training.

And often the drug sponsor wants the agent, the medical communication agent to act as travel agent and book flights and hotel rooms and pay fees to the KOLs at a very administrative margin markup and whatnot. So we are helping them along a path of partnering with other, other service providers to take on that type of work, which will improve the margin on the service side of the business as well. So overall, we simulations plus overall, very focused in terms of getting back to what has historically been a 35% plus EBITDA margin. And our guidance this year is 31% to 33%, a step forward in that direction. And in fact, if you looked under the covers there, our SLP legacy business, ex proficiency, if you will, does in fact look to be headed and will be in the 35% plus target range in this fiscal year.

It’s the proficiency impact that brings our guidance back down to 31% to 33%. But anticipate that another fiscal year, fiscal year twenty six allows us to achieve that objective on an overall basis.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: How many customers does proficiency or how many customers did frequency have bought it? And has that grown? And are you able to cross sell your legacy software to legacy proficiency customers and vice versa? Just kind of looking for the cross sell opportunities here.

Sean O’Connor, CEO, Simulations Plus: Yeah. Yeah. You know, I’d say the cross sell is in the other direction. The customer base of proficiency, I think 90% were customers of SLP already. And it’s probably their our opportunity to sell their capabilities and through to our two fifty clients.

I think the proficiency count was was maybe 20 to 25 customers. Keep in mind that they can be, like our service business, a customer today when the project’s done may not be a customer tomorrow for a few months until the next project comes up. So, it’s a moving target in terms of customer count at any point in time. The real opportunity first and foremost from a priority and timing perspective is giving the proficiency team an ability to, work their way into, large pharma accounts. They had relationships with eight of the top 20.

And obviously, our coverage is much more extensive to that. And so, it’s not only the introduction but it’s also the engagement size as a relatively small startup becoming a new vendor for a drug sponsor, a large pharma account requires a master service agreement and, you know, they are motivated to keep their list of vendors as short as possible. Our relationship with them is of that higher nature and should give good proficiency a better crack in the door. And that’s what we’re playing out right now. In the long run, the addition of proficiency opens up a couple new budget areas for us.

Traditionally, we access the discovery department’s budget. We access the modeling and simulation department budget, and, as well the, clinical management budget, if you will, the team that manages the drug through to the development clinical cycle. Proficiency coming on board opens up a clinical ops budget for that clinical trial and as well medical affairs, for communication work we do before a drug is approved and the commercial budget, for after regulatory approval introduction of a drug into, the consumer marketplace, if you will. And, so a longer range of leverage here is the amount of opportunity budget opportunity that we can access with our clients as, well our TAM has doubled. And so, our budget access follows that sort of doubling as well in this process.

The ability to sell biosimulation into medical affairs either pre or post regulatory approval. You know, the content is through the proficiency platform. There are some biosimulation content that can be made attractive to medical affairs there in their process. And quite frankly, ultimately modeling and simulation is the backbone to personalized medicine. And as personalized medicine sort of reaches the commercial marketplace, there will be opportunities for us to drive revenue out in that direction as well longer term.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: Drilling into the guidance for this year, Sean, so on the you talked about the margin impact from Proficiency, so understand that. Now on the revenue side, I believe you said $15,000,000 to $18,000,000 revenue contribution from Proficiency. You’ve guided to $90,000,000 to $93,000,000 back that out mid single digit growth on your legacy core business. Maybe talk about the puts and takes there both on the software and services side. I mean, we’ve talked about a little bit about these market challenges.

But I think you’ve pointed to 10% to 15% growth on average that biosimulation should be growing as an industry each year. So maybe just talk to us about what the guidance contemplates for this year and then what how you think dynamic shift potentially?

Sean O’Connor, CEO, Simulations Plus: Busted. You caught me. Yeah. Our legacy business 10% to 15% growth is the assumption. That’s been our guidance for the SLP legacy business for a couple of years.

Two years ago, we were down at the low end of that 10%, ten to 15% range. And last year, we were at the high end of that, that range. So, you know, the, you know, dynamics there are one of, you know, we assume the market would continue to be cost constrained going into this fiscal year. So no change in the market, some leeway for, hey, it could get better, could also get worse. We were at the time of the election and everyone thought the election would clear away all the mysteries of life.

It hasn’t exactly accomplished that, but, we’ll see how how that that goes. Yeah. If you take 10 to 15% growth and then our growth in terms of proficiency is based upon their track record, 15 to 18,000,000 on top of that. Boy, that puts you at or above our top end of our guidance, purely a perspective of, hey, let’s be conservative in our guidance. And, hey, if there’s opportunity to come in at the high range or even beat it, there’s also room to absorb a hit or two surprise along the way and still achieve guidance.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: Great. I guess my last question is sort of existential and broad based and philosophical, right? I think a lot of the biggest pushback I got from investors from covering this space generally speaking biosimilations, why isn’t the group broader adoption? It’s seemingly right at the sweet spot of what large pharma wants to do, which is cut costs, drive efficiencies. We saw it accelerate during the pandemic when there was literally not you couldn’t run clinical trials, so you need to do biosimilation.

And things have slowed. And people want to know, yes, they understand like the cyclicality of pharma spending and doing clinical trials is cyclical in nature. But I guess the bigger question is why hasn’t been there more broad based adoption of biosimulation by a large pharma? Is it because it’s very fragmented where there’s a lot of different little niche biosimulation software offerings, so everyone’s taking a little piece of the market share. What’s your pushback on investors saying, well, I don’t know if we’ll get to mid teens growth perpetually to existence.

We should have seen it by now.

Sean O’Connor, CEO, Simulations Plus: Yes. Boy, for I’ve been in the business for twenty five years prior to Simulations Plus, two previous companies. And I’ve been asking when’s the hockey stick been asked when the when is the hockey stick for twenty years. And while we all may have hoped for a steeper hockey stick, the nature of the pharmaceutical industry, scientific hurdles to get over, regulatory hurdles to get over, you know, less today than it was before, but still, you know, a population of biosimulation PhD scientists that can do this type of work that, you know, supply has never met demand there. That’s improving, but it’s still still there to a certain degree.

It is being adopted. You know, growth, 12% to 14% average growth in biosimulation has been in an environment in which R and D spend growth has been 3% to 5%. So, they’re doubling the amount that they’re devoting to biosimulation in comparison to their other spend in the R and D space. So, it is growing. The number of use cases and applications for biosimulation are growing.

And adoption is there. But it’s not a market that in nature is going to double, triple, quadruple, hockey stick gets way to growth. Now, while that might disappoint people that are looking for inflection points, it can also be a strong characteristic of a business that has plenty of runway, delivers whether it’s in good times or challenging times, very good growth and very profitable flow through to the bottom line. So, that can be boring sometimes and I apologize for that but that’s what we’re focused on at Simulations Plus and have tended to deliver it on a pretty consistent basis.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: No, I think that’s well said. Do you think there’s more room for consolidation? It seems like there’s always an M and A story across this industry. Do you think that just continues in perpetuity?

Sean O’Connor, CEO, Simulations Plus: Yes. I think it’s a market like a lot of scientific tool markets. There are little tools and widgets being invented, discovered all the time that make great tuck ins. I think historically all of these approaches of modeling and simulations have been looked at in isolation. I think the value of integrated platform increases over time if not to the individual scientists but to the IT department that would like one platform to manage.

And so, yeah, we’ve built the business over the years, seven acquisitions, I think in our history and would anticipate that that will continually be part of our strategy going forward.

Scott Schoenhaus, Healthcare Technology Analyst, KeyBanc: Well, thank you so much, Sean. This has been great fireside chat. We continue to watch your progress this year and hopefully see some tailwinds finally on life sciences space that we’ve so desperately need. But thank you so much, Sean. And thank you all investors for joining this Firestone Chat.

Sean O’Connor, CEO, Simulations Plus: Thanks, Scott.

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