Simulations Plus at Wells Fargo Conference: Strategic Growth Amid Challenges

On Wednesday, 03 September 2025, Simulations Plus (NASDAQ:SLP) presented at the Wells Fargo 20th Annual Healthcare Conference 2025, outlining its strategic vision amidst industry challenges. CEO Sean O’Connor emphasized the company’s historical strength in drug modeling and simulation, while acknowledging market slowdowns and cost constraints. The acquisition of Proficiency was highlighted as a key strategic move to enhance clinical operations.

Key Takeaways

• Simulations Plus is focused on expanding its reach in the biosimulation market despite recent growth slowdowns.
• The acquisition of Proficiency aims to double the total addressable market to $8 billion.
• The company is investing in a new cloud-based platform to broaden client access and adoption.
• Software licensing remained stable, while consulting services faced revenue challenges.
• Simulations Plus anticipates a return to 10% organic growth as industry conditions stabilize.

Financial Results

• The biosimulation market, traditionally growing at a 15% CAGR, has seen a recent decline.
• Simulations Plus achieved a 10% organic growth rate over the past few years.
• The third quarter was affected by client budget constraints and a project cancellation.
• Software licensing, comprising 60% of the business, remained stable.
• Consulting services, accounting for 40%, faced revenue challenges.
• Software renewal rates consistently exceed 90%.

Operational Updates

• Industry-wide cost constraints and funding shortages impacted project timelines and revenues.
• The stable software segment contrasts with the affected consulting services.
• Cross-selling opportunities and new product development are key focuses.
• The upcoming release of GastroPlus, enhanced with AI, is anticipated by the end of the month.
• The company plans to roll out cloud technology across other platforms.

Future Outlook

• Simulations Plus is optimistic about incorporating new industry challenges into 2026 budgets.
• Software is expected to grow faster than services, with a focus on cross-selling and upselling.
• The cloud platform rollout will continue throughout the year.
• There is significant growth potential in the modeling and simulation sector.

Q&A Highlights

• Biosimulation tools are applicable from drug discovery through to approval.
• The complexity of biosimulation tools is seen as advantageous.
• Training programs are adaptable, with multilingual capabilities.
• Diversity in patient populations is increasingly important.

In conclusion, Simulations Plus remains committed to strategic growth through innovation and market expansion. For more detailed insights, refer to the full transcript below.

Full transcript - Wells Fargo 20th Annual Healthcare Conference 2025:

Stan Berenstain, Analyst, Wells Fargo: Okay. Welcome, everybody. My name is Stan Berenstain. I cover digital health at Wells Fargo. With me today is Sean O’Connor.

He’s the CEO of Simulations Plus. How are you? I’m doing great, Stan. Thanks for thanks for the invite. Yeah.

Absolutely. Happy you can make it. So before we begin, for those less familiar with the story, can you just give us a brief overview of what Simulations Plus does, what end markets it serves, and ultimately how does it help clients succeed?

Sean O’Connor, CEO, Simulations Plus: Absolutely. We at Simulations Plus celebrate our thirtieth year of existence this coming calendar year and have been in the world of modeling and simulation in support of drug development through our lifetime. Modeling and simulation in support of drug development, what does that mean? Boy, AI today is the buzzword that gets everyone’s attention. Our first product back in the mid-90s was a ADMET predictor, a product that’s used in discovery based upon machine learning developed algorithms to predict characteristics of molecules that have never been synthesized before.

Modeling and simulation in support of drug development means a lot of things. It is not one pool, one approach. It’s a number of approaches that basically use a combination of the sciences of computer science, mathematics, and statistics, along with the sciences of chemistry, physics, and biology to develop algorithms, predictive techniques, models of drugs, models of biological processes that allow our drug sponsors, our clients, to do a number of things and affect a number of decisions beginning in early discovery when you’re searching and prioritizing lead optimization of molecules that you want to take to the clinic, to molecular drug candidates in preclinical studies, fashioning plans in terms of animal testing, taking it into the clinic through the human clinical trial process, formulations, manufacturing components of those drugs, all the way through to drug approval, and even beyond post approval in terms of changes to formulations and other decisions that might be relevant afterwards. So this drug development process that on average is a ten to twelve year cycle to develop a drug, a $1 to $2,000,000,000 price tag in terms of developing that drug. We are positioned to help our clients make better decisions, make the process more efficient, leading to more targeted investment in drug programs that have more likely success criteria and moving through this long process in a more efficient targeted way.

The drug industry today, the development process is unfortunately achieving less ROI than it ever has in terms of our large pharma clients, their investment in R and D spend is not producing the outcomes at the rate they have in the past. And while we may get into dynamics in terms of the industry, cost constraints, reduced funding, underlying all of those challenges that they face is the basic problem of today a business model that in the past allowed for sporadic large blockbuster drug discoveries to pay for a relatively inefficient process to deliver those drugs, the blockbuster opportunities are farther and fewer between, more scarce, their need to develop a more targeted development program, more efficient to deliver approved drugs at the end of the day that may have smaller market sizes than those that they’ve enjoyed in the past, Changing and retooling their drug development process is high on their need list and we at Simulations Plus are one of those methodologies that allow them to achieve those.

Stan Berenstain, Analyst, Wells Fargo: So I think that’s a great lead in to my next question, which is you I think a year ago, you acquired a company called Proficiency. I think, based on what I’ve read, it doubled your TAM from $4,000,000,000 to $8,000,000,000 Can you just walk us through where your TAM was, what you were addressing and what this opens up for an opportunity for you?

Sean O’Connor, CEO, Simulations Plus: Yes, absolutely. We have to date prior to the acquisition focused all of our efforts in the biosimulation market, a market of using tools, modeling and simulation capabilities in support of the drug development process. Our reach into clinical operations with the acquisition of Proficiency was an opportunity for us to expand, increase our opportunity, and very targeted in terms of our acquisition in the clinical operations space which is ripe for the adoption of new technologies and modernization quite frankly in a very complex process of translating a protocol, a game plan for a clinical trial and efficiently undertaking it to a positive outcome. Our theme in terms of the acquisition was predictive analytics And our acquisition of proficiency brought a platform into our portfolio that is displacing a old approach in terms of translating and training sites on the protocol. The number one citation from the FDA at the end of the clinical trial is lack of adherence to the protocol, which disrupts, adds cost to the clinical trial and most importantly screws up, to use the technical term, the statistical outcome of that clinical trial.

Either lack of adherence leads to recruiting more patients and increasing the time and cost of the clinical trial or it disrupts the statistical analysis that allows for an approval by the FDA based upon the results of the clinical trial. Proficiency’s platform allows the drug sponsor to a) train the sites and the participants in a clinical trial in a more sophisticated fashion, not a PowerPoint presentation that the participants walk away with a hope that they retained it, but a more interactive training process. And secondly, most importantly, tracks the performance of those taking the training and allows the drug sponsor to anticipate which sites are more likely than not to adhere to the protocol and either reinforce training to improve that site or redirect patient recruitment to other sites that are more likely to adhere to protocol. So using predictive analytics to allow drug sponsors to prevent problems from happening was the key strategic component of the proficiency.

Stan Berenstain, Analyst, Wells Fargo: So training usually, I think, typically comes bundled with, you know, CTMS software and, you know, companies that dabble in that space, like metadata and and Veeva. Is that who you compete against? And and why would somebody go with, I guess, a stand alone product versus what they’re offering? Yeah.

Sean O’Connor, CEO, Simulations Plus: The the primary competitors are PowerPoint presentations, quite frankly, either provided by the CROs that are undertaking that clinical trial or an abundance of small third party training organizations. There are solutions that sit in the hands of Medidata, Veeva, and those players, But they represent relatively small market share in that space at this point in time. And our solution is unique, unique in the content of its training as well as in its tracking and management capabilities in the hands of the person.

Stan Berenstain, Analyst, Wells Fargo: Okay. And in your core offering, you mentioned you do biosimulation. Can you just make a distinction between what is the difference between biosimulation versus what I think a lot of people have been focused on recently, which is AI led drug discovery or identifying certain candidates for drugs using AI? What’s the difference between what you do versus what?

Sean O’Connor, CEO, Simulations Plus: No. Fair enough. I mean, is a tool. It’s a tool that allows for search, the interrogation of data. That data accumulation is critical to the developing of models.

We’ve used it in the past from its early days. Certainly a wave of capital investment in drug discovery applications of AI and the development thereof probably began two, three years ago. The Atomwises of the world, Valohels, Penevolent AI, long list of entities that targeted how can we identify molecular structures for the use of these data management capabilities and search and find the identification of biomarkers. All focus on the lead optimization process. What molecules should we take into the clinic?

Our coverage in that space is represented by our AdMed Predictor product which I mentioned earlier. Yeah, boy, certainly a lot of upfront competitive concern expressed. But these companies years forward since their initial investments, some have made some progress and some have developed some candidates that are moving into the clinic. Some of them have gone by the wayside. The tool is one thing, the knowledge, the science, the biology, chemistry, and physics is another.

And as these entities focused in on developing these tools, they by necessity are very focused in terms of specific targets, specific therapeutic areas. And today, most of them have not become competitors to Simulations Plus, none have really. They’ve become customers to Simulations Plus. They’ve become drug companies. By necessity, the payback on the capital investment there, a drug success is necessary to pay back the capital they’ve taken on.

And what really distinct and as they’ve matured, they have become Admet Predictor license holders, customers of Simulations Plus and as they’ve matured into the clinic, they’ve become customers of our other biosimulation tools. So, you know, I see them as early discovery companies and not competitive in the marketplace. And our customer list includes many of them today.

Stan Berenstain, Analyst, Wells Fargo: Okay. I want to talk about more recently pertaining to revenue and market demand. So I think you’ve seen some reduction in your expectations versus where they were at the start of the year. Can you just walk us through what you’re seeing related to the end market and how that’s translating into top line growth for you?

Sean O’Connor, CEO, Simulations Plus: Yes. Oh, absolutely. For the industry, it’s not a recent phenomenon. Last couple, three years, really, the cost constraint has been the buzzword in large pharma, lack of funding in the biotech world. These challenges have tightened their belts.

Biosimulation, a market that has historically grown at a 15% CAGR fell below that over the last couple of three years. We’ve executed well in that environment and organically have grown 10% the last couple of years. As we entered our fiscal year twenty five, which is with an August year end, it ended last Friday. The budgeting process last year seemed to be going relatively well. I think our industry, the drug development industry, handles known issues of patent expiration and the challenges that existed before the year, they don’t respond well to surprises.

And as they entered the calendar year of ’25, their budgets looked not robust. I wouldn’t have labeled them robust, but pretty firm and positioned to allow us to continue executing to a 10% growth. Tariffs, most favored nation pricing, FDA reductions, a whole host of new surprises came to them in the early part of the calendar year of ’25 and our third quarter was impacted by that. We saw our clients’ pipeline activity still very robust and active, but a lot of bottleneck at that end point of project proposal agreed to contract negotiated. How about a signature?

Lot of staleness at that last step. So bookings were down in the third quarter. Number of delays in terms of projects, clients pushing off, managing their budgets. Let’s hold off till next quarter to do that. And significantly, we had a project cancellation, a client with relatively material contract value scheduled to be performed and revenue for us in the back half of the year got bad readouts on the two programs under the contract and canceled those programs.

It happens, delays happen, but all of this came together in the third quarter and impacted revenue mess and guidance adjustment. Our business is about 60% software licensing and about 40% consulting services. The software side of our business relatively not impacted. This is an infrastructure acquisition on the part of our clients building their internal capabilities and while they’ve tightened their belt and maybe aren’t growing those departments as fast, they’re not shedding modelers. And so our software license side of our business is doing quite well.

The consulting side of the business is the area in the budget of modeling departments that they have some flexibility on in terms of opening up the purchasing cycle or slowing it down. And we’ve certainly been impacted by that. That carries forward into the fourth quarter in terms of the lower backlog, but anticipate that these new factors that came to the table in 2025 will be part of their budgeting cycle for 2026 and we’ll get back to a more steady flow of project requests and project signatures, etcetera, into our fiscal year ’26, which began this week. The market where we get back to 15% growth, hey, some of these dynamics do have to change, but our ability to execute to a 10% organic growth as we have done in this sort of environment for the last couple of three years, fully expect our ability to get back on track in that regard.

Stan Berenstain, Analyst, Wells Fargo: Okay. You mentioned some idiosyncrasies related to a canceled project. But if you think about broadly across your customer base, you’re saying software is steady. Can you just comment on the renewal rates? Do you expect that to stabilize, excluding this client departure here?

And how should we think about the next fiscal year?

Sean O’Connor, CEO, Simulations Plus: Yes. That client cancellation impacted the service side, not the software side of the business. Our renewal rates run at a pretty consistent 90% plus level. It is impacted the differential there, who doesn’t renew, companies that go bankrupt and consolidations. Acquisitions within our client base, client A acquires client B and they rationalize sites or organization in some fashion.

And so if you look back over time, our 90% fluctuates, I mean trailing twelve months or and on our expectation going forward, that 90% holds pretty firm traditionally. And software side of our business is our focus. We’re pretty committed to that sixtyforty split in terms of software and services as a result of the benefits, not only in terms of stability and recurring nature and margin. Service will always be part of our business. Our clients expect us to be able to undertake their capacity needs when required.

Our involvement on the service side doing this work provides great input into our software development programs on a go forward basis. Very important piece of the business, but we’re very focused on keeping the software side at 60% and growing that as a percentage of our total revenue over time.

Stan Berenstain, Analyst, Wells Fargo: Okay. And you did mention a few headwinds related to tariffs, cuts at the FDA. I wanted to ask you about some tailwinds. So one of the things that has happened over the past couple of years is the FDA is moving away directionally from animal models. You are in the business of doing simulations.

Can you just talk about how that has been a tailwind or potentially an improving tailwind for you going forward?

Sean O’Connor, CEO, Simulations Plus: Yeah, no, absolutely. A very positive announcement by the FDA in its regard to biosimulation. Yet another example of biosimulation’s growth has been underpinned by a series and continuous expansion of the use cases of biosimulation. I’ll compare it to several years ago, the change in a formulation of the drug would, in the old way, require a clinical trial to test that new formulation of drug. The FDA came out and said, hey, we believe the opportunity, the reliability of the technology, the predictive analytics in this area was sufficient that we want to eliminate having to go back to clinical trial for formulation changes.

After a period of study and defining the bar that one had to get over, today bioequivalence waivers for formulation changes are pretty common and an area that relies upon biosimulation to achieve those waivers which eliminated a costly and time consuming clinical trial process. The animal testing announcement, similar sort of situation. Now everyone sees an announcement like that and it’s an oil tanker industry. It takes a while for change to take place and this will develop over time and become a great use case for biosimulation in the future. We’re very active in that area already.

Our tools and techniques are used in the evaluation of early stage drug candidates in defining the protocols for animal testing. They’re used in order to minimize patient populations, animal testing populations. GastroPlus has a dozen different animal species models in the platform to do those sorts of evaluations. So the bar has now been raised. The bar previously was how do we make these animal tests most efficient and lower cost and quicker timeframes.

That bar is now what’s the threshold we have to get to in order to eliminate animal testing. A lot of debate scientifically is that a bar that can be achieved? Is the answer going to be complete elimination of animal testing or will it be some combination of biosimulation and reduced footprint of animal testing? This is the process the FDA and industry is going through right now. Typically takes a year or more, then takes some trial programs to be evaluated before it can become mainstream.

So yet another example, a great example of what underpins the ongoing runway of growth for biosimulation into the future. Yet be patient in terms of activity will be abundant, contribution to revenue will accrue over time.

Stan Berenstain, Analyst, Wells Fargo: I wanted to ask you about your growth formula. So you mentioned the market for biosimulation was growing at 15%, now it’s more of a 10% grower. If we think about the factors in terms of new clients versus existing clients contributing to growth, can you talk about that? And can you also talk about the expectation of the mix? So I think you said you expect software to be a faster growth than services going forward?

Sean O’Connor, CEO, Simulations Plus: Software revenue, a typical quarter is 80% sourced in renewals, 10% sourced in upsells or cross selling. Clients who take on more of the same product or take more of our product portfolio and 10% new logos. So eighty-ten-ten is sort of a typical contribution to our software revenue on that side. We’ve seen the opportunity on cross selling, the upsell side, to be one of our focuses quite frankly. Modeling and simulation sort of developed in its silos of techniques, PKPD, PBPK, QSP, not to throw acronyms, but these are the differing approaches of modeling and simulation for which we have tools and service that support those.

Those kind of introduced and looked at in their own silos independently. From a science point of view, we’re seeing the value of utilizing these different techniques in the same area, on the same problem, in the development of protocols, in the answering of efficacy, toxicity, decision making. We’re seeing a lot more integrated effort in terms of these distinctive tools or historically distinct tools. What that leads to is more benefit in terms of integration of these tools, a single platform in which the scientists or the client can trade and share models within these approaches. And as that leads to go to market strategies, our products, they are integrated, perfectly integrated, I wouldn’t say that, but integrated and share data and can share models.

But can the scientists easily move throughout them? This is an area of product development for us. And it begins this month with our introduction of GastroPlus, which helps in the process of product integration and add some pretty extensive AI technology to the platform. But I can come back to what that is. But in the context of cross selling, we think our clients are more ready to be looking at the full portfolio as opposed to buying them from a point perspective.

And we’ve also reoriented our go to market strategy and our sales force from a salesperson carrying a quota for a single product to an account management perspective where our salespeople own accounts and sell all of our products into that account. The opportunity on cross sell is tremendous.

Stan Berenstain, Analyst, Wells Fargo: And you did touch on, I think, a certain extent, on some new products coming to market. I I believe you’re developing a cloud based platform. Can you just tell us what’s the timeline for launch of this? And what what does it open up in terms of functionality?

Sean O’Connor, CEO, Simulations Plus: Yeah. Yeah. The time frame is pretty quick. Astra Plus, as I said, will be released at the end of this month. And it brings to the table two key technology components into our products.

Cloud technology is you know, our our products our clients install in premise to the tune of about 90% of our licenses. We do host on a cloud basis for a small sliver. The industry itself has not been a quick adopter of cloud based solutions and have preferred to keep within their IT walls these products keeping their data within their environment. That’s opened up of late and the cloud technology introduced this month will be rolled out to our other platforms during the course of the year and allows for a cloud delivery of our products. We anticipate that that will be taken up by our large pharma clients over time, not with a open cloud if you will, but they are developing their internal cloud environments to host their various applications.

And so it wouldn’t change our business model, if you will, in terms of license. It will open up to smaller clients that wanna use it on a cloud basis to see more cloud engagement in that world.

Stan Berenstain, Analyst, Wells Fargo: Is there any difficulty moving from one platform to the other?

Sean O’Connor, CEO, Simulations Plus: One of the key focuses is to make them interchangeable and easy to translate. So, you know, I believe it will be relatively easy for them. The challenge will be internal to their environment, not in terms of the use.

Stan Berenstain, Analyst, Wells Fargo: Okay. And I do want to end on just one question regarding, is there anything that you would say is most misunderstood or underappreciated part of your story? I mean, you’ve been around for a long time. I’d love to get your sense of what the market views Simulations Plus as and what it may be misunderstanding in terms of the story.

Sean O’Connor, CEO, Simulations Plus: Yeah, don’t know that they’re misunderstandings as much as an understanding that I often get the question, a, several questions, but first, where’s the hockey stick? If this is so good, how come it’s not fully adopted and applied by every drug company on every drug program in every way that it that it could. Host of reasons for that. One that has, you know, lessened in terms of its impact is, you know, scientific community that was trained in this area was always a gating item, less so today than in the past. But, you know, the other factor is it’s world of scientific adoption.

So as new use cases, we talked about the FDA and the animal testing, the timeframe for these use cases to come forward. It’s also an environment, a scientific environment where scientists, drug companies like to see 50 publications on the use of that technique before they’re ready to adopt it as well. So those things creep in. The flip side of the positive of that is that the growth opportunity after thirty years of simulations plus consistent growth at 10% to 15%, that growth rate, the runway for that growth continues into the future. The penetration level of modeling and simulation is still ahead of us and provide support for us to continue to be a very consistent grower on a go forward basis.

The other area is operating in a world of AI. And certainly the view in terms of is AI competitive, Is it value supporting the you know, is a tremendous tool and we use that tool as well to deliver capabilities to our client and our experience, know how, our access to data, these are all advantages that we leverage off of on

Stan Berenstain, Analyst, Wells Fargo: a go forward basis into the future. Awesome. Well, have a couple minutes here. If anybody has any questions, happy to take questions. If not, we can end it here.

Yep. Why don’t I hand this to you? Okay. Go go ahead. Sure.

I can hear you.

Sean O’Connor, CEO, Simulations Plus: Those are areas yeah. You know, our biosimulation tools run the full gamut from discovery through Phase three and into drug approval. But the linkage in terms of the proficiency acquisition, you know, we do a lot of biosimulation work that provides input into that protocol. And so we understand the reasons for those steps in the protocol and linking our ability to input into the protocol and then deliver the training and reinforcement down the road is critical to the strategy. Our building of our footprint, not just with training but in other site selection, patient recruitment, those sorts of things, our potential increases to our footprint of capabilities.

The guiding light there will be working with a product, apply predictive analytics and help our clients solve problems, correct them before they are incurred down the road. Yeah. The training platform has been utilized quite extensively, and it’s the multi site, multi culture environment that a simple clinical trial is not the best ROI for our product. The more complex it is, the better it is. We’ve utilized technology, AI technology of a different simulation sort.

Our training programs are built and with the flip of a button, the avatar is now speaking a different language. And so, you know, the environment of drug development as, you know, the diversity and the seeking of patient populations around the world is a growing factor appropriately into the future.

Stan Berenstain, Analyst, Wells Fargo: Thank you everybody. Thank you. Take care.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.