Investment

Family capital is backing perhaps the most revolutionary healthcare company of the moment

Healthcare company Schrödinger has drawn on family capital led by billionaires David Shaw and Bill Gates to apply Artificial Intelligence to the development of drugs. 

It raised an additional $230 million from an IPO in February, to add to $110 million in VC funds in 2019.  

More recent VC investors include Invus, an investment business reportedly backed by Eric Wittouck. His net worth is $7.6 billion…

And so far,  so good.

Since they listed at $17 on 10 February, its shares have climbed to $54, valuing the company at $2.5 billion. 

Analysts at newsletter Citron Research say Schrödinger, named after a quantum physicist, will change the healthcare world in the same way Tesla’s software has disrupted the automobile sector. 

Ron Baron, a Tesla bull, appears to agree, after backing Schrödinger’s 2019 VC fundraising through his Baron Capital Management investment office. 

David Shaw, said to be worth $7.3 billion, is a pioneer of the hedge fund sector and important in lending credibility to Schrödinger during its float. 

He is best known for developing trading algorithms, quant tools and machine learning at the $50 billion DE Shaw hedge fund group, which once employed Amazon’s Jeff Bezos.  

Its flagship fund has been generating an average 11%, after fees, since inception. Following a successful run, it plans to raise its charges to 3% and 30% of performance.

More recently, Shaw has become immersed in computational biochemistry and the dynamics of molecular behaviour. He has taken the title chief scientist at DE Shaw Research which trades with Schrödinger, according to its IPO prospectus. 

Shaw is also a research fellow at Columbia University, where Schrödinger co-founder Richard Friesner is a professor. The other co-founder, William Goddard, is a professor at Caltech. Ramy Farid, CEO, also has an academic background.

Bill Gates, co-founder of Microsoft, has invested in Schrödinger through the Bill & Melinda Gates Foundation, dedicated to eradicating diseases in the developing world.

More recent VC investors include Invus, an investment business reportedly backed by Eric Wittouck. His net worth is $7.6 billion, according to Forbes, which says he is the richest man in Belgium thanks to family interests in sugar.

Others who backed its 2019 VC funding included Tubus Management’s Michael Antonov, co-founder of virtual reality company Oculus, now owned by Facebook, and GV (formerly Google Ventures). 

Other investors include Laurion Capital Management, a hedge fund, and Ge Li’s WuXi AppTech, one of the fastest-growing companies in China.

Cynics point out Schrodinger has yet to turn a profit in the twenty years since it was founded. Its IPO prospectus confirms losses of $17.4 million in 2017; $28.4 million in 2018 and $18.5 million in the nine months to September 2019.  

Cash poured into 4,900 rival rounds of healthcare VC funding last year, says CB Insights. But industry observers say Schrödinger has neither wasted its time, not the money of its backers

By putting a sample of molecular simulations through a machine learning process, it has learned how to guide it towards an effective analysis of a far larger sample. By repeating the cycle, backed up by lab tests, it further refines the final choice of promising molecules.

Using the laws of physics to evaluate molecular binding properties through their energy output is important to the outcome. And Schrödinger, named after a quantum physicist, ends up producing a promising list of compounds at incredible speed. 

Schrödinger says it can check billions of molecules a week, while more traditional work in the path lab over a year might only yield results from a thousand. It cites a peer-reviewed study which says its platform can speed up the production of viable compounds eightfold.

AI techniques provide scientists with the best opportunity to counter the coronavirus virus. 

According to Andrew McNally, chief executive of Equitile Investments: “Exponential growth in computing power is leading to a revolution in drug development. During the SARS outbreak in 2003 it took nearly two years before a vaccine was ready for human trials, for the Zika virus of 2015 this was down to six months – this time it will be a matter of weeks.”

The world’s top twenty pharmaceutical companies have licenced Schrödinger’s software, along with 1,250 academic institutions. 

Schrödinger has also participated in the development of drugs, notably through its offshoot Nimbus Therapeutics which recently sold a treatment to Gilead Sciences for a potential $1.2 billion, subject to future testing.

Schrödinger has also put together its own drugs pipeline, comprising five potential treatments, mainly in the cancer field. 

Other AI ventures to fund pipelines in the final quarter of 2019 were ArsenalBio, Immuneering and X-37.

An industry source agreed AI applications had become more competitive. But he added: “Schrödinger has bought itself enough time to stay ahead of the competition.”

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