Simulations Plus: Pioneering AI-Driven Drug Design with Validated Success in RORγ/RORγT Ligand Discovery

In the rapidly evolving landscape of pharmaceutical innovation, Simulations Plus (Nasdaq: SLP) stands out as a trailblazer in integrating artificial intelligence (AI) and machine learning (ML) into drug discovery. The company's recent success in designing RORγ/RORγT ligands—validated through a groundbreaking collaboration with the Institute of Medical Biology of the Polish Academy of Sciences (IMB PAS)—demonstrates the transformative potential of AI-driven approaches. This achievement not only underscores Simulations Plus's technical prowess but also highlights its strategic alignment with industry trends that prioritize efficiency, cost reduction, and ROI in R&D.

Validated Breakthrough: AI-Driven RORγT Ligand Discovery

The collaboration between Simulations Plus and IMB PAS yielded a remarkable outcome: within three months, the teams designed and tested 27 RORγT ligands using the AIDD module of the ADMET Predictor® platform. Of these, 19 (70%) exhibited significant inhibition of RORγT activity, with the most potent compound achieving an IC50 of 1.51 μM—just 16% off the predicted value of 1.29 μM. This compound, featuring a novel indolizine scaffold, not only suppressed proinflammatory Th17 cytokines in human T cells but also displayed favorable ADMET properties (logP, solubility, permeability) that matched or exceeded computational predictions.

This project exemplifies the power of AI-driven multiparameter optimization. By integrating QSAR models, synthetic feasibility predictions, and PBPK simulations, Simulations Plus accelerated the identification of drug-like molecules that bypassed traditional bottlenecks. The ability to predict and validate ADMET profiles in just three months—a process that historically takes years—positions the company as a key player in redefining drug discovery timelines.

Financial Impact: Cost Savings and ROI

The financial implications of this AI-driven approach are profound. Traditional drug discovery costs can exceed $2 billion per molecule, with attrition rates over 90%. Simulations Plus's platform reduces these costs by minimizing experimental iterations. For instance, the RORγT project's 70% hit rate in in vitro testing suggests that AI/ML can prioritize compounds with higher success probabilities, thereby cutting down on failed trials.

Financially, the company's Q3 2025 results reflect this efficiency. Software revenue grew 6% year-over-year to $12.6 million, driven by ADMET Predictor and GastroPlus® upgrades. Adjusted EBITDA hit $7.4 million (37% of revenue), outperforming fiscal 2024's 30%. The $77.2 million non-cash impairment charge—a one-time hit—does not detract from the core business's strength, as adjusted net income reached $9.0 million. For the nine months ending May 31, 2025, revenue grew 20% to $61.7 million, with a 59% gross margin, signaling robust operational leverage.

Strategic Expansion: AI as a Growth Engine

Simulations Plus's strategic investments in AI/ML further amplify its long-term potential. The acquisition of Pro-ficiency in 2024 expanded its capabilities in clinical trial operations and medical communications, creating a full-service platform from discovery to commercialization. Additionally, the company secured an NIH grant in 2024 to develop AI-based tools for long-acting injectables, a high-growth therapeutic area.

Collaborations with academic institutions, such as the University of Southern California, underscore Simulations Plus's role as a hub for AI innovation. These partnerships not only validate the company's technology but also open avenues for IP generation and revenue diversification. The RORγT project itself, with its novel indolizine scaffold, highlights the potential for proprietary compounds to be licensed or developed into therapies—a lucrative revenue stream beyond software sales.

Investment Thesis: Balancing Risk and Reward

While Simulations Plus faces challenges, including market volatility and the high-risk nature of drug discovery, its AI-driven model offers a compelling risk/reward profile. The company's ability to deliver validated results (e.g., 70% hit rates, predictive ADMET accuracy) de-risks its R&D pipeline compared to peers. Furthermore, its 25+ years of expertise in biosimulation and strategic reorganization—streamlining operations and boosting EBITDA margins—position it to scale efficiently.

For investors, the key metrics to monitor include:
- Software revenue growth: AIDD and GastroPlus® adoption rates.
- Adjusted EBITDA margins: A proxy for operational efficiency.
- Collaboration milestones: IP generation from projects like RORγT.
- Stock valuation: With a forward P/E ratio below industry peers and a market cap of ~$200 million, SLP offers upside if AI/ML adoption accelerates.

Conclusion: A Catalyst for the Future of Drug Discovery

Simulations Plus is not just a software vendor—it is a catalyst for the AI-driven transformation of pharmaceutical R&D. Its validated success in RORγT ligand discovery, coupled with a robust financial model and strategic expansion, makes it a compelling investment for those seeking exposure to the AI/ML revolution in healthcare. As the company's tools become indispensable in reducing R&D costs and timelines, its stock is poised to outperform as the industry shifts toward data-driven innovation.

For investors with a medium-term horizon, Simulations Plus offers a unique opportunity to capitalize on the convergence of AI and drug discovery—a market that is growing faster than the biotech sector itself.