Executive Summary / Key Takeaways

• AI-Driven Biosimulation Leadership: Certara is strategically transforming into an AI-enabled biosimulation powerhouse, leveraging foundational acquisitions like Vyasa and aggressive R&D to create a next-generation Model-Informed Drug Development (MIDD) platform, enhancing its competitive moat.
• Regulatory Tailwinds & Market Expansion: Recent EMA qualification for Simcyp and FDA guidance on phasing out animal testing for monoclonal antibodies present a "multibillion dollar addressable market" opportunity, significantly expanding Certara's serviceable market and validating its QSP and Simcyp solutions.
• Solid Financial Performance Amidst Headwinds: Despite a mixed macroeconomic environment and cautious customer spending, Certara delivered strong Q2 2025 results with 12% revenue growth and 13% bookings growth, reiterating its full-year 2025 guidance of $415-$425 million in revenue and 30-32% Adjusted EBITDA margins.
• Strategic Acquisitions & Platform Unification: Key acquisitions like Chemaxon (discovery phase) and Applied BioMath (QSP) are being integrated into the Certara Cloud, creating an end-to-end platform that lowers customer IT costs, enhances collaboration, and drives cross-selling.
• Operational Efficiency & Shareholder Value: Investments in AI-enabled tools like CoAuthor (60% time reduction for regulatory drafts) and Pinnacle 21 Enterprise Plus (50% reduction in data specification drafting) are boosting operational efficiency, complemented by a $100 million share repurchase program to return value to shareholders.

The Biosimulation Imperative: Reshaping Drug Development

Certara, Inc. (NASDAQ:CERT) stands at the forefront of a transformative shift in the biopharmaceutical industry. Founded in 2008, the company has evolved into a global leader in biosimulation, a critical component of Model-Informed Drug Development (MIDD). This approach utilizes sophisticated biological and statistical models derived from vast datasets to optimize decision-making across the entire drug lifecycle, from discovery to market access. Certara's mission is clear: to accelerate drug programs, reduce costs, and significantly increase the probability of success for new therapies.

The industry's increasing reliance on data, modeling, and analytics is driven by the staggering costs and high failure rates inherent in traditional drug development. On average, the pharmaceutical industry spends over $270 billion annually on R&D, with an estimated $6.2 billion required to develop one new FDA-approved medicine, including the cost of failures. In this challenging landscape, Certara's solutions offer a compelling value proposition by providing predictive insights that streamline processes and enhance decision quality.

A Foundation of Innovation: Certara's Technological Edge

Certara's competitive moat is deeply rooted in its proprietary biosimulation platforms and its relentless pursuit of technological innovation, particularly in AI. The company's core software suite—Simcyp, Phoenix, and Pinnacle 21—forms the backbone of its offerings, each providing distinct, quantifiable benefits.

The Simcyp Simulator is a mechanistic biosimulation platform renowned for physiologically based pharmacokinetic (PBPK) modeling. Its capabilities extend to drug-drug interactions (DDI), biopharmaceutics, and virtual bioequivalence. A monumental achievement occurred on August 4, 2025, when Simcyp became the first and only software platform to receive European Medicines Agency (EMA) Qualification Opinion for PBPK Modeling. This rigorous, multi-year qualification allows sponsors to use Simcyp in EU regulatory submissions to assess DDI risk without needing to re-establish the platform’s credibility for specified contexts of use. This covers 6 CYP enzymes and 2 inhibition mechanisms, significantly reducing the number of clinical studies a sponsor must conduct. This regulatory endorsement not only validates Simcyp's scientific rigor but also streamlines the drug submission process, making it easier and faster for Certara's clients. Historically, Simcyp has supported over 120 FDA-approved novel drug applications and more than 300 label claims, with "4 out of 5 drugs leveraging PBPK for FDA approval in recent years used the Simcyp Simulator."

The Phoenix PK/PD platform is another cornerstone, offering non-compartmental analysis and population modeling. Its latest iteration, version 8.7 (released Q2 2025), brought improved speed and efficiency for NCA setup, data preparation, and nonlinear mixed-effect algorithms. This platform is increasingly available through the Certara Cloud, which offers faster performance and lower back-end IT costs for customers.

Pinnacle 21, central to clinical data automation, standardization, and validation, received a significant enhancement with the launch of Pinnacle 21 Enterprise Plus in September 2025. This solution enables clinical and statistical programmers to efficiently create, reuse, and manage data specifications for CDISC SDTM and ADaM datasets. Its no-code interface is designed to deliver a 50% reduction in time spent drafting mapping specifications, a tangible benefit for accelerating regulatory submissions. A new collaboration with Merck (MRK), announced in July 2025, further expands the use of Pinnacle 21, integrating metadata repository and data standards workflow management.

Certara's R&D strategy is heavily focused on integrating artificial intelligence (AI) and machine learning (ML) across its portfolio. This initiative began with the 2022 acquisition of Vyasa, which provided the foundational distributed data fabric technology essential for integrating AI with Certara's modeling and data sets. Dr. Christopher Bouton, Vyasa's founder, was promoted to Chief Technology Officer in July 2025, underscoring the company's commitment to this vision. This next-generation AI-enabled MIDD platform aims to fuse AI and biosimulation to reduce the risk and cost of drug development, emphasizing "explainability" rather than black-box solutions.

New AI-enabled products are already emerging. CoAuthor, launched in Q2 2024, is a generative AI product for regulatory writing that can generate the majority of a clinical study report and reduce delivery time by over 60% for a first draft. This product is already generating revenue and has a healthy sales pipeline. Looking ahead, CertaraIQ, an AI-enabled Quantitative Systems Pharmacology (QSP) software solution, is slated for release in Fall 2025. CertaraIQ includes an intuitive model-building interface and prevalidated QSP models, aiming to democratize access to QSP modeling capabilities and facilitate high-performance, cloud-based simulation and analysis.

These technological advancements are not merely incremental; they are foundational to Certara's competitive moat. They enable the company to offer superior efficiency, reduce costs for clients, and solidify its market positioning as a leader in integrated, explainable biosimulation.

Strategic Expansion: Acquisitions and Platform Unification

Certara's growth strategy is significantly shaped by strategic acquisitions that expand its market reach and enhance its integrated platform vision. Since 2013, Certara has completed 21 acquisitions, with 14 focused on software or technology.

A pivotal acquisition in October 2024 was Chemaxon, a leading cheminformatics company. This acquisition strategically positions Certara in the drug discovery biosimulation market at scale, complementing its existing portfolio which traditionally focused on later phases of drug development. Chemaxon brings chemical property insights to discovery, candidate selection, and lead optimization. Certara plans to integrate Chemaxon's offerings with its D360 product, creating a powerful fourth software pillar that will be further tied into Simcyp and QSP development, and integrated into the Certara Cloud and AI capabilities. While Chemaxon's initial margin profile is below Certara's average, management expects it to align with the corporate average by the end of 2025.

The late 2023 acquisition of Applied BioMath (ABM) significantly bolstered Certara's QSP team, creating a market-leading position in QSP services. This integration has proven timely, especially in light of recent regulatory developments. Similarly, Formedix, acquired in late 2023, brought complementary software products that were quickly combined with Pinnacle 21, enhancing clinical data standardization and efficiency for customers.

The Certara Cloud serves as the unifying platform for these diverse software assets. Launched in 2024, it provides easier access to software and updates, increases awareness of Certara’s entire platform, and lowers IT and security costs for customers. As it evolves, Certara Cloud will integrate data storage, workflow, and collaboration tools, further enhancing the use of biosimulation products and services across all drug development stages. This land-and-expand commercial strategy focuses on strengthening relationships with top customers, expanding into new clients, and driving cross-selling opportunities.

Competitive Arena: Differentiating in a Fragmented Market

The market for biosimulation products and related services is competitive and highly fragmented. Certara faces direct competition from specialized software providers and broader data analytics firms, as well as indirect competition from open-source tools and AI-driven startups.

Simulations Plus (SLP) is a direct competitor offering software and consulting for drug discovery and PK/PD modeling. While SLP is known for its specialized PBPK tools and user-friendly platforms, Certara differentiates itself with a broader suite of technology-enabled services and a more comprehensive, integrated workflow for end-to-end drug development. Certara's platforms are recognized for their ability to handle complex data standardization and compliance, offering potentially more streamlined integration in regulatory contexts. Financially, both companies show steady revenue growth and solid profitability, but Certara's diversified service offerings may lead to stronger cash flow generation, while SLP might exhibit superior gross margins from its focused software model.

Schrödinger (SDGR) specializes in computational platforms for molecular and drug discovery, leveraging physics-based simulations and AI. SDGR excels in early-stage molecular design and AI-driven simulations. Certara, however, emphasizes empirical and regulatory-focused services, providing a more comprehensive solution for clinical and market access phases. Certara's integrated platforms for data standardization and regulatory submissions offer significantly greater efficiency in compliance-heavy workflows. While SDGR may lead in innovation speed for AI-driven simulations, Certara leads in global reach and service diversity, positioning it for broader market share capture across the entire drug development lifecycle.

IQVIA (IQV) provides extensive data analytics, technology solutions, and services for clinical research and commercial drug development. IQVIA's strength lies in its vast data resources and global scale, offering broad data integration capabilities. Certara's offerings are more specialized in mechanistic biosimulation software, providing potentially lower operating costs for targeted modeling needs and delivering notably faster insights in preclinical research. While IQVIA benefits from its vast customer base and diversified revenue streams, Certara's financial health is more tied to sector-specific performance but benefits from higher R&D efficiency in its core biosimulation areas.

Certara's competitive advantages, or "moats," include its proprietary biosimulation platforms, deep scientific expertise, and strong regulatory acceptance, exemplified by the EMA qualification for Simcyp. These advantages translate into enhanced pricing power, superior margins from recurring revenue, and robust growth. The company's strategic focus on creating an integrated platform, coupled with its leadership in QSP services (bolstered by the Applied BioMath acquisition), positions it strongly against a fragmented competitive landscape. However, Certara remains vulnerable to its dependence on the pharmaceutical sector's R&D spending cycles and potential high operational costs associated with its global footprint.

Financial Performance: Resilience Amidst Headwinds

Certara's financial performance in the first half of 2025 demonstrates resilience and strategic execution despite a challenging macroeconomic backdrop.

For the second quarter ended June 30, 2025:

• Total Revenue reached $104.6 million, marking a 12% year-over-year (YoY) increase on a reported basis and 10% on a constant currency basis.
• Total Bookings grew 13% YoY to $112 million.
• Software Revenue increased 22% YoY to $46.7 million (9% organic growth), with Chemaxon contributing $5.1 million. Ratable and subscription revenue accounted for 60% of software revenue.
• Services Revenue grew 5% YoY to $57.9 million. Technology-driven services bookings increased 15% YoY to $65.4 million, driven by strong performance in QSP and Simcyp services.
• Adjusted EBITDA for Q2 2025 was $31.9 million, resulting in an Adjusted EBITDA margin of 31%.
• Net Loss was $2.0 million, a significant improvement from a $12.6 million net loss in Q2 2024, primarily due to increased revenue and decreased operating expenses, partially offset by higher tax expense and cost of revenue.
• Adjusted Diluted EPS was $0.07, consistent with Q2 2024.

For the six months ended June 30, 2025:

• Total Revenue was $210.6 million, an 11% increase YoY.
• Net Income was $2.8 million, a substantial improvement from a $17.3 million net loss in the prior year period.
• Operating Cash Flow remained robust at $35.2 million, indicating consistent cash generation from core operations.

The company's Software Net Retention Rate (NRR) was 107.6% in Q2 2025, consistent with its full-year plan, though Q1 2025 NRR was 102%, impacted by timing-related softness in Tier 1 renewals and an increasing mix of ratable software. Management expects NRR to normalize and increase as software revenue grows throughout the year.

Operating expenses saw mixed trends. Sales and marketing expenses increased due to headcount growth from acquisitions and investments in the commercial organization. Research and development expenses decreased, reflecting strategic investments in capitalized R&D, including AI integration, and lower stock-based compensation. General and administrative expenses saw a significant decrease, primarily due to reduced contingent consideration remeasurement changes and lower transaction costs from prior-year refinancing. Interest expense also decreased due to declining market interest rates and term loan refinancing.

Certara maintains a strong liquidity position, with $162.3 million in cash and cash equivalents as of June 30, 2025. The company has $297 million of outstanding borrowings on its term loan and full availability under its $100 million revolving credit facility, remaining in compliance with all debt covenants. In April 2025, the Board authorized a $100 million share repurchase program, of which $25 million had been executed by June 30, 2025, demonstrating a commitment to shareholder value. However, management emphasizes that M&A and organic strategic investments remain the primary use of capital to drive long-term growth.

Outlook and Strategic Imperatives

Certara has reiterated its full-year 2025 guidance, reflecting confidence in its strategic direction despite an anticipated continuation of the mixed market environment observed in 2024. Management expects total revenue in the range of $415 million to $425 million, representing 8% to 10% growth over 2024. Chemaxon is projected to contribute $23 million to $25 million in software revenue. Adjusted EBITDA margins are expected to be between 30% and 32%, with discretionary R&D investments managed based on commercial performance and new product launch timing. Adjusted EPS is guided to be in the range of $0.42 to $0.46 per share.

This outlook is grounded in several key assumptions. Large pharmaceutical companies are expected to remain cautious, influenced by factors like IRA price controls, proposed tariffs, and geopolitical uncertainty, leading to elongated decision-making timelines. The biotech funding environment, while slightly improved, is anticipated to remain below historical trends. Despite these headwinds, Certara is encouraged by persistent customer interest in expanding biosimulation adoption.

Significant tailwinds are expected to propel Certara's growth. The FDA's guidance to phase out animal testing for monoclonal antibodies has opened a "multibillion dollar addressable market over the next 10 years" for new approach methodologies (NAMs), incremental to Certara's traditional total addressable market. This is already translating into business, with "roughly 50% of our new QSP projects this year have been for monoclonal antibody therapies." The increasing spending on AI solutions by customers and the growing regulatory acceptance of MIDD further bolster demand.

Certara's strategic review of its regulatory services business, which generates $50 million to $55 million in revenue with 20-30% operating margins, is progressing. This review, initiated due to the business's diverging growth profile and less customer overlap with core biosimulation, is expected to yield a more substantive update before the end of 2025. This move suggests a potential sharpening of Certara's focus on its high-growth biosimulation core.

Risks to the Thesis

While Certara's investment thesis is compelling, investors should consider several risks. The macroeconomic and geopolitical uncertainties, including inflation, interest rate fluctuations, and trade disputes, could continue to impact customer spending and decision-making timelines, particularly among large pharma. Changes in government or regulatory policy, or a reversal in the trend toward accepting in silico data, could diminish demand for Certara's products and services. The biotech funding environment, while showing signs of improvement, remains volatile, potentially affecting smaller customer segments. Furthermore, the ongoing strategic review of the regulatory services business, while aimed at optimizing the portfolio, introduces an element of uncertainty regarding its outcome and potential impact on operations.

Conclusion

Certara is strategically positioned as an indispensable partner in the evolving landscape of drug development. Its relentless focus on AI-enabled biosimulation, coupled with a robust portfolio of proprietary software and technology-driven services, is driving significant value for biopharmaceutical clients. The recent EMA qualification for Simcyp and the FDA's push for non-animal testing methodologies underscore Certara's unique competitive advantages and open substantial new market opportunities.

Despite a cautious macroeconomic environment, Certara's consistent financial performance, strong bookings growth, and reiterated 2025 guidance reflect the resilience of its business model and the efficacy of its strategic investments. By integrating acquisitions like Chemaxon and Applied BioMath into a unified Certara Cloud platform, the company is expanding its reach across the entire drug development lifecycle, from discovery to regulatory submission. Certara's technological leadership, particularly in explainable AI-powered biosimulation, positions it to capture increasing market share and deliver long-term growth, making it a compelling consideration for discerning investors.