By Tejas Shankar, Equity Analyst
Mice only share 25% of the DNA that humans have, yet we use them as the anchor of our preclinical trials in the drug development process. But what if I told you there is a company that can allow for rats or even humans to not be involved as test subjects until we are confident in the drug’s effects & results? Well, Certara, though a long way from there, could be that answer eventually.
Certara builds sophisticated computer models that simulate how drugs react and work on the human body. If they can nail this bio-simulation computer model, they can conduct virtual clinical trials of drugs before touching a single human subject, thereby creating better, cheaper, and faster drug candidates. Drug development has 3 key phases, which can take years and billions of dollars to pass through. All 3 phases involve trials in humans. But before a drug can even enter phase 1, it must pass through the preclinical phase. In a 3 phase process, you could think of preclinical as “phase 0.” This is where drugs are tested on mice. The preclinical phase might be the most important phase of all. If you can eliminate the duds before spending years and millions of dollars in phases 1 and 2, then you would greatly improve the efficiency and profitability of your research enterprise.
“Phase 0,” is where humans aren’t involved yet, and this is exactly where Certara aims to break in with its biosimulation software. Their most well-known software, Simcyp, builds a replica of the human body, which is then used to test the drug candidates. Think of it as a flight simulator or racing simulator for drug development. Before getting in the air or hitting the racetrack, these simulators are used to train and prepare individuals in the most realistic environments. Certara’s Bio Simulation software is no different. Before testing on animals by harming them or, in the worst case scenario, humans, these computer models allow for pharmaceutical companies to alter chemical properties and identify where the drug is absorbed, how it reacts in the body, its side effects, and more. On the bright side, the Food and Drug Administration(FDA) is increasing requirements that submissions of drugs are supplemented with models known as model-informed drug development(MIDD). Regulatory agencies aren’t just recommending the use of bio simulation in the drug development process; it is now becoming a mandate, which only benefits Certara as a leader in the BioSim space.
Challenges and Setbacks
Since its IPO in Late 2020, the company has faced numerous execution issues, and the stock’s price has fallen from an all-time high of around $44 to around $4-$5, a decline of nearly 90%. The stock faced a post IPO euphoria and enthusiasm, which allowed the company to peak in late 2021. Investors were optimistic about a dominant software company with double-digit revenue growth for years to come, but this never materialized. It was also unfortunate that they were in the middle of a systematic macro shock in the form of COVID-19. Due to this pandemic, many pharma companies’ R&D budgets were tight, leading to dried-up demand. The fallout of COVID led to net revenue retention declining and revenue growth slowing down. In addition to this, the net loss of $54.7M in FY2023 made headlines. This downward trend continued into 2025, where their Q3 earnings, which were headed by a slowing in services bookings, brought the stock down 23% in a single day. Most recently, the Q1 2026 earnings saw EPS miss by 2 cents, and reduced EPS guidance led to a 12% decline in the pre-market.
With things looking shaky for the company over the past couple of years, they brought in Jon Resnick at the start of 2026. He came from IQVIA, which is one of the largest healthcare data analytics companies in the world. In his first couple of months as CEO, he has made his mission very clear. He aims to move the company around two primary growth pillars, the first being MID3(Model-Informed Drug Development & Discovery). This is where Certara emphasizes its biosimulation software, its highest margin revenue stream, and focuses its efforts on improving it with expanded R&D funding, especially into AI features and cloud functionalities to upsell to current customers. Additionally, under this new leadership, the company will focus its efforts under Accelerated Clinical Evidence, meaning that its clinical data platform, like Pinnacle 21, will be positioned alongside its biosimulation software to meet the demand for data for drug submissions. Other positive news to be on the lookout for as an investor under Jon Resnick’s tenure with the company is the strategic collaboration with NVIDIA to apply accelerated computing and AI to Certara’s modeling platforms. Finally, the company is condensing and simplifying its portfolio by selling off its medical writing business for up to $135 million.
Running the Numbers
Looking at the financials, there is a lot to dissect. Firstly, the income statement tells us very clearly if the company is making money or not, and the answer is unfortunately no in Certara’s case, but there is more to the story. The paper loss is mainly driven by depreciation and amortization from prior acquisitions, which is extremely prevalent, especially in software companies. These non- cash charges lower the reported net income without actually touching the cash, which is why when we look at the Free Cash Flow(FCF), we can see another side of the story. Hopping over to the cash flow statement, we can see that the company converts roughly 22.6% of its revenue into cash flow, which is a green flag when looking at the financial health. The Free Cash flow of $94.6M in 2025 is an impressive mark for this company, which is trading at a market cap of just $730 Million, down from $7 Billion in its peak back in 2021. Looking at the balance sheet, which is essentially a snapshot in time of what Certara owns, we can see that the company is pulling in a very solid Debt to Equity Ratio(D/E) of 0.27x. In plain English, this means for every $1 of equity, the company only carries $0.27 of debt. With the decline over the lifetime of this company being public, its valuation is trading at extremely low multiples, and much below other peers. Price to free cashflow is 7.7x compared to the 30-40x peer average, and Enterprise value/ Revenue is 2.1x, much below the 6-10x of peers. These multiples are much lower than those of other peers and therefore indicate an undervalued company that may be worth pursuing. In addition, Certara generates its revenues through two segments, its software and services space pulling in approximately 47% and 53% of its revenue, respectively. Software is the high-margin and recurring revenue business that the company is aiming to expand day in and day out. They aren’t missing terribly on this initiative as they are up 7% for YoY software revenue growth from $46.4M to $49.7M. On the other hand, in the services business, a majority of their revenue is still slowing down, leading to an overall minimal revenue growth. Services revenue was down 4%YoY from $59.6M to $57.2M, seeing an overall revenue growth of just 1% YoY. As a company trying to trade at a premium multiple labeled as a “growth company,” they have been struggling and have not provided a promising outlook for investors.
Certara pays no dividends back to its shareholders and doesn’t seem like they have it in store anytime soon. Certara is growth-oriented, and with their recent struggles, they are especially reinvesting every dollar back into the company as they should. The absence of dividends isn’t a deal breaker, but rather a sign that the company is still in a heavy growth phase and following the traditional pattern that companies in similar positions as Certara’s follow. Though they don’t issue dividends, they do give back to their shareholders, as seen with the $100M share repurchase program announced in April 2025. This is beneficial for investors as the company is buying its own stock when it is cheap, and with $189 million in cash to back it up.
Bright Future?
Now that we have cleared the air about the company, its rise and fall, financials, and future direction, what is the verdict? What can we realistically expect? Certara is in a very tricky situation, and a lot of the ducks have to get in a row before we see true sustainable growth in the coming years. On the bright side, the company is facing regulatory support as the FDA is requiring more and more data-driven drug submissions, which provides demand for Certara’s software business. Additionally, software is growing as they continue to focus their efforts there over services, and a free cash flow of $94.6M is impressive for a company of Certara’s size. On the flip side, services still remain as the majority of the business that the company sees pulling in their revenues, and that has been declining over the years. The new CEO faces uncertainty as he is trying to simplify and push the company back onto the tracks. Also, though regulatory mandates solidify demand, small biotech companies, which are Certara’s primary consumer base, are still in a funding squeeze, and with these funding cycles not seeming to recover in the future, the business could stay depressed for much longer than we can expect, a risk that the new CEO can’t control. So in summary, there are things to look forward to for Certara, but the firm may not be as promising as other investment candidates, as many of the issues that may affect the company are purely out of their hands.
