Core Insights - Schrodinger is collaborating with Eli Lilly to integrate the pharmaceutical company's AI-based platform, TuneLab, into its drug designing software [1] Company Collaboration - The partnership aims to enhance drug design capabilities by leveraging Eli Lilly's AI technology [1]

Core Insights - Schrödinger, Inc. (NASDAQ:SDGR) has been upgraded by BofA Securities from Neutral to Buy, with a price target of $24, due to a strategic pivot towards its core software business, which is expected to lead to stronger and more predictable growth [1][2] - The shift to a software-focused model is seen as a cleaner and more streamlined approach, reducing complexity and cash burn associated with clinical programs, positioning the company to better leverage the demand for advanced computational tools in pharmaceutical research [2] Company Strategy - KeyBanc has reiterated an Overweight rating on Schrödinger with a price target of $28, following discussions with the company's management, highlighting a turnaround as resources are redirected towards high-margin software operations [3] - Management emphasized product expansions and long-term growth potential during a non-deal roadshow, indicating a positive outlook for the company's future [3] Valuation and Market Position - KeyBanc views Schrödinger's stock as undervalued, trading at approximately three times the 2026 consensus revenue estimates, presenting an attractive opportunity for healthcare technology investors [4] - Schrödinger develops computational platforms for drug discovery, utilizing physics-based molecular modeling combined with AI to accelerate pharmaceutical research [4]

Core Viewpoint - Schrodinger, Inc. (SDGR) has seen a 5.4% increase in share price over the past four weeks, closing at $18.13, with a potential upside of 46.2% based on Wall Street analysts' mean price target of $26.5 [1] Price Targets - The average of 10 short-term price targets ranges from a low of $18.00 to a high of $33.00, with a standard deviation of $5.46, indicating variability among analysts [2] - The lowest estimate suggests a decline of 0.7% from the current price, while the highest estimate indicates an 82% upside [2] Analyst Consensus and Earnings Estimates - Analysts are optimistic about SDGR's earnings prospects, as indicated by a positive trend in earnings estimate revisions, which historically correlates with stock price movements [4][11] - The Zacks Consensus Estimate for the current year has increased by 6.4% over the past month, with one estimate rising and no negative revisions [12] Zacks Rank - SDGR holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates [13] Caution on Price Targets - While price targets are a common metric for investors, relying solely on them can be misleading, as analysts may set overly optimistic targets due to business incentives [3][8][10]

Company Overview - Schrodinger, Inc. (SDGR) has experienced significant stock pressure due to weak fourth-quarter guidance, reflecting a challenging demand environment [1] Investment Strategy - Narweena, an asset manager led by Richard Durant, focuses on identifying market dislocations caused by misunderstandings of long-term business prospects, aiming for excess risk-adjusted returns through secular growth opportunities in markets with entry barriers [1] - The research process emphasizes company and industry fundamentals to uncover unique insights, with a high risk appetite and long-term investment horizon targeting deeply undervalued stocks [1] Market Dynamics - An aging population with low growth and stagnating productivity is expected to create a different investment opportunity set compared to historical trends, with many industries facing stagnation or secular decline, potentially improving business performance due to reduced competition [1] - Conversely, some businesses may encounter rising costs and diseconomies of scale, while economies increasingly favor asset-light businesses, leading to a decline in infrastructure investment needs over time [1] - A large pool of capital is pursuing a limited set of investment opportunities, resulting in rising asset prices and compressed risk premia [1] Leadership Background - Richard Durant holds undergraduate degrees in engineering and finance from the University of Adelaide and an MBA from Nanyang Technological University, along with having passed the CFA exams [1]

Summary of Schrödinger Conference Call Company Overview - Schrödinger operates as a computational lab focused on molecular discovery, primarily in drug discovery, utilizing AI and simulation data to enhance experimental data accuracy [1][2] Financial Performance - Reported revenue for the quarter was $54 million, representing a 54% year-on-year growth - Software revenue was $40.9 million, growing 28%, while drug discovery revenue was $13.5 million - Total revenue guidance remains around $250 million, with software revenue expected to decrease slightly and drug discovery revenue to increase slightly [3][4] Business Model and Revenue Streams - Schrödinger monetizes its platform through three main avenues: software sales, collaborations with pharmaceutical partners, and internal drug discovery programs - The company has over 1,700 customers and 19 active collaborations, with seven internal drug discovery programs [2][3] Strategic Focus - The company is transitioning to a more R&D-focused model, emphasizing partnerships for advancing drug development rather than pursuing IND stage for internal assets [3][4] - The goal is to streamline operations and enhance profitability [4][28] Pipeline and Drug Development - Schrödinger has 15 programs entitled to milestones or royalties, with a collective milestone opportunity of $5 billion [5] - Upcoming data presentations include results from dose escalation studies for two clinical programs, MALT1 and WEE1/MYT1, with expectations of strong efficacy and safety profiles [19][20] Partnerships and Collaborations - Partnerships with major pharmaceutical companies like Novartis and Lilly have expanded significantly, leading to increased software licensing and usage [13][15] - Successful milestones from these partnerships are expected to open avenues for further collaborations and software licensing [16][32] Market Position and Competitive Advantage - Schrödinger's platform is distinguished by its physics-based approach, which does not rely on training sets, unlike many AI-driven drug discovery methods [8][10] - The company aims to leverage its unique capabilities in structure-based drug design to identify promising drug targets across various therapeutic areas [36][38] Financial Health and Future Outlook - As of the end of the quarter, Schrödinger had $401 million in cash, with significant cost optimization measures in place to extend its financial runway [40] - The company anticipates continued growth in software revenue and further partnerships in the next 12 to 24 months [12][32] Conclusion - Schrödinger is positioned for growth through strategic partnerships, a strong pipeline, and a focus on computational drug discovery, with a clear path towards profitability and operational efficiency [4][28][40]

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Group 1 - Schrödinger, Inc. is recognized as one of Bill Gates's top 15 stock picks, accounting for 0.29% of his stock portfolio [1] - On October 30, 2025, Schrödinger and Copernic Catalysts announced the successful completion of the final technical milestone for their ammonia synthesis catalyst, Neptune [2] - The new catalyst achieved over twice the ammonia yield compared to similar technologies and could increase industrial ammonia plant capacity by up to 47%, potentially generating $110 million in annual profits per plant while reducing energy consumption by 23% [3] Group 2 - Following the technical milestone, Schrödinger plans to collaborate on a selective ethylene oxide catalyst to enhance yield and reduce emissions in large-scale chemical production [3] - KeyBanc reiterated an "Overweight" rating on Schrödinger but lowered its price target from $30 to $28, citing mixed trends in healthcare IT spending while expressing confidence in the company's computational tools [4] - Schrödinger accelerates molecular discovery in life sciences and materials science through its development of physics-based computational software [5]

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Core Insights - Schrodinger, Inc. reported a quarterly loss of $0.45 per share, better than the Zacks Consensus Estimate of a loss of $0.75, representing an earnings surprise of +40.00% [1] - The company posted revenues of $54.32 million for the quarter ended September 2025, exceeding the Zacks Consensus Estimate by 8.68% and showing a year-over-year increase from $35.29 million [2] - Schrodinger shares have increased by approximately 3.6% since the beginning of the year, underperforming compared to the S&P 500's gain of 15.1% [3] Financial Performance - Over the last four quarters, Schrodinger has surpassed consensus EPS estimates two times and topped revenue estimates four times [2] - The current consensus EPS estimate for the upcoming quarter is $0.04 on revenues of $89.1 million, while for the current fiscal year, it is -$2.18 on revenues of $251.99 million [7] Industry Context - Schrodinger operates within the Zacks Medical Info Systems industry, which is currently ranked in the top 26% of over 250 Zacks industries, indicating a favorable industry outlook [8] - The performance of Schrodinger's stock may be influenced by the overall industry outlook, as empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions [5][8] Future Outlook - The company's earnings outlook will be crucial for assessing future stock performance, with management's commentary on the earnings call expected to provide insights [3][4] - The estimate revisions trend for Schrodinger was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, suggesting it is expected to perform in line with the market [6]

Financial Data and Key Metrics Changes - Total revenue for Q3 2025 was $54 million, a 54% increase from Q3 2024, driven by strong execution across the business [5][9] - Software revenue was $40.9 million, representing a 28% year-over-year growth, exceeding expectations [5][10] - Drug discovery revenue was $13.5 million, up from $3.4 million in Q3 2024, reflecting successful execution across collaborations [10] - Net loss was $33 million, or $0.45 per diluted share, compared to a net loss of $38 million, or $0.52 per diluted share in Q3 2024 [11] Business Line Data and Key Metrics Changes - Software gross margin remained at 73% for both Q3 2025 and Q3 2024 [10] - R&D expenses decreased by 16% to $42.8 million from $51 million in Q3 2024, primarily due to lower employee-related expenses [10] - Sales and marketing expenses decreased by 8% to $9.5 million, while G&A expenses decreased by 13% to $21.7 million [10] Market Data and Key Metrics Changes - The company updated its software revenue growth guidance for 2025 to 8%-13% from 10%-15% due to delays in pharma scale-up opportunities [6][11] - Drug discovery revenue guidance was increased to $49-$52 million, slightly exceeding prior expectations of $45-$50 million [12] Company Strategy and Development Direction - The company is focusing on increasing customer adoption of its software, delivering scientific advancements, and advancing its therapeutics portfolio [9][20] - The decision was made to not advance internal discovery programs into the clinic independently, aiming to improve operational efficiency and long-term profitability [7][51] - The company plans to leverage partnerships for clinical development, allowing for a broader range of discovery programs [37][51] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term potential of the business despite current macroeconomic pressures [6][12] - There are early signs of recovery in the biotech sector, including capital markets and new capital formation, which could create additional opportunities [12] - The company remains committed to managing expenses and expects cash used in operating activities to be significantly lower than in 2024 [13][14] Other Important Information - The company has made significant improvements to its platform, including enhancements for challenging modalities and ongoing beta testing for predictive toxicology solutions [8][20] - The company has generated approximately $600 million in cash from collaborations and licensing activities since 2020 [20] Q&A Session Summary Question: Implications of reduced spend year over year - Management confirmed that a $30 million expense reduction was announced in May, with more than half achieved, aiming to improve profitability [23][24] Question: Software guidance and market slowdown - Management acknowledged a slowdown in customer discussions and delays in scale-up opportunities, leading to a slight reduction in software revenue guidance [27][30] Question: Predictive toxicology product monetization - The predictive toxicology solution is still in beta, with significant interest from customers, but it is too early to discuss monetization [32][33] Question: Discovery programs and partnerships - The company will continue to work on discovery stage programs and seek partnerships for clinical advancement, emphasizing the value of discovery partnerships [36][37] Question: Update on SGR-1505 and clinical data - Management provided updates on SGR-1505, highlighting a complete response in an aggressive lymphoma patient and upcoming data presentations [58][61] Question: NLRP3 inhibitor SGR-6016 progress - The company is excited about SGR-6016, a brain-penetrant NLRP3 inhibitor, and is in discussions with potential partners for its development [45][48] Question: Novartis partnership progress - Management reported excellent progress with Novartis, with teams working well together on program advancements [53][55]