SDGR Schrödinger, Inc. 10-Q 2026-09-30 section summaries

Schrödinger (SDGR) — Q3 and nine months ended September 30, 2026

Consolidated results

USD millions, except per-share data. Q3 and 9M are compared with the corresponding 2025 periods.

Q3 revenue growth was 18.7%, compared with 7.9% for 9M. The quarter’s operating loss narrowed as operating expenses fell, especially R&D expense ($34.090M versus $42.757M). Despite improved operating performance, Q3 net loss widened because equity-investment fair value moved from income to a loss. For 9M, hosted software and professional services growth did not offset lower on-premise and maintenance revenue; software revenue fell 9.1%, while drug discovery revenue rose 88.4%. No drug discovery milestones were considered probable or recognized in either 9M period.

Segment performance

The company allocates resources using segment revenue and gross profit; shared costs are not allocated.

Cash flow, balance sheet and capital

Cash, cash equivalents, restricted cash and marketable securities totaled $373.378M at September 30. The operating cash outflow included a $43.529M decrease in deferred revenue; accounts receivable provided $34.680M of cash, versus $206.308M in 9M 2025. Investing cash flow included $67.476M of net proceeds from equity-investment dispositions and sales. Goodwill was the only separately presented intangible-related amount; no other intangible assets were separately presented. Operating lease liabilities had a $104.627M present value, including $89.442M long-term, with a weighted-average remaining term of 10 years.

Revenue visibility, collaborations and business developments

Remaining performance obligations (RPO) declined to $186.670M at September 30 from $239.866M at year-end 2025, comprising $80.919M software, $103.731M drug discovery and $2.020M contribution obligations. About 62% was expected to be recognized within 12 months (76% of software, 50% of drug discovery and 100% of contribution RPO). RPO included $151.234M of deferred revenue and $35.436M of backlog. Contract assets were $22.201M, up from $19.698M.

A September 2026 Novartis amendment replaced certain research programs with two new programs; the collaboration and expanded three-year software agreement are accounted for as one contract. Schrödinger received a $150.0M upfront payment and is eligible for up to $1.424B of milestones ($704.0M discovery/development and $720.0M commercial), plus tiered royalties. BMS decisions to discontinue certain targets left one neurology target; up to $482.0M of milestones and tiered royalties remain possible, and $32.0M of milestone revenue had been recognized cumulatively. Milestones are recognized only when sufficiently probable, so collaboration revenue may be variable.

After Eli Lilly acquired Ajax, Schrödinger received approximately $57.180M in June—$47.180M for its equity stake and a $10.000M collaboration milestone—and no longer held Ajax shares. Structure Therapeutics’ retained investment fell to $21.292M, including $15.252M of Q3 mark-to-market losses. In August, Schrödinger co-founded Tectora and licensed it two early-stage programs, software and IP for 7,154,439 shares. Schrödinger recognized $1.211M of Drug Discovery revenue from Tectora in Q3 and 9M; the investee-related contract also had $3.933M of deferred revenue and $1.853M of unbilled receivables at quarter-end.

Other investor considerations

Stock-based compensation was $7.930M in Q3 and $25.797M in 9M, down from $10.846M and $33.047M, respectively. Unrecognized compensation was $39.557M for RSUs and $17.084M for options. Anti-dilutive options and unvested RSUs/PRSUs totaled 14.367M shares. Two customers represented 31% and 24% of accounts receivable; two customers contributed 20% and 15% of Q3 revenue. Schrödinger maintains a full valuation allowance against U.S. federal and state net deferred tax assets.

Q3 and 9M 2026 results

Revenue growth accelerated in Q3, led by drug-discovery milestones and higher hosted-software revenue. For 9M, total revenue grew more slowly as declines in on-premise software and contribution revenue offset growth elsewhere.

Q3 revenue increased 19% year over year, versus 8% growth for 9M. Software products and services grew about 6% in Q3 but declined about 9% for 9M. On-premise revenue fell due to the timing and size of multi-year contracts, which are generally recognized upfront, and customers’ migration to hosted offerings recognized ratably. Hosted revenue increased with that migration and higher spending by existing customers. Drug-discovery revenue rose primarily on a $12.0M Structure Therapeutics milestone in Q3; 9M also included a $10.0M milestone following Lilly’s acquisition of Ajax and accelerated recognition after Lilly discontinued one program and SDGR completed its remaining obligations. Contribution revenue declined as allocated Gates Foundation funding was depleted and renewal timing shifted.

Gross profit improved in both periods as total cost of revenue was lower or nearly flat against higher revenue. Software gross margin was 75% in Q3 versus 77%, and 72% for 9M versus 78%, reflecting higher costs, including cloud-computing and personnel expenses. Drug-discovery costs generally precede milestone revenue, so margins can vary with program timing; management expects margins to improve as programs advance and obligations decline. Contribution margins are expected to approximate breakeven over time.

Operating expenses declined, principally as lower R&D spending followed the August 2025 discontinuation of SGR-2921 and reduced external program costs. External preclinical and clinical program costs were $6.963M versus $14.993M in Q3 and $25.912M versus $39.470M for 9M. Sales and marketing rose modestly as SDGR invests in software sales; management expects G&A dollars to increase over time due in part to compliance, insurance, and professional-services costs.

The Q3 fair-value loss primarily reflected an approximately $15.3M unrealized loss on Structure Therapeutics, partly offset by an approximately $0.5M unrealized gain on Ajax. The 9M fair-value gain included an approximately $42.6M unrealized Ajax gain and an approximately $25.0M unrealized Structure loss. These investment remeasurements can materially move reported results. Lower investment-portfolio interest income contributed to reduced other income; unfavorable currency movements also affected 9M. SDGR maintains a full valuation allowance on U.S. federal and state deferred tax assets.

Business, programs, and commercial developments

Software ACV, a supplemental measure of contract performance rather than an annualized revenue forecast, was $44.7M versus $38.3M in Q3. SDGR is shifting from on-premise licenses toward hosted arrangements; this changes revenue-recognition timing and may depress reported revenue in the near term even as underlying contract performance grows. Software revenue also depends on customer renewals and the license quantities and computational capacity purchased.

Collaborations generate upfront, research, milestone, and potentially royalty payments, making revenue timing dependent on program progress and partner decisions. Most programs remain in discovery or preclinical stages, where later-stage milestones may be larger. Under the BMS collaboration, one neurology target remains active: SDGR had recognized $32.0M of up to $482.0M in milestones as of September 30, 2026, and may receive tiered royalties from mid-single-digit to low-double-digit percentages, subject to reductions. Lilly’s 2022 immunology collaboration remains active, with up to $420.0M in milestones and potential royalties; Lilly terminated an additional target for strategic reasons in March 2026. In September 2026, Novartis and SDGR amended their collaboration to replace programs with two new programs, with up to $1.424B in milestones ($704.0M discovery and development and $720.0M commercial) plus potential tiered royalties. No milestone revenue had been recognized under the amended programs by September 30. Novartis had paid a $150.0M upfront fee in January 2025; a separate expanded three-year software agreement increases its access to SDGR platforms.

Lilly’s June 2026 acquisition of Ajax could provide Ajax shareholders up to $2.3B in cash, including milestones. SDGR received approximately $57.2M at closing: $47.2M for its equity stake and $10.0M for a collaboration milestone, and remains eligible for additional milestones.

SDGR is conducting Phase 1 trials of SGR-1505 for B-cell malignancies and SGR-3515 for advanced solid tumors. It plans to complete these trials and seek partners to advance the programs beyond Phase 1, but does not plan to independently initiate additional clinical trials or move other proprietary preclinical programs into trials. Phasing out independent clinical development, together with the May 2025 restructuring, is expected to save approximately $70M when fully completed. In August 2026, SDGR licensed SDGR-4594 and SDGR-8139, related software and IP to newly formed Tectora Therapeutics for an equity stake and potential milestones and royalties. SDGR launched early access to its Bunsen agentic AI co-scientist in July and expects full commercial release by year-end; a September agreement with BMS will deploy Bunsen and support new functionality. Its Gates-funded predictive-toxicology initiative, supported by $24.5M in grants, can evaluate more than 80 off-target proteins, and the commercial solution became more broadly available in 2026.

Cash flow and liquidity

Operating cash use reflected the net loss and changes in operating assets and liabilities, partly offset by $25.8M of stock-based compensation and other noncash expenses. The prior-year operating inflow was largely supported by $131.7M of operating-asset and liability changes, driven by Novartis collaboration collections. 9M 2026 investing inflows included $67.5M from equity-investment dispositions and sales and $45.9M from marketable-security maturities net of purchases. Cash, cash equivalents, restricted cash, and marketable securities totaled $373.4M at September 30, 2026; management expects cash and marketable securities to fund operations and capital needs for at least 24 months. Accumulated deficit was $720.6M.

No shares were sold under the ATM in Q3 or 9M 2026; $241.1M remained available under the $250.0M facility. Lease obligations totaled $150.3M through December 2037, including $119.4M for the New York office. A cloud-computing agreement carries an $82.0M minimum payment over three years. A Q3 amendment terminated the Hyderabad facility’s dedicated-space arrangement and its previously disclosed $21.8M five-year minimum payment obligation. Future funding needs remain sensitive to software growth, R&D spending, collaboration milestones, and uncertain proceeds from collaborator equity stakes; future financing may be needed and may not be available on acceptable terms.

No material changes in reported market risks or risk-management policies since the FY2025 Form 10-K, filed February 25, 2026.

As of September 30, 2026, management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective at the reasonable-assurance level. During the reporting period, no change materially affected, or was reasonably likely to materially affect, internal control over financial reporting.

Business model and financial exposure

Schrödinger remains loss-making and expects significant expenses and operating losses for several years. It has no approved drug products and has generated no revenue from its own drug sales. Its path to profitability depends on growing software sales, collaboration revenue, and—over the longer term—successful development and commercialization of drug candidates by Schrödinger or its partners.

Revenue growth does not assure continued growth. Schrödinger is shifting from on-premise software licenses, typically recognized at a point in time, toward hosted contracts recognized over their terms. Management expects the transition to change revenue mix and timing and potentially cause near-term revenue declines. On-premise renewals are seasonal, and hosted sales trends may take time to appear in reported results. The company’s accumulated deficit was $720.6M at September 30, 2026.

At that date, cash, cash equivalents, restricted cash and marketable securities totaled $373.4M. Management believes cash, cash equivalents and marketable securities will fund operating expenses and capital expenditures for at least 24 months, but that outlook depends on assumptions. Advancing proprietary programs and investing in the platform and commercial infrastructure are expected to increase spending. Further financing could dilute shareholders, impose debt or preferred-stock restrictions, or require the company to surrender valuable rights through collaborations or licenses.

Software and collaboration risks

Software revenue depends heavily on renewals and expansion sales: licenses are typically annual, customers generally need not renew, and contracts may be reduced or terminated. Customers may renew at lower prices, buy fewer licenses, delay decisions, or choose competitors or internally developed tools. Sales can take nine to twelve months or longer, consuming time and expense without a successful outcome. Life sciences—particularly biopharma—is a significant customer base, exposing demand to customer consolidation, lower research investment and changing drug-development priorities. Schrödinger is pursuing materials-science markets, but adoption of computational molecular discovery there remains uncertain.

Competition is increasing across simulation, molecular discovery and AI, including established software vendors, specialized and AI-focused firms, open-source methods and customer-built tools. Pricing pressure, competitors’ greater resources, or advances in competing AI approaches could weaken sales and margins. Investment in AI, including the Bunsen “agentic AI co-scientist,” may not produce returns and carries risks involving inaccurate or biased outputs, data leakage, intellectual-property claims and evolving regulation. Hosted services also depend substantially on third-party cloud infrastructure; outages, security incidents or capacity constraints could disrupt service and customer relationships.

Drug collaborations generally provide limited upfront cash and rely on equity, option fees, milestones and royalties. Schrödinger received $55.0M upfront from Bristol Myers Squibb and $150.0M from Novartis in January 2025, but most future returns remain uncertain: partners control development and may delay, discontinue or prioritize other programs. Under the Novartis arrangement, Novartis is solely responsible for development after candidate selection, and Schrödinger may not identify candidates or receive further milestones. Equity investments in collaborators may be diluted, impaired or lost, and private-company valuations are difficult to estimate.

Drug development and regulatory uncertainty

Schrödinger’s proprietary pipeline remains early-stage, including clinical-stage SGR-1505 and SGR-3515. Clinical development is lengthy, costly and uncertain; safety or efficacy signals in early studies may not translate to later trials or approval. In August 2025, the company discontinued SGR-2921 after two patient deaths to which the drug was considered to have contributed, despite early evidence of monotherapy activity. Schrödinger has limited clinical-development experience and relies on CROs and other third parties for trials, research and manufacturing. Enrollment difficulties, unreliable data, quality or compliance failures, supply shortages, tariffs or loss of contractors could delay or halt programs. The company has no manufacturing facilities, limited manufacturing expertise and no long-term supply agreements for product candidates.

Regulatory approval is not assured in the U.S. or abroad, and approval in one jurisdiction does not ensure approval elsewhere. Evolving trial requirements, agency workload, litigation over agency authority, and possible additional studies could increase costs or delay review. FDA granted Fast Track designation to SGR-1505 in June 2025 for adults with Waldenström macroglobulinemia after at least two prior lines of therapy, including a BTK inhibitor; the designation does not guarantee faster review or approval. Even an approved drug may face inadequate reimbursement, payer restrictions, competition, liability claims or weak market acceptance. U.S. and international pricing measures—including Medicare negotiation under the IRA—could reduce returns and collaboration value; eligibility rules may also encourage investment in biologics over small molecules, an area where Schrödinger says its platform is less validated.

Intellectual property, policy and operating risks

The platform and pipeline depend on patents, trade secrets and third-party licenses. Patent rights may be narrowed, challenged, expire before commercialization, or fail to prevent competing products; litigation can be costly and may require licenses, redesigns or cessation of affected activity. Columbia University-licensed technology is incorporated into multiple software products. Collaboration terms can limit independent research and ownership, including restrictions on pursuing certain Novartis targets. Open-source software also creates license-compliance and potential source-code disclosure risks.

International sales represented approximately 33% of revenue in Q3 2026, 38% in 9M 2026 and 40% in FY2025, exposing the company to currency, tax, privacy, regulatory and trade risks. Privacy laws and cybersecurity incidents could lead to penalties, litigation, remediation costs or loss of sensitive data; GDPR penalties can reach 4% of global revenue or €20 million, whichever is greater. Trade restrictions could disrupt supplies and raise costs: the filing describes a potential default 100% U.S. duty on covered patented pharmaceuticals, with exceptions or reduced rates, while implementation and legal challenges remain uncertain. The BIOSECURE Act and restrictions involving Chinese suppliers could also affect access to materials and services.

Capital markets and governance

As of October 28, 2026, executives, directors and holders of more than 5% owned approximately 39.8% of common stock and all limited common stock; conversion of the latter one-for-one would bring their combined stake to approximately 47.1%. The stock’s intraday range from the February 2020 IPO through October 28, 2026 was $10.94–$117.00. As of October 28, 2026, 65,913,601 common shares and 9,164,193 limited common shares were outstanding. Schrödinger may sell up to $250.0M of common stock through its Leerink Partners ATM; through September 30, 2026, it had sold 323,085 shares for $8.7M net proceeds, with $241.1M remaining available. Additional equity-plan and registered shares, insider sales or future financing could dilute holders and pressure the stock.

The company reported remediation of a material weakness in internal control identified in connection with its 2022 audit, but cannot assure that future control weaknesses will not arise. Its projections and development timelines depend on uncertain assumptions and may differ materially from actual outcomes.

Rule 10b5-1 Trading Arrangements

During the quarterly reporting period, two executives adopted Rule 10b5-1 arrangements:

• Yvonne Tran, EVP, Chief Legal Officer and Chief People Officer, adopted an arrangement on August 10, 2026 covering the exercise of stock options and sale of up to 42,000 shares. It is scheduled to run through August 1, 2027, unless transactions are completed or it expires earlier.
• Patrick Lorton, EVP, Chief Technology Officer and Chief Operating Officer, Software, adopted a share-sale arrangement on September 1, 2026 covering up to 30,000 shares. It is scheduled to run through December 31, 2027, unless transactions are completed or it expires earlier.

The company notes that equity awards make up a significant portion of director and officer compensation. Transactions under these arrangements may be for tax withholding, diversification, or personal reasons, and remain subject to the company’s insider-trading policy and restrictions on trading while in possession of material nonpublic information.