February 2, 2026 11:31 PM GMT Biotechnology | Asia Pacific M Idea Crossing the Molecule: Why 2026 Is the Make-or-Break Year for AI in Drug Discovery AI-driven drug discovery is verging on an inflection, as serial data readouts in 2026 test whether biology models can meaningfully improve drug development success rates. We lay out what could shift AIDD from workflow tool to industry adoption curve, and how investors should position accordingly. AIDD has moved from pilot wins to commercial reality: Chemistry-f ...

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]