Summary of Schrödinger FY Conference Call - March 03, 2026 Company Overview - **Company**: Schrödinger (NasdaqGS:SDGR) - **Industry**: Healthcare, specifically computational chemistry and drug discovery Key Points and Arguments Transition to Hosted Services - Approximately 25% of Schrödinger's revenue is now from hosted services, which allows for better customer support and monitoring of software usage [13][14] - Revenue recognition for hosted services occurs ratably over the contract term, contrasting with on-premise services where revenue is recognized upon closing [14] - The transition to hosted services is expected to temporarily reduce revenue for the current year, but deferred revenue will be recognized in the following year [19][20] Advances in Computational Chemistry - Significant advancements in computational chemistry allow Schrödinger to run calculations that can replace traditional experiments, generating data at a scale 10 years faster than experimental methods [30] - The integration of AI with computational chemistry enhances the ability to explore vast chemical spaces, improving the probability of success in drug development [30][31] - Schrödinger has produced 16 clinical assets, with a success rate better than the industry average [31] Predictive Toxicology - The predictive toxicology offering has exited beta testing with positive feedback and is expected to drive growth [56] - This tool addresses a major challenge in drug discovery by predicting toxicity early in the development process, potentially reducing reliance on animal testing [70][71] Growth Opportunities - Continued scale-up of technology usage among pharmaceutical companies is anticipated, which will drive growth [58] - Expansion into biologics and material science applications, including battery chemistry, is also a focus area for growth [59][60] - The introduction of a large molecule offering is expected to attract interest from companies working with ADCs and peptides [61] Partnership Strategy - A new partnership with TuneLab at Lilly aims to provide biotechs access to machine learning-trained toxicity models, enhancing the value of Schrödinger's offerings [94][95] - The partnership strategy is designed to enable users to become power users, increasing throughput and expanding the user base [97] Therapeutics Pipeline - Schrödinger is focused on advancing its therapeutics pipeline, with updates expected on SGR-3515 and SGR-1505 in the near future [100] - The company is excited about collaborations that generate IP and development candidates while also accruing royalties from successful programs [101] Market Position and Challenges - There is a disconnect in understanding the value of Schrödinger's platform due to the noise from numerous companies claiming to revolutionize drug discovery with AI [108] - The emphasis is on the company's track record of producing clinical assets and maintaining high customer retention [110][111] Conclusion - Schrödinger is positioned for growth through its innovative computational chemistry platform, strategic partnerships, and a focus on predictive toxicology and biologics. The company aims to clarify its value proposition amidst a crowded market of AI-driven drug discovery claims [112][113]