Key Highlights

  • On 29 June the company disclosed it had received approximately US$57m in cash from Eli Lilly on completion of Lilly's acquisition of Ajax Therapeutics, a biotech Schrödinger (NASDAQ:SDGR) co-founded, with further payments due if Ajax achieves specified clinical and regulatory milestones.
  • In the quarter ended total revenue was US$58.6m, down 2%. Software revenue fell 21% to US$35.6m from US$45.0m, which management attributed to the planned acceleration of the hosted transition.
  • The bull case rests on the gap between reported revenue and underlying demand.
  • First, the transition remains an unproven explanation for a real decline: second-quarter ACV guidance of US$19m to US$23m brackets a figure below the US$23.3m booked a year earlier.

Why the market is paying attention

That values the computational chemistry group at about US$1.15bn, the lower half of a 52-week range of US$10.95 to US$23.02.

Two developments frame the debate. On 29 June the company disclosed it had received approximately US$57m in cash from Eli Lilly on completion of Lilly's acquisition of Ajax Therapeutics, a biotech Schrödinger (NASDAQ:SDGR) co-founded, with further payments due if Ajax achieves specified clinical and regulatory milestones. Against that, reported software revenue, the recurring, high-margin half of the business, fell 21% year on year in the March quarter. Second-quarter results are due on 5 August. Figures below cover the March 2026 quarter and the 2025 financial year.

What the company does

Schrödinger licenses software that simulates how molecules behave, combining physics-based modelling with machine learning. Customers are pharmaceutical, biotechnology and materials companies plus academic institutions, and licences are sold on-premise or, increasingly, as hosted subscriptions.

Because the two models are accounted for differently, management asks investors to watch annual contract value, or ACV: the annualised value of software contracts signed in a period. On-premise licences are largely recognised upfront; hosted revenue is spread over the contract term, typically a year. Shifting customers to hosted arrangements therefore depresses reported revenue even when bookings grow.

The second arm applies the same software to Schrödinger's own molecules, generating milestone-driven collaboration payments from partners including Bristol Myers Squibb, Novartis, Otsuka, Sanofi and Lilly, plus equity stakes in co-founded businesses such as Nimbus Therapeutics, Ajax and the listed Structure Therapeutics.

Latest financial and operating performance

In the quarter ended total revenue was US$58.6m, down 2%. Software revenue fell 21% to US$35.6m from US$45.0m, which management attributed to the planned acceleration of the hosted transition. Drug discovery revenue rose 124% to US$22.9m from US$10.2m.

Software gross margin was 69%, below the high-70s level targeted for 2028. Operating expenses fell 4% to US$78.3m, with research and development at US$43.8m, and the operating loss was US$48.8m. A US$13.5m negative mark on equity investments took the net loss to US$60.0m, or US$0.81 a share, against US$59.8m and US$0.82 a year earlier. Operating activities consumed US$14.8m of cash.

Cash, equivalents, restricted cash and marketable securities stood at US$406.4m at 31 March, up from US$402.3m at the year end after US$20.3m of net proceeds from selling part of the Structure stake. There are no borrowings. Equity investments were carried at US$39.8m, Structure at US$32.8m, Ajax at US$4.5m and Nimbus at just US$2.4m.

First-quarter ACV was US$28.4m, up 12%, on trailing four-quarter ACV of US$201m; two customers supplied 22% and 18% of quarterly revenue. For 2025, revenue was US$255.9m, up 23.3%, split between software at US$199.5m and drug discovery at US$56.4m; ACV was US$198.5m and the net loss US$103.3m, narrowed from US$187.1m in 2024.

Guidance for 2026 is ACV of US$218m to US$228m, or 10-15% growth, drug discovery revenue of US$55m to US$65m and operating expenses below 2025. Second-quarter ACV was guided to US$19m to US$23m, against US$23.3m a year earlier. February's 2028 objectives include software gross margin back in the high 70s and positive adjusted EBITDA.

The Ajax payout and why it matters

The June receipt is the clearest evidence yet that co-founding biotechs produces hard cash. Ajax was carried at US$4.5m on the March balance sheet; Lilly's completed acquisition, valued at up to US$2.3bn including milestones on Schrödinger's own account, converted that into roughly US$57m, with more contingent on Ajax's progress.

The sum is material against a first-quarter operating cash outflow of US$14.8m and arrives without dilution. But it is episodic, does not appear in revenue, and its timing is set by acquirers. Nimbus, still carried at US$2.4m, shows how long such stakes can lie dormant; this is a balance-sheet event, not proof that the operating model has turned.

The bull case

The bull case rests on the gap between reported revenue and underlying demand. If the hosted transition really explains the 21% software decline, then 12% ACV growth describes a business still expanding while its accounting optics deteriorate. As it completes, revenue should converge upwards towards ACV and margin recover, without new customers being needed.

The wholly owned pipeline adds optionality. SGR-1505, a MALT1 inhibitor in Phase 1 in relapsed or refractory B-cell malignancies, was described as generally well tolerated and clinically active, with a 100% response rate in Waldenstrom macroglobulinemia. SGR-3515, a Wee1/Myt1 inhibitor in Phase 1 in solid tumours, showed a 65% disease control rate at higher doses. Management is exploring partnerships for both, and the 2025 net loss almost halved.

The bear case and the risks

First, the transition remains an unproven explanation for a real decline: second-quarter ACV guidance of US$19m to US$23m brackets a figure below the US$23.3m booked a year earlier. The departure of the chief commercial officer and global head of software sales and marketing, formalised in a separation agreement adds execution risk in precisely that function.

Second, the pipeline is expensive and has already produced a failure: SGR-2921, a CDC7 inhibitor, was discontinued in August 2025 on safety grounds in acute myeloid leukaemia. The search for partners acknowledges that funding late-stage trials alone would strain a company losing about US$60m a quarter.

Third, earnings swing with equity marks, fair-value losses of US$13.5m and US$13.1m in the past two first quarters, and revenue is concentrated, with two customers supplying 40% of March-quarter revenue and drug discovery income arriving on milestone timetables.

What investors should watch next

Second-quarter results. ACV against the US$19m to US$23m guidance is the line that matters, along with any change to the full-year range.

Software gross margin. The 69% recorded in the March quarter needs to trend back towards the high 70s targeted for 2028.

Partnering for SGR-1505 and SGR-3515. A deal would validate the assets and move late-stage trial costs off the income statement.

Cash and burn. US$406.4m at 31 March plus roughly US$57m from Ajax is comfortable; the trend in operating cash outflow decides for how long.

Investor takeaway

Schrödinger enters the second half of 2026 with a stronger balance sheet than in March and a weaker reported top line than a year ago. The roughly US$57m from Lilly is real, unencumbered cash that validates the co-founding model, but it is episodic and does not answer the central question: whether the software franchise is growing beneath an accounting transition, or whether demand is softening.

The 5 August update should begin to answer that. Until ACV growth is demonstrably intact and software gross margin is recovering, the pipeline and equity portfolio remain options attached to a business still losing around US$60m a quarter. Investors should weigh the platform's scientific credibility against a commercial record that has yet to convert it into profit.

This article is for informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. Share prices can rise or fall, and past performance does not guarantee future results. Investors should conduct independent research and consult a licensed financial adviser before making investment decisions.