Schrodinger (NASDAQ:SDGR) executives used the company’s fourth-quarter and full-year 2025 earnings call to emphasize progress in its software business, a sharp increase in drug discovery revenue, and a shift in how investors should evaluate near-term performance as the company accelerates its transition from on-premise deployments to hosted contracts.
2025 results: revenue growth and a strengthened balance sheet
Chief executive Ramy Farid said the company’s software business generated approximately $200 million in annual contract value (ACV) in 2025, while the broader organization continued to advance both internal and partnered therapeutics programs using its computational platform that combines physics-based simulation, AI, and data infrastructure.
Jain said software gross margin was 74% in 2025, down from 80% in 2024, attributing the change to higher costs linked to contribution revenue from grants. Operating expenses were $310 million, down about 9% from 2024, reflecting cost reduction initiatives in R&D and G&A, partly offset by increased sales and marketing investment. Net loss narrowed to $103 million from $187 million in 2024. The company ended the year with $402 million in cash.
Hosted transition drives near-term revenue timing changes
A central theme of the call was Schrodinger’s plan to “accelerate” its shift toward hosted, cloud-based software contracts. Jain said the company’s software business remains predominantly on-premise today, which can lead to “lumpy” revenue due to upfront recognition, particularly for multi-year contracts. Hosted contracts, by contrast, are recognized ratably over the contract term.
In fourth-quarter 2025, ACV was similar to the year-ago quarter, but software revenue fell 13% to $69.3 million. Jain attributed the decline partly to a large, multi-year on-premise deal signed in Q4 2024 that drove upfront revenue then, while in Q4 2025 portions of several multi-year deals were deployed as hosted, deferring more revenue recognition into 2026 and beyond.
Management stressed that the hosted transition does not change total ACV or cash flows, but will affect reported revenue timing, gross margins, and adjusted EBITDA because revenue recognition shifts—even though the underlying cost structure is unchanged. As a “rule of thumb,” Jain said each 1% increase in hosted revenue mix could reduce current-year revenue by about $2 million to $3 million. Hosted revenue represented 23% of software revenue in 2025, and the company’s goal is to reach roughly 75% hosted by 2028, acknowledging some customers and regions may not migrate.
New software KPIs and 2026 outlook focused on ACV
Given expected volatility in reported software revenue during the hosting transition, Schrodinger introduced what it called a new set of software KPIs, with greater emphasis on ACV and dollar-based retention metrics for commercial customers.
- Total ACV increased to $198.5 million from $190.8 million in 2024 (4% growth).
- Top 20 pharma ACV grew 15%, and management said the company continues expanding relationships in this cohort.
- Commercial ACV (which includes the rest of life sciences and materials science) grew 7% to $177.4 million.
- Net dollar retention fell to 100% after several years averaging above 110%, which Jain tied to the difficult funding environment in 2025.
- Gross dollar retention was 96%, which management said underscored the “essential nature” of the platform.
For full-year 2026, Schrodinger guided to ACV of $218 million to $228 million, implying 10% to 15% growth. Jain said first-quarter ACV is expected to be $24 million to $28 million, noting Q1 is typically a smaller quarter following Q4’s heavy renewal season and that quarterly results can be sensitive to the timing of individual contracts.
For drug discovery, the company guided to 2026 revenue of $55 million to $65 million, while reiterating that collaboration- and milestone-driven revenue can vary meaningfully by quarter. Jain also said operating expenses in 2026 are expected to be below 2025 levels as the company realizes annualized impacts from prior cost reductions and maintains “expense discipline.”
Therapeutics portfolio: collaborations, modality switches, and upcoming readouts
President and head of therapeutics R&D Karen Akinsanya outlined multiple “value generation opportunities,” including equity stakes in companies the firm co-founded, licensing and collaboration economics, and the longer-term value tied to milestones and royalties. She said the company maintains equity positions in Nimbus, Ajax, and Structure Therapeutics.
Akinsanya said Schrodinger’s partnering expansion since 2018 has increased the number of programs eligible for royalties on sales from 13 to 16 across 20 collaborators, with royalty rates described as mostly in the high-single-digits to low-double-digits. She cited potential future milestones of up to $5 billion across the portfolio and said more than 25 active programs exist across the combined portfolio, with about $650 million in cash, upfronts, and milestones generated to date.
She highlighted “modality switch” efforts—developing oral versions of injectable antibodies and peptides—and pointed to examples including “oral Entyvio,” Lilly’s oral small-molecule α4β7 program following the acquisition of Morphic, and an oral amylin program at Structure Therapeutics. Akinsanya said there are seven clinical programs across the portfolio, ranging from Phase I to Phase III.
Among recent updates, she noted Takeda’s Phase III data for zasocitinib, a TYK2 inhibitor co-invented with Nimbus prior to its sale to Takeda. Akinsanya said Takeda expects to launch the product in 2027. She also said Schrodinger is eligible to receive up to approximately $100 million in additional future cash distributions from payments made to Nimbus tied to global sales milestones.
On Schrodinger’s wholly owned pipeline, Akinsanya said the company is finalizing Phase I studies for SGR-1505 and SGR-3515. She added that initial Phase I data for its WEE1/Myt1 co-inhibitor is expected to be reported at a medical meeting in the second quarter.
AI positioning and product expansion, including Predictive Tox
Management framed broader AI adoption—particularly “agentic AI”—as a tailwind. Farid said AI models need large amounts of accurate training data and argued physics-based simulation can help address data scarcity in chemical space. In the Q&A, he added that agentic AI could help overcome a barrier to broader use of Schrodinger’s platform: limited human bandwidth to run complex workflows at scale.
Farid said the company is working directly with Anthropic to explore integrating agentic AI with Schrodinger’s computational solutions, and that its throughput-based licensing model positions it to benefit as customer compute consumption scales.
On product expansion, management discussed the beta of its predictive toxicology solution and said early feedback has been positive and “outperformed” expectations. In response to investor questions about whether new products were included in guidance, Jain said the company’s 10% to 15% growth expectations incorporate the impact of new product launches, including Predictive Tox. Farid and Jain also described Predictive Tox as both an add-on opportunity for existing discovery teams and a potential entry point into new budgets and user groups, such as toxicology organizations later in the discovery and preclinical process.
Looking further out, Jain reiterated medium-term objectives of 10% to 15% annual software ACV growth, an accelerated shift toward hosted contracts, gross margins returning to the high-70% range, and a target of positive adjusted EBITDA by the end of 2028. In the Q&A, management said its multi-year outlook assumes a recovery in biotech funding conditions over that time frame, while noting it currently prefers to deploy cash into growth rather than share repurchases.
About Schrodinger (NASDAQ:SDGR)
Schrödinger, Inc is a life sciences and materials discovery company that specializes in the application of physics-based computational platforms to accelerate drug discovery and advanced materials design. Founded in 1990 by Professor Richard A. Friesner, Schrödinger has developed a suite of proprietary software tools—such as Maestro for molecular modeling, Glide for molecular docking and Jaguar for quantum chemistry calculations—that enable scientists to predict molecular behavior with high accuracy.
