Schrodinger, Inc. (SDGR) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2026. Schrodinger, Inc. operates two primary segments: Software (licensing physics-based computational platforms for drug and materials discovery) and Drug Discovery (advancing proprietary programs and collaborations). The company is transitioning its software revenue model from on-premise licenses to hosted subscriptions and is advancing two proprietary clinical programs (SGR-1505 and SGR-3515) while discontinuing others (SGR-2921).
Key Financial Metrics (Six Months Ended June 30, 2026)
| Metric | Amount (in thousands) |
|---|---|
| Total Revenues | $117,476 |
| Net Income (Loss) | $(54,051) |
| Gross Profit | $61,979 |
| Operating Loss | $(90,341) |
| Cash and Cash Equivalents | $287,853 |
| Marketable Securities | $125,886 |
| Total Liquidity (Cash + Securities) | $413,739 |
| Accumulated Deficit | $(682,857) |
Note: While the six-month period resulted in a net loss, the company reported a net income of $5.975 million for the three months ended June 30, 2026, driven primarily by a non-operating gain.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 3% year-over-year (YoY) to $117.5 million for the six months ended June 30, 2026, compared to $114.3 million in the prior year period.
- Segment Performance:
- Drug Discovery Revenue: Surged 90% YoY to $45.9 million, driven by a $10.0 million milestone payment from the Eli Lilly acquisition of Ajax Therapeutics and accelerated revenue recognition from a terminated Lilly program.
- Software Revenue: Declined 16% YoY to $68.1 million. On-premise license revenue dropped 43% due to the strategic shift toward hosted software, while hosted software revenue increased 24%.
- Contribution Revenue: Decreased 62% YoY to $3.5 million due to the depletion of allocated funds under Gates Foundation agreements.
- Equity Investment Gain: The company recognized a significant non-cash gain of $32.4 million (six months) from the change in fair value of equity investments, primarily due to the $42.1 million gain on the Ajax Therapeutics acquisition by Eli Lilly.
- Operating Expenses: Total operating expenses decreased 5% YoY to $152.3 million, reflecting cost reduction initiatives and the discontinuation of the SGR-2921 clinical program.
Guidance, Outlook, and Risks
- Outlook: Management expects revenue to decline in the near-term as the transition from on-premise to hosted software continues, as hosted revenue is recognized ratably over time rather than upfront. The company believes its liquidity of approximately $419 million (including restricted cash) is sufficient to fund operations for at least the next 24 months.
- Strategic Initiatives:
- Launch of "Bunsen," an agentic AI co-scientist, with full commercial release expected by end of 2026.
- Completion of Phase 1 trials for SGR-1505 and SGR-3515, with plans to seek strategic partnerships for further development rather than independent advancement.
- Risks and Contingencies:
- Profitability: The company has a history of significant operating losses and expects to incur losses for several years. The Q2 2026 net income was largely due to the one-time Ajax gain; operating losses persist.
- Regulatory & Trade: Risks include potential FDA delays, changes in orphan drug exclusivity laws, and the impact of new U.S. tariffs and trade restrictions (e.g., BIOSECURE Act) on supply chains and CROs in China.
- Customer Concentration: Two customers accounted for 21% and 20% of total revenue for the six months ended June 30, 2026.
Investor Verification Checklist
- Sustainability of Q2 Profitability: Verify the extent to which the Q2 net income was driven by the non-recurring Ajax equity gain versus core operational improvements.
- Software Transition Impact: Monitor the rate of decline in on-premise revenue versus the growth in hosted software Annual Contract Value (ACV) to assess the long-term revenue mix.
- Cash Burn Rate: Review the operating cash flow usage ($48.9 million used in six months) against the $419 million liquidity position to confirm the 24-month runway.
- Clinical Progress: Track the status of Phase 1 trials for SGR-1505 and SGR-3515 and the timeline for securing strategic partners for these assets.
- Collaboration Milestones: Assess the probability and timing of future milestone payments from major partners like Novartis and Bristol-Myers Squibb.