Schrödinger (SDGR) TD Cowen 46th Annual Health Care Conference summary

Transition to hosted services and financial reporting

• Transition to hosted software delivery has been ongoing for several years, with about a quarter of revenue now hosted.

• Revenue recognition shifts from upfront to ratable over contract terms, impacting reported revenue timing but not cash flow.

• ACV (Annual Contract Value) is now the primary operating metric, reflecting business performance more accurately during the transition.

• Revenue is expected to decline in the current year due to the transition, with deferred revenue recognized in future periods; a snapback is anticipated by 2027.

• The transition aligns with industry standards and is expected to provide better customer support and usage insights.

Platform evolution and technology advancements

• Advances in computational chemistry and AI now allow for accurate, large-scale molecular property predictions, reducing the need for physical experiments.

• The platform enables rapid data generation, supporting AI model training and accelerating drug discovery timelines.

• Integration of physics-based methods with AI has led to 16 clinical assets, including late-stage programs with royalties and milestones.

• Agentic AI and workflow improvements are expected to further scale platform adoption and customer engagement.

• Expansion into biologics and material science, including battery chemistry and crystal structure prediction, is underway.

Growth drivers and product innovation

• Predictive toxicology offering has launched after positive beta feedback, addressing a major challenge in drug discovery and expected to drive growth.

• The platform now covers 60-70 off-targets in predictive toxicology, with ongoing expansion planned.

• Broader adoption of large-scale AI-driven methods by pharma is anticipated to be a significant growth driver.

• LiveDesign platform is positioned as a central hub for both small and large molecule drug discovery, with new offerings for biologics and ADCs.

• R&D investments target adjacent markets and new capabilities, with a focus on expanding addressable markets in life sciences and material science.