Schrödinger - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 total revenue was $54.3M (+54% YoY), with software revenue $40.9M (+28% YoY) and drug discovery revenue $13.5M; GAAP EPS was $(0.45) and non-GAAP EPS was $(0.57).
• The company lowered FY25 software revenue growth guidance to 8–13% (from 10–15%), raised drug discovery revenue guidance to $49–52M (from $45–50M), and trimmed software gross margin guidance to 73–75% (from 74–75%), citing timing uncertainty around pharma scale-ups.
• Management shifted therapeutics to a discovery-focused model (no independent advancement into clinic beyond ongoing Phase 1 for SGR-1505 and SGR-3515), expecting ~$70M savings alongside earlier $30M reductions to improve long-term profitability.
• Operational highlights included steady 73% software gross margin, reduced OpEx (-14% YoY), and cash/marketable securities of $401M; Q3 software revenue beat Q2’s quarterly guidance range ($36–$40M) with $40.9M.

What Went Well and What Went Wrong

What Went Well

• Strong top-line: Total revenue +54% YoY ($54.3M) driven by software growth (+28% YoY to $40.9M) and drug discovery ($13.5M vs. $3.4M).
• Expense discipline: OpEx fell to $74.0M (from $86.2M), with R&D down to $42.8M and S&M/G&A lower, supporting a narrower GAAP net loss ($32.8M vs. $38.1M).
• Clear strategic focus: “Beyond our planned clinical investments… we do not intend to advance discovery programs into the clinic independently… actions… expected to result in savings of approximately $70 million” — CEO Ramy Farid.

What Went Wrong

• Guidance reduction: FY25 software growth guide cut to 8–13% amid delayed pharma scale-ups and biotech sector headwinds; management noted conversations have greater visibility on size but less on timing to close.
• Equity mark-to-market: Other income fell to $13.3M (vs. $30.2M YoY) driven by changes in fair value of equity investments (Q3 change in fair value $9.7M vs. $25.5M YoY), dampening below-the-line contribution.
• Program discontinuation: SGR-2921 (CDC7 inhibitor) discontinued after two treatment-related deaths in AML despite early monotherapy activity, removing a near-term clinical data catalyst in hematology.

Transcript

Operator (participant)

Drop, and I'll be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. Please be advised that this call is being recorded at the company's request. Now, I would like to introduce your host for today's conference, Ms. Jaren Madden, Chief Corporate Affairs Officer and Head of Investor Relations. Please go ahead.

Jaren Madden (Chief Corporate Affairs Officer and Head of Investor Relations)

Thank you, and good afternoon, everyone. Welcome to today's call, during which we will provide an update on the company and review our third quarter 2025 financial results. Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at schrodinger.com. Here with me on our call today are Ramy Farid, Chief Executive Officer, Richie Jain, Chief Financial Officer, and Karen Akinsanya, President, Head of Therapeutics R&D and Chief Strategy Officer Partnerships. Following our prepared remarks, we'll open the call for Q&A.

During today's call, management will make statements that are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including without limitation, statements related to our financial outlook for the full year 2025, our plans to accelerate the growth of our software business and advance our collaborative and proprietary drug discovery programs, the timing of and initiation of, and readouts from our clinical trials, the clinical potential and properties of our compounds, the use of our cash resources, as well as future expenses. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us and on assumptions we have made.

Actual results may differ materially due to a number of important factors, including the considerations described in the risk factors section and elsewhere in the filings we make with the SEC, including our Form 10-Q for the quarter ended September 30, 2025. These forward-looking statements represent our views only as of today, and we caution you that, except as required by law, we may not update them in the future, whether as a result of new information, future events, or otherwise. With that, I'd like to turn the call over to Ramy.

Ramy Farid (CEO)

Thank you, Jaren, and thank you, everyone, for joining us today. We made very solid progress during the third quarter. Total revenue was $54 million, a 54% increase from the third quarter of 2024, reflecting strong execution across our business. Software revenue in the third quarter was $40.9 million, representing 28% year-over-year growth, and was just above our expectations. Drug discovery revenue was $13.5 million, highlighting the progress in our collaborative programs. We are seeing continued strong demand for advanced computational solutions across the industry. We are also pleased to see wide recognition that simulated data is required to realize the full potential of AI in drug discovery. To effectively harness AI and machine learning for molecular discovery, vast amounts of high-quality, physics-based simulation data are essential for training robust AI models. Experimental data alone is insufficient to generate the required training data.

Schrödinger's differentiated and extensively validated platform generates high-quality simulated data at a scale that far exceeds what is possible with experiments alone. With this new computational physics plus AI paradigm becoming the accepted standard, we are very optimistic about the long-term potential and value of our platform. As we execute through the remainder of 2025, we are encouraged by the continued high level of customer engagement as the macroeconomic pressures that have impacted industry stabilize. While we remain confident about our long-term growth opportunity, we are updating our software revenue growth guidance for 2025 to 8%-13% from 10%-15% to reflect our current expectations regarding the timing of certain pharma scale-up opportunities. Turning briefly to our pipeline, we continue to work toward completing the phase I package for SGR-1505, our MALT1 inhibitor, and the phase I dose escalation study for SGR-3515, our Wee1/Myt1 co-inhibitor.

Beyond these planned investments, we do not intend to advance our internal discovery programs into the clinic independently. This decision and the $30 million expense reduction in May improve our operational efficiency and long-term profitability profile. We are continuing to invest in advancing our platform, including making significant improvements to the accuracy and domain of applicability, as well as usability, which is driving adoption among scientists throughout the R&D organization, not just dedicated computational chemists. Last week, we released our 2025-4 software update, which includes enhancements for challenging modalities such as bifunctional degraders. Additionally, the beta for our predictive toxicology solution is ongoing. This version encompasses approximately 50 representative kinases in addition to multiple key anti-targets. We are continuing to expand the number of off-targets supported in our platform and are optimistic about the potential long-term contribution of this product.

Overall, we have made considerable progress this year and remain focused on executing against our strategic priorities, including increasing customer adoption of our software, delivering major scientific advancements to the platform, and advancing our therapeutics portfolio. I will now turn the call over to Richie to discuss the financials in greater detail. Richie?

Richie Jain (CFO)

Thank you, Ramy, and good afternoon, everyone. Schrödinger had an excellent third quarter with strong growth in both software and drug discovery revenue coupled with disciplined expense management. Total revenue for the quarter was $54.3 million, an increase of 54% compared to Q3 2024. The increase was driven by both higher software and drug discovery revenue. Software revenue was $40.9 million, an increase of 28% compared to Q3 2024, and just ahead of our expectations for the quarter. The increase was primarily driven by higher revenue from hosted contracts, on-premise renewals, and contribution revenue from the grant related to our predictive toxicology initiative. This growth primarily reflects the expansion of existing accounts with limited contribution from new customers. Drug discovery revenue was $13.5 million compared to $3.4 million in Q3 2024. The increase reflects continued successful execution across our expanded portfolio of collaborations.

Software gross margin for both Q3 2025 and Q3 2024 was 73%. R&D expenses were $42.8 million in Q3 2025, a 16% decrease from $51 million in Q3 2024. The decrease was primarily due to lower employee-related expenses and the continued shift of the predictive toxicology expenses into software cost of goods sold from internal R&D. Sales and marketing expense was $9.5 million, an 8% decrease compared to Q3 2024. G&A decreased 13% to $21.7 million. The decline in both expenses was primarily due to lower employee-related expenses. Overall, total operating expenses were $74 million in the quarter, a decrease of 14% compared to Q3 2024. Total other income was a gain of $13 million compared to a gain of $30 million in Q3 last year due to mark-to-market changes in our equity investments and currency fluctuations.

Net loss was $33 million, or $0.45 per diluted share, versus a net loss of $38 million, or $0.52 per diluted share in Q3 2024. The fully diluted share count for Q3 was 73.6 million compared to 72.8 million in Q3 2024. We remain well-capitalized with $401 million in cash and equivalents as of September 30. Turning to our full-year software guidance, we are updating our revenue growth and gross margin expectations for the year. We now expect software revenue growth to be in the range of 8%-13% compared to prior expectations of 10%-15%. This change is driven by the slowdown in pharma discussions resulting from the multitude of factors impacting the industry and our relatively long sales cycle for scale-up opportunities. We are having positive conversations with customers, and our scheduled renewals remain on track.

While we may experience certain delays this quarter, we remain confident in the long-term potential for growth as industry pressures lessen. We are encouraged by the early signals of recovery in the biotech sector, including in the capital markets, M&A, and new capital formation, creating additional opportunities. We are addressing the industry's increasing demand for agentic integration and R&D efficiency, as well as expanding the domain of applicability across the drug discovery and preclinical development continuum. Collectively, these provide additional opportunities for us to demonstrate value to our customers and access additional budgets. Shifting to the remainder of our guidance, we are pleased with the progress we have made across our collaborative portfolio and have increased our drug discovery revenue guidance to $49 million-$52 million, which slightly exceeds our prior expectation of $45 million-$50 million.

Software gross margin is now expected to be 73%-75% versus 74%-75% previously, reflecting the change in software revenue expectations and our relatively fixed cost structure for software cost of goods sold. We are committed to managing our expenses, and our expense guidance remains unchanged. We continue to expect operating expenses to be lower than 2024. Cash used in operating activities is expected to be significantly lower than 2024. Our headcount is now appropriately sized to achieve our business objectives after the $30 million expense reduction announced in May. We have already realized more than half of the $30 million savings, and the remainder will be realized in 2026. This action, plus the phasing out of independent clinical development activities and associated reduction in team, will provide savings of approximately $70 million and improve our long-term profitability profile. Overall, we reported strong financial results for the quarter.

Our business is resilient, and we are committed to taking advantage of the opportunities in front of us. With that, I'll turn the call over to Karen to discuss our therapeutics R&D and pipeline updates.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Thank you, Richie, and good afternoon, everyone. Our highly experienced drug discovery team are pioneers of the predict-first computational approach to drug discovery. We leverage structural biology breakthroughs and physics combined with the power and speed of AI to enable broad exploration of chemical space to identify novel molecules that repeatedly meet a wide range of product profiles. Examples of molecules discovered as part of collaborations include Zasocitinib, acquired by Takeda from Nimbus, MORF-057, now advancing at Lilly following the Morphic acquisition, and Structure Therapeutics GSBR-1290, which all continue to make progress through the clinic. These phase II-B and III assets represent the most advanced examples of medicines designed by leveraging large-scale use of our physics-based methods, along with AI and machine learning. Turning to updates on our clinical pipeline.

Next month, we will present new translational data and a clinical update on SGR-1505, our MALT1 inhibitor, during a poster session at the American Society of Hematology Conference. The abstract published on Monday builds on the encouraging data we presented in June, reinforcing SGR-1505 as a potential best-in-class MALT1 inhibitor for the treatment of relapsed refractory B-cell malignancies in patients who become resistant to standard-of-care agents. The abstract includes initial data in patients with aggressive lymphomas such as ABC DLBCL, where one patient has now achieved a complete response, as well as updated safety and efficacy data in patients with Waldenström's macroglobulinemia, or CLL. The poster will also include translational data on the mutational profiling of BTK and BCL2 inhibitor-resistance mutations. These data, combined with the recent orphan drug designation by the FDA in Waldenström's, support the therapeutic potential and commercial opportunity for SGR-1505.

We are continuing to focus on securing the right strategic partnership to ensure this program receives the dedicated focus and resources required to pursue mid and late-stage development, and we are encouraged by the conversations we have had to date. Moving to SGR-3515, our Wee1/Myt1 co-inhibitor, we are currently focused on completing the phase I dose escalation study in patients with advanced solid tumors. We are encouraged by the progress to date, based on our preliminary review of safety, PK, and PD, and now expect to share initial clinical data in the first half of 2026, which allows us more time to fully analyze and assemble the phase I data for 3515. Last month, we presented preclinical data for SGR-5573, our potent selective brain-penetrant inhibitor of osimertinib-resistant EGFR variants at ESMO.

The data demonstrated that SGR-5573 is potent against resistant EGFR variants, has strong wild-type selectivity, and robust anti-tumor activity in preclinical brain metastases models. Additionally, we recently selected a development candidate in our NLRP3 program. SGR-6016 is structurally distinct from other known NLRP3 inhibitors and has several potential best-in-class attributes, including brain penetrance and an encouraging preclinical potency, selectivity, and safety profile. Others have recently demonstrated clinical proof of concept for NLRP3 as a potential treatment for patients with cardiovascular risk factors and obesity. We have advanced more than 25 programs to the development candidate stage, either independently or through collaborations, since establishing our therapeutics team. Since 2020, we have generated approximately $600 million in cash from companies we have co-founded or from our program licensing and collaboration activities.

We intend to build on this track record by continuing to leverage our extensive combined expertise in structural biology, functional insights, and the full-scale use of our platform to unlock high-potential target product profiles. With approximately 15 programs currently eligible for future milestones and royalties from our past activities, we believe a discovery-focused therapeutics R&D model has the potential to deliver additional long-term value and significant returns through licensing, new ventures, and discovery collaborations. As we wrap up 2025, we look forward to sharing our SGR-1505 update at ASH and to advancing our early-stage and collaborative portfolio. We appreciate all of the hard work of our discovery and development teams who have enabled our progress to date and future opportunities. I will now turn the call back to Ramy.

Ramy Farid (CEO)

Thank you, Karen. We have made significant progress across the business this quarter, and we are optimistic about our outlook through the end of the year. Looking ahead, we are operating at the intersection of two powerful currents shaping the future of molecular discovery: the integration of computational drug discovery and the industry's dramatically increased focus on AI. We are at the forefront of this paradigm shift. We believe our technological advantages, combined with the strategic actions we have taken to improve our operational efficiency and long-term profitability profile, will position us to deliver growth in the years to come. At this time, we'd be happy to take your questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow-up. Your first question today comes from the line of Mani Foroohar from Leerink Partners. Your line is open.

Mani Foroohar (Senior Research Analyst)

Hey, guys. Thanks for excusing me in here. A question about the implications of the guidance regarding the reduced spend year over year and trimming of OpEx. How should we think about that? In line with your commentary around reduced focus on novel clinical development, et cetera? What does that imply in a longer-term time horizon about how we should think about your OpEx trajectory?

Richie Jain (CFO)

Yeah, Mani, thanks for the question. I think we've, just to summarize the actions we've taken, we announced a $30 million expense reduction in May. We've achieved more than half that goal. We'll achieve the full amount by next year. The announcements that we've made today regarding our clinical intentions, that has the effect of another roughly $40 million. That is putting us on a track towards improving our profitability profile. We're not guiding to any specifics there, but these are actions that we've taken to improve the overall profitability profile that we're on.

Mani Foroohar (Senior Research Analyst)

Okay. As a quick follow-up, anyways, I just got the one.

Richie Jain (CFO)

Sure.

Mani Foroohar (Senior Research Analyst)

Do you guys think of formal profitability, either in GAAP or cash terms, as a meaningful milestone to pursue, or is that not a metric that you guys think is really meaningful on its own?

Richie Jain (CFO)

Yeah, it's a meaningful milestone for sure, and we're taking actions towards that goal. I think, again, another way that we're thinking about this is we went public in 2020. We've not raised external capital since then. There was a follow-on in 2020, but nothing since then. We've been incredibly productive in growing the business between software revenue and drug discovery revenue. And we've had an incredibly productive business development effort in our discovery programs that's generated $600 million of cash over the last five years. We are focused on longer-term profitability and improving the profile. These are the actions that we're taking towards that goal.

Mani Foroohar (Senior Research Analyst)

Great. That's very helpful. Thanks, guys.

Operator (participant)

Your next question comes from the line of Scott Schoenhaus from KeyBanc Capital Markets. Your line is open.

Scott Schoenhaus (Managing Director)

Hey, team. Thanks for taking my question and a nice quarter. Question on the software guidance here. You've been reporting pretty nice software growth. Third quarter was really strong with 28% growth. There were comments about sort of seeing a slowdown in the end markets with your discussions with your customers. Maybe talk about what's changed over the last, or maybe when this slowdown started to happen. Maybe by cohort, where you're starting to see this slowdown happen on the software side. Thanks.

Richie Jain (CFO)

Yep. Thanks, Scott. So yeah, as you mentioned, we're pleased with the quarter, the quarterly results, and the year-to-date results. With software growth of roughly 30%. As you know, there's been a multitude of factors impacting the whole pharmaceutical industry this year. Despite that backdrop, we've been encouraged with the continued high level of customer engagement. The initial signals that suggest that the industry is stabilizing and poised for a recovery. I think we have to be honest that sustained improvement in the sector may take time, and we are cautiously optimistic. With that in mind, we did lower the software guidance by 2% at both ends of the range to reflect the uncertainty regarding the timing of certain pharma scale-up opportunities. It's worth noting that our scheduled renewals continue to be on track.

What's changed since our last call in August is the conversations that we've been having with our customers regarding scale-up opportunities have been delayed longer than anticipated. As these conversations matured or have matured, we have greater visibility into the size of the opportunity, but less visibility into the timing of close. We also did not anticipate the continued challenges in the biotech sector. We did not factor that into our revenue guidance growth for the year, but some of the challenges have been greater than we expected and have persisted over the previous few months. The underlying fundamentals with those customers have been weaker. You've probably seen all the news that we have been seeing with layoffs and companies altogether shutting down discovery or not achieving anticipated financing rounds.

Even recently, there's been some very high-profile companies that have shut down their operations altogether as an indication of continued challenges. We are seeing some early signs of recovery with biotech as well, some new customer formation that are creating opportunities for us. Across pharma and biotech, those are the tops of the waves that we're seeing since our last call in August.

Scott Schoenhaus (Managing Director)

That's super helpful. I guess a follow-up question would be on the predictive toxicology. I know it's still in beta. How's the customer response to it? When do you think you can start monetizing? I know, Ramy, you said it's more of a longer-term opportunity, but maybe if we can just provide more color there on the timing of the monetization of this product. Thank you.

Ramy Farid (CEO)

Sure. Yeah. First of all, we and actually the Gates Foundation, who funded the work, are quite pleased with the progress we've made. It's been really going extremely well. There's also really significant interest in the project and the initiative and in the ultimate product, the ability to actually predict toxicity associated with binding to off-targets. We're engaged in quite a number of discussions with customers. As you noted, we are actually, yes, still in the beta. There are customers using it, but it's a little early to discuss feedback yet. We're not quite there yet, but we're really, really pleased with the interest and the progress we're making, both in the product itself, but also with the beta.

Scott Schoenhaus (Managing Director)

Thank you.

Ramy Farid (CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group. Your line is open.

Matt Hewitt (Senior Research Analyst)

Good afternoon. Thanks for taking the questions. Maybe just to dig in a little bit about your expectations of no longer advancing discovery into the clinic. Does this mean that you'll still be seeking and finding new molecules, but rather than advancing to the clinic and then looking for partnerships, now you'll be looking for those partnerships pre-clinic? What does that mean from an economic standpoint?

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Yeah. Thanks for the question. I think that we can just affirm that we are indeed continuing to work on discovery stage programs, new ideas, new programs, as we have been doing, actually, since the inception of the therapeutics team here at Schrödinger. In terms of expectations about when one would start to consider partnership, I want to reference the work that we've been doing over the last five years to essentially socialize programs from their very inception. Last year, you will recall that we partnered a program that was at the very early stages of drug discovery with Novartis for very significant economics. That was a $150 million upfront deal.

It obviously allowed us to partner with a company that ultimately will take those programs into the clinic, but to do the discovery in sync with them so that not only are we very aligned on the target profile and the features of the molecule, but they're at the same time learning about our platform as they go to adopt that system-wide. This has worked very well. You heard Richie say that we generated $600 million over the last five years from this model. We are very confident that we can continue to generate value while working on a very diverse and broad range of targets in the discovery space.

Matt Hewitt (Senior Research Analyst)

Very helpful. Thank you. Maybe my follow-up. It sounds like the renewals are on track. You're having success there, but you did note that you're still, or that you're struggling a little bit on the new logo or the new customer front. What do you think? You also mentioned that you're seeing some improvement in the macro. What do you think it's going to take to kind of flip over where you are starting to sign new contracts with new customers to drive some incremental growth? Thank you.

Richie Jain (CFO)

Okay. I'm going to take that one.

Yeah. Thanks for the second question, Matt. Yeah, I think the growth that we've delivered this quarter and mostly year to date has been growing within our existing customers. Closing adoption gaps and scaling up relationships. As we think about new customers, new logos. The biotech market, we're seeing, I was going to say, are encouraging early signs. Every biotech company has its own features. I think we're still trying to figure out how this one's going to come together. What opportunities that will open for us. While there's encouraging signs, there's also discouraging signs with customers going out of business. There are some new capital formation opportunities that we think are exciting that we are having nice conversations around. We need to advance those to close, and that can give us some greater visibility into those opportunities.

Matt Hewitt (Senior Research Analyst)

Got it. All right. Thank you.

Operator (participant)

Your next question comes from the line of Evan Seigerman from BMO Capital Markets. Your line is open.

Hey there. This is Connor on for Evan. Thanks for taking our question. I just maybe had a follow-up to the delay that was announced for 3515 today. I was just wondering if maybe you could expand a little bit on what occurred there and kind of maybe when we should be expecting to see data in the first half of 2026. Thank you.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Yes. Similar to what we did when we were preparing to share data on our first program, SGR-1505, our MALT1 inhibitor, we've elected to complete the collection and analysis of data related to PK, safety, PD, and preliminary activity before providing an update on the ongoing trial. Just because of where we are in that cycle of data collection and analysis, we decided to move that over into the first half of 2026. We have not yet confirmed the venue or the exact timing of that, but we do expect that to be in the first half, potentially at a medical meeting.

Appreciate the additional color there. Thank you.

Bye.

Operator (participant)

Your next question comes from a line of Sean Lehmann from Morgan Stanley. Your line is open.

Hi, everyone. This is Morgan on for Sean. Thanks for taking our question. Wondering if you could share any more details about the SGR-6016 NLRP3 inhibitor and any plans there in terms of what you're doing to progress that. Thank you.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Yes. We're very excited about this compound. We haven't talked a lot about the NLRP3 program. I think we covered it at Pipeline Day a year or so ago. We have selected a development candidate that has really impressive properties. We predict this to be a very low-dose drug, which we think sets it up to be an excellent candidate for combinations. It is a brain-penetrant NLRP3 molecule with pretty impressive properties there. We used our ESOL capability to really optimize that brain penetration. A really nice-looking molecule, preliminary talks underway. In terms of the plans for this molecule, it's kind of interesting and timely given the recent updates in the NLRP3 space. We have been socializing this program with potential partners, and we'll update you as those discussions progress. As you heard Ramy point out in his remarks, we won't be taking this forward alone or ourselves.

We'll be doing that in the context of a partnership. Again, we'll update you once we have more information about that.

Thank you.

Operator (participant)

Your next question comes from a line of Dennis Ding from Jefferies. Your line is open.

Dennis Ding (VP and Equity Research Analyst)

Hi. Thanks for taking my question. The decision to not do more clinical work on your own, I guess, why now? Is there any read-through to the Wee1 data you guys are seeing so far?

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

I'm sorry.

Ramy Farid (CEO)

Can you repeat the second part of the question? Was it about Wee1, or what was the second part?

Dennis Ding (VP and Equity Research Analyst)

Yeah. I mean, given the Wee1 and phase I dose escalation, I'm just curious, this decision to not move things further into the clinic on your own, just the timing and just why now and why not wait a little bit more before making that decision, seeing the full set of that data?

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

I think there are multiple answers to this question, so I'll invite Ramy and Richie to comment as well. I think you heard us explain on the call here to others that we have been extremely productive and successful at partnering programs that are still in discovery and generating or are still in discovery or completed discovery where we're collaborating already with others. We think that is a very high-potential model for us to continue without exposing ourselves to having to generate clinical data ourselves. This is really not related, let me be clear, to our assessment of SGR-1505, our MALT1 inhibitor, which we're very excited about. We've already announced that we plan to progress that in partnership with others or with respect to SGR-3515. As I just explained to the prior, on the prior question, we're still gathering that data.

We expect to have a more complete analysis in the coming months. You heard me also talk about NLRP3. We're excited about all of these programs. We just think for Schrödinger's profile right now, it's much better to advance those molecules in the clinic with others and expand on what we've done in discovery to create value.

Ramy Farid (CEO)

I'll just add. As we've been saying since the IPO, we're very excited about the synergies between the drug discovery business and the software business. We see the height of those synergies in the discovery efforts. That's why we're really focused on the discovery efforts. You heard earlier in our remarks how successful that is. I think Karen has said this. It's very obvious that this is something that we should be investing more in. Yeah.

Dennis Ding (VP and Equity Research Analyst)

Perfect. As a follow-up, can you just please give an update on the Novartis partnership and the progress that has been made there since, I mean, we've almost anniversaried the announcement of that partnership? Thank you.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Yeah, you're right. It's about a year since we announced. Excellent progress across the efforts there. Teams are working extremely well together, both on the advancement of the programs, but also on the incorporation, obviously, of Schrödinger's platform into the work that Novartis are doing. You can tell from the revenue update that a portion of that is related to the Novartis progress. Happy to report always going well, and we're looking forward to another productive year with Novartis.

Dennis Ding (VP and Equity Research Analyst)

Great. Thank you so much.

Operator (participant)

Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from a line of Andrea Newkirk from Goldman Sachs. Your line is open.

Hi everyone. This is Tawana for Andrea. Thanks for taking our questions. Just a quick one from us. Would you mind elaborating some more on the nature of the asset disclosures for SGR-1505? Will those new data feature the same patients, mostly from the prior analysis, with some additional follow-up time? What will be the most key takeaways from those data in your view? Thank you.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Yeah, absolutely. I could just take you back a moment to ASH, sorry, to EHA. At EHA, we provided our first update on SGR-1505. At that time, we had really only focused a lot of the analysis around the indolent patients with CLL WM. That was based on the FDA recommendation to delay dosing aggressive patients. There are a couple of key updates, I would say, from the abstract that came out yesterday that we'll be presenting at ASH. The first is an update on the aggressive patients. If I can remind you, patients with DLBCL are in that category. If you have had a chance to look at the abstract, you'll see there, and I can update you now, that we now have a patient with a complete response in the aggressive space.

This is, let me remind you, monotherapy MALT1 inhibition producing a complete response in an aggressive lymphoma patient. We think that's an exciting update, and we will be providing a fresh cut of the data across both indolent and aggressive patients at the ASH meeting. The other focus of that abstract, which we think is very important, is the concept that patients who are double exposed, who've seen a BCL2 inhibitor or a BTK inhibitor or both, the question was, what is happening with respect to the resistance profile? We have now done genomic profiling of several of the patients that have that particular profile. What we are seeing there is that they do indeed have the sentinel mutations in both BTK. I'm going to pause there because I think I was about to say something that's in the actual poster, and I won't do that yet.

They do have the sentinel mutations that you expect to see in patients who have more aggressive disease and more difficult-to-treat disease. We think that is an endorsement of our idea that MALT1 is going to be an important medicine for patients with unmet need in lymphoma. That is the update that we'll be providing at ASH.

Great. Thank you.

Operator (participant)

Your next question comes from a line of Brendan Smith from TD Cowen. Your line is open.

Brendan Smith (Director and Senior Analyst of Life Science Tools and Biotechnology Equity Research)

Great. Thanks for taking the questions, everyone. I wanted to ask maybe just another one on the predictive tox software and really how we should be thinking about the broader commercial rollout for this kind of relative to your existing customer base. Fully appreciate it's early, but I guess, are you expecting this to be maybe by and large additive to people already using your other software? Or maybe just given where some of those users sit on different development teams. Would you expect kind of separate customer population, even maybe within the same company, is ultimately the prime target? And do you think that would maybe require a separate sales strategy or push? Just kind of trying to understand assumptions about who's likely to use this really out of the gate.

Ramy Farid (CEO)

Yeah, that's a great question. We see sources of growth in both those areas. Certainly, our existing customer base are interested in this, and it would be an add-on. This would require them actually spending more money. This is not something that would just get thrown in the package. You bring up a really good point. We also believe this will allow us to tap into new budgets to the extent that this is obviously a technology that's of interest to toxicology groups. That's not who we're traditionally selling our software to. We're traditionally selling our software to earlier discovery teams, computational chemistry teams. We think we'll see growth in both those areas.

Brendan Smith (Director and Senior Analyst of Life Science Tools and Biotechnology Equity Research)

Understood. Thank you.

Ramy Farid (CEO)

Thank you.

Operator (participant)

Your next question comes from a line of Michael Riskin from Bank of America. Your line is open.

Michael Riskin (Research Analyst)

Great. Thanks for taking the question, guys. Apologies if I missed this. I've kind of been bouncing around a couple of calls. I want to go back to the sort of the phasing out of the independent clinical development activities. I got some of the notes from your earlier answers on that topic, but I just want to dig into it a little bit deeper. One question is I'm curious, is this something that you came to based on your experience with either MALT1 or Wee1, where you were trying to monetize those assets and you just kind of didn't have the interactions with potential sponsors and partners that you thought you would, and you decided it's not worth the risk? Is this something based on sort of how much.

Leverage you can have, how many individual programs you could push forward if you are just doing partnering out at discovery? Maybe talk about the bandwidth and the opportunity to sort of just think about the number of programs you can bring forward using this new strategy shift. I got a follow-up.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

I can start and just reiterate that the decision we've made today or that we've announced today is really nothing to do with the experience that we had. Developing our first three programs. The development went well. Actually, we moved very quickly. From idea to end of phase I was a five-year window for discovering the molecule and also doing the development for 1505. I will say the environment for development, particularly of oncology programs, has become quite challenging. I think some of Richie's remarks about the biotech space and the risk profile of taking programs into the clinic, this is not unique to us. I think the team has been very productive. You just heard we've got two EGFR and also NLRP3. It's really a sustainability question, right? How many things can we put in the clinic one after the other?

Also reach the goals that you heard Richie talking about with respect to operational efficiency and our profitability. The other piece that you asked about is we have been very productive at partnering programs during the discovery phase. In fact, if we can partner programs during early discovery, the bandwidth question you asked is we can work on a lot of programs, obviously, in the early phases of discovery. That funnel narrows a little bit as you go a little later. There are only so many things we can put in the clinic. When we looked at the overall mix of value creation in the last five years, we convinced ourselves that actually discovery partnerships have been very value-creating, and we can continue to do that and scale that up.

Ramy Farid (CEO)

Yeah. This is more about the success of the discovery programs to the extent that we can't do everything. We have to prioritize. It's very clear what we should be prioritizing. I hope that's clear.

Michael Riskin (Research Analyst)

Okay. Okay. Yeah, that's helpful. Maybe if I could.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

Maybe just one other remark.

Michael Riskin (Research Analyst)

Yeah, go ahead.

Karen Akinsanya (President, Head of Therapeutics R&D, and Chief Strategy Officer)

The value we're generating in these programs. Ultimately, we have milestones in the clinic when our discovery work is done. We have royalties on sales for those drugs that actually make it. And there's 15 of those right now. The value creation continues even if we're not the ones doing the clinical development. There's the opportunity at least. Thank you.

Richie Jain (CFO)

Yeah. Yeah, of course. Actually, that was Karen. That was actually going to be my follow-up question was exactly on that. When we think about these programs now, okay, so shift to exclusively discovery stage partnerships, things like that. When I think about these programs going forward, realizing that each one is going to be a little bit custom, it's going to be very unique. In terms of the royalties, the milestones, the economics, are they going to be similar to the ones you're doing already with Novartis and Bristol? Or is there any change to the economic structure there, or is that pretty consistent?

Ramy Farid (CEO)

Yeah. What I'd say about that is, we've talked about this before. As you know, we've done quite a number of these collaborations. I think we've said this a number of times before, that the economics that we've been able to demand as our track record continues to improve, and the efficacy of the platform improves and the expertise of the team, the economics continue to get better. That's been the case with every program. Now, are we saying for sure, guaranteed, the next collaboration will have better economics? Of course, we're not saying that. I think it's noteworthy that the terms continue to improve. That certainly would be an expectation.

Michael Riskin (Research Analyst)

Okay. That's great. Thanks so much. Really appreciate it.

Ramy Farid (CEO)

Great.

Operator (participant)

I am showing no further questions at this time. That concludes today's call. You may now disconnect.