Schrödinger's Recent Price Drop and Valuation Opportunity: A Discounted Entry Point in High-Growth Biotech?

Schrödinger (SDGR) has experienced a notable price correction in November 2025, with its stock falling 1.1% following Q3 earnings despite beating revenue and earnings forecasts. This drop, occurring amid broader biotech sector volatility, raises questions about whether the stock's current valuation represents a compelling entry point for investors seeking exposure to high-growth computational drug discovery.

A Strategic Shift and Revised Guidance

Schrödinger's Q3 2025 financial results revealed a mixed bag. Total revenue hit $54.3 million, with software revenue growing 28% year-over-year to $40.9 million. However, the company slashed its full-year software revenue growth guidance from 10-15% to 8-13%, citing delays in pharma scale-up opportunities and macroeconomic pressures, according to the Schrödinger Q3 2025 earnings call transcript. Operating expenses fell to $74 million, reflecting a $30 million cost-cutting plan, including a pivot away from independent clinical development to focus on discovery-stage partnerships, as noted in the same transcript.

This strategic shift underscores a recalibration of priorities. While Schrödinger's drug discovery revenue rose to $13.5 million, the company now relies heavily on partnerships and platforms like its predictive toxicology solution (still in beta) for future growth. Karen Akinsanya, President of Therapeutics R&D, emphasized that the move was driven by sustainability goals, though it introduces uncertainty about long-term revenue streams, as discussed in the earnings call transcript.

Valuation Metrics: A Tale of Two Biotechs

Schrödinger's enterprise value to revenue (EV/Revenue) ratio of 4.3x, as reported by Simply Wall St, appears significantly cheaper than peers like Relay Therapeutics (RLAY), which trades at a P/S ratio of 122.65 as of November 2025, according to Macrotrends. Relay, a clinical-stage biotech focused on precision oncology, reported a Q3 net loss of $74.1 million but maintains $596.4 million in cash reserves, funding operations through 2029, according to a Finimize report. Its high valuation reflects speculative bets on future blockbuster drugs, whereas Schrödinger's lower multiple suggests skepticism about its pipeline's near-term commercial potential.

Denali Therapeutics (DNLI), another peer, offers further context. Despite a Q3 net loss of $126.9 million, Denali's valuation is buoyed by its robust pipeline and regulatory milestones, according to a StockTitan report. Schrödinger's EV/Revenue of 4.3x is roughly half of what Denali commands, even as both companies operate in the high-risk, high-reward biotech space. This discrepancy highlights Schrödinger's discounted status, driven by its strategic pivot and reduced guidance.

Clinical Progress and Analyst Sentiment

Schrödinger's pipeline remains a key catalyst. The Phase 1 trial for SGR-3515, a Wee1/Myt1 co-inhibitor, is on track to deliver initial data by mid-2026, while SGR-1505 received Orphan Drug Designation for Waldenström macroglobulinemia in October 2025, as reported by Simply Wall St. These developments could reinvigorate investor sentiment, particularly if the data supports further clinical advancement.

Analyst ratings, however, remain mixed. Post-earnings, the stock's 1.1% dip reflected concerns over the revised guidance and strategic pivot, as noted in the earnings call transcript. Wells Fargo, for instance, maintained a neutral stance on Relay Therapeutics, according to a Nasdaq article, suggesting Schrödinger may face similar cautious optimism until its pipeline delivers tangible results.

The Case for a Discounted Entry Point

Schrödinger's current valuation offers a compelling risk-rebalance for investors. At 4.3x revenue, the stock trades at a steep discount to peers like Relay, which commands a 122x multiple despite similar pre-revenue status, as noted in Macrotrends. This gap may reflect Schrödinger's reduced guidance and strategic shift, but it also creates a margin of safety. The company's strong software gross margin (73-75% guidance) and $30 million in annualized cost savings provide a buffer against near-term volatility, according to the earnings call transcript.

Moreover, Schrödinger's role in the computational drug discovery paradigm-leveraging AI and simulated data-positions it to benefit from long-term industry trends. CEO Ramy Farid's emphasis on AI-driven discovery, as discussed in the earnings call transcript, aligns with growing demand for cost-effective R&D solutions, a sector where Schrödinger's platform already shows traction.

Risks and Considerations

The primary risks include delays in clinical data for SGR-3515 and SGR-1505, as well as the success of its discovery partnerships. The predictive toxicology platform, still in beta, is another wildcard. Additionally, Schrödinger's reliance on pharma scale-up opportunities means its growth could remain constrained until 2026.

Conclusion

Schrödinger's recent price drop presents a discounted entry point for investors willing to tolerate near-term uncertainty. While its valuation is lower than peers, the company's strategic pivot, cost discipline, and pipeline progress offer a path to re-rating. For those betting on the computational drug discovery revolution, Schrödinger's 4.3x EV/Revenue ratio represents a compelling asymmetry: limited downside and significant upside if its pipeline delivers.