Schrodinger Inc. (SDGR), a software platform enabling discovery of novel molecules for drug development, understated drug discovery revenue by $1.7 million in 2022. The error was discovered during an audit of the company’s 2022 financials. The mistake was made due to a material weakness in Schrodinger’s internal controls over financial reporting (ICFRs) described as a failure:

“...in our revenue process to determine whether performance milestones in a newly executed drug discovery arrangement were probable of achievement and the constraint on variable consideration in the form of milestone payments can be removed.”

The $1.7 million error is 3.75% of 2022 drug discovery revenue and 0.93% of total revenue.

Schrodinger says its fixing controls related to its revenue process so it can timely identify changes to the timing of when a performance milestone becomes probable of achievement in drug discovery arrangements and to ensure such determinations are made through the end of reporting periods.