Abstract Efforts to develop STAT3 inhibitors have focused on its SH2 domain, starting with short phosphotyrosylated peptides with STAT3 binding motifs, e.g. pY905LPQTV within gp130. Despite binding to STAT3 with high affinity, issues regarding stability, bioavailability, and membrane permeability of these peptides, as well as peptidomimetics such as CJ-887, have limited their further clinical development and led to increased interest in small-molecule inhibitors. Some small molecule STAT3 inhibitors have been identified using structure-based virtual ligand screening (SB-VLS). While having favorable drug-like properties, most suffer from weak binding affinities, possibly due to the high flexibility of the target domain, especially within the region involved in pY-peptide binding. We conducted molecular dynamic (MD) simulations of the SH2 domain in a complex with CJ-887, with a focus on ligand-induced protein conformation changes that increase binding affinity. We used an averaged structure from this MD trajectory as “induced-active site” receptor model for SB-VLS of 110,000 compounds in the SPEC database. Screening was followed by re-docking, re-scoring of the top 30% of hits and selection for compounds that directly interact with pY+0 binding pocket residues R609-S613, resulting in 110 initial hits, which were then tested for STAT3 targeting using a panel of cellular and biochemical assays. 24 out of 110 compounds could inhibit G-CSF-stimulated pY-STAT3 by > 50% at 10 µM with 9 compounds inhibiting by > 99%; 8/24 compounds (SPEC-29, 8, 93, 98, 106, 57, 101 and 85) inhibited STAT3-binding to EGFR pY-peptide (SPR) by 29-71% at 10 µM; 5 of these (SPEC-29, 8, 93, 98, and 106) had pY-STAT3 IC50s ranging from 2.7-19.0 µM; 3 compounds (SPEC-29, 8, and 93) potently inhibited growth of pSTAT3-high MDA-MB-468 (IC50 = 2.4-12.1 µM) and MDA-MB-231 (IC50s = 3.0-12.2 µM) cells and the growth-inhibitory abilities correlated to abilities to inhibit pY-STAT3. Thus, we used a dynamic ligand-STAT3, bound-fit docking model to screen libraries that successfully identified two hits with potent activity against STAT3 both of which comply with all of Lipinski’s “rules of five” for drug-likeness. Importantly, while most STAT3 inhibitors previously identified have negatively charged moieties, which mediate their binding to the pY+0 binding pocket but limit cell penetration, the two hits identified are uncharged and likely will serve as superior candidates for future hit-to-lead development leading to an effective direct small-molecule STAT3 inhibitor. Furthermore, the ability of the technique employed here for identifying neutral hits may also be useful in designing inhibitors targeting SH2 domains within other oncogenic targets. Citation Format: Ren Kong, Uddalak Bharadwaj, Thomas Kris Eckols, Moses Kasembeli, Mikhail Kolosov, Anh Tran, Oluwatomilona I. Ifelayo, Hong Zhao, Stephen T. Wong, David J. Tweardy. Novel STAT3 inhibitors identified by Structure-Based Virtual Ligand Screening incorporating SH2 domain flexibility [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2019; 2019 Mar 29-Apr 3; Atlanta, GA. Philadelphia (PA): AACR; Cancer Res 2019;79(13 Suppl):Abstract nr 17.