I am going to screen a set of small molecules against a CYP450 2C9 protein target. The structure I am using exactly is 5A5I. Do I need to fill in missing side chains and loops before performing VLS? I assume while preparing the protein I should leave water molecules in the structure as there is a bond between $Fe^{2+}$ and water that is involved in the binding of a ligand.
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In general
Most if not all docking applications will tolerate a jump. Furthermore, you really don't want to dock anything to the flexible regions even if you are using a program that does properly protein flexibility. Furthermore, if your protein adopts a closed conformation upon native substrate binding (not really the case here), you should start with that for better docking results.
Cytochrome P450
So most Cytochrome P450s are strange though and in many those loops play a large part in their catalysis. I am on a paper under review (bioarxiv) that deals exactly with this in a different cytochrome (P450-BM3, the biotech one). Namely even if the active site is fairly large for an active site in the core of an enzyme, the ligand (testosterone) did not really rotate around and instead the specificity of oxidation was controlled by how the ligand got in. So those crystallographically unresolved loops act as gatekeepers for what can bind. In terms of VLS, one aims for blocking off the cofactor, i.e. the heme. So you can do docking without worrying about them in a first instance, but there is a possibility that a lot of active drugs instead interact with the loops. Certainly, dynamic undocking and other MD methods may be required a few iterations in, to see why some candidates failed and why others worked.
An interesting unofficial further possible spin is the fact that solvent-exposed sequential residues Asp-Pro can hydrolyse under acidic conditions, in a mechanism similar to isoaspartate formation, and several cytochromes have these on the entrance loops and have weird kinetics and smeary SDS-PAGE gels.
Lastly, you are totally correct in your observation. The water binding the heme in the crystal is very special. It is taking the place of oxygen. That could be modelled as is, changed to a pre-encounter O2, or event changing the heme to a heme bound to a radical oxygen —note that some forcefields (CHARMM, Rosetta Ref2015) do not like this weird valency iron.
