Ongoing technological and AI advancements are changing both industry and our way of life. Recursion Pharmaceuticals is (NASDAQ:RXRX) attempting to use the power of AI to drive drug discovery, while delivering promising upsides.
RXRX has the capacity to handle over 23 petabytes of data (1 petabyte is approximately one million gigabytes, or enough to hold 500 billion pages of text) to support drug discovery and development. The stock has risen 42% in the past year, generating buzz. Though it is still early for the company, it has the potential to deliver growth for investors interested in the biotech sector.
Recursion Pharmaceuticals Cutting Edge TechBio
Recursion is a clinical-stage “TechBio” company at the intersection of data science and drug discovery. It uses its proprietary Recursion OS, an AI-driven platform, to generate and analyze one of the world’s largest biological, chemical, and patient-centric datasets. This vast dataset is continuously expanding and holds trillions of searchable relationships across biology and chemistry. Recursion OS leverages an impressive experimental and computational scale with one of the world’s most powerful supercomputers.
The company has yet to bring any treatments to market. However, it has five potential candidates conducting Phase 2 clinical trials, three of which are targeted at treating rare diseases such as cerebral cavernous malformation (CCM) and neurofibromatosis type 2 (NF2). The potential markets for these drugs are admittedly small, but if they are successful, Recursion could become the sole provider, given its current orphan-drug designations. These trials are on track to read out Phase 2 data in H2 2024 and H1 2025.
Recursion has also secured significant strategic collaborations with Bayer in undruggable oncology, Roche-Genentech for neuroscience and a single indication in gastrointestinal oncology, and Enamine to generate enriched compound libraries for the global drug discovery industry. The company also cemented its position as a critical player in the industry with a significant $50 million investment by Nvidia (NASDAQ:NVDA), who will also lend extensive full-stack computing expertise to optimize and scale Recursion’s foundation models.
Recursion’s Recent Financials
The company recently reported results for the fourth quarter of 2023. Total revenue (primarily from collaborative agreements) stood at $10.9 million, below the consensus estimate of $20.35 million. The yearly total revenue was $44.6 million for 2023, a slight increase from the $39.8 million recorded in 2022. The quarterly decrease and annual growth in revenue were attributed to the timing of workflows from the strategic collaboration with Roche-Genentech.
A net loss of $93.0 million in Q4 2023 contributed to a total loss of $328.1 million for the entire year, up from 2022’s $239.5 million loss. Nonetheless, its net loss per share of -$0.42 beat the consensus estimate of -$0.45.
As of December 31, 2023, the company’s cash and cash equivalents were $391.6 million, a decrease from the $549.9 million observed on the same date in 2022. Given the firm’s cash burn rate, Recursion will likely need to consider raising capital through debt or stock issuance within the next few years, which could dilute shareholders.
Is RXRX Stock a Buy?
Analysts have taken a cautious stance on the stock. For instance, Leerink Partners analyst Mani Foroohar has issued a Hold recommendation, citing a prolonged period of anticipation before potential market-moving events occur.
Recursion Pharmaceuticals is rated a Moderate Buy based on the recommendations and 12-month price targets three Wall Street analysts have issues in the past three months. The average price target for RXRX stock is $17.00, which represents 120.78% upside potential from current levels.
After Nvidia’s investment in the company was announced in February, the stock enjoyed a significant jump, though much of that initial enthusiasm has dissipated. The shares are now trading toward the lower end of their 52-week price range of $4.54-$16.74 and continue to show negative price momentum, trading below the 20-day (10.93) and 50-day (10.91) moving averages.
Final Analysis on RXRX
The company’s recent financials reveal a potential need to raise capital within the next few years, which investors should watch closely. However, RXRX could serve as a compelling investment with major upside in the years to come.
