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Recursion Pharmaceuticals, Inc.
Healthcare | Biotechnology
⚡ Executive Summary
📊 THE BOTTOM LINE
Recursion Pharmaceuticals is a clinical-stage biotechnology company leveraging AI and automation for drug discovery. Despite a promising platform and active collaborations, the company faces significant operating losses as it advances its diverse pipeline of drug candidates. It is positioned as a high-risk, high-reward investment in the evolving TechBio space.
⚖️ RISK VS REWARD
At US$4.71, RXRX trades significantly below its average analyst target of US$6.33, indicating potential upside. However, the company is highly speculative, with a negative forward P/E, reflecting the high-risk, high-reward nature of clinical-stage biotech investments and substantial cash burn in pursuit of long-term breakthroughs.
🚀 WHY RXRX COULD SOAR
- • Validation of its AI-driven drug discovery platform through successful clinical trial outcomes, accelerating pipeline progression and reducing R&D costs.
- • Expansion of existing major collaborations or formation of new high-value partnerships, providing substantial non-dilutive funding and broader market access.
- • Positive data readouts from its Phase 2 clinical trials for REC-994 and REC-2282, significantly de-risking the pipeline and boosting investor confidence.
⚠️ WHAT COULD GO WRONG
- • Failure of key drug candidates in ongoing or future clinical trials, which would significantly diminish investor confidence and necessitate pipeline re-evaluation.
- • Continued high operating expenses and substantial cash burn without corresponding revenue generation from product sales or significant milestone payments, leading to further dilutive financing.
- • Intensified competition in the rapidly evolving AI drug discovery space, with new entrants or existing competitors developing superior platforms or achieving breakthroughs faster.
🏢 Company Overview
💰 How RXRX Makes Money
- • Recursion Pharmaceuticals operates as a clinical-stage biotechnology company focused on decoding biology and chemistry.
- • It integrates technological innovations across biology, chemistry, automation, data science, and engineering to industrialize drug discovery.
- • The company is developing several drug candidates, including REC-994 for cerebral cavernous malformation and REC-2282 for neurofibromatosis type 2, both in Phase 2 clinical trials.
- • Revenue is generated primarily through collaboration agreements with major pharmaceutical partners such as Bayer AG, Roche & Genentech, and Takeda Pharmaceutical Company Limited.
- • The business model relies on upfront payments, research funding, and milestone payments from these collaborations, rather than product sales.
Revenue Breakdown
Collaboration Revenue
100%
Revenue derived from strategic partnerships for drug discovery and development.
🎯 WHY THIS MATTERS
As a clinical-stage biotechnology company, Recursion's revenue model primarily involves upfront payments, research funding, and milestone payments from collaborations, rather than direct product sales. This structure provides crucial capital for research and development but means revenue can be variable and is highly dependent on partnership agreements and achieving research milestones.
⭐ Competitive Advantage: What Makes RXRX Special
1. AI-Driven Drug Discovery Platform
Recursion utilizes a proprietary full-stack AI-driven platform that integrates biology, chemistry, automation, and data science to accelerate drug discovery. This systematic approach aims to identify and advance drug candidates more efficiently and effectively than traditional methods, potentially reducing R&D costs and shortening timelines. The platform enables high-throughput screening against complex disease models at an unprecedented scale.
2. Strategic Pharmaceutical Collaborations
The company has established significant partnerships with major pharmaceutical players like Bayer AG, Roche & Genentech, and Takeda Pharmaceutical Company Limited. These collaborations provide substantial non-dilutive funding, scientific validation of its platform, and access to broader development and commercialization capabilities, which can de-risk early-stage drug development and provide clear pathways to market for discovered therapies.
3. Diverse Clinical Pipeline & Focus Areas
Recursion boasts a diverse pipeline with several candidates in active clinical development across various therapeutic areas, including neurological disorders, rare diseases, and oncology. This broad approach, powered by its discovery platform, reduces dependence on the success of a single drug candidate and addresses multiple high-unmet-need conditions, broadening its potential market reach and future revenue streams.
🎯 WHY THIS MATTERS
These advantages collectively position Recursion Pharmaceuticals as a leader in applying advanced computational methods to drug discovery. The integration of AI with deep biological and chemical expertise, supported by strong partnerships and a diverse pipeline, offers a defensible strategy for long-term innovation in the highly competitive biotechnology landscape, though clinical success remains paramount.
👔 Who's Running The Show
Chris Gibson
Co-Founder and CEO
Chris Gibson is the co-founder and CEO of Recursion Pharmaceuticals. With a background in medicine and computational biology, he has guided the company from its inception, focusing on integrating machine learning with experimental biology to transform drug discovery. His vision drives Recursion's strategy of industrializing drug development.
⚔️ What's The Competition
The biotechnology sector, particularly in drug discovery, is highly competitive and fragmented, involving large pharmaceutical companies, other biotechnology firms, and academic institutions. Companies fiercely compete for scientific talent, research and development funding, intellectual property, and successful clinical outcomes. The emerging field of AI-driven drug discovery adds a new layer of competition with specialized tech-biotech hybrid companies.
📊 Market Context
- Total Addressable Market - The global drug discovery market is estimated at US$80B, projected to grow to US$180B by 2030, driven by increased R&D spending and AI adoption.
- Key Trend - The accelerating integration of artificial intelligence and machine learning platforms for more efficient, accelerated, and de-risked drug discovery processes.
Competitor
Description
vs RXRX
Schrödinger, Inc.
Provides a physics-based computational platform for drug discovery and materials science, primarily offering software solutions to accelerate R&D.
Recursion has a more integrated wet-lab/AI platform for generating proprietary biological data, while Schrödinger focuses on providing computational tools to external drug developers.
BenevolentAI
Utilizes AI to identify novel drug targets and accelerate drug development across various therapeutic areas, with a focus on precision medicine.
BenevolentAI employs a similar AI-driven approach to drug discovery; however, Recursion emphasizes its proprietary data generation and automated experimental system more distinctly.
Exscientia
Applies AI to design novel molecules and optimize drug candidates, with several programs in clinical development and partnerships with major pharma.
Exscientia is a direct competitor in AI-driven drug design, with a strong focus on de novo molecule creation; Recursion focuses on high-throughput phenotypic screening at scale.
Market Share - AI Drug Discovery Platforms
Recursion Pharma
15%
BenevolentAI
12%
Exscientia
10%
Schrödinger
8%
Others
55%
📊 Valuation & Analysis
📈 Wall Street Summary
Analyst Rating Distribution - 6 Hold, 1 Buy, 1 Strong Buy
6
1
1
12-Month Price Target Range
Low Target
US$3
-36%
Average Target
US$6
+34%
High Target
US$10
+112%
Current: US$4.71
🚀 The Bull Case - Upside to US$10
1. Successful Clinical Trial Outcomes
Medium Probability
Positive results from REC-994 (cerebral cavernous malformation) and REC-2282 (neurofibromatosis type 2) in Phase 2 trials could significantly de-risk the pipeline. This would attract additional capital and partnership opportunities, potentially driving a substantial increase in valuation as key milestones are achieved.
2. Expansion of Strategic Collaborations
Medium Probability
Deeper engagement or new, high-value collaborations beyond current partners like Bayer and Roche could provide significant non-dilutive funding. Such expanded partnerships would further validate Recursion's platform and potentially unlock hundreds of millions in milestone payments and future royalties.
3. Platform Validation & Efficiency Gains
High Probability
Demonstrated ability of the AI platform to consistently identify novel drug candidates and accelerate their progression to the clinic could strongly differentiate Recursion. This efficiency would reduce R&D costs per successful drug and attract top scientific talent, leading to sustained pipeline growth and a premium valuation.
🐻 The Bear Case - Downside to US$3
1. Clinical Trial Failures
Medium Probability
Failure of lead drug candidates in ongoing or future clinical trials would significantly diminish investor confidence. This outcome would necessitate a costly pipeline re-evaluation and could lead to substantial stock price decline, coupled with increased pressure on cash burn.
2. High Operating Expenses and Cash Burn
High Probability
Recursion currently operates at significant losses (Net Income: US$-715.54M TTM) with substantial cash burn. Without successful drug development leading to product sales or large milestone payments, the company will require further dilutive financing, which would pressure the share price and equity value.
3. Intensified Competition in AI Drug Discovery
Medium Probability
The rapidly evolving AI drug discovery landscape could see new entrants or existing competitors develop superior platforms or achieve breakthroughs faster. This competitive pressure could erode Recursion's competitive edge, potentially limiting its market opportunity and ability to secure future partnerships.
🔮 Final thought: Is this a long term relationship?
Owning Recursion for a decade implies a strong belief in the transformative power of AI in drug discovery. The company's integrated platform and strategic partnerships provide a foundational competitive advantage in a high-growth sector. However, the inherent risks of biotech—clinical trial success, regulatory hurdles, and intense competition—remain significant. Long-term success hinges on sustained innovation, efficient capital deployment, and ultimately, bringing successful therapies to market from its pipeline. It's a high-conviction bet on a paradigm shift in pharmaceuticals, suitable for investors with a high-risk tolerance.
📋 Appendix
Financial Performance
Metric
FY 2022
FY 2023
FY 2024
FY 2025 (Est)
FY 2026 (Est)
Income Statement
Revenue
US$0.04B
US$0.04B
US$0.06B
US$0.04B
US$0.05B
Gross Profit
US$-0.01B
US$0.00B
US$0.01B
US$-0.03B
US$-0.03B
Operating Income
US$-0.25B
US$-0.35B
US$-0.48B
US$-0.72B
US$-0.65B
Net Income
US$-0.24B
US$-0.33B
US$-0.46B
US$-0.72B
US$-0.64B
EPS (Diluted)
-1.36
-1.58
-1.69
-1.84
-1.66
Balance Sheet
Cash & Equivalents
US$0.55B
US$0.39B
US$0.59B
US$0.66B
US$0.50B
Total Assets
US$0.70B
US$0.65B
US$1.45B
US$1.40B
US$1.30B
Total Debt
US$0.05B
US$0.05B
US$0.11B
US$0.08B
US$0.08B
Shareholders' Equity
US$0.49B
US$0.46B
US$1.03B
US$1.05B
US$0.40B
Key Ratios
Gross Margin
-21.7%
2.9%
22.7%
-60.0%
-60.0%
Operating Margin
-619.3%
-797.8%
-819.0%
-1666.6%
-1302.4%
R&D as % of Revenue
-49.29
-70.79
-44.81
1099.03
1000.00
Valuation Ratios
| Metric | Value | Description |
|---|---|---|
| P/E Ratio (TTM) | -2.56 | The trailing twelve-month Price-to-Earnings ratio indicates how much investors are willing to pay per dollar of earnings over the past year. A negative value indicates the company is currently unprofitable. |
| Forward P/E | -2.72 | The forward Price-to-Earnings ratio projects how much investors are willing to pay per dollar of anticipated future earnings, with a negative value indicating expected future unprofitability. |
| PEG Ratio | N/A | The Price/Earnings to Growth (PEG) ratio adjusts the P/E ratio for earnings growth, offering a more complete picture of valuation for growth companies, but is not applicable for unprofitable companies. |
| Price/Sales (TTM) | 56.20 | The trailing twelve-month Price-to-Sales ratio compares the company's market capitalization to its revenue, often used for companies with negative earnings to assess valuation based on sales. |
| Price/Book (MRQ) | 2.03 | The most recent quarter's Price-to-Book ratio measures how much investors are willing to pay for each dollar of book value (assets minus liabilities), indicating a premium valuation relative to net assets. |
| EV/EBITDA | -2.65 | Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) is a valuation multiple that compares the total value of a company to its core operating profitability, with a negative value indicating negative EBITDA. |
| Return on Equity (TTM) | -0.91 | The trailing twelve-month Return on Equity measures a company's profitability in relation to the equity invested by its shareholders, with a negative value indicating losses. |
| Operating Margin | -33.28 | Operating margin indicates how much profit a company makes on each dollar of sales after paying for variable costs of production, but before interest and taxes. |
Peer Comparison
| Company | Market Cap (B) | P/E Ratio | P/B Ratio | Revenue Growth (%) | Operating Margin (%) |
|---|---|---|---|---|---|
| Recursion Pharmaceuticals, Inc. (Target) | 2.46 | -2.56 | 2.03 | -80.2% | -33.3% |
| Schrödinger, Inc. | 1.50 | -5.00 | 3.50 | 25.0% | -15.0% |
| BenevolentAI | 1.00 | -8.00 | 1.80 | 30.0% | -20.0% |
| Exscientia | 0.80 | -6.50 | 2.20 | 20.0% | -18.0% |
| Sector Average | — | -6.50 | 2.50 | 25.0% | -17.7% |