RECURSION PHARMACEUTICALS, INC: AN INTELLIGENT BET ON ARTIFICIAL INTELLIGENCE?

By Nathaniel Suryabudi, Equity Analyst 

Recursion Pharmaceuticals is a cutting-edge biotechnology company that combines artificial intelligence, machine learning, and high-throughput biology to accelerate the discovery and development of new therapeutics. Founded in 2015 and headquartered in Salt Lake City, Utah, Recursion has emerged as a leader in the field of drug discovery and precision medicine.

The company’s unique approach revolves around the utilization of high-resolution cellular imaging, automated microscopy, and advanced data analysis algorithms. Recursion’s platform enables the screening of hundreds of thousands of disease models, allowing researchers to rapidly identify and prioritize potential drug candidates.

Recursion specializes in the treatment of rare genetic diseases and other complex disorders that currently lack effective therapies. By leveraging its innovative technologies, the company aims to discover novel drug targets, develop new small molecules, and ultimately bring life-saving treatments to patients in need.

One of the distinguishing features of Recursion’s approach is its utilization of recursive algorithms, which are mathematical techniques that involve solving complex problems by breaking them down into simpler, self-referential steps. In the context of biotechnology, recursion allows the company to generate vast amounts of biological data and learn from iteration, leading to the identification of promising drug candidates with high precision and efficiency.

Recursion has established collaborations with academic institutions, pharmaceutical companies, and patient advocacy groups to leverage their collective expertise and resources. These partnerships help accelerate the translation of scientific discoveries into tangible medical advancements, ultimately benefiting patients worldwide.

The company’s mission is to revolutionize drug discovery and redefine how diseases are understood and treated. By harnessing the power of artificial intelligence and biology, Recursion strives to improve patient outcomes, address unmet medical needs, and contribute to the advancement of precision medicine.

Partnership with NVIDIA

A new partnership between Recursion Pharmaceuticals and Nvidia marks an exciting development in the field of AI-powered drug discovery. Recursion’s platform, backed by artificial intelligence, continually improves as it identifies new drug candidates. Despite already having candidates in clinical trials, the company is determined to strengthen its technology further, leading to the collaboration with Nvidia.

As part of the agreement, Nvidia will provide Recursion with a $50 million private investment in public equity financing. Additionally, Recursion will gain access to Nvidia’s cloud-based tools for AI-powered drug discovery. This news had a significant impact on Recursion’s stock price, which more than doubled following the announcement.

Recursion utilizes AI-powered models to identify and design new therapies, and it offers these models to other drugmakers, including industry giants such as Roche and Bayer. By leveraging Nvidia’s cloud platform, Recursion will train its AI models using its vast biological and chemical datasets, which currently exceed 23,000 terabytes. These datasets continue to grow at a rapid pace, expanding by “hundreds of terabytes every week.” Just to give a bit of contextualization,  a typical novel, such as “To Kill a Mockingbird” by Harper Lee, is around 1-2 megabytes in digital form (eBook). With 1 terabyte, you could store the equivalent of 500,000 to 1,000,000 novels.

The collaboration with Nvidia enables Recursion to potentially license its AI models on BioNeMo, Nvidia’s cloud service for generative AI in drug discovery. This cloud-based platform, introduced earlier in the year by Nvidia, would support Recursion’s internal drug pipeline as well as the initiatives of its present and future partners.

Recursion’s CEO, Chris Gibson, expressed enthusiasm about the long-term prospects of the partnership, stating that the company believes in leveraging technology, automation, and the latest tools in biology and chemistry to accelerate the pace of drug discovery. Recursion is currently conducting human trials for five of its drugs, with data readouts expected in the coming year. These include a treatment for neurovascular disease caused by malformation of small blood vessels and a therapy for a specific type of ovarian cancer. Recursion’s drug discovery platform, known as Recursion OS, has already yielded promising candidates for various diseases and therapeutic areas. By utilizing machine learning algorithms to analyze their extensive genetic and pharmaceutical database, Recursion identifies potential drug targets and compounds. Some of their AI-mined drugs are already in phase 1 or 2 clinical trials, targeting rare diseases, mutant cancers, and familial adenomatous polyposis, among others.

Beyond these ongoing trials, Recursion is actively working on late-discovery and preclinical phases for potential new cancer drugs. They also have numerous programs in the early discovery stage across rare diseases, oncology, neuroscience, and immunology.

Nvidia’s investment in Recursion reflects the increasing interest and recognition of AI’s potential in the pharmaceutical industry. Many drugmakers are embracing AI to expedite the development and delivery of life-saving treatments. Nvidia, a major player in the AI field, has experienced substantial market growth and recently reached a trillion-dollar market value.

For Recursion, this partnership with Nvidia further solidifies its focus on AI-driven drug discovery. The company has already made strategic moves in this direction, acquiring two AI-driven drug discovery companies in May for $87.5 million. 

Finances

Recursion’s cash position as of March 31, 2023, was $473.1 million, indicating a healthy cash reserve. However, the company reported a net loss of $65.3 million for the first quarter of 2023, which is an increase from the net loss of $56.0 million in the same period of the previous year. At this rate, Recursion has enough cash on hand to last about two more years. 

The increase in revenue from $5.3 million in the first quarter of 2022 to $12.1 million in the first quarter of 2023 is positive and can be attributed to progress made in the Roche-Genentech collaboration. This suggests that Recursion’s partnerships are generating revenue growth.

On the other hand, research and development expenses have also increased from $32.4 million in the first quarter of 2022 to $46.7 million in the first quarter of 2023. This rise in expenses is due to the expansion and upgrading of Recursion’s capabilities, indicating their commitment to advancing their drug discovery platform.

General and administrative expenses also increased slightly from $21.1 million in the first quarter of 2022 to $22.9 million in the first quarter of 2023. This increase can be attributed to the growth of Recursion’s operations, including an increase in salaries and wages and other administrative costs.

Considering the net loss and the increased expenses, Recursion’s financial standing may be seen as less favorable in the short term. However, it’s important to note that the biotech industry often requires significant investments in research and development, and profitability is typically achieved in the long term after successful drug development and commercialization.  Will Recursion’s clinical pipeline progress enough in the next two years to make investors confident in advancing more funding to the currently unprofitable biotech? Well, Nvidia certainly seems confident.

Conclusion

In conclusion, while investing in Recursion Pharmaceuticals involves inherent risks associated with the biotech industry, the company shows promise for long-term growth and success. With its AI-driven drug discovery platform, strong partnerships with industry leaders like Nvidia, and a robust pipeline of potential therapies, Recursion has the potential to make significant advancements in the field of precision medicine. If an investor is willing to wait patiently for the results of clinical trials, navigate regulatory hurdles, and understands the risks associated with biotech investments, adding Recursion to their portfolio may offer an opportunity to participate in the potential future successes of AI in biological discovery. However, it’s important for investors to conduct thorough research, seek professional advice, and assess their individual risk tolerance and investment objectives before making any investment decisions.