Artificial intelligence (AI) is spreading through the medical sector, while AI healthcare stocks gaining traction due to their potential for improving patient outcomes and the immense value in health data. One company standing out in the sector is Recursion Pharmaceuticals (RXRX), a clinical-stage biotech company, that applies AI and supercomputing to transform drug research and production. Despite being in the early stages and having a volatile first couple of years in the market, the company’s value lies in its various strategic partnerships that support its expansion and development.
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Its multi-year Helix genomics contract allows access to large-scale genomic data, while a deal with Nvidia (NVDA) has given it access to the BioHive-1 supercomputer to expedite this process. The company’s partnerships with Roche/Genentech (RHHBY) and Bayer (BAYRY) aid in discovering and developing therapeutic programs in neuroscience and oncology.
In addition, the recently announced merger with Exscientia (EXAI) promises opportunities to further expand the pipeline with more scale. The stock is down over 36% year-to-date. Still, with ten promising clinical-stage trials expecting readouts in the next year and a half, it may be a good time for investors to start legging into a position in this compelling ‘TechBio’ opportunity.
Recursion’s Tech Powered Pipeline
Recursion Pharmaceuticals is a clinical-stage “TechBio” organization that deploys its Recursion OS platform for drug discovery. It uses artificial intelligence to synthesize biological and chemical data sets to expedite drug discovery free from human bias. Recursion’s high-frequency experimentation in wet labs, combined with possessing one of the world’s most powerful supercomputers (courtesy of its partnership with Nvidia), helps it excel in merging technology with biology and chemistry to advance medicine.
The company has five pipeline candidates in Phase 2, some of which offer billion-dollar opportunities, and each has data readouts expected from Q3 2024 to H1 2025. The company’s pipeline highlights include advancements in studies related to CCM, NF2, APC, or AXIN1 Mutant Cancers, Familial Adenomatous Polyposis, Clostridioides difficile infection, advanced HR-proficient cancers, and an undisclosed indication in fibrosis. Notably,
Recursion has also recently announced a merger with Exscientia, which is set to be completed by early 2025. Recursion will be the surviving entity, and its co-founder and CEO, Chris Gibson, will continue as CEO. The merger aims to blend Recursion’s extensive biology expertise with Exscientia’s precision chemistry tools, ultimately improving the quality and efficiency of medicine production. The combined entity anticipates approximately ten clinical trials with readouts in the next 18 months, with no overlap in clinical indications.
Analysis of Recursion’s Recent Financial Results
The company has released its results for the second quarter of 2024. Revenue was $14.4 million, up from $11.0 million in Q2 2023 and beating consensus projections of $13.75 million. This increase primarily reflects revenue recognized from Recursion’s partnership with Roche. R&D expenses of $73.9 million and general and administrative expenses of $31.8 million marked increases from the previous year, contributing to a net loss of $97.5 million, an increase from Q2 2023’s net loss of $76.7 million. The firm reported earnings per share of -$0.40, slightly missing analysts’ estimates of -$0.38.
As of the quarter’s end, the company reported cash and cash equivalents of $474.3 million.
What Is the Price Target for RXRX Stock?
The stock has been on an extended volatile slide, posting a beta of 2.89, shedding over 69%. It trades toward the bottom of its 52-week price range of $4.97 – $15.74 and demonstrates negative price momentum, trading below its 20-day (8.11) and 50-day (8.41) moving averages. Notably, Cathie Wood and her ARK Investment Management have been accumulating shares and are now the largest shareholders, holding over 20% of the company combined.
Analysts following the company have taken a cautiously optimistic approach to the stock. For example, Needham analyst Gil Blum recently reiterated a Buy rating on the stock with a $16.00 price target, noting the anticipated merger between Recursion and Exscientia promises to bring a suite of oncology assets and add significant pharmaceutical partnerships with Bristol Myers Squibb (BMY), Sanofi (SNY), and Merck (MRK).
Based on the five analysts’ combined recommendations and price targets, Recursion Pharmaceuticals is rated a moderate buy. The average price target for RXRX stock is $12.00, representing a potential 91.08% upside from current levels.
RXRX in Review
Recursion’s long-term potential commands attention. Its strategic partnerships, promising clinical-stage trials, and the forthcoming merger with Exscientia point to solid upside potential. Anticipated readouts from clinical trials over the next 18 months suggest it might be an opportune moment for investors to consider this “TechBio” opportunity.
