RECURSION PHARMACEUTICALS, INC. SEC 10-Q Report

Recursion Pharmaceuticals, Inc., a biotechnology company focused on combining experimental biology and automation with artificial intelligence to discover and develop drugs, has released its Form 10-Q report for the quarter ended September 30, 2024. The report highlights significant financial growth, strategic initiatives, and emerging challenges as the company continues to advance its drug discovery platform and expand its pipeline.

Financial Highlights

Recursion Pharmaceuticals reported substantial financial growth for the three and nine months ended September 30, 2024:

• Total Revenue: $26.1 million for the three months ended September 30, 2024, an increase of $15.5 million compared to $10.5 million for the same period in 2023, driven by revenue recognized from the strategic partnership with Roche.
• Total Revenue: $54.3 million for the nine months ended September 30, 2024, an increase of $20.6 million compared to $33.7 million for the same period in 2023, primarily due to the acceptance fee for the completion of a Phenomap for one of the neuroscience performance obligations.
• Cost of Revenue: $12.1 million for the three months ended September 30, 2024, an increase of $1.2 million compared to $10.9 million for the same period in 2023.
• Cost of Revenue: $32.4 million for the nine months ended September 30, 2024, a slight decrease of $0.3 million compared to $32.7 million for the same period in 2023.
• Loss from Operations: $98.4 million for the three months ended September 30, 2024, a slight improvement of $1.2 million compared to $99.6 million for the same period in 2023.
• Loss from Operations: $295.2 million for the nine months ended September 30, 2024, an increase of $44.1 million compared to $251.1 million for the same period in 2023.
• Net Loss: $95.8 million for the three months ended September 30, 2024, an increase of $2.8 million compared to $93.0 million for the same period in 2023.
• Net Loss: $284.8 million for the nine months ended September 30, 2024, an increase of $49.7 million compared to $235.1 million for the same period in 2023.
• Net Loss Per Share, basic and diluted: $0.34 for the three months ended September 30, 2024, compared to $0.43 for the same period in 2023.
• Net Loss Per Share, basic and diluted: $1.12 for the nine months ended September 30, 2024, compared to $1.16 for the same period in 2023.

Business Highlights

Recursion Pharmaceuticals has made significant progress in its clinical and preclinical programs, particularly in precision oncology and genetically driven rare diseases:

• Pipeline Expansion: Key developments include the Phase 2 SYCAMORE clinical trial for Cerebral Cavernous Malformation (REC-994), which met its primary endpoint of safety and showed encouraging trends in MRI-based exploratory efficacy measures.
• Clinical Trials Update: The adaptive Phase 2/3 POPLAR clinical trial for Neurofibromatosis Type 2 (REC-2282) has completed enrollment of adult patients in Part 1. The Phase 1b/2 TUPELO clinical trial for Familial Adenomatous Polyposis (REC-4881) has commenced enrollment in Part 2, with Phase 2 safety and preliminary efficacy data expected in H1 2025.
• New Clinical Studies: The Phase 2 ALDER clinical trial for Clostridioides difficile infection (REC-3964) has begun, with the first patient dosed in October. Additionally, the FDA has cleared an IND for REC-1245, a potential first-in-class RBM39 degrader for biomarker-enriched solid tumors and lymphoma, with Phase 1/2 dosing expected to start in Q4 2024.
• Partnerships and Collaborations: Recursion continues to advance its strategic partnerships with Bayer and Roche-Genentech. In August, Roche-Genentech optioned the first neuroscience phenomap for $30 million, part of a fee structure that could exceed $500 million across multiple maps.
• Platform Enhancements: Recursion has expanded its collaboration with Google Cloud to leverage advanced computational tools, including generative AI capabilities, to support its drug discovery platform. This partnership aims to drive improved search and access with BigQuery and scale compute resources.
• Acquisition of Exscientia: On August 8, 2024, Recursion signed an agreement to acquire Exscientia plc, which will enhance Recursion's capabilities in AI-driven drug discovery. The transaction is subject to customary closing conditions, including shareholder approvals and court sanction.
• Future Outlook: Recursion plans to meet with the FDA to advance the development of REC-994 for symptomatic CCM and expects to present Phase 2 data at a medical conference. The company also anticipates potential option exercises associated with partnership programs and map-building initiatives in the near term.

Strategic Initiatives

Recursion Pharmaceuticals has undertaken several strategic initiatives to enhance its drug discovery capabilities and expand its technological infrastructure:

• Acquisitions: The acquisition of Valence Discovery Inc. and Cyclica Inc. is expected to bolster Recursion's AI-based chemistry engine and digital chemistry software suite, respectively. Additionally, the company signed an agreement to acquire Exscientia plc, which will further integrate Exscientia's capabilities into Recursion's platform.
• Partnerships: Recursion entered into a five-year agreement with Tempus Labs, Inc. to access patient-centric multimodal oncology data, aimed at improving the training of its AI and machine learning models. The company also expanded its collaboration with Google Cloud to leverage advanced computational tools and generative AI capabilities to support its drug discovery platform.
• Capital Management: In June 2024, the company closed a public offering of Class A common stock, issuing 35.4 million shares at $6.50 per share, raising net proceeds of approximately $216.4 million. Additionally, Recursion entered into an Open Market Sales Agreement with Jefferies LLC in August 2023, allowing for the sale of up to $300.0 million of Class A common stock, with $144.3 million remaining available for future sales. The company has sold $20.4 million shares and received net proceeds of $151.1 million under this agreement. In July 2023, Recursion completed a private placement with NVIDIA Corporation, issuing 7.7 million shares at $6.49 per share for net proceeds of approximately $49.9 million. Recursion also received a $30.0 million milestone payment from Roche in September 2024 related to the acceptance of a neuroscience Phenomap.
• Future Outlook: Recursion anticipates the need to raise additional capital to fund its operations and advance its drug candidates. The company expects to incur substantial operating losses in future periods and will require additional funding to achieve significant drug development milestones. Recursion plans to continue leveraging its strategic partnerships and acquisitions to enhance its drug discovery platform and expand its pipeline. The company believes its existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditures for at least the next 12 months. However, Recursion acknowledges the uncertainty of additional funding and the potential need to delay, scale back, or abandon some development programs if additional capital is not secured.

Challenges and Risks

Recursion Pharmaceuticals faces several challenges and risks as it continues to develop its drug discovery platform:

• Operational Risks: The company has incurred significant operating losses and anticipates needing additional financing to fund operations, including potential commercialization of any approved product candidates. The net losses were $95.8 million and $284.8 million during the three and nine months ended September 30, 2024, respectively. The accumulated deficit was $1.3 billion as of September 30, 2024. The company may not be able to raise additional capital on acceptable terms, which could adversely affect its business, results of operations, and financial condition.
• Market Risks: The company is exposed to market risk related to changes in interest rates of its cash and cash equivalents. A hypothetical 100 basis point decrease in interest rates as of September 30, 2024, would have an insignificant effect on net loss in the ensuing year. Additionally, the company is subject to foreign currency transaction gains or losses on contracts denominated in foreign currencies, but a 10% increase or decrease in current exchange rates would have an insignificant effect on financial results.
• Strategic Risks: The acquisition of Exscientia plc is subject to several conditions, including approval from stockholders and the High Court of Justice of England and Wales. Any delays or failure to meet these conditions could impact the company's strategic plans and operations.
• Research and Development Risks: The company continues to expand and upgrade its platform, including chemical technology, machine learning, and transcriptomics platform, which increases research and development expenses. The increase in these expenses was driven by platform and personnel costs.
• General and Administrative Risks: There was an increase in general and administrative expenses due to higher salaries, wages, software, and lease expenses. This increase was $8.6 million for the three months ended September 30, 2024, compared to the prior period.
• Investment Risks: Investing in the company's common stock involves a high degree of risk. The company has detailed discussions of risks affecting its business in its 2023 Annual Report and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024, and June 30, 2024, as well as in the Current Report on Form 8-K filed with the SEC on September 3, 2024.
• Regulatory Risks: The company's operations and financial condition could be adversely affected by changes in regulations or failure to comply with existing regulations. The company must navigate complex regulatory environments in the U.S. and Canada, where most of its operations are based.
• Financial Risks: The company has not generated any revenues from product sales and relies on equity or debt financings and payments from collaboration agreements to finance operations. The inability to raise additional capital when needed could adversely affect the company's business.
• Strategic Partnership Risks: The company's strategic partnerships, such as those with Roche-Genentech and Bayer, are crucial for its operations. Any disruptions or changes in these partnerships could impact the company's ability to discover and develop new therapeutics.

SEC Filing: RECURSION PHARMACEUTICALS, INC. [ RXRX ] - 10-Q - Nov. 06, 2024