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Why Recursion Pharmaceuticals Stock Sank Today

By Keith Speights – Nov 10, 2021 at 4:39PM

Key Points

  • Recursion met analysts' bottom-line estimates in Q3 but missed revenue expectations.
  • As a clinical-stage biotech, the company's financial results aren't all that important at this point.
  • Investors were also perhaps concerned that CEO Chris Gibson plans to sell some of his shares.

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Investors reacted negatively to the company's Q3 update.

What happened

Shares of Recursion Pharmaceuticals (RXRX -5.60%) sank 17.7% lower as of the market close on Wednesday. The decline came after the company provided its third-quarter update Wednesday morning.

Recursion reported revenue in the third quarter of $2.5 million, up 147% year over year but lower than the average analysts' estimate of $2.7 million. The company posted a net loss of $47.4 million, or $0.28 per share. This met the consensus estimate. 

Did the biotech stock really fall so hard solely because of such a small revenue miss? No. Recursion's revenue comes primarily from collaborative agreements and is nearly immaterial at this point. Investors were perhaps more concerned that co-founder and CEO Chris Gibson plans to sell or transfer to philanthropic funds up to 4% of his stake in the company. 

Scientists in a lab.

Image source: Getty Images.

So what

Even the decision by Gibson to dispose of some his shares in Recursion doesn't fully explain the magnitude of the decline in its share price today. Part of the stock's fall could merely be the result of some investors opting to sell shares for other reasons, creating downward pressure on the share price.

There's really nothing to be concerned about with Gibson's move anyway. He set up a stock trading plan in the second quarter of 2021 under the Securities and Exchange Act's Rule 10b5-1. This rule allows company insiders to schedule in advance purchases and sales of the stock without violating insider trading restrictions.  

Now what

Recursion should have a busy year coming up. The company plans to begin three phase 2 studies and one phase 2/3 study in the first half of 2022.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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