Recursion Pharmaceuticals (RXRX 3.57%) is a biotech that's riding a hype wave unlike any other. By staking its fame and investors' cash on its artificial intelligence (AI) platform for drug development, it could soon mark itself as the leading competitor in a space that will probably prove to be quite lucrative.
But at the moment, it's burning cash like wild, and there's no sign of when that'll end, as it has nothing in the way of recurring revenue. So let's map out this company's next three years to see if it might be worth buying today, or perhaps in the near future.
Recursion could have key validation in hand before 2026
Recursion is rare among biotechs because it's developing medicines in-house while banking on big AI collaborations and licensing revenue from its platform to stay afloat in the meantime. By mid-2026, investors will have a much better feel for its chances of commercializing a medicine, not to mention its true attractiveness to potential collaborators, and also the appeal of its data and its platform to would-be licensors. For now, its investing thesis rests on its chances of finding success with at least one of those verticals.
In its research and development (R&D) pipeline, Recursion has three rare disease programs in phase 2 clinical trials, and a small handful of early-stage oncology programs. Of its mid-stage candidates, management estimates that the patient population for its cerebral cavernous malformation (CCM) program is the largest, with around 360,000 people affected. The company should disclose some proof-of-concept data before the end of this year, with the entire trial wrapping up in December 2025. That means by August 2026, it will likely be in the process of moving forward with a phase 3 trial, assuming the results are favorable.
Recursion has nearly $406 million in unrestricted cash, equivalents, and short-term investments. When considering its operating expenses of $241 million in the trailing 12 months, it has a cash runway of just under two years as of the second quarter. But, as it has barely any long-term debt, and only $46 million in long-term capital lease obligations, it shouldn't have any trouble raising money by taking out a loan. There's a minor risk that shareholders will see their shares diluted if the company needs to raise capital and debt looks too expensive, though there's reason to believe it might not need to.
The biotech's patrons include titans like Nvidia, which made an equity investment of $50 million in July, as well as international pharma royalty Bayer and Roche. Between the drug development collaborations with the latter two, it's exposed to at least $1.7 billion in milestone payments, which it will attain in small chunks if its efforts are successful. There is a very high chance that Recursion will be able to bring in at least some money by reaching a couple of the milestones over the next three years, though it's important to note that none of the collaboration programs are in the clinical stage yet.
It's a risky road ahead for Recursion
As long as it doesn't have recurring revenue derived from sales of its medicines or steady royalties earned via sales of a medicine that it helped to produce with a collaborator, Recursion will be a risky stock to invest in. Under ideal conditions, collaborations will hold it over until it has time to commercialize its medicines. Whether that's actually feasible will be tested within the next few years.
Separately, investors will want to keep an eye on revenue from its research services activities, which seek to license out access to the company's 25 petabytes of proprietary data on chemical and biological interactions, many of which are relevant to therapy development. As of Q2, it wasn't a driver of the business's $11 million in quarterly revenue, but eventually that'll change, assuming customers see its collaborators making good use of their share of the data trove. If there aren't at least some customers biting by late 2026, it'll be a problem because one of management's core pitches to investors will be weak.
Finally, don't underrate the standard biotech stock risks, like clinical trial failures or a competitor beating it to the punch with a key program or capability. Schrodinger and 23andMe are both pursuing similar business models, and both hope to use AI and other advanced technology methods to leverage their development efforts while pursuing collaborations. There is likely room in the drug discovery services market for all three, but at present, there aren't too many signs to suggest that Recursion is the leader of the pack -- nor is it the laggard. And that's one more issue that is likely to be resolved in the next three years.
Should you buy this stock? It's a risky proposition, and the recent surge in its price due to the hype surrounding the collaboration with Nvidia isn't making it cheaper. Nonetheless, if you're OK with the risk, and you want a piece of what might be a very rewarding niche, it'll be a decent time to make your move as soon as some of the hype burns off. This company is probably going places, and it might not be any cheaper in 2026 than it is today.
