It has been a tumultuous year for the clinical-stage biotech Recursion Pharmaceuticals (RXRX +0.43%). Earlier this year, the company's shares skyrocketed after it announced a partnership with the tech giant Nvidia, but Recursion has since given up all these gains -- and then some. As of this writing, the company's stock is down by 8% since the year started.
Still, Recursion has a bold project in place (more on that below), and if it pans out, the company could deliver outsize returns to its shareholders. Does that make Recursion Pharmaceuticals' shares a buy today?
Using AI to speed up drug discovery
The pharmaceutical industry has a problem. The drug discovery, development, and approval process is long, arduous, littered with regulatory obstacles, and slow. There has to be another way, or so Recursion Pharmaceuticals thinks. The company is seeking to use artificial intelligence (AI) to accelerate the process substantially.
The details are complicated, but here's a basic rundown of how it works. The company's platform, the Recursion Operating System, features a vast database of genes within the complex maze of human biology. Machine learning algorithms perform "experiments" within this database to predict how certain chemical compounds would interact with genes.
That allows Recursion to identify potentially promising drug candidates. Whether or not its platform's predictions are accurate, the company uses this data to fine-tune the platform further, so it could be developing a bit of a network effect. The more data it produces, the more accurately its algorithm predicts interactions.
Recursion says that thanks to its software and highly automated laboratory, it performs as many as 2.2 million experiments every week. By some estimates, rhia approach could decrease the time it takes to launch new pharmaceutical products on the market by a factor of 10. Of course, that would also save money -- potentially tons of it.
The company's partnership with Nvidia includes a $50 million equity investment from the latter. Recursion Pharmaceuticals will use its dataset to train AI models on Nvidia DXG Cloud, models that could then be licensed to other drug companies to accelerate their discovery and development efforts.
NASDAQ: RXRX
Key Data Points
The potential is enormous, but so is the risk
Recursion Pharmaceuticals has produced several candidates with its approach. However, none of the company's programs have yet to start a late-stage study. It does have a somewhat impressive pipeline for a biotech its size, though. Recursion's candidates are especially concentrated in rare diseases and oncology.
Meanwhile, like most clinical-stage biotechs, the company doesn't generate much revenue. In the second quarter, its top line of about $11 million increased from the $7.7 million reported in the year-ago period. This money comes from a partnership it has with Switzerland-based Roche to discover and develop innovative medicines in neuroscience and oncology. On the bottom line, Recursion's net loss per share of $0.38 remained flat compared to the prior-year quarter.
The company ended the period with $405.9 million in cash and equivalents, which does not factor in the recently announced investment from Nvidia. For context, it ended 2022 with $549.9 million in cash and equivalents. That's not too impressive, but financial results are never too important for clinical-stage biotechs. So long as Recursion continues to attract partners such as Nvidia and Roche, the company should have enough money to bankroll its experiments and clinical programs.
And given the ambitious goal it is aiming to accomplish, Recursion Pharmaceuticals' shares could explode over time if it does. However, it is still early in the game. It isn't clear that the company will be able to do what it set out to do, and if its strategy fails, its shares will plummet. Investors with an appetite for risk can consider adding a small position in this biotech stock. But for everyone else, it is best to watch from the sidelines for now.
