Some investors closely monitor the portfolios of billionaires to get ideas. Another approach, however, is to examine the stocks held by highly successful companies.
For example, Nvidia owns stakes in six smaller companies. I think Recursion Pharmaceuticals (RXRX +3.95%) is arguably the most intriguing of the group.
Recursion looks like a big dud so far. The biotech stock has plunged roughly 80% since its IPO in 2021. Shares are down around 5% year to date.
However, Recursion has the makings of a diamond in the rough. Could it even be a millionaire-maker stock over the long run?
NASDAQ: RXRX
Key Data Points
Blending biology and technology
One thing that stands out about Recursion right away is how the company refers to itself. Recursion doesn't say that it's a pharmaceutical, biopharmaceutical, or biotech company. Instead, it uses the term "TechBio company."
That's a pretty good description of Recursion's business model. It focuses heavily on technology -- in particular, artificial intelligence (AI). The company's Recursion OS 2.0 uses AI to discover, design, and test molecules that target diseases.
Recursion also uses AI (especially machine learning) in the clinical trial process. Its technology helps design clinical trials, speed up patient enrollment (potentially by 50%), and improve the quality of the evidence generated from those trials.
With Recursion's ability to accelerate drug discovery and development, you might think big pharma companies would be lining up to work with the company. You'd be right. Recursion's partners include Sanofi, Roche, Bayer, and Merck.
Image source: Getty Images.
Recursion's endless opportunities
Better, faster, cheaper: Companies can usually be successful by achieving one or two of these criteria. Recursion's big opportunity lies in checking off all three boxes. Its AI platform enables identifying molecules most likely to be effective in treating diseases.
Recursion can validate hypotheses and design compounds much more quickly than drugmakers using traditional methods. And its cost to get to the point of filing an Investigational New Drug (IND) application is only $10 million, compared to the industry average of around $27 million.
Recursion's pipeline already includes four clinical-stage programs. Three are experimental cancer therapies in phase 1/2 clinical trials. The company is evaluating its most advanced oncology candidate, REC-617, in treating solid tumors. Recursion's AI tools helped identify ovarian cancer as the best first indication to target initially.
Another key focus area for Recursion is on rare diseases. The drugmaker is evaluating REC-4881 in a phase 1/2 clinical study as a potential treatment for familial adenomatous polyposis. This disease, which is manifested by the formation of hundreds or even thousands of polyps in the colon and rectum, affects between 1 in 5,000 to 1 in 18,000 people.
Recursion has two other promising programs in late-stage discovery and preclinical testing. Its partners have identified potential candidates as well, with Sanofi hoping to advance several programs into development over the next year or so.
All these programs are just the tip of the iceberg, though. Once Recursion demonstrates that its AI platform can find drugs that make it all the way through the clinical testing and regulatory approval process, its opportunities are practically endless.
A millionaire-maker stock?
Could Recursion Pharmaceuticals be a millionaire-maker stock? Maybe. However, it's admittedly a stretch.
The company's market cap currently stands a little under $3 billion. To turn an initial investment of $10,000 into $1 million, Recursion would need to grow into a $300 billion company. That's not impossible, but a lot must go right for it to happen.
For now, risk-averse investors are probably better off looking elsewhere. There's no guarantee that any of Recursion's candidates will be successful.
On the other hand, aggressive investors with plenty of patience might find this biotech stock an intriguing pick. If Recursion's AI-based drug discovery and development approach pays off, it could do so in a huge way.
