Recursion Pharmaceuticals (RXRX 2.12%) has been a pioneer in using artificial intelligence (AI) to improve the drug discovery process. The company, founded in 2013, has been working on that project since long before AI was the hottest topic on Wall Street.
Despite its first-mover advantage and significant advances, Recursion Pharmaceuticals is facing competition that could hinder its efforts to dominate this niche. And one company that could become an even better healthcare AI leader is none other than Eli Lilly (LLY +1.77%).
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The industry's most powerful supercomputer
Recursion Pharmaceuticals doesn't have any products on the market. In fact, none of the company's candidates are currently in phase 3 studies. So, despite the biotech's claims that its AI-powered operating system (OS) can reduce the time and investment required to develop effective drugs, it has yet to deliver tangible results.
In fairness, Recursion does have some interesting candidates in early-stage studies. The company could also benefit as the U.S. Food and Drug Administration slowly phases out animal testing in favor of different methods, including AI models.
Another thing going Recursion's way is that last year, it finished building the largest supercomputer in the pharmaceutical industry, which it worked on in collaboration with Nvidia. But Recursion may not hold that title for that much longer; Eli Lilly recently announced that it would also partner with Nvidia to build an even more powerful supercomputer. What does all this mean for investors?
NASDAQ: RXRX
Key Data Points
A much safer bet on AI drug discovery
Once it builds its AI supercomputer, Lilly will have an edge over Recursion in this area for at least two reasons. First, it will have greater computing power than its smaller competitor. Second, Lilly has much more clinical trial data under its belt that it can feed into its supercomputer.
The difference here is stark. Eli Lilly has been a pharmaceutical leader for decades. It has run thousands of clinical trials across major therapeutic areas, including oncology, immunology, neuroscience, endocrine diseases, and more.
Past successes and failures in clinical studies, pre-clinical models, and even real-world data grant it a significant advantage over Recursion Pharmaceuticals -- or, for that matter, almost any company seeking to build a comparably effective supercomputer. As Lilly itself said in the press release announcing this AI initiative: "As a 150-year-old medicine company, one of our most powerful assets is decades of data."
While Eli Lilly's project is still in the early stages, it could be a much better way to cash in on the inevitable rise in AI use for drug discovery than Recursion's. Lilly is, after all, a well-established drugmaker with a lineup of medicines that's driving incredible top- and bottom-line growth. As a profitable company, it's far less susceptible to clinical and regulatory setbacks than Recursion is.
NYSE: LLY
Key Data Points
In the third quarter, Eli Lilly's revenue increased by 54% year over year to $17.6 billion, while adjusted earnings per share came in at $7.02, significantly higher than the $1.18 reported in the year-ago period. Lilly has established itself as the leader in the fast-growing weight-loss market, with sales of its tirzepatide -- sold under the brand names Mounjaro and Zepbound -- growing rapidly. The company also has exciting products and pipeline projects outside its core specialty that should contribute in the medium term.
Lastly, Eli Lilly is a terrific dividend stock. For all those reasons, Lilly is by far the safer AI play between these two drugmakers.
Is Recursion Pharmaceuticals a buy?
Recursion Pharmaceuticals may have more upside at current levels -- its market cap is just $1.9 billion. Recursion's shares could soar if it can make significant clinical progress in the next few years and hopefully eventually launch a medicine, showing that its approach can work. However, the stock could also be a wealth destroyer. A lot will hinge on upcoming data readouts, something investors should pay close attention to over the next 12 months.
Also note that Lilly isn't the only company Recursion will be competing with in its niche. All these factors make the latter stock a high-risk, high-reward play. Risk-averse investors should avoid Recursion Pharmaceuticals and opt for Eli Lilly instead.
