Among the various use-cases for AI, healthcare has been one of the interesting ones. Recursion Pharmaceuticals (RXRX) is one such notable player in the industry that has successfully leveraged AI in drug discovery.

Recursion’s Offerings

Salt Lake City-based Recursion Pharmaceuticals operates on a mission to “Decode Biology to Radically Improve Lives”. It was set up in 2013 by a doctor Dean Y Li, a computer scientist Blake Borgeson, and a bioengineer Chris Gibson. The story behind Recursion can be traced back to 2009 when Chris had transferred to Dean Li’s molecular biology and genetics lab in Utah. At the lab, the team had been studying a brain disease for nearly a decade. Using the tools of molecular and cell biology, they had generated strong evidence that pointed to a specific hypothesis about how to treat the disease. The team was sure that they had found the treatment, but when they tested the hypothesis, the data was opposite of what they had expected.

The failure led them to create Recursion in 2013 so that they could use cutting-edge technologies and map biology and chemistry in a less biased way, to simplify the ability to identify potential treatments faster and more efficiently. The team wanted to build a company that could discover medicines at scale using technology. Today, by using technologies like automation, biological tools, and AI, the company can create more intelligent maps of biology to create effective medicines.

Core to its mission is the Recursion Operating System, or Recursion OS, that integrates an advanced infrastructure layer to create one of largest and fastest-growing proprietary biological and chemical datasets and the Recursion Map. Recursion Map is a suite of custom software, algorithms, and machine learning tools that are used to explore foundational biology without any biases and navigate new biological insights. Put simply, Recursion’s tools are helping industrialize drug discovery.

Its BioHive-2 supercomputer is powered by Nvidia AI, and is one of the most powerful accelerated computing systems in the world. BioHive-2 analyzes troves of biological data to identify drug targets, including proteins and genes involved in disease. Recursion OS evaluates millions of compounds to identify potential drug candidates, while also predicting drug molecule properties and optimal patient populations to enhance drug design.

By broadening the funnel of potential therapeutic starting points, identifying failures earlier in the research cycle, and accelerating the delivery of high-potential drug candidates to the clinic, they have been able to reduce cost of drug discovery. Despite the advantage, Recursion’s platform is yet to deliver a commercial victory. Last year, it announced a few wins where its products had met primary endpoint of safety and tolerability in patients, but no drug is slated to be released soon.

Recursion’s Financials

In November 2024, Recursion reported its third quarter results. Recursion earns revenues by collaborating with bigger biopharmas. Revenues for the quarter grew to $26.1 million from $10.5 million a year ago. As with all drug discovery companies, R&D remains their big expense. R&D expenses were $74.6 million compared with $70 million a year ago. Recursion ended the quarter with a net loss of $95.8 million, compared to a net loss of $93.0 million a year ago. On a per share basis, it reported a net loss of $0.34 compared with market’s estimates of $0.33 per share.

The company did not provide an outlook, but the market is looking for revenues of $12.29 million for the quarter with a loss of $0.39 per share for the current quarter and revenues of $76.68 million with a loss of $1.58 per share for the year.

Recursion went public in 2021. Prior to that it has raised $452 million in funding from investors including Casdin Capital, Catalio Capital Management, Laurion Capital Management, Samsara BioCapital, Mubadala, DCVC, Lux Capital, Obvious Ventures, Felicis Ventures, EPIC Ventures, Two Sigma Ventures, Advantage Capital, and Intermountain Ventures. In 2021, it raised an additional $306 million by listing 22 million shares on the Nasdaq.

Today, its stock is trading at $7.80, with a market capitalization of $3.1 billion. It hit a 52-week high of $15.74 in March last year and has recovered from the low $5.62 that it had fallen to in December.

Like all other drug discovery companies, despite the tech investments, Recursion too has a long path to monetization. Its pipeline has a few programs targeted to treat rare diseases, of which three are in phase 2 trials. Sales from new drugs will not occur in the next few years. In Pharma, R&D is outsourced by large companies to smaller companies and once the drug gets to stage 2 trial, sometimes beyond, the company gets acquired. Maybe that is in Recursion’s future as well.

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