Image Source: Unsplash

An Introduction

The pharmaceutical industry is embracing artificial intelligence technology (AI) to help in the research and development of new drugs. Janssen Research & Development (JNJ arm) concludes the AI method to be up to 250 times more efficient than the traditional method of drug discovery holding the potential to reduce timelines for drug discovery, to increase accuracy of predictions on efficacy and safety as well as to create better, and more, opportunities to diversify drug pipelines and, given that, Morgan Stanley believes that AI-powered drug discovery will lead to an additional 50 novel therapies being brought to market over the next decade, with annual sales in excess of $50 billion! In other words, a $50 billion AI drug discovery revolution is underway.

Biotech stocks are often driven more by perception and momentum than fundamentals. Even routine insider sales or minor analyst revisions can trigger outsized reactions and that is precisely what happened to Recursion Pharmaceuticals (RXRX) last week.

Catalysts For Decline 

1. Q2 Net Loss: Reported a 15.1% increase in net loss to $171.9M
2. Insider Selling: CEO Christopher Gibson, CFO Ben Taylor, and Chief R&D Officer Najat Khan all sold shares last week and while these were mostly tax-related sales tied to restricted stock units vesting, the optics of multiple insiders selling at once triggered investor anxiety
3. Analyst Price Target Cut: Morgan Stanley’s Sean Laaman trimmed his price target by 4% which rattled investors who are extremely sensitive to sentiment shifts no matter how minor

RXRX is one of 5 AI- focused biotech clinical stage companies in our AI-focused Drug Discover Stocks Portfolio and below is how its stock price performed last week relative to its peers, in ascending order, MTD, and YTD, the focus of each company in the portfolio, a link to their pipelines, and the catalyst(s) for their respective stock price changes:

1. Recursion Pharmaceuticals (RXRX): DOWN 14.4% w/e August 22nd; DOWN 15.7% MTD; DOWN 26.9% YTD
   •  Focus: decodes biology by integrating technological innovations to industrialize drug discovery (see details here)
   • Pipeline: see here
   • Catalysts for Decline: see above
2. Absci (ABSI): DOWN 10.2% w/e August 22nd; DOWN 7.1% MTD; No Change YTD
   • Focus: analyzes drug characteristics that may provide therapeutic benefit. (see details here),
   • Pipeline: see here
   • Catalysts for Decline:
     • Q2 revenue was DOWN 49.7% from Q1 with a reported net loss that was 16% greater than Q1
     • 3 of the 5 analysts who follow ABSI reduced their price targets by 9.4%, on average
3. AbCellera Biologics (ABCL): DOWN 4.4% w/e August 22nd; DOWN 1.8% MTD; UP 63.5% YTD
   •  Focus: searches for antibodies from natural immune responses which are then outsourced to their partners. (see details here)
   • Pipeline: see here
   • Catalysts for Decline: In its Q2 report the company warned of a decline in research fee revenue as it pivots toward internal drug development and, while that move could unlock long-term value, it also means higher R&D costs and delayed revenue, which tends to rattle short-term investors.
4. Relay Therapeutics (RLAY): UP 4.2% w/e August 22nd; UP 4.8% MTD; DOWN 10.4% YTD
   •  Focus: uses its platform to enhance small molecule therapeutic discovery in targeted oncology and genetic disease indications (see details here)
   • Pipeline: see here
   • Reasons for Increase: Investors responded to better-than-expected Q2 earnings, disciplined spending, and meaningful clinical milestones.
5. Schrödinger (SDGR): UP 4.9% w/e August 22nd; No Change MTD; UP 5.3% YTD
   •  Focus: uses its platform to discover novel molecules which it leverages to build a pipeline of its own clinical programs in addition to selling access to its platform to other pharmaceutical firms (see details here)
   • Pipeline: see here
   • Reasons for Increase: Q2 showed a 27% reduction in Net Loss and a corresponding 28% reduction in its  EPS loss which showed improved operational efficiency

The Portfolio was DOWN 0.7% last week, is DOWN 2.8% MTD and is now only UP 0.7% YTD.

Go HERE to create a chart of the portfolio's performance.

More By This Author:

Tower Semiconductor Was Up 17% Last Week - Here's Why
Largest Cannabis MSO Stocks Are Up An Amazing 73.5%, On Average, So Far In August - Here Are The Details
These 10 AI Stocks Are Grossly Overvalued