[Recursion Pharmaceuticals]
This merger builds upon Recursion’s ongoing efforts to advance AI-driven drug discovery, including its high-profile partnership with NVIDIA, as discussed in a recent article. Central to this effort is BioHive-2, a pharma-industry leading supercomputer designed to tackle the complexities of biological research.
Merger seeks to solidify position in booming but nascent AI drug discovery market
This consolidation comes amid declining valuations for both firms over the past several years. Exscientia’s stock price has fallen from a high of $21.97 in October 2021 to $4.68 in August 2024, a 78.7% decrease. The broader biotech sector has also faced challenges in the wake of the pandemic with shifting investor sentiment and market volatility affecting many companies in the industry. Analysts have released a mix of “Hold” and “Buy” ratings for Exscientia, with an overall consensus of “Moderate Buy” or “Hold.” Barclays maintained an “overweight” (equivalent to “Buy”) rating for the firm with a price target of $9.00 as of July 29, 2024. Morgan Stanley has consistently rated Exscientia as a “Hold” with a price target that has gradually dipped from $14 to $7.
Similarly, Recursion Pharmaceuticals has received a “Moderate Buy” consensus rating from four analysts, with an average 12-month price target of $13.00, ranging from $10.00 to $17.00. Recursion’s revenue beat expectations in Q2 2024 with the firm reporting revenue of $14.42 million. Analysts had expetd $13.75 million. The company has shown positive revenue growth. Noteworthy analyst actions include Keybanc raising its price target to $16.00 and Needham maintaining a buy rating with a $17.00 target.
Partnerships and pipeline promise billions in potential revenue
Despite the stock valuations, Recursion has secured several high-profile strategic partnerships. The company’s collaboration with Roche and Genentech, which recently triggered a $30 million payment for the first optioned neuroscience phenomap, intends to discover and develop treatments for up to 40 programs in neuroscience and gastrointestinal oncology. In addition, Recursion’s partnership with Bayer focuses on ‘undruggable’ oncology targets, with the first project already selected. Recursion has also forged a major multi-year collaboration with NVIDIA, the GPU, AI and datacenter giant.
Meanwhile, Exscientia has alliances with Sanofi, Merck KGaA, and BMS.
Between the two companies, Recursion reports that these deals collectively have the potential for more than $20 billion in milestones, plus royalties ranging from mid-single digits to double digits on net sales.
AI drug discovery is a booming market awaiting regulatory validation
The AI-based drug discovery market is quickly growing with some estimates projecting the sector will grow from $0.9 billion in 2023 to $4.9 billion by 2028, at a projected compound annual growth rate (CAGR) of 40.2%. Despite the healthy growth and investment in AI-driven drug discovery, there are currently no FDA-approved drugs discovered solely with AI. Yet as of 2023, the number of AI-generated molecules in clinical trials has increased substantially.
The merger of Recursion Pharmaceuticals and Exscientia would create one of the largest AI-based pipelines in the industry. As noted in the table below, Recursion’s portfolio includes several candidates in advanced stages of development. Notably, its cerebral cavernous malformation therapy (REC-994) is expected to yield Phase 2 data in September 2024, while preliminary results for its neurofibromatosis Type 2 therapy (REC-2282) are anticipated in Q4 2024. Additionally, Recursion’s pipeline features treatments for APC or AXIN1 Mutant Cancers and Familial Adenomatous Polyposis (both REC-4881), with Phase 2 data expected in H1 2025 for both indications.
Chris Gibson, PhD. CEO of Recursion Pharmaceuticals
Exscientia’s pipeline includes several promising candidates, with EXS4318 being one example. EXS4318 is a potentially first-in-class selective PKC theta (protein kinase C theta) inhibitor that entered Phase 1 clinical trials in the U.S. in early 2023 for immunology and inflammation indications. The company’s wholly-owned oncology programs is another area of strength. A key asset in Exscientia’s oncology portfolio is EXS-74539 (GTAEXS-617), a potentially best-in-class CDK7 inhibitor. CDK7 is an enzyme involved in cancer cell growth, and inhibiting it opens up new treatment avenues in controlling tumor proliferation. EXS-74539 is now in Phase 1 clinical trials, with the company enrolling patients with solid tumors. In addition to EXS4318 and the CDK7 inhibitor, Exscientia’s pipeline includes other oncology programs at various stages of development. EXS21546, a majority-owned A2A receptor antagonist co-invented with Evotec, is in Phase 1/2 trials as an anti-cancer immunotherapy. The company is also advancing LSD1 and MALT1 inhibitor programs, which target other crucial pathways in cancer biology.
Deal structure details
In terms of the details of the merger, Recursion and Exscientia aims to integrate Recursion’s scaled biology exploration and translational capabilities with Exscientia’s precision chemistry tools and capabilities. The ownership structure will see Recursion shareholders owning about 74% of the combined company, while Exscientia shareholders will have roughly 26%. Chris Gibson, Ph.D., co-founder and CEO of Recursion (pictured above), will lead the combined company as CEO, with Exscientia’s Interim CEO David Hallett, Ph.D., joining as chief scientific officer.
Filed Under: machine learning and AI, Oncology
