RECURSION PHARMACEUTICALS, INC. current report, 09 November 2023

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Business Context and Reporting Period

Company: Recursion Pharmaceuticals, Inc. (RXRX)
Filing Type: Form 8-K (Current Report)
Date of Report: November 9, 2023
Reporting Period: This filing reports on material definitive agreements entered into on November 3, 2023, and November 8, 2023, and references the release of Q3 2023 financial results on November 9, 2023.

Key Financial Metrics and Agreements

This filing focuses on contractual obligations and potential future revenue rather than historical financial performance metrics (revenue, profit, cash flow, margins, debt, or liquidity), which are not detailed in the text of this 8-K.

  • Tempus Master Agreement:
    • Total Potential Value: Up to $160.0 million over a five-year term.
    • Initial License Fee: $22.0 million.
    • Annual License Fees: Range between $22.0 million and $42.0 million per year.
    • Payment Method: Cash, Class A Common Stock, or a combination. Stock issuance is capped at 19.9% of outstanding shares.
    • Additional Fees: Six-figure annual fee for LENS software access.
  • Restated Bayer Agreement:
    • Scope Change: Shifted from fibrosis to oncology; up to seven new oncology programs.
    • Potential Milestones: Up to approximately $210.0 million per license or up to $1.5 billion if all programs are licensed.
    • Royalties: Low- to mid-single digit percentages of sales.

Material Changes Versus Prior Period

The filing details significant strategic pivots and new financial commitments compared to prior periods:

  • New Collaboration: Entry into a five-year data licensing agreement with Tempus Labs, creating a new potential revenue stream for Tempus and a significant cash/stock outflow obligation for Recursion.
  • Strategic Pivot with Bayer: The collaboration with Bayer has been amended to terminate work in fibrosis and re-align exclusively toward oncology. This represents a material change in the therapeutic focus of the partnership.
  • Financial Results: The company released Q3 2023 results, but specific comparative financial figures (e.g., revenue growth or net loss changes) are not provided in this text.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Management Commentary:

  • Management intends to use Tempus data to develop and train machine learning/AI models for therapeutic product development.
  • The company plans to initiate up to seven oncology programs with Bayer, with potential for significant milestone payments contingent on successful candidate identification and licensing.
Risks and Contingencies:
  • Termination Rights: Recursion may terminate the Tempus agreement for convenience after three years (subject to an early termination fee). Bayer may terminate the collaboration or any license at any time without cause.
  • Payment Uncertainty: The $160 million Tempus fee is subject to early termination. The $1.5 billion Bayer potential is contingent on option exercises and commercial success.
  • Equity Dilution: Payments to Tempus may be made in stock, subject to a 19.9% cap on total issuance.
  • Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from projections due to risks outlined in the company's 10-K and 10-Q filings.
Unusual Items:
  • The Tempus agreement allows for a unique payment structure combining cash and equity, with specific volume-weighted average price (VWAP) calculations for stock issuance.

Important Facts for Investor Verification

  • Verify the exact cash burn rate and current cash position in the Q3 2023 10-Q to assess the ability to fund the $22 million initial Tempus fee and ongoing annual fees.
  • Confirm the number of shares outstanding as of November 2, 2023, to calculate the maximum number of shares issuable to Tempus under the 19.9% cap.
  • Review the full text of the Tempus and Restated Bayer agreements (to be filed as exhibits) for specific termination fee calculations and exclusivity restrictions.
  • Monitor the progress of the seven proposed oncology programs with Bayer to gauge the likelihood of achieving the potential $1.5 billion in milestones.
  • Check for any subsequent filings regarding the registration statement for Tempus Shares, which must be filed within 30 days of issuance.