Recursion Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Recursion is a clinical-stage biotechnology company using an automated biology and machine-learning platform to discover medicines. It has no products approved for sale and has generated no product-sales revenue.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $2.5 million | $1.0 million | $7.6 million | $1.3 million |
| Research and development | $33.2 million | $16.5 million | $87.0 million | $42.6 million |
| General and administrative | $15.7 million | $7.0 million | $38.5 million | $17.7 million |
| Operating loss | $46.4 million | $22.5 million | $117.8 million | $59.0 million |
| Net loss | $47.4 million | $23.9 million | $121.5 million | $61.2 million |
| Net loss per share, basic and diluted | $0.28 | $1.09 | $1.10 | $2.82 |
Revenue is primarily grant funding and collaboration research revenue; Q3 2021 operating revenue of $2.5 million came from Bayer. The filing reports no product revenue. Gross margin is not presented as a meaningful measure for this development-stage business.
- Liquidity: September 30 cash and cash equivalents were $394.7 million, short-term investments $184.2 million, and restricted cash $10.2 million. Cash, cash equivalents and investments totaled $578.9 million. Current assets were $600.9 million versus current liabilities of $42.9 million.
- Cash flow, nine months: Operating cash used was $97.5 million, compared with $54.0 million in 2020. Investing cash used was $219.5 million, including $184.2 million of investment purchases and $35.3 million of property and equipment purchases. Financing cash provided was $454.7 million, mainly from the IPO. Cash, cash equivalents and restricted cash ended at $405.0 million.
- Debt: Notes payable totaled $0.7 million at September 30, down from $12.5 million at December 31, 2020, after repayment of the Midcap loan in July 2021. Remaining debt relates primarily to a tenant-improvement loan.
- Capital and equity: The April 2021 IPO generated $462.4 million in net proceeds. Preferred shares converted to common stock at the IPO. Stockholders’ equity was $599.0 million; accumulated deficit was $335.1 million.
- Other commitments: Future minimum lease payments were $61.0 million, including the new Station 56 facility lease. The company purchased a $17.9 million supercomputer during the period.
Material changes versus prior periods
- Nine-month revenue increased by $6.4 million, principally from recognition of Bayer collaboration revenue; grant revenue declined.
- Nine-month R&D expense rose $44.4 million, which management attributed to more platform experiments, additional preclinical validation and higher clinical costs. G&A rose $20.8 million, reflecting company growth and higher personnel, equipment, facilities and public-company costs.
- Nine-month net loss nearly doubled year over year, from $61.2 million to $121.5 million; operating cash use also increased.
- The company completed its IPO, converted all preferred stock to common stock, repaid the Midcap loan, and began investing in a short-term investment portfolio.
Outlook, management commentary and risks
- Management said existing cash, cash equivalents and short-term investments were expected to fund operating expenses and capital expenditures at least into 2023. The financial-statement note separately says existing cash, cash equivalents and IPO proceeds should cover needs for at least the next 12 months. These are differently worded runway statements, not a formal financial forecast.
- Management expects substantial operating losses and higher expenses for the foreseeable future, with additional financing likely needed. The company has no unconditional commitments for additional funding and no significant product revenue is expected for years.
- At quarter-end, the pipeline comprised 4 clinical-stage, 4 preclinical, 7 late-discovery and 41 early-discovery programs. Management planned Phase 2 or Phase 2/3 starts in 2022 for REC-2282, REC-994, REC-4881 and REC-3599. REC-2282 received FDA Fast Track Designation in early October; REC-4881 received Orphan Drug Designation in September.
- The five-year Bayer collaboration covers fibrosis research. Bayer has first option rights to potential candidates; potential option, development and commercial milestone payments and royalties are contingent and not assured.
- Key risks include uncertain clinical and regulatory outcomes, patient enrollment and trial delays, reliance on collaborators and third-party manufacturers, platform and cybersecurity risks, COVID-19 disruption, and the need for further capital. The company also highlights intellectual-property uncertainty and intense competition.
- The dual-class structure gives CEO Christopher Gibson and an affiliate approximately 37% of voting power as of September 30; the filing estimates this could be about 41% if his outstanding equity awards were fully vested and exercised. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. No material litigation was reported.
Important facts for investors to verify
- Whether planned 2022 trial starts and clinical milestones remain on schedule, and what evidence supports the candidates’ safety and efficacy.
- Cash burn, capital expenditures and the assumptions underlying management’s stated runway into 2023; assess the timing and terms of any future financing.
- Progress and economics of the Bayer and Takeda collaborations, including partner decisions, milestones, and any revenue concentration or timing effects.
- Whether pipeline expansion and platform-scale metrics translate into validated candidates and clinical progress, rather than continued growth in spending alone.
- Potential obligations and build-out costs under the Station 56 lease and the company’s plans for manufacturing capability.
- The filing reports a $827,000 debt-extinguishment loss in its results table, while the notes describe a $996,000 early extinguishment loss; clarify the difference against the underlying financial disclosures.
- Potential dilution and governance implications from equity awards, future fundraising, and the dual-class voting structure.