Recursion Pharmaceuticals, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Recursion is a clinical-stage TechBio company using its Recursion Operating System and proprietary biological and chemical datasets for drug discovery. It had no approved products or product-sales revenue.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $12.1 million | $5.3 million; up $6.8 million (about 127%) |
| Cost of revenue | $12.4 million | $7.8 million; up 59.6% |
| Gross result | $0.3 million loss; approximately -2.6% gross margin | $2.5 million loss; approximately -46.2% gross margin |
| Research and development | $46.7 million | $32.4 million; up 43.9% |
| General and administrative | $22.9 million | $21.1 million; up 8.5% |
| Operating loss | $69.9 million | $56.0 million |
| Net loss | $65.3 million; $0.34 per share | $56.0 million; $0.33 per share |
| Operating cash flow | $73.3 million used | $77.4 million provided |
| Cash and cash equivalents | $473.1 million unrestricted at March 31 | $549.9 million at December 31, 2022 |
Revenue was recognized from collaboration agreements, principally Roche; it was not product revenue. All $12.1 million recognized in Q1 2023 had been included in unearned revenue at December 31, 2022. Other income was $4.5 million, primarily interest earned on cash and cash equivalents. Cash, cash equivalents and restricted cash totaled $482.4 million at quarter-end.
Total liabilities were $197.2 million, including $1.8 million of notes payable and $51.2 million of operating lease liabilities. The company reported an accumulated deficit of $704.9 million. The filing does not report a conventional operating-profit margin; revenue remained below operating expenses.
Changes, outlook and material items
- Operating revenue rose as the Roche collaboration advanced from cell-type evaluation toward inference-based Phenomap work. Cost of revenue also increased with that work.
- R&D growth primarily reflected expanded platform investment, including chemical technology, machine learning and transcriptomics. The company reported a $1.2 million impairment related to leasehold improvements it no longer intended to use.
- Operating cash flow was substantially weaker than in Q1 2022, when it included Roche’s $150 million upfront payment. Q1 2023 operating cash use was $73.3 million. Investing cash use was $5.3 million, including property and equipment purchases; financing provided $1.9 million.
- Management said existing cash and cash equivalents were expected to fund operating expenses and capital expenditures for at least the next 12 months. It also expects substantial future losses and says additional capital will likely be needed; access to financing is not assured.
- Clinical updates included expected REC-3964 safety and pharmacokinetic data in H2 2023; REC-994 Phase 2 top-line data in H2 2024; and an REC-2282 Phase 2 interim safety analysis in 2024. Recursion expected to initiate an REC-4881 Phase 2 biomarker-enriched study in early 2024.
- After quarter-end, the company signed agreements to acquire Cyclica and Valence, with closings expected in Q2 2023 subject to conditions. The transactions could involve up to approximately 6.9 million and 8.2 million Class A shares, respectively, plus cash consideration and assumed options; final consideration could change.
- A dispute with the landlord regarding the Industry lease was under negotiation. Some outcomes could involve termination or legal action and a payment, but the company could not estimate a possible amount and recorded no liability because an unfavorable outcome was not considered probable.
- Inflation and supply-chain disruptions have increased costs; management cautioned that volatile capital and credit markets may constrain future financing. The filing reported no material change to previously disclosed risk factors and stated disclosure controls were effective.
Important facts for investors to verify
- Cash burn, collaboration-related revenue recognition and the assumptions behind management’s at-least-12-month liquidity estimate.
- Clinical trial enrollment, timing and results against the stated program milestones.
- Closing conditions, cash consideration, share issuance and integration costs for the Cyclica and Valence acquisitions.
- Developments in the Industry lease dispute and any resulting payment or liability.
- Progress on Roche and Bayer collaborations, including any option exercises, milestones or additional funding.