Recursion Pharmaceuticals, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Recursion is a clinical-stage TechBio company developing medicines and a drug-discovery platform; it has no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $10.5m | $13.2m | $33.7m | $26.2m |
| Operating loss | $99.6m | $62.6m | $251.1m | $184.7m |
| Net loss | $93.0m | $60.4m | $235.1m | $182.0m |
| Net loss per share | $0.43 | $0.35 | $1.16 | $1.06 |
- Q3 operating revenue fell 23% year over year, primarily due to timing of Roche collaboration workflows; nine-month operating revenue rose 28% as Roche work progressed. Grant revenue was $0.4m in the nine-month period.
- Research and development expense increased 71% in Q3 and 54% year to date, reflecting expanded platform capabilities, discovery and clinical spending. General and administrative expense rose 50% and 30%, respectively, driven mainly by salaries, software and depreciation.
- Cost of revenue was $10.9m in Q3, exceeding total revenue by $0.3m before R&D and G&A. For the nine months, revenue exceeded cost of revenue by $1.0m. These figures are not overall operating margins.
- Cash and cash equivalents were $387.3m at September 30, versus $549.9m at December 31, 2022. Current assets were $410.5m and current liabilities $94.1m. Management believes cash and cash equivalents will fund operations and capital expenditures for at least 12 months.
- Operating cash use was $213.7m for the nine months, versus $38.8m a year earlier. The prior-year period included Roche’s $150m upfront payment. Investing activities used $7.7m and financing activities provided $59.5m, including the $50m NVIDIA placement.
- Total liabilities were $192.9m, including $1.8m of notes payable and $49.7m of operating lease liabilities. Unearned revenue was $95.4m. Accumulated deficit was $874.6m.
Material changes, outlook and risks
- Recursion acquired digital-chemistry companies Valence and Cyclica in May. The acquisitions added $51.9m of goodwill and technology intangible assets; purchase-price allocations remained preliminary. Cyclica contributed a $6.0m operating loss during the reported period.
- The company raised approximately $50m net through a July private placement to NVIDIA, issuing 7.7m shares at $6.49 each. An at-the-market facility permits up to $300m of additional share sales; none had been sold by September 30. The share issuances and acquisition consideration increase dilution exposure.
- Management expects continuing operating losses and anticipates needing additional financing. It does not expect significant revenue until drug-development milestones are achieved, which may take years. The company says additional capital may not be available on acceptable terms.
- Pipeline expectations include Phase 2 proof-of-concept data for REC-994 in H2 2024; preliminary Phase 2 data for REC-2282 in H2 2024 and REC-4881 in H1 2025; and a planned Phase 2 study of REC-4881 in AXIN1/APC-mutant cancers around late 2023 or early 2024. A Phase 2 study of REC-3964 was expected in 2024. These are forward-looking plans, not assured outcomes.
- In October 2023, Recursion reported that Roche-Genentech had optioned its first GI-oncology program. The filing also describes an amended Bayer collaboration with potential milestones of up to $1.5bn for up to seven oncology programs, plus royalties; these payments depend on program progress and success.
- Subsequent events: a five-year Tempus data license signed November 3 carries annual payments of $22m–$42m, up to $160m in aggregate, payable in cash or equity. An October 31 agreement to upgrade BioHive-1 is expected to cost approximately $30m.
- A landlord’s amended lawsuit concerning the Industry Lease seeks monetary damages and attorney fees. Recursion had recorded no liability because an unfavorable outcome was not considered probable; it also brought counterclaims and said damages could not be estimated. Management reported no material change to previously disclosed risk factors. Clinical, regulatory, financing, collaboration, cost-inflation and market-volatility risks remain.
Important facts for investors to verify
- Cash burn, expected runway and financing needs, including any use of the $300m ATM facility and resulting dilution.
- Progress and data timing for the clinical programs, and whether collaboration options or milestones convert into payments.
- Actual costs, payment terms and potential equity settlement of the Tempus license and BioHive upgrade.
- Final purchase-price allocations for Valence and Cyclica, and the integration and expense effects of both acquisitions.
- Developments in the Industry Lease litigation and any change to the company’s assessment of potential loss.