Recursion Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The filing is unaudited. Recursion is a clinical-stage biotechnology company using automation, biological imaging, data science and machine learning to discover medicines. It had no approved products and no product-sale revenue.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $2.5 million | $0.2 million | $5.1 million | $0.2 million |
| Research and development expense | $29.6 million | $13.2 million | $53.7 million | $26.1 million |
| General and administrative expense | $13.9 million | $5.2 million | $22.8 million | $10.7 million |
| Net loss | $43.4 million | $18.9 million | $74.1 million | $37.4 million |
| Basic and diluted loss per share | $0.31 | $0.88 | $0.91 | $1.73 |
Revenue was primarily collaboration and grant revenue. Bayer collaboration revenue was $2.5 million for Q2 and $5.0 million for the first six months; grant revenue was $49,000 and $111,000, respectively. The filing does not provide a meaningful gross margin. Operating losses were $40.9 million for Q2 and $71.4 million for the first six months.
- Cash and liquidity: Cash and cash equivalents were $632.7 million at June 30, 2021, up from $262.1 million at December 31, 2020. Restricted cash was $10.2 million. Management said cash and cash equivalents were expected to fund working capital and capital expenditure needs at least into 2023; the filing also states resources were expected to cover expenses and capital expenditures for at least the next 12 months.
- Cash flows, first six months: $64.4 million used in operating activities; $25.6 million used in investing activities, including a $17.9 million supercomputer purchase; and $465.8 million provided by financing activities, principally from the IPO. Cash, cash equivalents and restricted cash increased by $375.8 million.
- Debt and commitments: Notes payable totaled $12.6 million at June 30, including $11.9 million principal under the Midcap facility. In July 2021, Recursion repaid the Midcap loan for $12.7 million. Future minimum lease payments were $62.4 million; a January 2021 lease amendment added $32.4 million of minimum payments.
- Balance sheet: Total assets were $698.6 million, total liabilities $55.9 million and stockholders’ equity $642.7 million at June 30. Accumulated deficit was $287.7 million.
Material changes versus the prior comparable period
- Revenue increased mainly because of the Bayer collaboration, which began in 2020; no operating revenue was reported in the 2020 comparison periods.
- Q2 operating expenses rose 136% to $43.5 million. Management attributed higher R&D costs to more platform experiments, preclinical validation and clinical activity; higher G&A reflected growth in personnel and operating costs. First-half net loss nearly doubled year over year.
- The April 2021 IPO generated $462.4 million in net proceeds. Preferred stock converted into Class A common stock, and the company ended the quarter with positive stockholders’ equity.
- R&D investment and capital spending increased substantially, including the supercomputer purchase. Interest expense also rose, primarily due to fair-value changes in Series A and B warrant liabilities; those warrants were exercised in April.
Outlook, commentary and risks
- Management expected operating expenses and losses to increase as the company advances its platform and pipeline, expands clinical development and manufacturing capabilities, hires personnel and bears public-company costs. The company expects to need additional financing in the future and has no committed external funding source.
- At quarter-end, the portfolio comprised 48 programs: four clinical-stage, four preclinical, seven late-discovery and 33 early-discovery programs. Management planned to initiate Phase 2 studies for REC-4881, REC-994 and REC-3599, and a Phase 2/3 study for REC-2282, within the next three to four quarters. These are plans, not assured timelines or outcomes.
- Recursion reported progress in its Bayer fibrosis collaboration. Bayer has first option rights to potential candidates; potential fees, milestones and royalties depend on future development and commercial success and are not assured.
- Key risks include clinical and regulatory failure or delay, uncertain effectiveness of the discovery platform, dependence on collaborators and third-party manufacturers, the need for future capital, intellectual-property challenges, cybersecurity and data integrity, and possible COVID-19-related disruptions.
- The company expanded Salt Lake City facilities and began plans for a chemistry, manufacturing and controls site; it also announced a Toronto expansion and a multi-year collaboration with Mila. The filing does not provide quantified financial forecasts or earnings guidance.
- Class B shares carry 10 votes per share. The CEO and affiliate held approximately 37% of voting power at June 30; executive officers, directors, major holders and affiliates together held approximately 62%. This concentrates influence over shareholder matters.
Most important facts for investors to verify
- Whether cash spending, capital investment and pipeline expansion remain consistent with management’s stated runway into 2023.
- Progress and timing of the four planned clinical studies, including regulatory clearance, enrollment and trial results.
- Whether collaboration revenue, including Bayer revenue, is sustained and whether contingent milestones or royalties are achieved.
- The impact of the July 2021 Midcap repayment and lease commitments on future cash needs.
- Potential dilution and trading impact as IPO lock-ups expire, alongside the effects of the dual-class voting structure.