Recursion Pharmaceuticals, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide a clear standalone Q4 financial result.
Business context
Recursion is a clinical-stage TechBio company using its Recursion Operating System, proprietary datasets and computational tools to discover and develop medicines. It reported five programs in Phase 2 or Phase 2/3 studies and no products approved for sale. Revenue is principally from research and development collaborations, not product sales.
Key financial metrics
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $44.6 million | $39.8 million |
| Operating revenue | $43.9 million | $39.7 million |
| Cost of revenue | $42.6 million | $48.3 million |
| Research and development | $241.2 million | $155.7 million |
| General and administrative | $110.8 million | $81.6 million |
| Operating loss | $(350.1) million | $(245.7) million |
| Net loss | $(328.1) million | $(239.5) million |
| Net loss per share, basic and diluted | $(1.58) | $(1.36) |
| Cash and cash equivalents at year-end | $391.6 million | $549.9 million |
| Cash used in operating activities | $(287.8) million | $(83.5) million |
| Debt outstanding at year-end | $1.1 million | — |
Current assets were $438.1 million and current liabilities $93.2 million at year-end. Total assets were $653.7 million, total liabilities $190.3 million, and stockholders’ equity $463.4 million. The filing does not present a headline margin measure; cost of revenue was nearly as large as operating revenue. Other income, net, was $17.9 million, primarily reflecting $19.1 million of interest income.
Changes versus the prior year
- Revenue increased 11.9%, mainly as Roche collaboration work advanced. Cost of revenue fell 11.8%, which the company attributed principally to less brute-force work under the Bayer partnership.
- R&D expense rose 54.9%, driven by expanded platform investment; G&A rose 35.8%. The operating loss widened 42.5% and net loss widened 37.0%.
- Operating cash outflow increased to $287.8 million. The company noted that FY 2022 cash flow included the $150 million Roche upfront payment, while FY 2023 did not.
- Cash and cash equivalents declined by $158.3 million. FY 2023 financing activities provided $140.1 million, including $128.1 million from common-stock issuances.
Outlook, risks and unusual items
- Management said existing cash and cash equivalents were expected to fund operations for at least 12 months from the filing, while also stating that additional capital will be needed. The company has no approved products and does not expect product-sale revenue for at least several years.
- Expected clinical milestones included REC-994 Phase 2 data in Q3 2024; REC-2282 Phase 2 safety and preliminary efficacy data in Q4 2024; and REC-4881 readouts in FAP and AXIN1/APC-mutant cancers in H1 2025. A Phase 2 study for REC-3964 was planned for 2024, and an IND submission for the RBM39 program was expected in H2 2024. These are forward-looking expectations, not assured outcomes.
- Material weakness: management and the auditor identified ineffective controls over estimates and supporting information used to calculate collaboration revenue and unearned revenue. Management reported no resulting revision to previously reported results; the financial-statement audit opinion was unqualified, but the auditor issued an adverse opinion on internal control over financial reporting. Controls at the 2023 acquisitions were excluded from the assessment.
- The company acquired Cyclica and Valence in 2023, adding digital-chemistry capabilities and $51.3 million of goodwill. Purchase-price allocations remained preliminary. The acquisitions were associated with $16.4 million of operating losses in the periods included in Recursion’s 2023 results.
- Future purchase obligations totaled $229.3 million, including $91.3 million expected within one year; future lease commitments totaled $66.2 million. The five-year Tempus data agreement provides for up to $160 million in fees, payable in cash, shares, or a combination, and includes potential early-termination costs.
- Key risks include clinical-trial failure or delay, continuing losses and financing needs, potential shareholder dilution, reliance on collaborators and contract manufacturers, data and cybersecurity exposure, and uncertain intellectual-property protection. A landlord lawsuit and Recursion’s related counterclaims concerning a lease were pending; no liability was recorded because an unfavorable outcome was not considered probable.
Important facts for investors to verify
- Whether the reported cash balance and expected runway remain adequate given operating cash burn, planned investment, purchase commitments and the Tempus agreement.
- Clinical-trial progress, enrollment and eventual results for the near-term Phase 2 readouts; distinguish preliminary findings from final data.
- Remediation of the revenue and unearned-revenue control weakness, including whether controls over estimates and acquired businesses are operating effectively.
- Revenue concentration and the timing of collaboration milestones, option fees and potential payments; these are not equivalent to recurring product revenue.
- Potential dilution from equity financing, the ATM program and contractual payments in shares, alongside the dual-class voting structure.
- Resolution of the lease litigation and any changes to acquisition accounting estimates or goodwill and intangible-asset values.