Business context and reporting period
Recursion Pharmaceuticals, Inc. is a clinical-stage TechBio company using its Recursion Operating System, biological and chemical datasets, and AI/ML tools to support drug discovery and development. This Form 10-Q covers the three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless noted. The company has no approved products and has not generated product-sales revenue.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $13.8 million | $12.1 million |
| Operating loss | $(96.3) million | $(69.9) million |
| Net loss | $(91.4) million | $(65.3) million |
| Net loss per share, basic and diluted | $(0.39) | $(0.34) |
| Operating cash flow | $(102.3) million | $(73.3) million |
| Cash and cash equivalents at period end | $296.3 million | $391.6 million at Dec. 31, 2023 |
Revenue comprised $13.5 million of operating revenue and $0.3 million of grant revenue. Operating revenue primarily reflects collaboration research and development work; it is not directly correlated with cash receipts. Research and development expense was $67.6 million, up 45%, and general and administrative expense was $31.4 million, up 37%. Cost of revenue declined 10% to $11.2 million. The filing does not present a gross-margin measure.
Cash used in investing activities was $6.7 million, mainly property and equipment purchases; financing provided $13.9 million, including $10.9 million net proceeds from ATM stock sales. Cash, cash equivalents and restricted cash totaled $306.2 million at quarter-end. Total liabilities were $156.7 million, including $1.1 million of notes payable and $49.8 million of operating lease liabilities. The company reported $401.2 million of stockholders’ equity and an accumulated deficit of $1.1 billion.
Material changes versus the prior period
- Revenue increased 14%, primarily because Roche collaboration work shifted toward higher-cost processes. Grant revenue was $0.3 million, versus none in Q1 2023.
- Operating expenses rose 34%; R&D growth reflected platform expansion and upgrades, preclinical work, and clinical-trial progress. R&D stock-based compensation increased materially. G&A growth was driven primarily by salaries and wages, software, and depreciation.
- Operating cash burn increased to $102.3 million from $73.3 million, which management attributed to higher R&D and G&A costs. Net loss increased 40%.
- Cash and cash equivalents fell $95.2 million from year-end 2023. The company sold 921,000 shares under its ATM program for $10.9 million net during the quarter.
- Interest income declined to $4.0 million from $4.7 million. Q1 2024 also included a $0.8 million income tax benefit.
Outlook, commentary, risks and contingencies
Management believes existing cash and cash equivalents will fund operating expenses and capital expenditures for at least the next 12 months, but expects continued losses and anticipates needing additional financing. It does not expect significant revenue until drug-development milestones are achieved, which may take years; product revenue is not expected for at least several years. No specific financial guidance was provided.
Clinical and platform milestones disclosed include expected REC-994 Phase 2 data in Q3 2024; REC-2282 Phase 2 safety and preliminary efficacy data in Q4 2024; REC-4881 data in H1 2025; and an anticipated REC-3964 Phase 2 initiation in 2024. The company also expects to submit an IND for its RBM39 program in H2 2024. These are forward-looking expectations and are subject to clinical, regulatory, operational, and funding risks.
Recursion reports a material weakness in internal controls over revenue and unearned-revenue accounting, including management review of estimated costs and time to completion and validation of source information. Remediation work is underway, but the weakness was not considered remediated as of March 31, 2024 because controls had not operated and been tested for a sufficient period.
A landlord’s lawsuit concerning the Industry Lease and Recursion’s related counterclaims remain pending; no liability was recorded because an unfavorable outcome was not considered probable, and the company could not estimate the counterclaim amount. The filing also highlights reliance on outside research and clinical-trial providers, including a China-based provider potentially affected by future legislation or restrictions. Tempus data payments may total up to $160 million over five years, payable in cash or equity at the company’s option. The company has $208.2 million remaining under its $300 million ATM authorization, creating potential dilution. Its CEO and affiliates held approximately 25% of voting power at quarter-end through Class B shares.
Most important facts for investors to verify
- Whether cash burn and R&D spending remain consistent with the stated minimum 12-month cash runway, and the timing and terms of any additional financing.
- Progress and actual results for the clinical, IND, and platform milestones cited in the filing.
- Whether revenue-recognition controls are remediated and the effect of collaboration estimates on revenue timing.
- Potential dilution from ATM sales, equity-settled Tempus payments, stock compensation, and other share issuances.
- Developments in the Industry Lease litigation and any changes to third-party provider or regulatory risks.