Recursion Pharmaceuticals, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Recursion is a clinical-stage biotechnology company developing medicines using its Recursion OS platform. It had no approved products and no product-sale revenue.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $10.2 million | $4.0 million |
| Research and development expense | $135.3 million | $63.3 million |
| General and administrative expense | $57.7 million | $25.3 million |
| Operating loss | $182.8 million | $84.6 million |
| Net loss | $186.5 million | $87.0 million |
| Net loss per share, basic and diluted | $1.49 | $3.99 |
| Cash used in operating activities | $158.6 million | $45.4 million |
- Revenue was primarily collaboration and research revenue; FY2021 included $10.0 million recognized under the Bayer agreement and $0.2 million of grant revenue. No product-sale revenue was reported.
- Cash, cash equivalents and investments totaled $516.6 million at year-end, compared with $262.1 million a year earlier. The balance excludes restricted cash. Management said available cash and investments were expected to fund operations for at least 12 months.
- Operating cash use increased with higher R&D and administrative spending. Investing activities used $271.7 million, including investment purchases and $39.8 million of property and equipment purchases; financing activities provided $458.5 million, principally from the IPO.
- Year-end notes payable were $0.7 million, after repayment of the $12.7 million Midcap loan balance in July 2021. Future lease commitments were $61.9 million; purchase obligations were $61.2 million, including $36.7 million expected within one year.
- Gross profit and conventional operating margins are not meaningful for this development-stage business; the filing does not present them as operating measures.
Material changes and business developments
- Revenue increased from $4.0 million to $10.2 million, mainly reflecting the Bayer collaboration. Operating expenses more than doubled, led by platform, discovery and clinical development spending, as well as growth in staffing and public-company costs. Net loss increased to $186.5 million.
- The April 2021 IPO generated approximately $462.4 million in net proceeds. Recursion’s team grew to about 400 employees; its proprietary data universe expanded from approximately 6.8 to nearly 13 petabytes, with more than 200 billion inferred biological and chemical relationships.
- In December 2021, Recursion expanded its Bayer fibrosis collaboration to include map-based discovery and more than a dozen potential programs. It also signed a neuroscience and oncology collaboration with Roche and Genentech; the $150 million upfront payment was received in January 2022, after the reporting date.
- Pipeline updates included enrollment of the first patient in the REC-994 Phase 2 CCM study in March 2022; planned 2022 Phase 2/3 initiation for REC-2282 and Phase 2 initiation for REC-4881; and planned Phase 1 initiation for REC-3964 in the second half of 2022. REC-3599’s GM2 Phase 2 start was delayed to 2024.
Outlook, commentary and key risks
- Management expects losses and expenses to increase as it expands platform research, advances clinical programs, builds manufacturing capabilities and grows operations. It expects to need additional financing in the future; no product revenue is expected for several years.
- Management described 2021 as a year of shifting from broad experimental screening toward mapping and navigating biology, and identified 2022 as a focus on translating maps into medicines. It also said it would emphasize near- and medium-term pipeline and partnership execution and slow certain longer-term growth initiatives.
- The REC-3599 trial delay followed variability in potency results from patient-derived fibroblasts. Because the planned study involves infants, Recursion chose further dose optimization in a sheep model before proceeding.
- Principal risks include uncertain clinical and regulatory outcomes, substantial cash burn and future financing needs, reliance on collaborators and third-party manufacturers/suppliers, competition, intellectual-property protection, platform or cybersecurity disruptions, and potential COVID-19, supply-chain and other operating delays. Collaboration milestone and royalty amounts are contingent, not assured revenue.
- Recursion has a dual-class share structure: Class B shares carry ten votes each. The CEO and affiliates held about 37% of voting power at year-end 2021. The company reported no material litigation. The auditor issued an unqualified opinion on the financial statements; it did not express an opinion on internal control effectiveness.
Important facts for investors to verify
- Review the audited financial statements and cash-flow trend, including whether the $150 million Roche/Genentech upfront payment and subsequent collaboration revenue are recognized as expected.
- Track clinical-trial starts, enrollment, safety and efficacy results, especially the REC-994, REC-2282 and REC-4881 programs, and the dose-optimization work and timing for REC-3599.
- Assess cash runway against rising R&D spending, capital commitments, lease obligations and the potential need for further financing.
- Confirm partner progress and any achieved fees or milestones under the Bayer and Roche/Genentech agreements; potential maximum payments depend on options, development, commercialization and sales.
- Consider dilution and governance implications of equity compensation, future financing and the concentrated voting power associated with Class B shares.