Recursion Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company is a clinical-stage biotechnology business using automation, biological data, and machine learning for drug discovery. It reported no product-sales revenue. Unless otherwise noted, amounts are in U.S. dollars.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $2.6 million | $0.06 million; increase primarily reflects Bayer collaboration revenue |
| Research and development | $24.1 million | $12.8 million; up 87.7% |
| General and administrative | $8.9 million | $5.6 million; up 60.7% |
| Operating loss | $30.5 million | $18.3 million |
| Net loss | $30.7 million | $18.4 million |
| Basic and diluted net loss per share | $1.33 | $0.85 |
| Net cash used in operating activities | $30.8 million | $17.8 million |
| Cash used in investing activities | $19.4 million | $0.7 million |
| Cash provided by financing activities | $2.1 million | $6.0 million |
At March 31, cash and cash equivalents were $214.1 million, with restricted cash of $5.0 million. Total assets were $271.9 million. Notes payable, net, totaled $12.5 million; the $11.9 million Midcap loan is secured by substantially all company assets and bears floating-rate interest. The filing does not present a meaningful positive operating margin: operating expenses substantially exceeded revenue, and the company had no approved products or product-sales revenue.
Changes and notable items
- Revenue increased to $2.6 million from $60,000, principally from recognizing $2.5 million under the Bayer research collaboration. The company recognized only $62,000 of grant revenue.
- Higher R&D reflected more platform experiments, additional preclinical asset validation, and progressing clinical studies. Higher G&A reflected company growth and increased personnel, facilities, finance, and administrative costs.
- Operating cash use increased year over year, reflecting higher operating costs and working-capital timing. Investing cash use included a $17.9 million Dell EMC supercomputer purchase.
- Cash, cash equivalents, and restricted cash declined by $48.0 million during the quarter. The company’s accumulated deficit reached $244.3 million.
- In April, after quarter-end, the company completed its IPO, issuing 27.9 million shares at $18 per share for approximately $462.6 million in net proceeds. Preferred shares converted into common shares in connection with the IPO; the filing also describes a 1.5-for-1 forward stock split.
Outlook, risks, and contingencies
- Management stated that IPO proceeds, existing cash and cash equivalents, and available borrowings were expected to fund operating expenses and capital expenditures for at least the next 12 months. It cautioned that its assumptions could prove incorrect. The company expects substantial losses and increasing expenses for the foreseeable future and expects significant revenue only after major drug-development milestones, potentially years away.
- The company described 37 internally developed programs and four drug candidates expected to enter clinical trials in the next four to five quarters. Development timelines and outcomes are uncertain; clinical, regulatory, manufacturing, enrollment, and financing setbacks could delay or prevent progress.
- The Bayer agreement has a five-year term and includes research work, Bayer licensing options, potential option and milestone payments, and royalties. As of March 31, $24.2 million of the $30.0 million upfront payment remained as unearned revenue. Future revenue timing depends partly on estimates of the costs to perform the research.
- Lease commitments totaled $63.4 million in future minimum payments. A January 2021 Station 41 lease amendment added 91,478 square feet, with a 10-year term and $32.4 million of additional minimum payments.
- Risks highlighted include the uncertainty of the company’s drug-discovery approach and clinical-stage pipeline, need for future funding, dependence on collaborators and third parties, intellectual-property protection, cybersecurity and platform reliability, and possible COVID-19-related disruption. The company reported no material litigation and no significant COVID-related asset impairment at the filing date.
- The post-IPO dual-class structure gives Class B shares ten votes per share; the CEO and affiliate held approximately 37.3% of voting power as of April 30, 2021. Management reported disclosure controls were effective as of March 31, 2021.
Important facts for investors to verify
- Whether post-IPO cash and the stated 12-month funding outlook remain consistent with the company’s operating cash burn, planned R&D, and capital spending.
- Progress and timing for the four anticipated clinical-trial entries, and the clinical, regulatory, and manufacturing assumptions behind those plans.
- The cost estimates and revenue-recognition assumptions supporting Bayer collaboration revenue, as well as the likelihood and timing of future option, milestone, or royalty payments.
- The full effect of the new lease commitments, supercomputer investment, and Midcap loan terms on future cash requirements.
- Potential dilution from equity plans and outstanding awards, and the implications of the dual-class voting structure for public shareholders.