Recursion Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Recursion is a clinical-stage biotechnology company using its Recursion OS, biological datasets, automation and machine learning for drug discovery. It has no approved products and has not generated product sales; revenue is primarily from research collaborations and grants.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $13.2 million | $2.5 million | $26.2 million | $7.6 million |
| Operating revenue | $13.1 million | $2.5 million | $26.0 million | $7.5 million |
| Cost of revenue | $15.4 million | — | $37.4 million | — |
| Research and development | $40.8 million | $33.2 million | $111.7 million | $87.0 million |
| General and administrative | $19.5 million | $15.7 million | $61.8 million | $38.5 million |
| Operating loss | $62.6 million | $46.4 million | $184.7 million | $117.8 million |
| Net loss | $60.4 million | $47.4 million | $182.0 million | $121.5 million |
| Basic and diluted loss per share | $0.35 | $0.28 | $1.06 | $1.10 |
- Cost of revenue exceeded revenue, producing a gross loss of $2.2 million in Q3 and $11.3 million for the nine months. The implied gross margins were approximately negative 17% and negative 43%, respectively.
- Operating revenue growth reflected recognition of revenue from the Roche collaboration, which began in January 2022. The company received a $150.0 million Roche upfront payment; revenue recognition is over time and is not directly correlated with cash receipts.
- Cash used in operations was $38.8 million for the nine months, compared with $97.5 million in 2021. The improvement was driven by the Roche upfront cash receipt, partly offset by operating expenses. Investing activities provided $201.2 million, mainly from $230.6 million of investment sales and maturities; financing activities provided $7.1 million.
- At September 30, cash and cash equivalents were $454.6 million; restricted cash totaled $10.2 million. Cash, cash equivalents and investments were $454.6 million, versus $516.6 million at December 31, 2021. The company stated existing cash and cash equivalents were expected to fund operations for at least 12 months.
- Total assets were $611.5 million and total liabilities $223.5 million. Accumulated deficit was $582.1 million. Notes payable totaled $0.7 million; operating lease liabilities were $51.5 million. Unearned revenue was $140.7 million, including the Roche upfront payment.
Changes, outlook and risks
- Compared with the prior-year periods, losses widened as operating expenses increased and cost of revenue was recorded for collaborations. Nine-month R&D rose 28%, primarily due to higher clinical and discovery costs; G&A rose 61%, reflecting company growth, compensation, rent, public-company costs and a $2.8 million fixed-asset impairment.
- Clinical progress included Phase 2 studies initiated for CCM (REC-994) and FAP (REC-4881), a Phase 2/3 study for NF2 (REC-2282), and a Phase 1 study for C. difficile colitis (REC-3964). Enrollment was ongoing in the CCM and NF2 studies. The company deprioritized its GM2 gangliosidosis program. In October, after quarter-end, it nominated REC-4881 for AXIN1/APC-mutant cancers and said it was prioritizing planning for a Phase 2 trial.
- On October 27, 2022, the company completed a private placement of 15.3 million Class A shares at $9.80 per share, raising approximately $150.3 million gross before fees and expenses. This is a post-period financing and increases share count.
- Management expects operating losses and expenses to increase as it advances its platform and pipeline, clinical development, manufacturing capabilities and personnel. Significant product revenue is not expected for several years; additional financing may be needed, and access to capital is not assured.
- Key uncertainties include clinical and regulatory outcomes, collaboration execution and revenue-estimation assumptions, future financing needs, rising costs and market volatility, and healthcare policy changes including potential drug-pricing and reimbursement pressures. No material litigation was reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether clinical enrollment, trial timelines and results for the reported programs are progressing as planned.
- How quickly Roche collaboration revenue is recognized, the related costs, and whether further milestones or fees are achieved.
- Cash burn and runway assumptions, including the effect of the October placement proceeds and planned spending increases.
- Potential dilution from the private placement and outstanding equity awards; Class B shares carry ten votes each, and the CEO and affiliates held approximately 32% of voting power at quarter-end.
- Whether partnership performance obligations, lease commitments and other operating needs change the company’s liquidity outlook.