Artificial intelligence (AI) companies are well-positioned to disrupt the biotechnology industry. Typically, biotech companies need to invest a huge amount of time, capital, and resources to introduce a drug. Most pre-revenue biotech companies have finite access to capital, which incentivizes players to advance drug discovery programs that have the maximum potential to succeed, given the rigorous drug development process. 

AI capabilities should help biotech companies better manage these challenges by reducing research, development, and manufacturing costs. This should help biotech players to advance multiple programs at a similar cost. 

One such AI-powered player is Recursion Pharmaceuticals (RXRX), a clinical-stage biotech company that integrates technological innovations across biology, automation, data science, and engineering to industrialize drug discovery. Valued at $1.44 billion by market cap, Recursion believes its data-centric approach will result in lower late-stage failures and better capital management. 

Recursion Pharmaceuticals Hit a Key Milestone

Recursion Pharmaceuticals announced earlier this week that one of its experimental treatments hit a key milestone. A CNBC report stated, “Recursion was able to use its artificial intelligence-enabled drug discovery platform to identify an area of biology to target for the treatment of solid tumors and lymphoma, match it with a drug candidate and move all the way to gaining regulatory approval to begin studies in less than 18 months.”

The U.S. Food and Drug Administration (FDA) cleared the new drug application for a clinical trial of an experimental drug candidate, the REC-1245. According to Recursion, the treatment's market potential could surpass 100,000 patients in Europe and the U.S. 

The clinical trial will begin in Q4 of 2024, and phase 1 data could be completed by the end of 2025. The REC-1245 will target RBM39 to exploit its similarities with CDK12, with the eventual aim of providing a treatment option for difficult-to-treat advanced cancers. 

In an interview with CNBC, Recursion co-founder and CEO Chris Gibson stated, “I think what’s really exciting about this particular program of Recursion is that this small molecule and novel target came out from essentially a Google-search equivalent, from this giant map of biology that we’ve already built.”

Founded in 2013, Recursion has been creating massive datasets over the past decade, and this is the first program to leverage the power of data science and AI. 

What's Next for RXRX Stock?

Recursion has partnered with several healthcare giants, such as Bayer (BAYZF) and Sanofi (SNY). These collaborations involve upfront payments, milestone-based payments, and royalties on future revenue. For example, Recursion’s partnership with Bayer includes potential payments of $1.5 billion in addition to royalties for its oncology programs. 

Additionally, Recursion is planning to merge with Exscientia (EXAI), another AI-based drug discovery company. The deal is expected to close in the first half of 2025. 

Out of the eight analysts covering RXRX stock, one recommends “strong buy,” one recommends “moderate buy,” and six recommend “hold.” 

The average 12-month target price for RXRX stock is $10.14, indicating an upside potential of about 66%.