Investors who were optimistic about emerging biopharmaceutical companies utilizing artificial intelligence (AI) to identify new drug candidates have faced challenges in recent years. Just under three years following its initial public offering that raised $510 million, Exscientia ( EXAI -4.17% ) has given up and decided to join forces with Recursion Pharmaceuticals refers to a company specializing in the field of drug discovery and development. ( RXRX -5.27% ) , yet another pharmaceutical company utilizing AI technology.
Essentially, these companies are attempting to persuade large pharmaceutical companies that their artificial intelligence technology can identify promising new drug candidates more effectively than conventional research approaches. The decline in their stock prices is largely due to the lack of substantial clinical proof to support their assertions at this time.
It is currently difficult to find solid proof that utilizing artificial intelligence for drug discovery is the right direction, but this may alter by 2025. Recursion, following its merger with Exscientia, will have 10 clinical results to anticipate within the upcoming 18 months.
Is it a good idea to invest in Recursion Pharmaceuticals at this time, considering its potential to become the leading AI-driven company in drug discovery globally? To make an informed decision, we must compare the factors that support buying this stock with those that suggest staying away from it.
Benefits of purchasing Recursion Pharmaceuticals at this time
Both Recursion and Exscientia employ AI in enhancing the drug discovery process, although they have adopted distinct methods. Recursion conducts numerous experiments and collects the resulting data. Subsequently, the company sifts through this data repository to identify potential new targets for drug development.
Exscientia uses published data and patient samples to identify potential targets that have been confirmed in clinical trials. By combining Exscientia’s precise chemistry tools with Recursion’s extensive biology expertise, the merged company could potentially discover better quality drugs at a faster rate than either company could achieve individually.
Recursion Pharmaceuticals may announce findings from 10 clinical trials in the next 18 months if the planned agreement is finalized. Since these trials are in the early stages, it is challenging to anticipate the results. With the help of AI-powered discovery, it is expected that some of these trials will progress to receive approval as drugs.
After the merger with Exscientia is completed, Recursion will establish partnerships with Sanofi , Bayer , Merck KGaA , and Roche The partners could potentially receive milestone payments exceeding $20 billion, not to mention possible royalties.
With a recent market cap With a valuation of approximately $1.6 billion, Recursion is considered to be highly valued for a drug manufacturer at the clinical stage that has not commenced a phase 3 trial. However, if we presume that its extensive pipeline has a higher likelihood of generating approved drugs, then its current valuation is significantly lower than it could potentially be.
Factors to steer clear of investing in Recursion Pharmaceuticals shares
When it comes to collaborating with large pharmaceutical companies, Recursion’s offering is not seen as significant. The costs increase significantly at each stage of drug development. Pharma-tech firms like Recursion focus on enhancing the initial stages of the process.
Recursion, a company that pledged to accelerate the drug development procedure, has been slow in its progress. Despite being established more than ten years ago, it has yet to initiate any development activities. phase 3 testing of potential new pharmaceuticals.
Exscientia was commissioned by the company to uncover GTAEX617, GT Apeiron, but the project was returned in July, indicating that the client may not have faith in its successful outcome.
Even though Recursion Pharmaceuticals did not progress any new drug candidates beyond phase 2 clinical trials, the company had a total deficit of $1.2 billion by June 30, 2024.
Wait and see
Exscientia made its second technology acquisition after going public with the goal of improving the efficiency of drug discovery. In the past year, the company spent $97 million to acquire Cyclica, a company specializing in chemistry software, and Valence Discovery, a chemistry company powered by artificial intelligence.
Spending a large amount of money on a technology platform before a business becomes profitable is not necessarily a negative thing. However, it should serve as a cautionary signal that investors should not overlook.
Investors who are willing to take on significant risks may see significant gains in the next 18 months if the anticipated results of clinical trials are positive. However, for others, it is advisable to hold off investing until there is concrete clinical evidence demonstrating the effectiveness of Recursion’s technology platform.
