Artificial intelligence (AI) is reshaping industries, with healthcare among those poised for significant transformation. Generative AI is expected to revolutionize drug discovery and clinical trial design processes, with over 500 AI-enabled FDA-approved medical devices sold domestically. In fact, Goldman Sachs (GS) predicts AI-driven healthcare advancements will boost U.S. GDP by 1.3%.
Biotech stock Recursion Pharmaceuticals, Inc. (RXRX) leads on AI-driven drug discovery. Its shares are up over 11% year to date, and have hit several new highs recently.
What’s Driving Recursion Stock Higher?
One major factor driving Recursion's surge has been Nvidia's (NVDA) $76 million investment in the stock, disclosed in mid-February, which adds to the $50 million NVDA already invested last summer.
Plus, Nvidia recently declared that Recursion would be the first third-party biotech firm to engage with Nvidia's BioNeMo, a new generative AI platform for drug R&D. By incorporating Nvidia’s processing power with Recursion’s biological datasets, the companies aim to speed drug discovery and reduce or replace physical experiments.
Nvidia isn’t the only high-profile investor that Recursion has attracted, either. Influential investor Cathie Wood's ARK Innovation ETF (ARKK) owns 13 million shares of Recursion worth about $137 million, making it the No. 20 ARKK holding by weight at 1.76%.
About Recursion Pharmaceuticals Stock
Recursion Pharmaceuticals, Inc. (RXRX) based in Salt Lake City, is a clinical-stage biotechnology company that applies a unique combination of biological analysis, chemical expertise, advanced automation, data science understanding, and engineering innovations to industrialize the drug discovery process.
With a market cap of $2.47 billion, Recursion is at the forefront of harnessing cutting-edge technology and massive datasets to spearhead advancements in medicine. Shares of RXRX rose 43% over the past 52 weeks, significantly outperforming the S&P 500 Index’s ($SPX) 31.8% rise over this time frame.
The stock is currently trading at roughly 54.59x forward sales - significantly higher than the healthcare industry average of 3.90x, but more or less in line with the valuations of other AI-focused biotech stocks.
Recursion Pharmaceuticals Reports Mixed Q4 Results
Recursion Pharmaceuticals reported a Q4 net loss of $93 million, or $0.42 per share, narrower than the consensus estimate of a loss of $0.46 per share. However, the company’s quarterly revenue fell short of Wall Street estimates, amounting to $10.9 million.
That said, Recursion continues to make substantial strides in causal AI modeling by leveraging over 20 petabytes of precision oncology patient data from Tempus. Powered by Nvidia, Recursion has quadrupled its supercomputing power and explored and constructed large-scale AI models. Moreover, by renewing its collaboration with healthcare giant Bayer, Recursion continues to expedite precision oncology programs, firmly cementing its transition from a traditional biotech company to so-called “TechBio.”
Recursion’s R&D expenses for 2023 rose to $241.2 million due to increased platform costs. The company has expanded and upgraded its capabilities in the platform, including its chemical technology, machine learning, and transcriptomics platform. Nvidia’s AI expertise and Recursion’s agreement with Germany’s Bayer AG (BAYZF), along with Recursion’s massive data stores, should accelerate drug discovery and simultaneously reduce the company's expenses going forward.
Looking ahead, 2024 holds significant potential for Recursion, as major data readouts are anticipated in the latter half of the year. These include results from the phase 2 trial for REC-994 and the phase 2/3 study for REC-2282. These studies venture into areas where there are currently no approved drug remedies, which means positive trial results could give the stock a significant boost.
What Do Analysts Expect for Recursion Pharmaceuticals Stock?
RXRX has a consensus “Moderate Buy” rating overall. Out of the seven analysts covering the stock, one recommends a “Strong Buy,” one suggests a “Moderate Buy,” and five rate it a “Hold.”
The average analyst price target for Recursion Pharmaceuticals is $13, indicating a potential upside of 18%. However, the high price target of $17, newly hiked by Needham & Company, suggests that the stock could rally as much as 54.8% from current levels.
The Bottom Line on RXRX Stock
Biotech stocks can experience stomach-churning volatility in response to clinical trial outcomes and FDA decisions. While Recursion Pharmaceuticals shows promise for growth, investing in biotech stocks like RXRX carries inherent risks.
Any positive updates about progress in its clinical trials or AI-led R&D efforts could send the stock soaring. However, given the industry-specific considerations and risks, Recursion stock may be best suited for investors who can tolerate a heavier-than-usual dose of volatility.
That said, the current pullback off the stock’s YTD highs presents an attractive buy opportunity, particularly considering Wall Street analysts' optimistic price targets.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
