Earnings call transcript: Recursion Pharmaceuticals Q1 2025 results miss estimates

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Overview

The earnings call presents a mixed picture: strong partnerships with milestone achievements and a solid cash runway are positives. However, risks from program discontinuations and unclear management responses about burn rates and capital plans raise concerns. The stock's small-cap nature might cause slight volatility, but the overall sentiment remains neutral due to balanced positive and negative factors.

Key Financial Performance

Cash Position $509,000,000 cash at the end of Q1 2025, no year-over-year change mentioned.

Cash Burn $118,000,000 cash operational burn in Q1 2025, compared to a projected budget of less than or equal to $450,000,000 for the year, indicating a reduction in cash burn year-over-year.

Partnership Revenue $450,000,000 earned through collaborations to date, no year-over-year change mentioned.

Projected Cash Runway Cash runway extended into mid-2027, no specific year-over-year change mentioned.

2024 Cash Burn Projection Projected cash burn of $600,000,000 for 2024, reduced to $450,000,000 for 2025, indicating a year-over-year reduction.

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Operating Highlights

New Product Development: Recursion is advancing over five clinical and preclinical programs with first or best in class potential, including CDK7 inhibitor REC617, RBM39 degrader REC1245, and MALT1 inhibitor REC3565.

Pipeline Updates: The company is focusing on oncology and rare diseases, with a commitment to developing differentiated medicines that address unmet needs.

Market Expansion: Recursion has generated over $450 million through collaborations, including a fourth program option from Sanofi, indicating strong market positioning.

Operational Efficiency: Recursion has improved its operational efficiency by synthesizing 136 novel compounds for REC617, compared to thousands typically made, showcasing the effectiveness of its Recursion 2.0 platform.

Strategic Shifts: The company is sharpening its R&D focus post-merger with Exensia, deprioritizing three programs (NF2, CCM, C. Diff) and reallocating resources to higher potential opportunities.

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Risk or Challenges

Macroeconomic Environment: Recursion acknowledges the challenging macroeconomic environment, emphasizing the need for disciplined and thoughtful decision-making to ensure long-term mission delivery.

Pipeline Prioritization: The company is sharpening its R&D portfolio by deprioritizing three programs (NF2, CCM, and C. Diff) based on strategic considerations and data-driven decisions, which may impact future growth.

Competitive Pressures: The competitive landscape for C. Diff treatment has changed, with a reduced unmet need due to advancements in existing therapies, leading to the decision to halt further development.

Regulatory Issues: The company is closely monitoring FDA updates regarding animal testing guidance, which may impact their internal and partnership strategies.

Cash Burn and Financial Management: Recursion is focused on managing cash burn effectively, with a budget of $450 million for the year, aiming to extend its cash runway into mid-2027.

Partnership Dependencies: The company relies on partnerships for financial inflows, having earned over $450 million through collaborations, which are critical for sustaining operations and funding R&D.

Program Discontinuation Risks: The discontinuation of programs like NF2, CCM, and C. Diff reflects risks associated with low probability of success and limited differentiation in a competitive market.

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Guidance & Outlook

Recursion Operating System: Recursion is focused on building a learning system, the Recursion Operating System, that improves drug development through insights gained from each program.

Pipeline Focus: Recursion is sharpening its R&D portfolio, focusing on more than five clinical and preclinical programs with a higher probability of success.

Partnerships: Recursion has earned over $450 million through collaborations and is advancing programs with partners like Sanofi and Roche.

Program Discontinuation: Recursion has decided to deprioritize three programs (NF2, CCM, and C. Diff) based on strategic assessments.

Investment in AI: Recursion is committed to leveraging AI in drug discovery and development to enhance efficiency and effectiveness.

Cash Position: Recursion ended the quarter with $509 million in cash, expecting a cash runway into mid-2027.

Cash Burn: The company anticipates a cash burn of less than or equal to $450 million for the year.

Future Milestones: Recursion expects to achieve significant milestones in its partnerships and internal pipeline over the next 12-18 months.

Clinical Trials: The company plans to initiate combination studies and provide updates on various programs in 2025 and 2026.

Focus on Differentiated Medicines: Recursion aims to develop first or best-in-class medicines targeting unmet needs with a clear path to development.

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Shareholder Return Plan

Cash Position: Ended the quarter with $509,000,000 in cash.

Cash Burn: During Q1 2025, cash operational burn was approximately $118,000,000.

Cash Runway: Expect a cash runway into mid-2027.

Partnership Revenue: Brought in $450,000,000 from partnerships to date.

Milestones Achieved: Achieved four milestones in the Sanofi partnership.

Budget for 2025: Budget for 2025 is less than or equal to $450,000,000.

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Key Q&A

Q:Given your stated runway to mid-twenty twenty seven, what burn rate do you anticipate exiting 25 or entering 26 with? From where would you expect incremental efficiencies still to be derived? And do you plan to raise capital?

A:We haven’t given specific guidance on the runway, but you can imagine if our budget for this year is 450,000,000 or less, we’re targeting a runway of less than that. We’ll continue to look for different efficiencies across the organization.

Q:When can we see an option on a molecule candidate from one of your four main partnerships, and any further insights on new levers in the OS for accelerating partnership programs to commercialization?

A:We’ve already had four programs optioned in our collaboration with Sanofi, another program optioned in our collaboration with First Genentech. We believe those programs have the potential to get early options and perhaps go to later stage options.

Q:Your pipeline prioritization leans heavily towards oncology. Do you generally see a pivot away from rare disease for your pipeline and platform?

A:We believe that both oncology and rare disease are fantastic areas for us to deploy our platform. The data is going to be what drives the balance of the portfolio.

Q:Talk about the FAP data shared at DVW, and how is that differentiated from other programs that you may have seen in this space?

A:The FAP data shows a median polyp burden reduction in the forties, which is higher than other programs that have shown reductions of 20 to 30%. We also see congruence in polyp burden, count, and Spiegelman stage.

Q:Will we continue to dose higher than four milligrams?

A:We want to complete the four milligram cohort and better understand the data before deciding on higher doses.

Q:What is the bar for success in FAP, in terms of FDA approval and broader uptake among patients?

A:The bar for success is high, as there is a huge unmet need for these patients. Our polyp burden reduction to date is encouraging and higher than off-label agents.

Q:How were CCM, NF2, and C diff discovered or developed, and how does the refined pipeline strategy reflect the current capabilities of the platform?

A:CCM, NF2, and FAP were all products of our earlier platform versions. The decision to deprioritize them was based on the commercial landscape and unmet need.

Q:How is AI contextualized in clinical development, like for study design, and how is that relevant for programs like RBM thirty nine?

A:We leverage clinical genomic data and predictive algorithms to enrich the patient population and ensure they have certain overexpression or underexpression predictive of greater signal to noise.

Q:What criteria were used to prioritize certain programs over others, and how does this focus align with Recursion’s long term strategic objectives?

A:The criteria include potential value of the drug, unmet need, scientific data, competitive differentiation, and feasibility of the development plan.

Q:Do you expect any meaningful impact to your internal or partnership strategy in light of the FDA’s updated animal testing guidance?

A:Recursion was built for an evolving regulatory framework and is positioned to lead in this space going forward.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer to the question about specific guidance on the runway and the exact burn rate expected for exiting 2025 or entering 2026. Their response lacked clarity on the specifics of the burn rate and capital raising plans.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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