Is Recursion Pharmaceuticals a Millionaire Stock?

As many seasoned investors can attest, trading biotech stocks is difficult. Their potential growth potential is enormous, but so is the risk. Too many of these names end up being complete busts. But if you choose the right name for biotechnology… ka-ching! Owning a large enough stake in one of these winners could make you a millionaire.

Against this background, let’s take a closer look at an interesting biotechnological name. Recursion Pharmaceuticals (RXRX 1.27%). It’s risky, but it’s not unreasonable to say that this company has the potential to disrupt and create millionaires.

History of Recursion Pharmaceuticals

Never heard of this? Don’t worry. Many people didn’t. Its market capitalization of $2 billion attracts little attention. Losses that consistently exceed meager profits also don’t attract a crowd.

However, you primarily own shares of biotech companies because of their research and development (R&D) prospects, as well as the company’s potential to develop new treatments based on its core science. This is where Recursion Pharmaceuticals shines.

The furthest along in development is Recursion’s REC-994 for the treatment of cerebral cavernous malformations. The orphan drug has already shown effectiveness in phase 2 trials and was confirmed in September to be safe and tolerable for most patients. A meeting is in the works with the Food and Drug Administration (FDA) to discuss next steps in development.

However, Recursion is working on four other drugs that are not far behind REC-994, and two more drugs are in early stages of research and development. However, the crux of the bullish argument here is not the treatments Recursion is working on. It’s how these and any future drugs have been and will be developed that makes Recursion such a promising prospect.

You see, the company’s main source of profit will ultimately be its drug development software platform, Recursion OS, which focuses on figuring out how drugs will (or won’t) work without the need for such expensive and time-consuming clinical studies. preclinical work.

The Basic Need Behind the Bullish Argument

The pharmaceutical industry has long dreamed of minimizing as much of its initial research and development effort as possible by offloading that work to computers. Unfortunately, before the advent of artificial intelligence (AI) and high-performance computers, this was neither practical nor possible.

Now it is. With Recursion OS, drug developers can digitally simulate how a therapeutic molecule might be created, and then simulate how that molecule might work as a medicine for sick or damaged bodies. The company says it has identified nearly 4 trillion if-then chemical and biological relationships, or more than 50 petabytes of data, that could be useful to anyone trying to create a new drug with a specific target or mechanism of action.

The need for such a solution has never been greater. The Congressional Budget Office reports that the typical cost of creating and bringing a new treatment to market now ranges from $1 billion to $2 billion apiece. In some cases it may be higher, exceeding $4 billion. Some of these treatments may not even generate much profit over their lifetime.

And these are only the drugs that are ultimately approved. Nine out of 10 drugs that start clinical trials do not complete those trials simply because they are not effective enough or are considered too dangerous to use. However, it still takes time and money to begin clinical trials. At the very least, Recursion’s AI-powered platform could avoid these losses by allowing pharmaceutical companies to limit their investments to the most promising prospects.

This is definitely the future too. Precedence Research forecasts the AI ​​drug software business will grow at a CAGR of 21.5% through 2033, consistent with Global Market Insights’ forecast.

The risk and reward are the same, but both are still significant.

Of course, there is still a risk here. Chief among these risks are uncertainty and skepticism. Pharmaceutical companies seem hesitant to try this new technology. They may also simply not want to pay for access to Recursion Pharmaceuticals’ know-how and information, preferring to continue with their long-standing (read “comfortable”) trial-and-error approaches to research and development.

However, there is also a lot of potential here, especially given Recursion’s three-pronged approach. Not only does it offer access to its operating system, but it also sells access to its rich data sets and uses its technology to develop and co-develop proprietary treatments.

If all goes as hoped, these multiple tailwinds could turn Recursion stock into a 10-bagger or even higher – which is certainly enough to consider it a millionaire holding. However, even if this rally doesn’t pan out, know that the analyst community’s current one-year price target is $10.14. That’s more than 50% above the current share price, which is a good start to any expected growth.

Just keep in mind that this name still isn’t suitable for everyone’s portfolio. As compelling as the story is, it’s still a biotech name and you still (mostly) believe the story rather than the results. This means that the possibility of a complete collapse still exists. If you cannot accept this risk, think twice before diving.