Breaking Down Recursion Pharmaceuticals, Inc. (RXRX) Financial Health: Key Insights for Investors

Understanding Recursion Pharmaceuticals, Inc. (RXRX) Revenue Streams

Understanding Recursion Pharmaceuticals, Inc. Revenue Streams

Recursion Pharmaceuticals, Inc. has experienced significant growth in its revenue streams in 2024. The company reported operating revenue of $26,082 thousand for the three months ended September 30, 2024, compared to $10,102 thousand in the same period of 2023, marking a year-over-year increase of greater than 100%. For the nine months ended September 30, 2024, operating revenue was $53,977 thousand, a 62% increase from $33,252 thousand in 2023.

Additionally, the company recognized grant revenue of $0 thousand for the three months ended September 30, 2024, down from $431 thousand in the same period of 2023. For the nine months, grant revenue decreased to $316 thousand from $432 thousand, a decrease of 27%.

Year-over-Year Revenue Growth Rate

The overall revenue for Recursion Pharmaceuticals increased from $10,533 thousand in Q3 2023 to $26,082 thousand in Q3 2024, resulting in a revenue growth rate of >100%. For the nine-month period, total revenue increased from $33,684 thousand in 2023 to $54,293 thousand in 2024, reflecting a growth rate of 61%.

Contribution of Different Business Segments to Overall Revenue

In 2024, the substantial growth in operating revenue was largely attributed to strategic partnerships and research and development agreements. The decrease in grant revenue indicates a shift in the company's focus towards more lucrative partnerships.

Analysis of Significant Changes in Revenue Streams

For the three months ended September 30, 2024, the increase in operating revenue was primarily driven by revenue recognized from strategic partnerships, particularly with Roche, which contributed significantly to the revenue stream. The acceptance fee related to a neuroscience performance obligation was a notable factor in this increase.

As of September 30, 2024, the company had an accumulated deficit of $1.3 billion, indicating ongoing financial challenges despite the growth in revenue. The total revenue growth illustrates the company's potential to scale its operations and enhance revenue generation through collaborations and innovative research efforts.

A Deep Dive into Recursion Pharmaceuticals, Inc. (RXRX) Profitability

A Deep Dive into Recursion Pharmaceuticals, Inc. (RXRX) Profitability

Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was calculated as follows:

Operating Profit Margin: The operating profit margin for the three months ended September 30, 2024:

Net Profit Margin: The net profit margin for the three months ended September 30, 2024:

Trends in Profitability Over Time: The net losses for the nine months ended September 30 are as follows:

• 2024: Net loss of $284.8 million
• 2023: Net loss of $235.1 million

Comparison of Profitability Ratios with Industry Averages: The biotechnology industry average net profit margin is approximately -50%. In comparison:

• Recursion's net profit margin for Q3 2024: -367.4%
• Recursion's net profit margin for Q3 2023: -882.4%

Analysis of Operational Efficiency: The total operating costs and expenses for the nine months ended September 30, 2024, were:

Research and development expenses increased by 26% compared to 2023, indicating a focus on operational efficiency despite ongoing losses.

Gross Margin Trends: The gross margin for the nine months ended September 30, 2024, was 40.9%, compared to 31.0% for the same period in 2023, reflecting improved operational efficiency in revenue generation.

Debt vs. Equity: How Recursion Pharmaceuticals, Inc. (RXRX) Finances Its Growth

Debt vs. Equity: How Recursion Pharmaceuticals Finances Its Growth

As of September 30, 2024, Recursion Pharmaceuticals, Inc. had total liabilities amounting to $201.9 million, with current liabilities accounting for $108.9 million. The company's total assets were reported at $726.5 million, indicating a significant equity buffer supported by ongoing financing activities.

Overview of the Company's Debt Levels

Recursion Pharmaceuticals has a minimal amount of long-term debt, primarily due to its strategic focus on equity financing. The company reported $29.0 million in long-term notes payable and financing lease liabilities as of September 30, 2024. In contrast, short-term liabilities include $8.2 million in notes payable and financing lease liabilities.

Debt-to-Equity Ratio

The debt-to-equity ratio is a critical metric for understanding the leverage of a company. As of September 30, 2024, Recursion's debt-to-equity ratio stood at approximately 0.38, calculated as follows:

This ratio is well below the industry average of approximately 0.75, indicating a conservative approach to leveraging debt for growth.

Recent Debt Issuances and Credit Ratings

Recursion Pharmaceuticals has engaged in limited debt issuance, focusing primarily on equity financing. The notable transactions include:

• In June 2024, the company raised $216.4 million through a public offering of Class A common stock.
• In August 2023, an agreement was made for an at-the-market offering that allows the sale of up to $300 million of Class A common stock, with $144.3 million remaining available for future sales.

As of September 30, 2024, Recursion Pharmaceuticals does not have a formal credit rating due to its focus on equity financing and operational losses.

Balancing Debt Financing and Equity Funding

The strategic decision to prioritize equity funding over debt financing reflects Recursion’s approach to managing risk while pursuing growth. The company has generated significant equity from:

• Net proceeds of $448.9 million from preferred stock sales.
• Net proceeds of $1.0 billion from Class A common stock issuances since inception.
• Proceeds amounting to $213.0 million from strategic partnerships, including collaborations with Roche and Bayer.

This capital structure allows Recursion to maintain financial flexibility while investing heavily in research and development, which totaled $216.1 million for the nine months ended September 30, 2024.

In conclusion, Recursion Pharmaceuticals demonstrates a cautious approach to financing its operations, favoring equity over debt and maintaining a solid capital base to support its long-term growth objectives.

Assessing Recursion Pharmaceuticals, Inc. (RXRX) Liquidity

Assessing Recursion Pharmaceuticals, Inc.'s Liquidity

Current Assets: As of September 30, 2024, total current assets were $474.2 million, compared to $438.1 million as of December 31, 2023.

Cash and Cash Equivalents: Cash and cash equivalents amounted to $427.6 million as of September 30, 2024, up from $391.6 million at the end of 2023.

Current Ratio: The current ratio is calculated as current assets divided by current liabilities. Current liabilities stood at $108.9 million as of September 30, 2024. Therefore, the current ratio is:

Current Ratio = Current Assets / Current Liabilities = $474.2 million / $108.9 million = 4.35

Quick Ratio: The quick ratio is calculated as (current assets - inventories) / current liabilities. As there are no inventories reported, the quick ratio is the same as the current ratio: 4.35.

Working Capital Trends

Working capital, defined as current assets minus current liabilities, was $365.3 million as of September 30, 2024, compared to $344.9 million at the end of 2023. This represents a positive trend, indicating an increase in liquidity.

Cash Flow Statements Overview

Cash Flows from Operating Activities: For the nine months ended September 30, 2024, cash used in operating activities was $(243.7 million), compared to $(213.7 million) for the same period in 2023.

Cash Flows from Investing Activities: Cash used in investing activities totaled $(15.4 million) in 2024, compared to $(7.7 million) in 2023.

Cash Flows from Financing Activities: Cash provided by financing activities was $293.5 million for the nine months ended September 30, 2024, up from $59.5 million in 2023.

Potential Liquidity Concerns or Strengths

The company has experienced significant operating losses, with a net loss of $(284.8 million) for the nine months ended September 30, 2024, compared to $(235.1 million) for the same period in 2023. Despite these losses, the substantial cash reserves of $427.6 million provide a buffer against liquidity concerns.

Accumulated deficit as of September 30, 2024, was $(1.3 billion), which indicates ongoing challenges in achieving profitability. However, the ability to raise funds through financing activities, as evidenced by the increase in cash from financing, suggests that while there are liquidity concerns, the company has mechanisms to address them.

Is Recursion Pharmaceuticals, Inc. (RXRX) Overvalued or Undervalued?

Valuation Analysis

To assess the valuation of Recursion Pharmaceuticals, Inc., we will analyze key financial ratios, stock price trends, dividend yields, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio for Recursion Pharmaceuticals is not applicable as the company has not generated positive earnings. As of September 30, 2024, the net loss was $284.8 million for the nine months ended, resulting in a net loss per share of $1.12.

Price-to-Book (P/B) Ratio

The total stockholders' equity as of September 30, 2024, was $524.6 million, with 286.1 million shares outstanding. Thus, the book value per share is approximately $1.83. The current stock price (as of the latest available data) is $7.31, which results in a P/B ratio of approximately 4.0.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

As Recursion Pharmaceuticals has not generated EBITDA due to ongoing operational losses, the EV/EBITDA ratio is not applicable. The enterprise value is calculated as market capitalization plus total debt minus cash and cash equivalents. As of September 30, 2024, cash and cash equivalents totaled $427.6 million.

Stock Price Trends

Over the last 12 months, the stock price has fluctuated significantly. The stock was trading at approximately $7.31 as of the latest report, down from a 52-week high of $14.00. The stock has shown volatility, reflecting investor sentiment and market conditions in the biotech sector.

Dividend Yield and Payout Ratios

Recursion Pharmaceuticals does not pay a dividend, and thus the dividend yield is 0%. The company is still in the development phase and has not generated sufficient revenue to distribute dividends.

Analyst Consensus on Stock Valuation

Analysts generally recommend a 'Hold' on Recursion Pharmaceuticals. The consensus rating reflects uncertainty about the company's future profitability given its current operating losses and the need for additional capital to fund operations.

Key Risks Facing Recursion Pharmaceuticals, Inc. (RXRX)

Key Risks Facing Recursion Pharmaceuticals, Inc.

Overview of Internal and External Risks:

• As of September 30, 2024, the company had an accumulated deficit of $1.3 billion.
• For the nine months ended September 30, 2024, the net loss was $284.8 million, compared to $235.1 million for the same period in 2023.
• The company has not yet commercialized any products and does not expect to generate revenue from product sales for several years.

Industry Competition:

• Increased competition in the biotechnology sector may affect the company's ability to attract investments and partnerships.
• Market conditions are volatile, which could impact funding opportunities and stock performance.

Regulatory Changes:

• Compliance with evolving regulations in drug development and commercialization poses significant risks.
• The company must navigate complex regulatory frameworks to advance its drug candidates through clinical trials.

Operational, Financial, or Strategic Risks Highlighted in Recent Earnings Reports

The following table summarizes the company’s financial performance and key risk indicators:

The company reported cash and cash equivalents of $427.6 million as of September 30, 2024, showing an increase from $391.6 million at the end of 2023. However, the ongoing operational losses indicate a need for future capital raises to sustain operations.

Mitigation Strategies or Plans

To address these risks, the company has outlined several strategies:

• Plans to raise additional financing to support ongoing research and development, as indicated by the need to secure further capital to fund operations.
• Engagement in strategic partnerships, with $213.0 million received from collaborations as of September 30, 2024.
• Focus on optimizing operational efficiencies to manage rising costs in research and development.

The following table details the company's cash flow activities for the nine months ended September 30:

Future Growth Prospects for Recursion Pharmaceuticals, Inc. (RXRX)

Future Growth Prospects for Recursion Pharmaceuticals, Inc.

Analysis of Key Growth Drivers

Recursion Pharmaceuticals is positioned to capitalize on several key growth drivers:

• Product Innovations: The company is advancing its platform capabilities, particularly in artificial intelligence and machine learning, which are integral to its drug discovery efforts. Research and development expenses totaled $216.1 million for the nine months ended September 30, 2024, a 26% increase from the prior year.
• Market Expansions: The company has entered into strategic partnerships, including a significant collaboration with Roche, which has provided $213.0 million in proceeds.
• Acquisitions: Recursion’s acquisition of Cyclica enhances its capabilities in digital chemistry and machine learning, contributing to its growth strategy.

Future Revenue Growth Projections and Earnings Estimates

Recursion has shown robust revenue growth, with operating revenue increasing by 62% year-over-year to $53.98 million for the nine months ended September 30, 2024. Analysts project continued revenue growth as the company progresses through clinical trials and potential product approvals.

Strategic Initiatives or Partnerships

Strategic initiatives include:

• Collaborative agreements that leverage shared resources and expertise, particularly with Roche in neuroscience and oncology.
• Licensing agreements that enhance data access for therapeutic development, notably a $9.0 million deal with Helix.

Competitive Advantages

Recursion’s competitive advantages include:

• Proprietary Technology: The Recursion Operating System integrates diverse technologies, allowing for efficient drug discovery processes.
• Strong Financial Backing: As of September 30, 2024, the company had cash and cash equivalents of $427.6 million, providing a solid foundation for ongoing research and development.

These factors collectively position Recursion Pharmaceuticals for substantial growth as it continues to innovate and expand its market presence.

Updated on 16 Nov 2024

Resources:

1. Recursion Pharmaceuticals, Inc. (RXRX) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Recursion Pharmaceuticals, Inc. (RXRX)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Recursion Pharmaceuticals, Inc. (RXRX)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.