3 Key Trends That Are Bullish for Recursion Pharmaceuticals Stock

As a biotech company that relies heavily on artificial intelligence (AI) in every aspect of its operations, Recursion pharmaceutical products (RXRX 1.89%) is involved in a handful of major trends that will likely shape the future of its industry.

There is no guarantee that the company will be a good investment based solely on the strength or direction of these trends. But there are three that are especially bullish for the stock thanks to the way it’s positioned, so let’s take a look at each and see what this could mean for Recursion and its shareholders.

1. Rising drug development costs

Among the top 20 biopharmaceutical companies, the average research and development (R&D) According to Deloitte analysts, the cost to advance a new drug program from discovery phase through regulatory review and commercialization was $2.2 billion in 2023. Between 2022 and 2023, the same group’s total R&D expenditure increased by 4.5% to $145.5 billion. There is no indication that this trend is slowing, and many companies are spending more on R&D expenditure as a percentage of their turnover than they did ten years ago.

Enter Recursion, which claims that through its AI-enabled drug development platform, its employees will be able to significantly reduce their R&D spend and the amount of time it takes them to simultaneously move their programs from the discovery phase to initiation to dramatically reduce clinical trials. .

While Recursion cannot reduce the costs of the most expensive parts of the pipeline, especially the costs associated with running late-stage clinical trials, it can also potentially avoid costly failures late in the game by putting clinical trial candidates more effectively to screen. .

Additionally, it could license some of its vast trove of biological data to other biopharmaceuticals, which could help them avoid lab work.

With the low-hanging fruit in drug development becoming higher and harder to reach over time thanks to the inexorable march of scientific progress, Recursion is unlikely to face a shortage of customers or employees, assuming it can demonstrate that its platform is actually useful in the field of drug development. saving on costs as it claims.

2. Declining expected peak revenues from new drugs

In addition to rising R&D expenditures, biopharmaceutical companies are also faced with another unpleasant reality: expected peak revenues per pharmaceutical asset are declining slightly on average over time. In 2022, the average estimated annual revenue per program for the top 20 companies at its peak was $389 million, but in 2023 the average annual forecast was $362 million in revenue. That puts additional pressure on profits, which are already under pressure from rising development costs.

Once again, Recursion could help ease the pain of its larger competitors. Its library of AI drug development tools could be instrumental in identifying opportunities for pharmaceutical agents to be explored in indications other than those for which they were originally developed. That would allow companies to potentially obtain expanded regulatory approvals to bring their drugs to market under more conditions, increasing the number addressable market and squeeze more revenue from their early R&D expenditures.

3. Increasing adoption of AI in drug development

The latest trend positive for Recursion stock is that more and more biopharmaceuticals are showing a strong interest in involving AI in their drug development process.

Recursion already works with giants such as Bavarian And Roche. The other AI biotech company that Recursion will merge with before early 2025 Exscientiacounts Merck, SanofiAnd Bristol Myers Squibb among his employees. Many of the other major players have their own AI initiatives. And AI drug discovery platform competitors love it Schrodinger also have no loss to the customers at this time.

Currently, the field of AI-driven drug discovery and development is still taking shape. Some of companies’ loftier claims may fall short of what their platforms can actually achieve. Nevertheless, given the undeniable challenges facing the biopharmaceutical sector, there is strong incentive to deliver on the promises of cost savings and other efficiencies.

So even if there are stumbles along the way, or if it takes longer than expected to demonstrate that using AI delivers real benefits, it is still very likely that at least one company will succeed. And that means that collaboration partners will continue to call on Recursion in the near future, which is a point in favor of the share.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bristol Myers Squibb and Merck. The Motley Fool recommends Roche Holding AG. The Motley Fool has one disclosure policy.