DEFA14A: Recursion and Exscientia Leaders Discuss Rationale and Synergies Behind Proposed Merger at Morgan Stanley Conference

Recursion Pharmaceuticals and Exscientia leaders discussed the strategic rationale, synergies, and integration plans for their proposed merger at the Morgan Stanley Healthcare Conference on September 4, 2024.

Summary

• Recursion Pharmaceuticals and Exscientia announced a transaction agreement on August 8, 2024, to combine their businesses.
• Executives from both companies discussed the rationale behind the merger at the Morgan Stanley Healthcare Conference on September 4, 2024.
• The merger aims to combine Recursion's strength in generating proprietary biological data with Exscientia's expertise in AI-driven small molecule design.
• The combined company expects to achieve approximately $100 million in annual synergies.
• Both companies emphasized the cultural alignment and mutual respect as key factors for successful integration.
• Recursion has approximately 10 pipeline readouts expected in the next 18 months.
• The transaction is expected to close in early 2025.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the merger, highlighting the potential synergies, diversified pipeline, and strong partnerships. The management's comments and the emphasis on cultural alignment further contribute to the positive sentiment.

Positives

• The merger creates an end-to-end capability for drug discovery, from target identification to molecule design.
• The combined pipeline is diversified with both first-in-class and best-in-class assets.
• The companies have strong partnerships with Roche-Genentech, Bayer, Sanofi, and Merck KGaA.
• Both companies have a strong cultural alignment, which should facilitate integration.
• The merger is expected to generate significant cost synergies.
• Recursion's Phase 2 data for its CCM program showed encouraging trends on exploratory efficacy measures.

Negatives

• The document does not explicitly state any negatives.

Risks

• The integration of the two companies could face unforeseen challenges.
• The realization of synergies may not be as high as expected.
• The pipeline readouts may not be positive.
• Regulatory approvals and the sanction of the High Court of Justice of England and Wales to the Scheme of Arrangement may not be obtained on a timely basis or at all.

Future Outlook

The combined company aims to build a pipeline that delivers novel targets with definitive small molecule chemical matches, focusing on both first-in-class and best-in-class opportunities.

Management Comments

• David Hallett: 'By bringing the two together, two platforms together, you create a kind of an end to end kind of capability where youve got the kind of unique insights around, say, around novel first-in-class targets and kind of Recursions pipeline. And then couple that with the ability to then derive truly kind of best in class compounds from that.'
• Michael Secora: 'I think for all these different complementary reasons, pipeline partnerships, platform, people, there is just also such great appreciation around what weve been able to develop thus far. And I think were very much looking forward to what we can develop going forward.'

Industry Context

The merger reflects a growing trend in the pharmaceutical industry to leverage AI and machine learning to improve drug discovery and development processes. Combining Recursion's biological data with Exscientia's AI platform positions the merged entity to compete with other technology-driven drug discovery companies.

Comparison to Industry Standards

• Exscientia claims its AI-driven design process reduces the cost of getting to development stage by 60% compared to industry benchmarks.
• Exscientia claims its AI-driven design process reduces the number of experiments required to get to development stage by 80% to 90% compared to industry benchmarks.
• Recursion has historically framed that they are half the time and half the cost to get to some development stages compared to industry averages.

Stakeholder Impact

• Shareholders of both companies are expected to benefit from the synergies and growth potential of the combined entity.
• Employees of both companies may experience changes as a result of the integration.
• Partners of both companies can expect continued collaboration and potential expansion of partnerships.

Next Steps

• Recursion and Exscientia will seek stockholder and shareholder approval for the merger.
• The companies will continue integration planning.
• The transaction is expected to close in early 2025.
• Recursion will have a meeting with the FDA to discuss the next steps for development of the CCM program.
• Exscientia expects a data readout from the ELUCIDATE study by year-end.

Key Dates

Keywords

merger, Recursion, Exscientia, AI, drug discovery, synergies, pipeline, partnerships, clinical trials