10-Q: Recursion Pharma Q3 Loss Widens Amid R&D Surge, Strategic Shifts

Recursion Pharmaceuticals reported a significant increase in net loss for Q3 2025, driven by higher R&D expenses and strategic acquisitions, while advancing its AI-driven drug discovery pipeline.

Summary

• Net loss for the three months ended September 30, 2025, was $162.3 million, a significant increase from $95.8 million for the same period in 2024.
• Net loss for the nine months ended September 30, 2025, was $536.6 million, compared to $284.8 million for the same period in 2024.
• Total revenue for Q3 2025 decreased to $5.2 million from $26.1 million in Q3 2024, primarily due to the timing of projects from collaborations.
• Total revenue for the nine months ended September 30, 2025, decreased to $39.1 million from $54.3 million in the same period in 2024.
• Research and development (R&D) expenses increased by 62% to $121.1 million for Q3 2025 and by 76% to $379.3 million for the nine months, largely due to the Exscientia acquisition, Tempus record purchases ($46.9 million), and acquired IPR&D ($22.8 million).
• Cash and cash equivalents stood at $659.8 million as of September 30, 2025, up from $594.3 million at December 31, 2024.
• Achieved a second $30 million milestone from Roche and Genentech for the acceptance of a novel whole-genome phenotypic map of microglial cells, bringing total partner payments to over $500 million.
• REC-617 (CDK7 inhibitor) Phase 1/2 trial established the maximum tolerated dose (MTD) at 10 mg once-daily, demonstrating a manageable safety profile and preliminary anti-tumor activity, including one confirmed partial response.
• REC-7735 (PI3K H1047R inhibitor) was nominated as a Development Candidate, with IND-enabling studies underway, showing significant tumor regressions and high selectivity in preclinical studies.
• Completed a workforce reduction of approximately 20% in June 2025, incurring $8.5 million in charges by September 30, 2025.
• Sold Austrian operations (Exscientia GmbH) to Alpha Biotechnology GmbH, obtaining a 49% equity interest in Alpha and recording a $4.5 million loss on disposal.
• Acquired Rallybio's interest in RE Ventures I for $20.2 million, gaining 100% ownership and the lead asset ENPP1 (Rec-102) program.

Sentiment

Score: 4

Explanation: While the company is making significant progress in its pipeline and collaborations, evidenced by milestone achievements and program advancements, the substantial increase in net loss and decrease in revenue for the quarter and year-to-date, coupled with persistent material weaknesses in internal controls, indicates significant operational challenges and a high burn rate. The successful capital raise provides liquidity but also highlights the ongoing need for funding.

Positives

• Achieved a second $30 million milestone from Roche and Genentech for a neuroscience phenomap, bringing total upfront and milestone payments from partners to over $500 million.
• REC-617 (CDK7 inhibitor) Phase 1/2 trial established a maximum tolerated dose (MTD) at 10 mg once-daily, demonstrating a manageable safety profile and preliminary anti-tumor activity, including one confirmed partial response.
• REC-7735 (PI3K H1047R inhibitor) was nominated as a Development Candidate, showing significant tumor regressions at low doses and high selectivity (>100-fold) over wild-type PI3K in preclinical studies.
• Successfully completed a $500 million At-The-Market (ATM) offering with Citi, raising $491.7 million in net proceeds by October 2025, significantly strengthening liquidity.
• Strategic partnerships with Roche, Genentech, Sanofi, and Merck KGaA continue to advance, with potential for over $10 billion in future milestone payments and royalties.
• Existing cash and cash equivalents of $659.8 million are believed to be sufficient to fund operations for at least the next 12 months.
• Recursion OS 2.0 platform continues to drive program development by integrating AI across multimodal biology, precision design, and clinical development, enabling faster and more efficient drug discovery.

Negatives

• Net loss significantly widened to $162.3 million for Q3 2025, up 69% from $95.8 million in Q3 2024.
• Year-to-date net loss increased to $536.6 million for the nine months ended September 30, 2025, up 88% from $284.8 million in the same period in 2024.
• Total revenue decreased by 80% for Q3 2025 to $5.2 million from $26.1 million in Q3 2024, and by 28% for the nine months to $39.1 million from $54.3 million.
• Operating costs and expenses increased by 43% for Q3 2025 to $177.4 million and by 66% for the nine months to $578.9 million, primarily driven by R&D.
• Accumulated deficit reached $2.0 billion as of September 30, 2025.
• A workforce reduction of approximately 20% in June 2025 indicates a need for streamlining operations and cost control.
• Incurred a $4.5 million loss on the disposal of Exscientia GmbH and a $5.2 million lease termination fee for Vienna facilities.
• Material weaknesses in internal control over financial reporting persist, particularly concerning revenue recognition cost models and the integration of Exscientia's operations.

Risks

• Uncertainty of clinical trial outcomes for drug candidates.
• Uncertainty of additional funding and a history of operating losses, requiring future capital raises.
• Inability to access additional funds when needed could lead to delays, scaling back, or abandonment of development programs.
• Reliance on third parties to conduct additional clinical trials and for the manufacture of drug candidates.
• Potential impact of intellectual property disputes and the ability to defend against claims of infringement or misappropriation.
• Ability to keep pace with new technological developments, including advancements in AI.
• Dependence on third-party open source software and cloud-based infrastructure.
• Potential impact of global political instability, warfare, or natural disasters on business and financial results.
• Ability to maintain technical operations infrastructure to avoid errors, delays, or cybersecurity breaches.
• Material weaknesses in internal control over financial reporting, which are reasonably likely to adversely affect the ability to record, process, summarize, and report financial information.
• Ongoing legal proceedings, including a class action complaint against Exscientia plc and a lawsuit regarding a lease agreement, could materially affect future financial position, results of operations, or cash flows.
• The CEO and his affiliates hold approximately 12% of the voting power, allowing significant influence over stockholder actions, which may increase to 13% with vested equity awards.

Future Outlook

The company expects to incur substantial operating losses in future periods and will require additional capital to advance its drug candidates. Significant revenue generation is not anticipated until successful completion of major drug development milestones or through collaborations, which is expected to take several years. Existing cash and cash equivalents are projected to fund operating expenses and capital expenditures for at least the next 12 months. The company is on track for over $100 million in milestone payments by the end of 2026, with multiple neuroscience target validation programs and several Sanofi programs advancing towards potential lead series and development candidate designation over the next 12 months. The finalization of the Exscientia purchase price allocation is expected soon, no later than one year from the acquisition date.

Management Comments

• Recursion is a leading clinical stage TechBio company decoding biology to radically improve lives.
• We aim to achieve our mission by industrializing drug discovery using the Recursion Operating System (OS), a vertical platform of diverse technologies that enables us to map and navigate trillions of biological, chemical and patient-centric relationships utilizing approximately 65 petabytes of proprietary data.
• Recursion is on the precipice of demonstrating the potential of technology-driven approaches to increase speed, quality and scalability of drug discovery.
• We leverage the Recursion OS to deliver value in three ways: 1) our own pipeline of clinical and preclinical potential medicines focused in precision oncology, rare disease and other areas of high unmet need; 2) by discovering new medicines with large biopharmaceutical companies in some of the biggest areas of unmet need in medicine like neuroscience and inflammation; and 3) by leveraging our tools, technology and data for the benefit of other partners in targeted and limited ways.
• Recursion is well on track for over $100 million in milestone payments by end of 2026.
• This milestone places Recursion among a small group of pre-commercial biotechnology companies to achieve such scale, underscoring the strength of its partnership strategy.
• These collaborations not only support the maintenance and expansion of the Recursion OS, but also provide access to insights from leading biopharma companies and the potential for future milestone payments exceeding $10 billion, as well as royalties across indications Recursion may not pursue independently.

Industry Context

The company positions itself as a 'TechBio' leader, integrating wet-lab and dry-lab capabilities with AI/ML to industrialize drug discovery, differentiating from traditional biotech (wet-lab only) or dry-lab only companies. The acquisition of Exscientia plc and the collaboration with Tempus AI, Inc. highlight a broader industry trend towards leveraging AI and large datasets in drug discovery to accelerate development and improve success rates. Strategic partnerships with major pharmaceutical companies (Roche, Sanofi, Merck KGaA) are a common model in early-stage biotech to de-risk development and access funding and expertise. The focus on precision oncology, rare disease, and neuroscience aligns with high-unmet-need areas in the pharmaceutical industry.

Comparison to Industry Standards

• REC-617's GI-related toxicities (diarrhea 69%, nausea 41%, vomiting 28%) are consistent with best-in-class potential when compared to samuraciclib (diarrhea 82%, nausea 77%, vomiting 80%) (Coombes et al, 2023).
• REC-7735 demonstrated significant tumor regressions at low doses, outperforming approved agents, and maintaining high selectivity (>100-fold) over wild-type PI3K.
• Achieving over $500 million in upfront and milestone payments from partners places Recursion among a small group of pre-commercial biotechnology companies to achieve such scale.

Corporate Governance

Legal Proceedings

• A putative class action complaint (Campanile v. Exscientia plc, Case No. 1:24-cv-05692, consolidated with Case 1:24-cv-07181) was filed against Exscientia plc and certain individuals, alleging violations of federal securities laws. The motion to dismiss was granted on October 7, 2025, without prejudice, allowing re-filing within 30 days. No liability recorded as of September 30, 2025, as an unfavorable outcome was not probable.
• A lawsuit filed by Industry Office SLC, LLC against Recursion (Industry Office SLC, LLC v. Recursion Pharmaceuticals, Inc., Case No. 230904627) alleges anticipatory repudiation, breach of contract, and breach of implied covenant of good faith and fair dealing related to a lease agreement. Recursion filed counterclaims. A motion for summary judgment was filed by Recursion in October 2025 and remains pending. No liability recorded as of September 30, 2025, as an unfavorable outcome was not probable.

Related Party Transactions

• Christopher Gibson, CEO, and his affiliates hold approximately 12% of the voting power (potentially 13% with vested equity awards), allowing significant influence over stockholder actions.

Stakeholder Impact

• Shareholders experienced dilution from the ATM offerings (99.9 million shares sold for $491.7 million net proceeds).
• Increased net loss and accumulated deficit could negatively impact share value for shareholders.
• Potential for future milestone payments and royalties from collaborations could be positive for shareholders.
• Employees were impacted by a workforce reduction of approximately 20% in June 2025.
• Customers/Partners (Sanofi, Roche, Merck KGaA, Tempus) continue to engage in advancing collaboration programs and achieving milestones.
• Creditors have assets pledged as collateral against finance leases totaling $19.5 million.
• Regulatory authorities are monitoring ongoing efforts to remediate material weaknesses in internal control over financial reporting.

Next Steps

• Additional data in FAP from the Phase 2 TUPELO study for REC-4881 (MEK1/2) expected in December 2025.
• Early Phase 1 safety and PK monotherapy data for REC-1245 (RBM39) expected in 1H26.
• Potential Phase 1 initiation for REC-102 (ENPP1) expected in 2H26.
• Potential Phase 1 initiation for REC-7735 (PI3K H1047R) expected in 2H26.
• Early Phase 1 safety and PK monotherapy data for REC-3565 (MALT1) expected in 1H27.
• Finalize the purchase price allocation for the Exscientia acquisition no later than one year from the acquisition date (November 2024).
• Continue to monitor the impact of the One Big Beautiful Bill Act (OBBBA) in future periods.
• Continue designing, implementing, and testing processes, procedures, and controls to remediate material weaknesses in internal control over financial reporting.
• The $30 million milestone payment from Roche and Genentech for the second neuroscience Phenomap will be recognized as Operating Revenue over the completion period of the neuroscience performance obligation.

Key Dates

Recommendation

The company demonstrates strong scientific progress with pipeline advancements and significant milestone achievements from major partnerships, validating its AI-driven platform. The successful capital raise also provides a solid liquidity runway for at least 12 months. However, the substantial increase in net losses and declining revenue, coupled with persistent material weaknesses in internal controls, present considerable financial and operational risks. The long-term potential of the TechBio platform is compelling, but the current financial performance and governance issues warrant a cautious 'Hold' stance, awaiting clearer signs of improved financial efficiency and remediation of control weaknesses before a more aggressive position.

Keywords

TechBio, Drug Discovery, Artificial Intelligence, Machine Learning, Clinical Stage, Oncology, Rare Disease, Neuroscience, CDK7 Inhibitor, PI3K H1047R Inhibitor, Phenomap, Roche, Sanofi, Merck KGaA, Exscientia, Rallybio, ATM Offering, 10-Q, Biotechnology, Pharmaceuticals, R&D Expenses, Net Loss, Capital Raise, Corporate Governance, Internal Controls