8-K: Recursion Pharmaceuticals Announces Positive Phase 2 Trial Results and Acquisition of Exscientia

Recursion Pharmaceuticals released positive top-line results from its SYCAMORE trial and announced a proposed acquisition of Exscientia, including key financial details.

Summary

• Recursion Pharmaceuticals announced positive top-line results from its SYCAMORE trial, a Phase 2 study for REC-994 in cerebral cavernous malformation patients, meeting its primary endpoint of safety and tolerability.
• The trial also showed encouraging trends in MRI-based exploratory efficacy measures, particularly at the 400mg dose, with reduced lesion volume and hemosiderin ring size.
• The company plans to advance the REC-994 program with additional clinical studies and will present the data at a medical conference and submit it for publication.
• Recursion also announced a proposed acquisition of Exscientia, with Exscientia shareholders expected to receive 0.7729 Recursion shares for each Exscientia share.
• The combined company is expected to have approximately $850 million in cash and a cash runway extending into 2027, with estimated annual synergies of $100 million or more.
• The transaction is subject to customary closing conditions, including approvals from both companies' stockholders and is expected to close by early 2025.
• The document includes unaudited pro forma financial statements for the combined company, including a balance sheet as of June 30, 2024, and statements of operations for the year ended December 31, 2023, and the six months ended June 30, 2024.
• Exscientia's audited consolidated statement of financial position as of December 31, 2023, and 2022, and related statements of loss, changes in equity, and cash flows for the three years ended December 31, 2023, are included.
• Unaudited condensed consolidated financial statements of Exscientia as of June 30, 2024, and 2023, and for the three and six months ended June 30, 2024, and 2023, are also provided.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with promising clinical trial results and a strategic acquisition, indicating strong potential for future growth and value creation. However, the document also acknowledges risks and uncertainties, preventing a perfect score.

Positives

• The SYCAMORE trial demonstrated a positive safety and tolerability profile for REC-994.
• The trial showed encouraging trends in exploratory efficacy measures, suggesting potential for REC-994.
• The proposed acquisition of Exscientia is expected to create a financially strong combined company with significant cash reserves and potential synergies.
• The combined company will have a diverse portfolio of clinical and near-clinical programs.
• The combined company will have a full-stack technology-enabled small molecule discovery platform.

Negatives

• Improvements in patient or physician-reported outcomes were not yet seen at the 12-month time point in the SYCAMORE trial.
• The completion of the proposed acquisition is subject to customary closing conditions and may not occur.
• The combined company will face integration challenges and may not realize all anticipated benefits.
• The combined company will be subject to various risks, including those related to regulatory approvals, competition, and market conditions.

Risks

• The completion of the proposed Transaction is subject to customary closing conditions, including approvals from both companies' stockholders and regulatory approvals, and may not occur.
• The combined company may face challenges in integrating the two businesses and may not realize all anticipated benefits, including cost synergies.
• The combined company will be subject to various risks, including those related to regulatory approvals, competition, and market conditions.
• The market price of Recursion Shares may be volatile.
• The combined company will be exposed to greater foreign currency exchange risk.
• Exscientia has a history of significant operating losses and expects to incur losses over the next several years.
• Exscientia is substantially dependent on its technology platform, which may fail to discover and design molecules with therapeutic potential.
• Exscientia faces substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than it does.
• Exscientia relies on third-party providers of cloud-based infrastructure, and any disruption could adversely affect its business.
• Exscientia may need additional funding in the future, which may not be available on terms acceptable to it, or at all.
• The market opportunities for Exscientias drug candidates may be smaller than it anticipates.
• Exscientias business relationships may be subject to disruption due to uncertainty associated with the Transaction.
• The opinions of Recursions and Exscientias financial advisors will not reflect changes in circumstances between the signing of the Transaction Agreement and the completion of the Transaction.
• Exscientias executive officers and directors have interests in the Transaction that may be different from the interests of Exscientia shareholders generally.
• Completion of the Transaction may trigger change-in-control or other provisions in certain agreements that Recursion or Exscientia is party to.
• The failure to integrate successfully the businesses of Recursion and Exscientia in the expected timeframe would adversely affect Recursions future business and financial performance following the Transaction.
• The future results of Recursion will suffer if Recursion does not effectively manage its expanded operations following the Transaction.
• Business issues currently faced by Recursion or Exscientia may be imputed to the operations of the other.
• Recursions ability to utilize its U.S. net operating loss carryforwards may be limited.
• Recursions actual financial position and results of operations may differ materially from the unaudited pro forma financial information included in this Current Report on Form 8-K.
• Exscientia is substantially dependent on its technology platform to identify promising molecules to accelerate drug discovery and development.
• Exscientias research activities and clinical trials may fail to demonstrate adequately the safety and efficacy of GTAEXS617 or any other drug candidate, which would prevent or delay development, regulatory approval and commercialisation.
• Exscientia has successfully completed only one clinical trial, and Exscientia may be unable to do so again for any drug candidates it develops.
• Exscientia may experience delays in initiating or completing its preclinical studies and clinical trials.
• If Exscientia experiences delays or difficulties in the enrolment of patients in clinical trials, its receipt of necessary regulatory approvals could be delayed or prevented.
• Success in preclinical studies or clinical trials may not be predictive of results in future clinical trials.
• Interim, topline, and preliminary data from Exscientias clinical trials that Exscientia announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
• Exscientias current and future clinical trials or those of its current or future collaborators may reveal significant adverse events not seen in its preclinical or non-clinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of its drug candidates.
• Exscientia intends to develop GTAEXS617, and potentially other future drug candidates, for use in combination with other therapies, which exposes it to additional risks.
• Exscientia currently, and may in the future, conduct clinical trials for its drug candidates outside the United States, and the FDA and similar foreign regulatory authorities may not accept data from such trials.
• Exscientia may seek orphan drug designation for certain of its drug candidates, and it may be unsuccessful or may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.
• Even if Exscientia receives regulatory approval for any of its drug candidates, it will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense.
• Obtaining and maintaining regulatory approval of Exscientias drug candidates in one jurisdiction does not mean that it will be able to obtain regulatory approval of its drug candidates in other jurisdictions.
• Exscientia may not be successful in its efforts to identify or discover drug candidates and may fail to capitalise on programmes, collaborations or drug candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.
• Exscientia faces substantial competition, which may result in others discovering, developing or commercialising products before or more successfully than it does.
• Exscientia has invested, and expects to continue to invest, in research and development efforts that further enhance its technology platform. If the return on these investments is lower or develops more slowly than Exscientia expects, its revenue and results of operations may suffer.
• Exscientia must adapt to rapid and significant technological change and respond to introductions of new products and technologies by competitors to remain competitive.
• Exscientias adoption and deployment of AI and machine learning (AI/ML) technologies in its drug discovery platform and processes may not be effective and may expose it to operational challenges, reputational harm and legal liability.
• Exscientia relies upon third-party providers of cloud-based infrastructure to host its software solutions. Any disruption in the operations of these third-party providers, limitations on capacity or interference with Exscientias use could adversely affect its business, financial condition, results of operations and prospects.
• Defects or disruptions in Exscientias technology platform could result in diminishing demand for the drug candidates discovered using such platforms and a reduction in its revenues, and subject it to substantial liability.
• The market opportunities for Exscientias drug candidates may be smaller than it anticipates or may be limited to those patients who are ineligible for or have failed prior treatments, and Exscientias estimates of the prevalence of its target patient populations may be inaccurate.
• Even if Exscientia obtains regulatory approval of its current or future drug candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centres and others in the medical community.
• The effects of health epidemics in regions where Exscientia, or the third parties on which it relies, have business operations could adversely impact its business, including its preclinical studies and clinical trials, as well as the business or operations of its CROs or other third parties with whom it conducts business.
• Exscientia has in the past and may in the future acquire other companies or technologies, which could divert its managements attention, result in additional dilution to its shareholders and otherwise disrupt its operations and adversely affect its operating results.
• Clinical trial and product liability lawsuits against Exscientia could divert its resources, cause it to incur substantial liabilities and limit commercialisation of its drug candidates.
• Exscientias insurance policies are expensive and protect it only from some business risks, which leaves it exposed to significant uninsured liabilities.
• Exscientias drug discovery collaborators have significant discretion regarding the clinical development of the programmes subject to the collaboration. The failure of Exscientias collaborators to perform their obligations under Exscientias collaboration agreements could negatively impact Exscientias business.
• Exscientia may never realise the return on its investment of resources in its drug discovery collaborations.
• If Exscientia is not able to establish or maintain partnerships to develop and commercialise any of the drug candidates it discovers internally, it may have to alter its development and commercialisation plans for those drug candidates and its business could be adversely affected.
• In recent periods, Exscientia has depended on a limited number of collaborators for its revenue, the loss of any of which could have an adverse impact on its business.
• Exscientia may never realise a return on its equity investments in its drug discovery collaborators.
• Exscientia contracts with third parties for the manufacture of it drug candidates for preclinical development and clinical testing, and expects to continue to do so for commercialisation. This reliance on third parties increases the risk that Exscientia will not have sufficient quantities of its drug candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair its development or commercialisation efforts.
• Exscientia relies on third parties to conduct its clinical trials of GTAEXS617 and expects to rely on third parties to conduct future clinical trials. If these third parties do not carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, Exscientia may not be able to obtain regulatory approval for or commercialise its drug candidates and its business could be substantially harmed.
• The third parties upon whom Exscientia relies for the supply of the active pharmaceutical ingredients used in its drug candidates are its sole source of supply, and the loss of any of these suppliers could harm its business.
• Exscientia relies on CROs to synthesise any molecules with therapeutic potential that it discovers. If such organisations do not meet Exscientias supply requirements, development of any drug candidate may be delayed.
• If Exscientia fails to comply with its obligations under its existing intellectual property licence agreements or under any future intellectual property licences, or otherwise experience disruptions to its business relationships with its current or any future licensors, Exscientia could lose intellectual property rights that are important to its business.
• Exscientias obligations under its existing or future drug discovery collaboration agreements may limit intellectual property rights that are important to its business. Further, if Exscientia fails to comply with its obligations under its existing or future collaboration agreements, or otherwise experience disruptions to itsbusiness relationships with its prior, current, or future collaborators, Exscientia could lose intellectual property rights that are important to its business.
• If Exscientia is unable to obtain, maintain, enforce and protect patent protection for its technology and drug candidates or if the scope of the patent protection obtained is not sufficiently broad, its competitors could develop and commercialise technology and products similar or identical to Exscientias, and its ability to successfully develop and commercialise its technology and drug candidates may be adversely affected.
• Exscientia, its prior, existing or future collaborators, and its existing or future licensors, may become involved in lawsuits to protect or enforce Exscientias patent or other intellectual property rights, which could be expensive, time-consuming and unsuccessful.
• Third parties may initiate legal proceedings alleging that Exscientia is infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of Exscientias business.
• If Exscientia is unable to protect the confidentiality of its trade secrets, its business and competitive position may be harmed.
• Exscientia is subject to stringent and evolving global laws, regulations, and rules, contractual obligations, industry standards, policies and other obligations related to data privacy and security. Exscientias actual or perceived failure to comply with such obligations could result in additional costs and liabilities to it or inhibit its ability to collect and process data globally, and could lead to regulatory investigations or actions; litigation (including class claims) and mass arbitration demands; fines and penalties; disruptions of its business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.
• Exscientia, and its collaborators may be subject to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations. Failure to comply with such laws and regulations may result in substantial penalties.
• Current and future healthcare legislative reform measures may have a material adverse effect on Exscientias business and results of operations.
• Exscientia is subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing Exscientias operations. If Exscientia sfail to comply with these laws, it could be subject to civil or criminal penalties, other remedial measures and legal expenses, be precluded from developing, manufacturing and selling certain products outside the United States or be required to develop and implement costly compliance programmes, which could adversely affect its business, results of operations and financial condition.
• Any drug candidates Exscientia develops may become subject to unfavourable third-party coverage and reimbursement practices, as well as pricing regulations.
• Exscientias employees, independent contractors, consultants and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading laws, which could cause significant liability for Exscientia and harm its reputation.
• Exscientias internal information technology systems, or those of its third-party vendors, contractors or consultants, may fail or suffer security breaches, loss or leakage of data and other disruptions, which could result in adverse consequences resulting from any such incident, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of Exscientias business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences.
• Exscientias future success depends on its ability to retain key executives and to attract, retain and motivate qualified personnel.
• Exscientia is pursuing multiple business strategies and expects to expand its development and regulatory capabilities, and as a result, it may encounter difficulties in managing its multiple business units and its growth, which could disrupt its operations.
• Exscientia may be unable to manage its rapid recent growth effectively, which could make it difficult to execute its business strategy.
• Increased labour costs, potential organisation of Exscientias workforce, employee strikes and other labour-related disruption may adversely affect its operations.
• As a company headquartered and with operations outside of the United States, Exscientia is subject to economic, political, regulatory and other risks associated with international operations.
• The United Kingdoms withdrawal from the European Union may adversely impact Exscientia and its collaborators ability to obtain regulatory approvals of Exscientias drug candidates in the United Kingdom and European Union and may require Exscientia to incur additional expenses to develop, manufacture and commercialise its drug candidates in the United Kingdom and European Union.
• Exchange rate fluctuations may materially affect Exscientias results of operations and financial condition.

Future Outlook

The combined company aims to bring better medicines to patients more rapidly and cost-efficiently, leveraging a full-stack technology-enabled platform and a diverse portfolio of clinical programs. The company expects to have approximately 10 clinical readouts over the next 18 months and anticipates potential for annual peak sales from successful programs of over $1 billion each.

Management Comments

• Dr. Jan-Karl Burkhardt, MD, stated that the SYCAMORE trial data is an impressive start and strongly supports the need for a future study.
• Connie Lee, Psy.D., expressed hope for families affected by CCM, noting the trial is a critical step forward.
• Najat Khan, Ph.D., stated that the trial successfully met its primary safety endpoint and showed promising trends in exploratory efficacy endpoints, which will inform the next study design.

Industry Context

The announcement reflects a trend in the biopharmaceutical industry towards leveraging technology and AI for drug discovery and development. The proposed acquisition of Exscientia by Recursion is a significant move towards combining complementary strengths in technology and drug development, potentially creating a more efficient and effective drug discovery process.

Comparison to Industry Standards

• The SYCAMORE trial is the first industry-sponsored Phase 2 trial for CCM, setting a new benchmark for clinical research in this area.
• The use of AI and machine learning in drug discovery, as demonstrated by both Recursion and Exscientia, is a growing trend, with companies like Relay Therapeutics, AbCellera, and Schrodinger also utilizing these technologies.
• The combined company's focus on first-in-class and best-in-class opportunities aligns with the industry's pursuit of innovative and effective therapies.
• The potential for annual peak sales of over $1 billion from successful programs is a common goal for pharmaceutical companies, indicating the high-value potential of the combined pipeline.
• The estimated annual synergies of $100 million or more are typical in mergers and acquisitions, reflecting the potential for cost savings and operational efficiencies.

Management Changes

Stakeholder Impact

• Shareholders of both Recursion and Exscientia will be impacted by the proposed acquisition, with Exscientia shareholders receiving Recursion shares.
• Employees of both companies may experience changes in their roles and responsibilities following the acquisition.
• Patients with cerebral cavernous malformation may benefit from the continued development of REC-994.
• The combined company's business partners may experience changes in their relationships following the acquisition.

Next Steps

• Recursion plans to meet with the FDA to discuss plans for additional clinical studies for REC-994.
• Recursion plans to present the SYCAMORE trial data at a medical conference and submit it for publication.
• The companies will seek approvals from their respective stockholders for the proposed acquisition.
• The companies will work towards completing the proposed acquisition by early 2025.

Key Dates

Keywords

Recursion Pharmaceuticals, Exscientia, acquisition, SYCAMORE trial, REC-994, cerebral cavernous malformation, clinical trial, drug discovery, AI, artificial intelligence, machine learning, biopharma, pharmaceutical, merger, phase 2, oncology, rare disease, milestone payments, technology platform, small molecule