DEFA14A: Recursion Pharmaceuticals to Acquire Exscientia for $688 Million in All-Stock Deal, Bolstering AI-Driven Drug Discovery

Recursion Pharmaceuticals will acquire Exscientia for $688 million in an all-stock transaction, combining their AI-driven drug discovery platforms to accelerate and reduce the cost of developing new medicines.

Summary

• Recursion Pharmaceuticals and Exscientia have entered into a definitive agreement for Recursion to acquire Exscientia in an all-stock transaction valued at $688 million.
• The combined company aims to leverage the strengths of both organizations in AI-driven drug discovery to accelerate the development of new medicines and reduce costs.
• Exscientia shareholders will receive 0.7729 shares of Recursion Class A common stock for each Exscientia share.
• Post-close, current Recursion stockholders are expected to own approximately 76% of the combined organization, while Exscientia shareholders will own approximately 24%.
• The combined company will operate under the name Recursion and will be headquartered in Salt Lake City.
• The transaction is expected to close in early 2025, pending shareholder and regulatory approvals.
• The combined entity will have approximately $850 million in cash and is expected to extend the cash runway into 2027, with anticipated annual cost savings exceeding $100 million.
• The combined pipeline includes approximately 10 clinical readouts expected in the next 18 months.
• The combined company will advance partnerships with Roche-Genentech, Sanofi, Bayer, and Merck KGaA, potentially yielding $200 million in milestone payments over the next 24 months and over $20 billion overall before royalties.

Sentiment

Score: 9

Explanation: The document expresses a highly positive sentiment due to the strategic combination of two innovative companies, the potential for significant synergies, a strong financial outlook, and the prospect of accelerating drug discovery and improving patient outcomes.

Positives

• The combination creates a full-stack drug discovery solution, integrating target discovery, hit discovery, lead optimization, and automated chemical synthesis.
• The combined pipeline expands into new areas of oncology and immunology, with a diverse portfolio of clinical and near-clinical programs.
• The merger brings together partnerships with leading pharma companies, offering significant potential for milestone payments and royalties.
• The combined company is expected to have a strong financial position with a cash runway into 2027.
• The integration of Exscientia's automated synthesis platform with Recursion's phenomics and transcriptomics platforms is expected to drive down the cost of drug discovery.
• The combined entity will have a more efficient technology-enabled approach across the entire process of discovering and translating medicines.

Negatives

• The transaction is subject to customary closing conditions, including shareholder and regulatory approvals, which could delay or prevent the completion of the merger.
• Integration of the two companies may present challenges, and the anticipated synergies may not be fully realized.
• The market value of Recursion's common stock to be issued in the proposed combination could be affected by various factors.

Risks

• The occurrence of any event, change, or other circumstances that could lead to the termination of the transaction agreement.
• The inability to obtain the necessary shareholder or regulatory approvals for the merger.
• The risk that the proposed combination disrupts each company's current plans and operations.
• The diversion of management's attention from ongoing business operations.
• The ability to retain key personnel from both Recursion and Exscientia.
• The outcome of any legal proceedings that may arise following the announcement of the proposed combination.
• The effect of economic, market, or business conditions on the combined company's operations and financial performance.
• The impact of changes in interest rates, inflation, and supply chain disruptions.

Future Outlook

The combined company aims to accelerate drug discovery, reduce costs, and deliver better treatments to patients by integrating Recursion's and Exscientia's complementary technologies and pipelines. They anticipate approximately 10 clinical readouts in the next 18 months and significant milestone payments from partnerships.

Management Comments

• Chris Gibson, Co-founder and CEO of Recursion, stated that the combination will accelerate change in the industry, bringing more treatments to patients faster and for lower cost.
• Najat Khan, Chief R&D Officer at Recursion, noted that the combination is extraordinarily complementary in terms of using end-to-end discovery from biology to chemistry, enabling the company to make medicines better and faster.

Industry Context

This announcement reflects the increasing trend of pharmaceutical companies leveraging AI and technology to improve drug discovery and development processes. Major drugmakers are doubling down on AI to boost drug development, find patients for clinical trials quickly, or reduce the number of people needed to test medicines.

Comparison to Industry Standards

• The combination of Recursion and Exscientia aims to create a full-stack drug discovery solution, similar to what companies like Schrödinger and Relay Therapeutics are building, but with a stronger emphasis on AI and automation.
• The potential for $20 billion in milestone payments before royalties is comparable to other major pharma partnerships, such as those between Amgen and Generate Biomedicines, which also focus on AI-driven drug discovery.
• The combined cash runway into 2027 provides financial stability similar to other well-funded biotech companies like BioNTech and Moderna, allowing for sustained investment in research and development.

Management Changes

Stakeholder Impact

• Shareholders of both Recursion and Exscientia will be impacted by the transaction, with Recursion shareholders owning approximately 76% and Exscientia shareholders owning approximately 24% of the combined company.
• Employees of both companies will be affected by the integration, with potential changes to roles and responsibilities.
• Patients are expected to benefit from the accelerated development of new medicines and reduced drug costs.
• Partners of both companies, including Roche-Genentech, Sanofi, Bayer, and Merck KGaA, will see their collaborations advanced through the combined entity.

Next Steps

• Obtain shareholder approval from both Recursion and Exscientia.
• Secure regulatory approvals for the transaction.
• Obtain the sanction of the High Court of Justice of England and Wales to the Scheme of Arrangement.
• Integrate the operations and teams of Recursion and Exscientia.
• Advance the combined pipeline of drug candidates.
• Execute on partnership agreements with Roche-Genentech, Sanofi, Bayer, and Merck KGaA.

Key Dates

Keywords

Recursion Pharmaceuticals, Exscientia, acquisition, drug discovery, artificial intelligence, AI, partnerships, pipeline, milestones, merger, TechBio