DEFA14A: Recursion Pharmaceuticals to Acquire Exscientia in $775 Million Deal, Expanding AI-Driven Drug Discovery

Recursion Pharmaceuticals is set to acquire Exscientia in a stock-for-stock transaction valued at approximately $775 million, aiming to create a leading technology-enabled drug discovery platform.

Summary

• Recursion Pharmaceuticals will acquire Exscientia for approximately $775 million in a stock-for-stock transaction.
• Exscientia shareholders will receive 0.7729 Recursion shares for each Exscientia share.
• Post-transaction, Recursion stockholders will own about 74% and Exscientia shareholders about 26% of the combined company.
• The deal is expected to close by early 2025, pending stockholder and regulatory approvals.
• The combined company anticipates annual synergies of approximately $100 million or more, extending the cash runway into 2027.
• Recursion's CEO, Christopher Gibson, will lead the combined entity, with Exscientia's Interim CEO, David Hallett, joining as Chief Scientific Officer.
• The acquisition aims to create a full-stack, technology-enabled small molecule discovery platform.
• The combined company expects potential milestone payments of approximately $200 million over the next two years from current partnerships.
• The combined company expects potential for more than $20 billion in total milestone payments from partners before royalties.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on the acquisition, highlighting potential synergies and financial benefits. However, it also acknowledges risks and uncertainties associated with the transaction, resulting in a moderately positive sentiment score.

Positives

• The acquisition creates a full-stack, technology-enabled small molecule discovery platform.
• The combined company will have a diverse portfolio of clinical and near-clinical programs.
• The combined company will have a diverse portfolio of transformational partnerships with leading large pharma companies.
• The combined company expects potential milestone payments of approximately $200 million over the next two years from current partnerships.
• The combined company expects potential for more than $20 billion in total milestone payments from partners before royalties.
• The combined company's cash runway is expected to extend into 2027.
• The combined company will have approximately $850 million in combined cash at the end of Q2 2024.

Negatives

• The transaction is subject to customary closing conditions, including stockholder and regulatory approvals, which could delay or prevent the deal from closing.
• The integration of Exscientia's business with Recursion's business may be challenging.
• The market price of Recursion shares may be volatile.
• The combined company may have difficulty attracting, motivating, and retaining executives and other key employees.
• The combined company's business relationships may be subject to disruption due to uncertainty associated with the transaction.

Risks

• Failure to obtain stockholder or regulatory approvals could terminate the Transaction Agreement.
• The proposed combination could disrupt each company's current plans and operations.
• Diversion of management's attention from ongoing business operations.
• Inability to retain key personnel.
• Failure to realize the anticipated benefits of the proposed combination, including cost synergies.
• Economic, market, or business conditions could negatively impact the combined company's operations.
• Changes in interest rates, inflation, foreign currency exchange rates, and supply chain disruptions could negatively impact the combined company.
• The market value of Recursion's Class A common stock to be issued in the proposed combination could fluctuate.

Future Outlook

The combined company aims to deliver better treatments to patients more rapidly and cost-effectively, leveraging a full-stack technology-enabled platform for drug discovery. The combined company expects potential milestone payments of approximately $200 million over the next two years from current partnerships and potential for more than $20 billion in total milestone payments from partners before royalties. The combined company's cash runway is expected to extend into 2027.

Management Comments

• Recursion Co-Founder & CEO Chris Gibson will be CEO of combined company.
• Exscientia Interim CEO David Hallett will join as Chief Scientific Officer.

Industry Context

This acquisition reflects a growing trend in the pharmaceutical industry towards leveraging artificial intelligence and machine learning to accelerate drug discovery and development processes. The combination of Recursion's scaled biology exploration and Exscientia's precision chemistry design aims to create a more efficient and effective drug discovery engine.

Comparison to Industry Standards

• Relay Therapeutics, AbCellera, Schrodinger, PathAI, Insitro, Valo Health, Cellarity, XtalPi, BenevolentAI, Datavant and Atomwise are also using AI and other sophisticated computational tools, to accelerate drug development and improve the quality of identified drug candidates.
• The combined company will have a diverse portfolio of clinical and near-clinical programs with ~10 clinical readouts over the next ~18 months.
• The combined company will have a diverse portfolio of transformational partnerships with leading large pharma companies.
• The combined company expects potential milestone payments of approximately $200 million over the next two years from current partnerships.
• The combined company expects potential for more than $20 billion in total milestone payments from partners before royalties.

Management Changes

Stakeholder Impact

• Shareholders of both Recursion and Exscientia will be impacted by the transaction, with changes in ownership and potential for future value creation.
• Employees of both companies may experience uncertainty and changes in roles and responsibilities.
• Customers and partners of both companies may experience disruptions or changes in business relationships.

Next Steps

• Obtain stockholder approval from Recursion and shareholder approval from Exscientia.
• Obtain required regulatory approvals.
• Sanction of the Scheme of Arrangement by the High Court of Justice of England and Wales.
• Close the transaction, expected by early 2025.
• Integrate Exscientia's business with Recursion's business.
• Realize anticipated synergies and cost savings.

Key Dates

Keywords

Acquisition, Exscientia, Recursion Pharmaceuticals, Drug Discovery, Artificial Intelligence, AI, Pharmaceuticals, Merger