What have Nvidia and the FTSE 100 got in common? Well, not much in all fairness. But the leader in artificial intelligence (AI) computing and the Footsie’s Scottish Mortgage Investment Trust do both have investments in Recursion Pharmaceuticals (NASDAQ: RXRX).
Between them, they own around a 10% stake in this little-known AI innovator. Meanwhile, famed growth investor Cathie Wood of Ark Invest is also a big fan. Indeed, Ark is actually Recursion’s largest shareholder.
Here’s what investors need to know about this $8 stock.
Biology meets AI
Founded in 2013, Recursion uses big data and machine learning to target a faster, cheaper and better approach to discover medicines. The firm says it is “decoding biology to industrialise drug discovery“.
It uses both public and its own 23 petabyte dataset (which is massive) to discover new compounds and viable candidates to treat rare diseases and certain cancers.
Because its AI replaces human interpretation and dramatically lowers costs, this means it can pursue minor diseases that have been overlooked in the past because they weren’t commercially viable.
For example, it currently has five treatments in phase 2 clinical trials. But each of those will treat an initial patient population between 50,000 and 730,000. That’s small.
If successful though, it will be the only firm serving these markets. There are potentially dozens of such diseases where it could have no competition.
It also licences its platform to other drugmakers and has partnerships with industry giants Roche and Bayer.
Basically then, the aim here is to dramatically lower the costs and time associated with failed drug candidates.
Co-founder and CEO Chris Gibson said its “failure is happening in the first six hours or the first six weeks of the first six months, as opposed to happening six years down the road in Phase 2 or Phase 3.”
Nvidia partnership
Nvidia’s visionary CEO Jensen Huang recently said: “Where do I think the next amazing revolution is going to come? There’s no question that digital biology is going to be it.”
Huang says AI will move biology from science to engineering. And when that happens it becomes “exponentially improving, it can compound on the benefits of previous years.”
As part of its Nvidia link-up, Recursion will add more than 500 Nvidia H100 GPUs to its BioHive-1 supercomputer. Once complete, the firm reckons this will be the most powerful supercomputer owned by any biopharma company.
Recursion does up to 2.2m experiments every week. I’d imagine this upgraded BioHive-1 will take that to another level.
Reality check time
Now, I do have a very small position in this stock. But it’s just to get some skin in the game.
Today, the firm’s primarily making money through its collaborative agreements with drugmakers ($44m last year). It’s likely years away from any profits but has a $2bn market-cap. So this is a risky stock, for sure.
Meanwhile, it ended 2023 with $392m in cash. That’s enough for now but more may be needed in the next couple of years. That could cause share price volatility.
Still, when Nvidia, Scottish Mortgage, and Wood all invest in a particular AI stock, it’s worth taking note. It could be a massive long-term winner, or not. So a small holding is all I want.
