Recursion Pharmaceuticals has agreed to acquire the Oxford, U.K.-based artificial intelligence (AI) drug pioneer Exscientia, the companies said today, in a deal that consolidates two leaders in AI-based drug development into a single powerhouse company.
The deal comes six months after Exscientia fired its founder, CEO, and principal executive officer Andrew Hopkins, PhD, and removed him from the company’s board, in February after concluding that he engaged in relationships with two employees that the company’s board determined “were inappropriate and inconsistent with the Company’s standards and values.”
Two months earlier, Exscientia pruned its pipeline down to four active drug candidates in therapeutic areas that include inflammatory disease, hematology, and most notably, oncology.
The value of the deal was not formally disclosed by the companies, though Reuters reported the transaction as being $688 million. Recursion and Exscientia did say, however, that they saw the potential for the combined company to collect approximately $200 million in milestone payments over the next 24 months, and over $20 billion overall before potential royalties ranging from the mid-single digits to double digits.
The companies also expect to generate annual savings through operational “synergies” of approximately $100 million.
Recursion and Exscientia said they had a combined approximately $850 million in cash and cash equivalents as of the end of the second quarter. Nearly half (42% or $474.3 million) was reported today by Recursion in announcing second-quarter earnings.
Recursion finished Q2 2024 with a net loss of $97.5 million, up from a net loss of $76.7 million in the year-ago quarter, on revenue of $14.4 million, up 31% from $11.0 million in Q2 2023.
Recursion attributed the increase to revenue recognized from its up-to-$12 billion partnership with Roche and its Genentech subsidiary. The companies agreed to initiate up to 40 programs in “key areas” of neuroscience and an unspecified oncology indication. Each program could, if successfully developed and commercialized, yield more than $300 million in development, commercialization and net sales milestones for Recursion, plus tiered royalties on net sales.
“We believe the proposed combination is deeply complementary and aligned with our missions to industrialize drug discovery to deliver high quality medicines and lower prices for consumers,” said Chris Gibson, PhD, Recursion’s Co-Founder and CEO, who will become CEO of the combined company.
“Exscientia’s precision chemistry tools and capabilities, including its newly commissioned automated small molecule synthesis platform, will augment our tech-enabled biology and chemistry exploration, hit discovery and translational capabilities,” Gibson added.
David Hallett, PhD, Exscientia’s interim CEO and chief scientific officer, will retain his CSO role with the combined company.
‘Highly Complenentary’
“Adding Exscientia’s best-in-class focused precision oncology internal pipeline to Recursion’s first-in-class focused pipeline spanning rare disease, precision oncology and infectious disease is highly complementary as we look to bring treatments to patients faster,” Hallett said. “We look forward to bringing our teams together and integrating Recursion’s high throughput and target biology capabilities with Exscientia’s highly scalable molecular design and automated chemistry synthesis capabilities to truly accelerate the discovery of better drugs for patients.”
Investors appeared to share Hallett’s enthusiasm. Exscientia shares jumped 17% today to $5.27 from $4.50 yesterday. Recursion shares rose 4%, to $6.64 from $6.37.
At least one analyst recently showed some skepticism about Recursion.
“While we still see BD opportunities for RXRX, the stock remains a ‘show-me’ story, and we remain on the sidelines as we await readouts in key clinical programs for clearer insight on the differentiation of its discovery platform,” Mani Foroohar, MD, of Leerink Partners wrote in a June 27 research note. He lowered his firm’s 12-month price target on Recursion shares to $9, citing in part past delays in clinical programs.
Once integrated, the companies will contribute to an extended and evolved incarnation of Recursion’s OS operating system that they reason will better enable the discovery and translation of higher quality treatments more efficiently and at a higher scale, applying their full-stack technology-enabled small molecule discovery platform.
The companies said their combined platform includes target discovery, structure based drug design including hotspot analysis, quantum mechanics and molecular dynamics modeling, 2D and 3D generative AI design, encode and automate design-make-test-learn cycles with active learning, automated chemical synthesis, predictive ADMET and translation, biomarker selection, clinical development, and more.
The platforms of the companies have attracted collaborations with biopharma giants. In addition to Roche and Genentech, they include Sanofi, Bayer, Merck KGaA—and Bristol Myers Squibb (BMS), which continues a partnership launched in 2019 by Exscientia and Celgene, which BMS acquired for $74 billion later that year.
Exscientia and BMS expanded the collaboration two years later to I&I as well as oncology candidates. In return, BMS multiplied what it agreed to pay Exscientia to potentially more than $1.3 billion in clinical, regulatory, and commercial payments—including up to $50 million upfront, up to $125 million in “near to mid-term” milestones, and tiered royalties on net sales.
Another collaboration bore fruit in May when Recursion completed BioHive-2, the fastest supercomputer to be wholly owned and operated by any pharmaceutical company worldwide, using technology developed by partner Nvidia.
Exscientia’s automated chemistry design and synthesis capabilities are expected to allow Recursion to more rapidly and effectively run SAR cycles during hit to lead and lead optimization, the companies said.
10 Clinical Readouts in 18 Months
The combined company expects to read out approximately 10 clinical trials in the next 18 months. Recursion and Exscientia said most of their 11 combined pipeline programs, if successful, could generate annual peak sales of more than $1 billion.
Oncology accounts for five of the 11 programs; the rest are treatments for rare diseases and other disorders. The combined pipeline includes four Phase II programs, all now being developed by Recursion. Furthest along of these is REC-994, a superoxide-targeting treatment for cerebral cavernous malformation, which is expected to read out topline data next month.
Also in Phase II:
- REC-2282, an HDAC-targeting candidate for neurofibromatosis type 2, set for a preliminary readout of safety and efficacy data from the adult cohort of the adaptive Phase II/III POPLAR-NF2 trial (NCT05130866) during the fourth quarter.
- REC-4881 for familial adenomatous polyposis, a MEK-targeting candidate for which a safety, tolerability, and preliminary efficacy data readout from the Phase Ib/II TUPELO trial (NCT05552755) is planned during the first half of 2025.
- REC-4881 for advanced AXIN1/APC-mutant cancers, also set for a preliminary data readout during H1 2025 from a separate study, the Phase II LILAC trial (NCT06005974).
Also in 2025, Recursion plans to release data for three other clinical candidates it is bringing into the combined company:
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- REC-3964 for Clostridioides difficile infection—A preliminary readout is expected from a Phase II study in patients at high risk for difficile infection recurrence, set to launch in the fourth quarter of this year. REC-3964 will also be studied in the Phase II open-label ALDER trial (NCT06536465), which has not yet begun recruiting patients.
- REC-1245 for advanced HR-proficient cancers—The RBM39-targeting cancer candidate is expected to yield Phase I data from the dose-escalation portion of a Phase I/II trial by the end of 2025. The open-label study in participants with unresectable, locally advanced, or metastatic cancer is expected to launch in Q4 2024.
- Epsilon for an undisclosed indication in fibrosis—The program, whose target is undisclosed, is the lead candidate in an initial fibrosis collaboration with Bayer, from which Recursion has since in-licensed all rights. An IND submission is expected in early 2025 with a Phase I healthy volunteer readout planned by the end of 2025.
The combined company, which will retain the Recursion name, will continue to be headquartered in Salt Lake City, and trade its stock on NASDAQ, though Recursion said it will maintain a “significant” presence in the U.K.
The boards of both companies have approved the deal, in which Exscientia shareholders will receive 0.7729 shares of Recursion Class A common stock for each Exscientia ordinary share they own, with fractional shares paid in cash. Recursion shareholders will own approximately 74% of the combined company’s shares, with the remaining 26% to be owned by Exscientia shareholders.
Major shareholders of each company—including holders of more than 40% of Exscientia shares—have entered into agreements through which they have agreed to vote all their shares in favor of the deal.
Two unnamed directors of Exscientia’s board will join Recursion’s board following the closing of the merger transaction, which is expected in early 2025 subject to satisfaction or waiver of customary closing conditions that include the approval of Exscientia shareholders, the approval of Recursion’s stockholders, the sanction of the High Court of Justice of England and Wales, and regulatory approvals.
The combination is expected to be implemented through a court sanctioned scheme of arrangement under English law and is subject to the satisfaction or waiver of the closing conditions, the transaction is expected to close by early 2025.
“I am excited to continue building the best example of the next generation of biotechnology companies,” Gibson stated. “It still feels like we are just getting started.”
