The appetites of biotech investors for companies expanding in artificial intelligence show no signs of slowing any time soon, as reflected by the stock surge enjoyed by Recursion Pharmaceuticals (RXRX) following news of the $50 million investment in the AI-focused drug developer by increasingly AI-focused Nvidia (NVDA).
The companies said Wednesday that Recursion agreed to accelerate development of its AI foundation models for biology and chemistry by using the cloud services of Nvidia, a Silicon Valley-based microprocessing giant with a growing presence in the life sciences.
Through its Recursion OS platform, Recursion plans to tap its proprietary biological and chemical dataset, which exceeds 23 petabytes and 3 trillion searchable gene and compound relationships, to accelerate the training of foundation models on NVIDIA DGX™ Cloud. Recursion said it will optimize those models for “possible” commercial license and/or release to biotech company customers through Nvidia’s BioNeMo™, a generative AI cloud-based service designed to enable faster discovery and design of drugs.
Early users of BioNeMo have included Amgen, which has shrunk from three months to four weeks the time needed to pre-train large language models for molecular biology on its proprietary data, according to Nvidia.
Investors thundered their approval of the deal by sending Recursion shares soaring 78% on Wednesday, from $6.78 to $12.08, followed by a 3% gain on Thursday, to $12.44. That surge added about $1 billion to Recursion’s market cap—the share price times the number of outstanding shares of a public company.
Two analysts shared investor enthusiasm for Nvidia’s investment in Recursion in research notes, according to Bloomberg News. Scott Schoenhaus, a Managing Director and Equity Research Analyst with KeyBanc Capital Markets focused on healthcare technology, called the deal “a meaningful validation step for the AI to drug/molecule development space in general.”
Gil Blum, PhD, a senior analyst with Needham & Co., declared Recursion to be the pre-eminent AI-driven biotech firm based on the Nvidia: “The collaboration will provide Recursion access to the most powerful AI computing company on earth.”
Mani Foroohar, MD, senior managing director, genetic medicines and a senior research analyst with Leerink Partners (formerly SVB Securities), wrote in a research note that Recursion’s capital infusion from Nvidia “increases visibility and appreciation of upside optionality and potential near-term cashflows that could emerge from Recursion’s technology, platform and data.”
However, Foroohar cautioned: “Strategic implications of this transaction for Recursion remain an open question, in our view, as the role of generative AI in drug discovery continues to evolve.”
At $50 million, Nvidia’s investment is 25% above Recursion’s total 2022 revenue of $39.844 million. (Recursion finished last year with a net loss of $239.476 million). Nvidia’s investment is taking the form of a private investment in public equity (PIPE), through which the company is buying 7.7 million shares of Recursion Class A common stock. That will give Nvidia an approximately 4% stake in Recursion.
Another significant—and growing—shareholder in Recursion is ARK Genomic Revolution ETF (ARKG), an electronic transfer fund concentrating on healthcare and other sectors “expected to substantially benefit from extending and enhancing the quality of human and other life.”
As of Friday, ARKG held 4.947 million shares of Recursion with a market value of $61.51 million, bringing the fund’s ownership to 2.68% and a “weight” of 2.59%, the 17th highest percentage of portfolio among the 43 companies in which the fund holds shares, according to the website of ARKG parent ARK Investment Management, whose chief investment officer and portfolio manager is Catherine D. (Cathie) Wood.
ARKG has snapped up about 222,000 additional Recursion shares this week alone, and 1.875 million shares since January 3, when the fund held 3.072 million shares, the fund also disclosed. At the closing price that day of $7.55, those shares had a total value of about $23,193,600.
While ARKG has raised its bet on Recursion since January, a sister ETF, ARK Innovation ETF (ARKK), sold off its 800,000 Nvidia shares in January—thus missing practically all of the company’s stock surge this year. ARKK acted after the price of those Nvidia shares tumbled 25% from $182 a share when the firm snapped them up in August 2022, to $137 a share. ARKK is the flagship electronic transfer fund of ARK Investment Management overseen by its Chief Investment Officer and Portfolio Manager Catherine D. (Cathie) Wood.
Nvidia’s triple play
Nvidia shares rose 3.5% on news of the Recursion investment, from $424.05 to $439.02, followed by a roughly 5% jump Thursday to $459.77. So far this year, Nvidia shares have more than tripled, rocketing 207% from $143.15, making the company arguably one of the biggest beneficiaries as investors have jumped on the artificial intelligence (AI) bandwagon. Nvidia’s market cap cracked the trillion-dollar mark last month and as of Thursday stood at $1.112 trillion.
Also jumping on the same AI bandwagon are Recursion and Nvidia themselves. In May, Recursion acquire two privately-held companies focused on AI-based drug discovery, shelling out $47.5 million to buy Valence Discovery and another $40 million for Cyclica. Valence focused on applying AI and physics-based technologies toward the design of differentiated small molecules with improved properties and function.
Cyclica developed two digital chemistry products integrated into RecursionOS: One is MatchMaker™, an AI-augmented, proteome-wide drug discovery platform designed to predict the polypharmacology of small molecules using AlphaFold2 structures and homology models. The other is POEM™ (Pareto Optimal Embedding Model) a property prediction model that uses multiple types of molecular fingerprints to describe molecules, providing a much richer measure of similarity that according to Cyclica results in greater accuracy.
Nvidia announced in May that it was integrating its Nvidia AI Enterprise software into Microsoft’s Azure Machine Learning platform and making its Nvidia Omniverse Cloud platform-as-a-service available on Microsoft Azure, both targeting enterprise AI initiatives. In November, Nvidia announced a multi-year collaboration with Microsoft to build one of the most powerful AI supercomputers in the world, powered by Microsoft Azure’s advanced supercomputing infrastructure combined with Nvidia GPUs, networking and full stack of AI software.
Earlier last year, Nvidia launched the H100 Tensor Core GPU, a next-generation, highest-performing data center graphics processing unit (GPU), designed to accelerate AI training and inference, high-performance computing (HPC), and data analytics applications in cloud data centers, servers, systems at the edge, and workstations.
Leaders & laggards
- Avrobio (AVRO) shares catapulted 46% on Wednesday, from 98 cents to $1.43, after the company announced it would eliminate about half its workforce—nearly 40 jobs—as well as halt further development of its programs and conduct a “comprehensive” review of strategic alternatives focused on maximizing shareholder value. Those alternatives “may include, but are not limited to, an acquisition, merger, business combination, or other transaction,” Avrobio said. Avrobio’s pipeline consists of gene therapies AVR-RD-02 (Gaucher disease, Phase I/II); AVR-RD_05 (Hunter syndrome, Phase I/II); and AVR-RD-03 (Pompe disease, preclinical).
- Theseus Pharmaceuticals (THRX) shares plunged 71% Friday, from $9.52 to $2.745 in early trading as of 11:15 a.m., after the company halted development of lead pipeline candidate THE-630 in gastrointestinal stromal tumors (GIST). THE-630 is a pan-variant tyrosine kinase inhibitor of the receptor tyrosine kinase KIT. Theseus has stopped enrolling patients in a Phase I/II trial (NCT05160168) after dose-limiting toxicities related to hand-foot skin reaction were seen in two out of six patients in Cohort 7 (27 mg). One patient showed grade 3 HFSR, and the other patient, grade 2 HFSR. Theseus said it will prioritize development of THE-349, a fourth-generation EGFR inhibitor for EGFR mutant non-small cell lung cancer. An IND for THE-349 is set for submission in Q4 2023.