As a biotechnology company that relies heavily on artificial intelligence (AI) in all aspects of its business, Recursive Pharmaceuticals (RXRX 1.89%) is latched onto a handful of big trends that will likely define the future of its industry.

There can be no assurance that the Company will be a good investment based solely on the strength or direction of these trends. But there are three who are particularly bullish on the stock thanks to its positioning. So let’s take a look at each one and see what it could mean for Recursion and its shareholders.

1. Rising drug development costs

Among the 20 largest biopharmaceutical companies, the average research and development (R&D) the cost of advancing a new drug program from the discovery phase through regulatory review and commercialization was $2.2 billion in 2023, according to Deloitte analysts. Between 2022 and 2023, total R&D spending by this same group increased by 4.5%, reaching $145.5 billion. There is no sign that this trend is slowing, and many companies are spending more on R&D expenses as a percentage of revenue than they were 10 years ago.

Enter Recursion, which claims that through its AI-driven drug development platform, its collaborators will be able to significantly reduce their R&D expenses and significantly reduce the time they need to advance their programs from phase of discovery to the launch of clinical trials at the same time. .

While Recursion may not be able to reduce costs in the most expensive parts of the pipeline, particularly expenses associated with running late-stage clinical trials, it might also be able to avoid costly failures late in the game by more efficiently selecting candidates for clinical tests. .

Additionally, it could license some of its massive trove of biological data to other biopharmaceutical companies, which could help them avoid going to the lab.

As the low-hanging fruit in drug development become progressively larger and harder to achieve over time thanks to the inexorable march of scientific progress, Recursion is unlikely to face a shortage of customers or collaborators , assuming it can demonstrate that its platform is actually useful in saving costs as it claims.

2. Expected drop in maximum revenues from new drugs

Besides increasing R&D spending, biopharmaceutical companies also face another unpleasant reality: the expected peak revenue per pharmaceutical asset declines slightly over time, on average. In 2022, for the 20 largest companies, the average annual revenue estimate per program was $389 million at most, but in 2023 the average annual forecast was $362 million in sales. This puts additional pressure on profits, which are already being squeezed by rising development costs.

Once again, Recursion could help ease the pain of its biggest competitors. Thanks to its library of AI tools for drug development, it could play a decisive role in identifying opportunities to investigate pharmaceutical assets for indications other than those for which they were developed at the time. ‘origin. This would allow companies to potentially obtain expanded regulatory approvals to market their drugs under more conditions, thereby increasing the addressable market and extracting more revenue from their early R&D spending.

3. Growing Adoption of AI in Drug Development

The latest bullish trend for Recursion stock is that more and more biopharmaceutical companies are showing keen interest in involving AI in their drug development process.

Recursion already collaborates with giants like Bayer And Rock. The other AI biotech company that Recursion will merge with before early 2025, Exscientiaaccount Merck, SanofiAnd Bristol Myers Squibb among his collaborators. Many other major players have their own AI initiatives. And competitors of AI drug discovery platforms like Schrodinger We’re not short of customers at the moment either.

Currently, the field of AI-based drug discovery and development is still taking shape. Some of the loftier claims companies offer may not live up to what their platforms can actually accomplish. Nonetheless, given the undeniable challenges facing biopharmaceutical companies, there is strong incentive to deliver on promises of cost reductions and other efficiency gains.

So even if there are bumps along the way, or it takes longer than expected to demonstrate that the use of AI confers real benefits, it is very likely that at least one company succeeds. And that means collaborators will continue to knock on Recursion’s door for the foreseeable future, which is a point in its stock’s favor.