The bullish thesis for Recursion Pharmaceuticals stock is getting stronger. Here’s why.

Recursion Pharmaceuticals (RXRX 0.75%) and knowledge (Exa 0.38%) On August 8, it made waves when it announced plans to merge into one business to form the world’s largest biotech company focused on developing drugs using artificial intelligence (AI). The deal is expected to close in early 2025. And now the bullish thesis for Recursion stock is stronger than ever.

Find out how this merger will benefit shareholders and why it could potentially be a net positive in the long term.

The merged players will have abundant resources and short-term catalysts.

There are several advantages to Recursion merging with Exscientia.

First, with all of Exscientia’s pipeline programs now owned by Recursion, there will be significantly greater opportunities to commercialize drugs and generate initial revenue.

Both companies currently rely on partners to pay milestone fees to cover their R&D costs, so now both companies will benefit from each other’s sponsors, which include powerful international pharmaceutical companies such as: Bayer, Roche, Bristol Myers Squibband SanofiAnd a great AI hardware company NvidiaIt is difficult to overstate how important it is to have such deep alliances across the fields of medicine and information technology.

In terms of the new company’s pipeline, it will focus on a combination of rare disease treatments and precision oncology treatments, with a secondary focus on infectious disease treatments. There is no overlap in the two companies’ pipelines, and there are currently no plans to scrap any programs during the merger.

Combining the pipelines of the two biotechs could enhance shareholder value whenever favorable clinical trial data is released. According to management estimates, the two companies could expect up to 10 readouts in the next 18 months. With four programs currently in Phase 2 clinical trials, it could be several more years before Recursion has a chance to commercialize anything.

The new entity, which combines Exscientia and Recursion, will retain the Recursion name and its scientist-trained CEO, Chris Gibson. Exscientia’s interim CEO, David Hallett, will become Chief Scientific Officer (CSO). This job change is a bit odd, but not bad considering he was trained as a scientist. With these two experienced leaders at the helm, Recursion’s brain trust is likely to punch above its weight.

Importantly, the merger will also result in a capital-rich business that will not need to issue new shares or take on new debt for some time. In addition to the expected $100 million in cost synergies, the new company will have approximately $850 million in cash, equivalents and short-term investments, which will be paid out in cash at least through early 2027.

There are still key questions to answer, and it will take some time.

While there are many reasons to be optimistic about the new Recursion, the reality is that these two biotech companies are in uncharted territory in many ways, and their new ventures will be just as risky as their old ones.

The main reason for this risk is that competitors have yet to prove that AI and other advanced information technologies can actually make drug development cheaper, faster, and more reliable. There is also no evidence that drugs made this way will be safer or more effective than drugs of conventional origin. And while it is a positive sign that many powerful partners are trying to get a piece of the action, there is no clear evidence yet that working with Recursion will actually yield value. If clinical trials start to pile up, it is doubtful that the big fish will stick around.

Still, given that Recursion will be getting new and enhanced features next year, the odds are in your favor for now. With so many shots on goal, so many collaborators, so much cash, and perhaps the world’s largest AI-driven drug development team, the bull theory is stronger than ever.

If you can afford to take a relatively high level of risk, it’s better to buy stocks a few weeks earlier rather than later.