Recursion Pharmaceuticals, Inc.

Good morning, everyone, and thank you for joining Recursion's third quarter earnings call. We're hosting earnings live from the CGA IGC Annual Meeting in Denver. Today, we'll share the new FAP data that was presented yesterday at CGA by Dr. Lisa Boardman, along with updates in our Oncology Program REC 1245 and progress across our partnerships. Before we get into the data, I want to start with the philosophy behind what we're building. To pioneer a new blueprint for making medicines with AI, we believe you have to tie together three core capabilities in one engine. Uncover novel biology, design differentiated molecules against challenging targets, and generate clinical evidence that matters for patients. And that is what we're building at Recursion. And the higher bar we set for ourselves is repeatability. Not one target, not one molecule, or one clinical result, but the ability to do this across programs again and again. Let me show you the progress we're making. Let me start with what we're seeing in patients. We now have positive clinical data from two first-in-class programs. With REC481 in FAP, we saw deep reductions in polyp burden that persisted off treatment. Now we're also seeing activity across the GI and reduction of larger high-risk polyps. will walk you through some of that data today. If you take a step back to molecule design, Sanofi recently optioned a potential first-in-class oral INI candidate. The chemistry challenge behind that was to design a single molecule that could inhibit two targets. And then when we talk about novel causal biology, we use the data that we have generated to build proprietary maps of biology and identify targets that may be driving disease. Genentech has now advanced the first neuroscience target from those maps, and we're working together on small molecules against it. That's the repeatability we're starting to see. The same engine uncovering novel targets, producing new molecules, and generating evidence in patients. Behind the progress you just saw is one AI platform that connects biology, chemistry, and the clinic. We draw on more than 50 petabytes of proprietary data to make decisions about which targets to pursue, which molecules to design, and which patients to study. What makes that approach repeatable is how we learn. We generate our own proprietary data, which builds our models, which then in turn guide the experiments we run, and what we learn in the lab and in the clinic now then feeds back into those models. So an insight from one program can shape what we test in the next.

Let's start by looking a little bit more into the data from REC 4881 and 1245.

Here, we're sharing a summary of the early clinical data from these programs. First, with REC 4881 and FAP, remember there's no approved drug treatment. We previously have shown deep, durable reductions in total polyp burden. What's new is first, we have updated this data to expand the adult population to 18 and over. And we continue to see these substantial reductions. In addition to that, we're seeing significant reduction throughout the GI tract, including the upper GI, which is a huge area of unmet need. In addition to that, we're also seeing reductions in the number of larger, higher-risk polyps. The safety profile remains favorable with mostly grade 1 or 2 adverse events and no additional discontinuations in this update. With REC 1245, as I mentioned, we are seeing early single-agent activity in heavily pretreated patients with solid tumors. Vicki will walk you through the partial responses in the exploratory expansion cohort we have opened. And again to say, look, the biological insight behind each program came from our platform. And with REC 1245, you can see how our use of the platform continues to evolve. We're not just using it for biological insight on the target. We're also using it to design the molecule. And now it's helping us decide which patient populations to study. You can see that same evolution in our partners as well. Genentech optioned the first unexplored neuroscience target from our proprietary maps. Zenofi optioned the first development candidate from our collaboration, a potential first-in-class oral small molecule for INI. And each of these programs have over $300 million in milestones with high single to double-digit royalties. In total, in our partnerships, we have now achieved more than $535 million in cash inflows from our partners. What gives me confidence in the repeatability of this work is that in roughly two years, we have earned more than 100 million across nine milestones tied to the progress in these partnerships. And I'd love to remind everybody that, look, underpinning all of this progress is how we use our data and the fact that we have one single engine. One of the biggest rate-limiting steps in science is the access to high-quality relevant data. and we have built a scientific data factory designed to generate this at scale. Our AI models draw on more than 50 petabytes of proprietary biological data to identify these novel potential causal targets. We then test those predictions experimentally and feed the results back into the models to guide the next experiment. That closed loop is how proprietary data can become a map. A map can then service a new target, and that target can ultimately become a new program that either we or our partner chooses to advance. We see also gains in productivity. Let's just take an example in designing molecules. In designing first-in-class molecules, we are now synthesizing 80 to 90% fewer compounds across our portfolio relative to industry benchmarks. In the clinic, ClinAgent can screen thousands of trial sites in minutes to help us find sites that actually see the patients we're trying to reach. We're seeing enrollment run about 30 to 60% faster than industry benchmarks. and we are advancing all of this work from a stronger financial position. We just completed our oversubscribed 200 million financing in October, bringing in leading institutional investors and now expect our cash run rate to extend into 2029. At the same time, as previously communicated, we have lowered our 2026 cash operating expense guidance from 390 million to $375 million. and then now looking ahead for 2027, we expect that figure to come down even further to under $360 million. Before we go into a deep dive of the clinical programs, let me take you behind the scenes of a couple of our partnership programs and some of the updates to date. Let's start with the Sanofi announcement. We set out to design one oral small molecule that could inhibit two targets, involved in inflammatory disease. Now, that's a difficult chemistry problem. Not only is it first-in-class, but a change that improves activity in one target could come at the expense of the other. And you still have to preserve the properties that actually allow this to be a chronically dosed oral compound. For patients who may need this treatment for years, an oral option could make a meaningful difference in daily life. That's the kind of first-in-class design challenge we want to take on. Sanofi brought deep expertise in immunology and drug discovery, and our team used our AI platform to design the molecules, test them in the lab, and use what we learned to refine that next design. Sanofi has now optioned the candidate and will lead and fund its further development, with phase one expected to begin in 2027. This is the first development candidate Sanofi has optioned from our collaboration and our sixth milestone across five programs together. That track record is what gives us confidence in the repeatability of our work. The option triggered a $10 million payment, bringing total upfront and milestone payments from Sanofi to be $144 million. Under the collaboration, each program has up to $343 million in potential milestone payments plus double-digit royalties on net sales. Now, while with Sanofi, the challenge was to design one small molecule across two targets, with Roche, we started with a separate problem or with a different problem. We knew what cancer pathway we wanted to reach, but it had been long considered undruggable. Could our maps reveal a way in? Roche highlighted this work at its September Investor Day this year. Together we mapped how cells responded when we altered individual genes and then exposed them to compounds. It's this gene-compound relationship that helped our biology engine to identify a new mechanism for acting on this pathway. We then advanced the most promising compounds and confirmed in vivo that they acted on that intended pathway. Much more work to come on here. And then in the neuroscience space, instead of knowing whether there was an undruggable pathway, the question was slightly different. The question was, can our maps of biology find novel causal targets that were previously unknown? This work is a great example of what deep collaboration looks like for us. We generated high-dimensional proprietary maps of biology from human neurons to uncover genes with unexpected links to disease biology. Our teams then worked side by side to prioritize the most compelling targets and then tested them experimentally, building that body of evidence around which ones are worth advancing. Genentech has now optioned the first target from that work, and small molecule discovery is underway that we're working on together. Importantly, the value of the collaboration doesn't stop with a single target. We are continuing to work in advance using the same reusable maps to generate and test additional hypotheses, creating the potential for multiple programs to emerge from that one shared dataset. Now, what ties all these examples together is how we're using one platform across different programs and different disease areas. With Roche Genetic, we uncovered new biology that led to a novel target and more coming in neuroscience. With Roche Genetic in oncology, we found a new way to act on a pathway long considered undruggable. And with Sanofi, we designed one oral molecule to act on two targets in immunology. And in our own pipeline with REC 4881 and REC 1245 in rare disease and in oncology, we're beginning to see those biological insights translate into activity in patients. Now, before I turn to the REC 4881 data, I also want to share an important board update. Today, we announced that our board unanimously appointed Fred Hassan as chair. Fred has repeatedly built, scaled, and transformed some of the most important companies in our industry, including as chairman and CEO of Sharon Plowman Pharmacia. He also brings a wealth of board perspective and experience from companies including Amgen, Ridge Bio, and Prometheus. What matters to me is the perspective Fred brings at this stage of recursion. He understands firsthand what it takes to transform companies, to move companies from clinical proof through approval and launch, while building enduring businesses around them. And he also shares our conviction the data and AI are creating a new blueprint from drug discovery and development. Fred will serve as a non-executive chair, and I'm very excited to work with him as we enter the next chapter. I'm also grateful to Rob Hirschberg for his commitment to recursion and for the perspective he has brought on from many years as physician, scientist, and biotech CEO. Rob will remain on the board, and we will continue to benefit from his insights. Now let's turn to REC481, our investigational oral MEK12 inhibitor for FAP. Yesterday in Denver, Dr. Lisa Boardman presented the updated tuple of results in the presidential plenary at CGA IGC. What makes this meeting particularly relevant to FAP is who's in the room. It brings together the genetic counselors who help families understand their risk, the specialized GI physicians and surgeons who take care of them, and the researchers working on new treatments. I'll share the highlights here. Thank you so much for joining us. Thank you for joining us. We actually see about 85% still had a lower polyp burden than when they first started. The next thing that's really important is the activity we saw both upper and lower GI. Remember, I'd mentioned the high unmet need in upper GI polyp burden reduction. We see reduction throughout the entire GI, but median reductions of about 55% and 50% in upper and lower GI, respectively. And more importantly, that activity extended to larger high-risk polyps. Of the eight patients who had polyps larger than 5 millimeters at baseline, six had fewer of those polyps at week 13, and four saw those counts fall by at least 80%. And when we look at safety, we see it favorable for chronic dosing with no new safety signals and no additional discontinuations in this update. Majority of the AEs that we're seeing are grade 1, 2. To put these results in context, consider what it means to live with FAP. We estimate that more than 50,000 patients across the U.S. and EU5 have been diagnosed with this disease. It's a serious, lifelong condition driven by loss of function and APC, a gene that normally helps keep cell growth in check. Patients develop precancerous polyps throughout the GI tract, hundreds to thousands, and there's no approved drug to treat FAP. Even after surgery to remove the colon, patients still face a lifetime of surveillance and life-altering surgeries. There's a psychological burden with that too. Every endoscopy brings another period of waiting for patients and their families. What will define this time? Will I need another operation? I want to spend a moment in the upper GI because this is one of the greatest unmet needs that we have heard post-colectomy from KOLs time and again. Look at the polyp on the left. It sits flat against the wall of the duodenum. That wall is thin, and removing such a broad base polyp carries a risk of bleeding and perforation. When the disease can no longer be managed endoscopically, patients need surgery. These are life-altering surgeries to remove the duodenum, sometimes along with part of the pancreas. That's a major, major surgery with high morbidity and long recovery. and upper GI cancer remains a serious risk even after the colon has been removed. That's why we paid such close attention to whether REC481 could reduce polyp burden in this part of the GI tract. It is that persistent and prolific disease burden that also helps the population we could ultimately serve. Our immediate focus is the estimated 37,000 patients across the US and EU5 who are post-colectomy and require decades of lifelong surveillance and life-altering surgeries. We also have the potential to explore pre-colectomy patients following this immediate focus. Together, these patients and these populations underpin our estimate for roughly 15 billion total addressable market. But ultimately, the opportunity is defined by what we can change for patients. Could a medicine, an oral medicine, meaningfully reduce this disease burden? Could it delay the need for another one of these multiple life-altering interventions or change the overall trajectory of lifelong surveillance? These are the outcomes that we're focusing on. So let's jump directly into the program. How did we get from APC loss to a MEK12 inhibitor? That was not an obvious therapeutic connection. It was an underappreciated biology that our platform surfaced. Our platform compared the changes we saw in images of APC deficient cells with the effects of thousands of compounds to see could they reverse the disease-associated changes to healthy. and while thousands of these compounds were screened, MEK12 inhibition stood out as the top in terms of our AI model prediction and REC481 in particular produced one of the strongest reversals of the disease-associated changes we measured. That's the unappreciated synthetic rescue we saw and what led us to license this particular molecule from Takeda to study in FAP. Now, while the platform serves as this novel insight, the biology also gave us good rationale, which is something that we're learning more about. Loss of APC is known for decades to activate beta-catenin signaling, which helps polyps form. Now, as these polyps evolve, additional mutations can also activate the MAPK pathway. What RET4801 is doing is interacting with both of those pathways. One, inhibiting the MAPK pathway, which is downstream of the additional mutations that these polyps accumulate. In addition to that, given the crosstalk that is known between MAPK pathway and beta-catenin, MEK1-2 can also dampen some of the growth signals driven by APC loss. It is that platform insight that led us to test a MEK1-2 inhibitor in patients with FAP for the first time. So what we see when we tested that hypothesis in patients, this tuple of updates includes additional patients, as I mentioned, and we've expanded that study eligibility to patients 18 and over. Each bar that you're seeing here represents one patient. And after 12 weeks of treatment, 13 of 15 evaluable patients, that's about 87%, had a reduction, deep, deep reduction in total polyportance. So next what we looked at is what happens if you follow the patients for 12 weeks on treatment and then we take the drug off and follow them off treatment. Essentially what you see is the rapid reduction in polyps in the first 12 weeks. And what's interesting is even when they're off drug, you see majority of the patients, about 85% or so, the polyp burden still remains below baseline. For patients living with a disease where they may need to manage it for decades, how much time they spend on treatment matters. The possibility of dosing flexibility could therefore be quite meaningful for patients, and the persistence we're seeing of treatment gives us an important signal to explore as we think about long-term management. We also wanted to know what happens to the larger high-risk polyps. Here, we're counting polyps greater than five millimeters. As you can see, eight patients had at least one at baseline. And by week 13, six of the eight patients had fewer of these larger polyps and four, so their counts go down by 80%. The individual counts really puts that into perspective. Two patients each went from more than 90 larger polyps to just one. Another went from five to none. In these three patients, these counts also held at week 25 when they were off treatment for 12 weeks. Now moving from the overall polyp burden. will now break it into upper and lower GI. What we see is reduction in both the upper and lower GI. And in this slide specifically, you're looking at the upper GI polyp burden reduction. Remember, this is one of the greatest areas of unmet need post-colectomy. And just after 13 weeks, we see a 92% of the patients had a reduction in their upper GI polyp burden. Where one out of two, so about 65 equal to greater than 65% reduction in their polyp burden, and two patients had near clearance of 98% or greater. Now, let's again look at what happens to these patients when we take them off drug for 12 weeks. 11 of the 12 evaluable patients, or about 92% or so, still had upper GI polyp burden reduction below baselines. That persistence matters. In the natural history that we've seen before, spontaneous regression was not something that was observed. Polyburden generally increased over time. And the fact that most of these patients remained below where they started after three months off treatment is very encouraging. These images also show what the change looked like in a patient with deep reduction. This patient had about 98% polyburden reduction. On the left, you can see the polyps in the duodenums before treatment. On the right is the same part of the duodenum at week 13. Across the GI tract, this patient's total polyp burden, measured by adding the polyp diameters, fell from 1,344 millimeters to just 32 millimeters after 12 weeks of treatment. That's a 98% reduction. And of the 96 polyps that measured more than 5 millimeter at baseline, only one remained above that threshold. How do clinicians put this in context? One measure they use is the Spiegelman stage scoring. This grades the severity of duodenal polyps from stage 0 to stage 4, which is the most advanced. It takes into account the number of sides of the polyps as well as what the pathologist sees under the microscope. Clinicians use that information to determine how often someone needs surveillance and also what type of intervention, including multiple types of surgery. What you see here is at week 13, six of the 12 evaluable patients, about 50%, actually downstaged on their Spiegelman score. Four went from stage three to two, one went from stage four to two, and another went from stage two to stage zero. And what's even more interesting is of the six patients, four had reached their week 25 assessment after 12 weeks of treatment, and all four remained at least one Spiegelman stage below baseline. the remaining two patients had not yet reached their week 25 assessment at the time of cutoff. And now let's finally also look at the lower GI tract. Again, these are post-colectomy patients, which means it's really focusing on the remaining rectum or the ileal pouch. 12 weeks post-treatment, we see 82% had a reduction in their lower GI polyp burden. And again, you see a few patients that had deep, deep reductions of 88% and 100%. And again, when you look 12 weeks after stopping REC481, 7 of the 10 evaluable patients had lower polyp burden in the GI below their baseline.