Here's Why Shares in Recursion Pharmaceuticals Surged Today

Key Points

• Recursion Pharmaceuticals is now the sole owner of a drug in its pipeline.

• The deal de-risks the company's pipeline by removing uncertainty; however, there's still a long way to go before REV102 is commercialized.

• 10 stocks we like better than Recursion Pharmaceuticals ›

Shares in biotech company Recursion Pharmaceuticals (NASDAQ: RXRX) surged by more than 12% by 11 a.m. ET today. The move is due to a de-risking event in its drug discovery pipeline.

Taking full ownership of an important drug

The de-risking event relates to the acquisition of the 50% interest in an ENPP1 inhibitor program (REV102) that it didn't own from Rallybio (NASDAQ: RLYB). REV102 is being developed to treat hypophosphatasia (HPP) -- a rare and debilitating genetic disorder that affects bone development.

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According to Recursion, "HPP is a devastating genetic disorder affecting over 7,800 diagnosed patients across the U.S. and major European countries." It targets an enzyme, ENPP1, whose inhibition is believed to help treat HPP.

Until today, Recursion and Rallybio have had a joint venture to develop ENPP1 inhibitors, which have resulted in REV102, still in the preclinical stage of development.

The terms of the deal

The deal is good news for both companies. Focusing on Rallybio, the company will receive:

• Some much-needed cash in the form of $7.5 million in up-front equity
• An equity payment of $12.5 million if REV102 undertakes additional preclinical trials
• A $5 million milestone payment after initiation of dosing in a phase 1 study
• Low-single-digit royalties on future sales of REV102

Meanwhile, Recursion gains full ownership of REV102 and can now develop the drug without worrying about Rallybio's consideration of the matter.

Image source: Getty Images.

What it means to investors

The agreement helps de-risk the development of REV102 and removes uncertainty around it in connection with Rallybio's financial condition. That's a plus and adds value to Recursion's pipeline, even if REV102 is in a very early stage of development.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.