Just in! Two AI pharmaceutical companies announced a merger, creating one of the largest M&A deals in AI Bio

On August 8th, in Salt Lake City and Oxford, Recursion (NASDAQ: RXRX) and Exscientia plc (NASDAQ: EXAI) announced today that the two companies have reached a final agreement to merge. Recursion, a leading clinical-stage biotechnology company that industrializes biology to decode biology for drug discovery, and Exscientia, a technology-driven clinical-stage drug design and development company dedicated to creating more effective drugs for patients faster.

Dr. Chris Gibson, co-founder and CEO of Recursion and planned CEO of the merged entity, stated: "We believe the proposed merger is deeply complementary, aligned with our mission to industrialize drug discovery, and provide consumers with high-quality drugs at lower prices. Exscientia's precision chemistry tools and capabilities, including its newly commissioned automated small molecule synthesis platform, will enhance our technological support for biological and chemical exploration, hit discovery, and translational capabilities. I am excited to continue building the best example of the next generation of biotechnology companies. We still feel like we are just getting started."

After the transaction is completed, Dr. David Hallett, interim CEO and Chief Scientific Officer of Recursion, stated: "Adding Exscientia's world-class focus on precision oncology to Recursion's pipeline, which is the first to focus on rare diseases, precision oncology, and infectious diseases, is highly complementary as we aim to provide treatments to patients faster. We look forward to bringing our teams together, combining Recursion's high-throughput and target biology capabilities with Exscientia's highly scalable molecular design and automated chemical synthesis capabilities to truly accelerate the discovery of better drugs for patients."

Once integrated, these companies believe that the expanded and evolved recursive operating system will discover and translate higher quality drugs more efficiently and on a larger scale through a full-stack technology-supported small molecule discovery platform. Additionally, the merged company is expected to announce approximately 10 clinical trials in the next 18 months.

The proposed business combination will also advance significant therapeutic discoveries with some of the world's most renowned biopharmaceutical companies, including Roche's Genentech, Sanofi, Bayer, and Merck. Furthermore, over the next 2 years, these existing partnerships could result in milestone payments of approximately $200 million, with potential revenues exceeding $20 billion in net sales royalties during the collaboration period, ranging from single to double digits in percentage terms.

Pipeline: This combination will create a diversified portfolio of clinical and near-clinical projects (with approximately 10 clinical readouts expected in the next 18 months), where most projects, if successful, could have peak annual sales opportunities exceeding $1 billion. In addition to Recursion's internal pipeline, Exscientia also has wholly-owned oncology projects related to targets CDK7 (clinical), LSD1, and MALT1, as well as collaborative projects related to targets PKC Theta (clinical) and ENPP1. Across the combined pipeline, there is no competitive overlap, with Recursion's pipeline focusing on first-in-class candidate drugs in oncology, rare diseases, and infectious diseases, while Exscientia focuses on first-in-class candidate drugs in oncology. Furthermore, for both companies, many research and discovery stage pipeline projects will benefit from the complementary combination of these two platforms.

Partnerships: The proposed business combination will establish transformative partnerships with leading large pharmaceutical companies, with a total of 10 projects available in oncology and immunology. In addition to Recursion's transformative partnerships with Genentech (neuroscience and gastrointestinal oncology indications) and Bayer (non-oncology drugs), Exscientia has partnerships with Sanofi (immunology and oncology) and MSD (oncology and immunology). Additionally, Exscientia has established a partnership with BMS (oncology and immunology), where optional projects related to PKC Theta have shown positive early Phase 1 results. Furthermore, the combined company is expected to receive additional milestone payments of approximately $200 million from its existing partnerships in the next two years.

Platform: This combination will help realize a full-stack technology-supported platform, covering patient-centric target discovery, structure-based drug design including hot spot analysis, quantum mechanics and molecular dynamics modeling, 2D and 3D generative AI design, encoding and automated design, active learning, automated synthesis, predictive ADMET and translation, biomarker selection, clinical development, and more. Additionally, Exscientia's automated chemical design and synthesis capabilities are expected to enable Recursion to run SAR cycles faster and more efficiently in hit-to-lead and lead optimization processes. These capabilities are expected to generate a variety of chemical entities to experimentally improve our biological and chemical predictive maps.

According to the terms of the transaction agreement unanimously approved by the boards of both companies, for each share of Exscientia common stock held, Exscientia shareholders will receive 0.7729 shares of Recursion Class A common stock, with a portion of the shares paid in cash. At a fixed exchange rate, Recursion shareholders will own approximately 74% of the combined company, while Exscientia shareholders will own approximately 26% of the shares, in each case assuming no additional issuance by either company before closing. Major shareholders of each company, including shareholders holding over 40% of Exscientia shares, have entered into agreements under customary terms and conditions to vote all their shares in favor of the transaction As of the end of the second quarter of 2024, the two companies held approximately $850 million in cash and cash equivalents. The merged company is expected to achieve annual synergies of around $100 million, with the runway extending to 2027.

The merger is expected to be implemented under a scheme of arrangement approved by the court in accordance with English law, subject to customary closing conditions, including approval from Exscientia shareholders, approval from Recursion shareholders, approval from the High Court of England and Wales, and obtaining the necessary regulatory approvals. If the closing conditions are met or waived, the transaction is expected to be completed in early 2025.

The merged company will be named Recursion, with headquarters remaining in Salt Lake City, Utah, and trading on the Nasdaq while maintaining a significant presence in the UK. Dr. Chris Gibson, co-founder and CEO of Recursion, will serve as the CEO of the merged company, and Dr. David Hallett, interim CEO and Chief Scientific Officer of Exscientia, is planned to join the merged company as Chief Scientific Officer. Following the completion of the transaction, two existing directors of Exscientia will join the board of Recursion