Marc Lichtenfeld has a full throated teaser pitch running right now with a “September 1” deadline, so that got the attention of a lot of Gumshoe readers over the weekend, and they sent in a pile of questions about “Why NVIDIA is Going All-In on This $10 TechBio Stock”… so let’s get you some answers.

And yes, we missed that September 1 deadline… but, as you’ll see in a minute, I probably did you a favor by taking the weekend off.

The pitch is all about the NVIDIA connection for this “tiny company”…

“… the greatest AI stock story EVER is happening right now…. it could change the course of human health… forever…

“Jensen Huang, the Chief Executive Officer of Nvidia says this will be ‘…the next amazing revolution… It will be one of the biggest ever.’

“But listen, these are more than just words from Nvidia’s CEO.

“In fact, it’s about cold hard cash.

“Nvidia just did something very unusual.

“They made a MASSIVE investment directly in one small biotech firm that trades for less than $10.

“Why?

“It’s just ahead of a major announcement that could send shockwaves through the market.”

And Lichtenfeld leans heavily on that September 1 date…

“I am beyond excited about this company.

“I foresee huge gains immediately following this upcoming announcement, which could hit as early as September 1.

“BUT it’s not entirely true that no one has heard of this stock.

“I mean, it’s not a company on the average investor’s radar. Not yet.

“But industry leaders like Roche-Genentech and Bayer have already teamed up with it.

“Baillie Gifford & Co., a money manager famous for being an early investor in stocks like Tesla and Moderna is this firm’s largest holder.

“And here’s the real game changer…

“The most powerful player in all of AI is betting big on this small company.”

And he lays it on thick about that investment NVIDIA made in this company…

“Out of the more than 6,600 biotech companies that operate in the United States, this is the ONE – the only one – that Nvidia is investing in on a major scale.

“To give you an idea, Nvidia’s portfolio is comprised of 5 stocks… and 97% of that portfolio is invested in just two holdings.

“This tiny firm being one of them.”

So what’s the story? Well, this is just a repeat of a pitch that Marc Lichtenfeld made back in June… it’s just that he more recently started pushing the “September 1” bit because, well, that date was coming up fast.

So we covered that promo before it was formally released, just going by Licthenfeld’s hints a few months ago… but we didn’t actually know which newsletter he was going to pitch at the time. Turns out, this big promo has all been to get subscribers for his higher-end mostly biotech-focused Trigger Event Trader ($8,000/yr), which seems to just be a new name for what he used to call Lightning Trend Trader.

So what’s the stock? This is still Recursion Pharmaceuticals (RXRX), which has been one of the largest and most prominent early stage “AI Drug Discovery” companies over the past year, and has doubled down on that by agreeing last month to acquire the firm that was probably the second most-popular among investors in this space, fellow AI drug discovery pioneer Exscientia (EXAI).

And what’s the “September 1” date that Lichtenfeld is all hot and bothered about? Well, have no fear, it hasn’t happened yet… but the catalyst he’s apparently looking for is the first “top line readout” of one of Recursion’s clinical trials, and yes, that data release should come in September… that’s the trial for the drug which is currently called REC-994, a treatment for Cerebral Cavernous Malformation, and Recursion says they’ll release some “topline Phase 2 data” in September 2024.

And it didn’t come out September 1… but it did come out today, September 3, and it was, as the analysts say, “mixed.”

Which in biotech terms often means, “look out below.” The drug met Recursion’s primary endpoint when it comes to safety and tolerability, which is typically the goal of Phase 2, but investors are always looking for early progress on the “does it work” front.
The announcement from Recursion was filled with words like “impressive start” and “encouraged” and “promising trends in efficacy,” but didn’t feature fireworks and a triumphant announcement about how this meant that the drug is obviously fantastically effective or that AI is going to instantly cure all diseases… so Recursion’s stock gave up some of its recent enthusiasm, and got a couple instant analyst downgrades.

So this wasn’t the big catalyst to launch Recursion’s share price to new highs. Maybe next time.

The spiel is essentially that NVIDIA (NVDA) has invested in Recursion, which is seen by some as a big endorsement, and that they have a lot of potential catalysts coming — both are true.

NVIDIA bought shares as part of a collaboration deal with RXRX in mid-2023, though the collaboration is likely much more important than the share ownership to NVDA, which also sold RXRX $20+ million worth of chips to build their BioHive-2 drug discovery supercomputer, and is collaborating with them to build their offerings on NVIDIA’s cloud — so to some degree, perhaps, NVIDIA invested so that RXRX could buy more chips and buy more NVIDIA services, and to make sure NVIDIA remains tapped in to the emerging use of AI processing for drug discovery.

That may be strategically important, though it’s still pretty early days for “AI drug discovery” software and services, and it’s still a small deal — that $50 million investment does not bring NVIDIA even into the list of the top ten shareholders of RXRX, and $50 million is about how much positive operating cash flow NVIDIA generates from its business every seven or eight hours.

NVIDIA has invested in strategic partners a half dozen times over the years, but is not really focused on investment returns. Their most prominent investment was Arm Holdings (now ARM) a few years ago, a company they were trying to acquire at the time, and they just held on to the shares they owned when that deal fell through… but NVIDIA’s other small investments in partners and strategic customers got a brighter spotlight after the ARM IPO last year, because that was the first time that NVIDIA’s stakes in other publicly traded companies were worth more than $100 million, which is the point at which you become an “institutional investor” and have to report your holdings each quarter to the SEC. So even though NVIDIA has not bought or sold any of the few “AI” companies they own shares of over the past year, they’ve driven a lot of attention to those companies — including SoundHound (SOUN), which they invested a little bit in when it was venture-funded, many years ago.

And on the clinical trial front, Recursion did have, as of Lichtenfeld’s originally presentation, at least three clinical trial data/results readouts coming — including a Phase 1 “full report” in late June that turned out to be “no news” (that was their conference re-announcement of results for their clostridium dificile trial, which apparently didn’t change the narrative following their earlier report of some of the data from that trial last year, though they are now planning to initiate a Phase 2 trial before the end of 2024), it also includes this Phase 2 readout for Cerebral Cavernous Malformation, which we now know that investors read as a mild disappointment today, and news from another Phase 2 trial of REC-2282 in Neurofibromatosis Type 2 sometime in the fourth quarter of 2024. There could always be more news, including potential other partnership announcements, and they also expect more trial results coming in 2025 (they expect a total of seven “catalyst” updates before the end of 2025, though that could also grow with the EXAI merger).

As was the case in June, I don’t know whether these catalysts will drive RXRX share prices in any meaningful way this year, but anything’s possible with early-stage biotech, and the NVIDIA connection will probably continue to amplify any news they report, good or bad… particularly since they’ve also merged with another fairly high-profile player, reducing the number of publicly traded AI drug discovery companies.

Recursion Pharmaceuticals is one of a half-dozen or so pure play “AI Drug Discovery” story stocks, many of which get teased regularly by newsletters (like EXAI and ABSI), and they’ll all be burning money for the next few years. Parsing the odds for one over the others is not an “edge” I’m ever going to have as a generalist investor, and biotech has been through a really rough couple years… so there’s certainly opportunity for a hot story to explode higher, but I’ll continue to mostly avoid the sector. You can check out my longer piece in June if you want more of my blatheration on the subject.

If you’d like to get a sense of where the company believes it stands now, you can check out the video from Recursion’s latest earnings call (they have no earnings, of course, as an early stage R&D company, so they cheekily call it a “L(earnings) Call”) — this is from about three weeks ago:

It’s been a particularly terrible biotech market over the past few years, ever since the spigot of COVID money got turned down and everyone started to get back to “regular” business, and these long-duration investments are also hurt by higher interest rates (if nobody thinks you’ll make money for five years, then the fact that you could otherwise just earn 5% on that cash over the next five years colors your assessment of that future value).  There will probably be some big winners in AI drug discovery, whoever develops the most capable platforms or identifies the most blockbuster drugs and gets the best long-term deals with the big pharma companies, and maybe some of those winners will be small pure-play companies like the heavily teased Exscientia or Recursion Pharma, particularly now that they’ve joined forces… but there are also dozens of private companies that are sucking up tons of venture funding in this space right now, too, and things could change pretty dramatically over the next decade. it’s probably going to take years, at least, for these early-stage R&D companies to sort themselves out and clarify, at least for non-experts like me, which ones are burning huge piles of money in order to push a powerful locomotive along the tracks, and which ones are just enjoying the campfire and roasting marshmallows.

That’s just what I think, dear friends… and with your money, it’s what you think that matters.  Ready to invest in Recursion Pharmaceuticals and bet that their NVIDIA collaboration or their merger with Exscientia will help push them over the top, or that they’ll announce fantastic clinical trial results next quarter, after the tepid announcement today?  Think others in this space are a better bet?  Want to avoid them all?  Let us know with a comment below…

Disclosure: Of the companies mentioned above, I own shares of NVIDIA. I will no trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.