“NVIDIA’s $1 Trillion Drug Company” teased by Marc Lichtenfeld

by Travis Johnson, Stock Gumshoe | June 20, 2024 2:01 pm

What's being teased in Oxford Club's "The AI Biotech Revolution Is Coming" pitch for a June 27 "exclusive event"?

Thought I’d squeeze an extra little teaser solution in for you today… Marc Lichtenfeld[1] is promoting a “special event” he’s going to host next week, in which he’ll talk up “NVIDIA’s $1 Trillion Drug Company” (and presumably hit you up for a subscription, probably for the Oxford Club[2] Communique[3] but perhaps, since he’s also talking up “catalysts,” for one of Lichtenfeld’s higher-priced trading or options[4] letters).

I don’t know what he’s going to say next week about this company, but just going by what he’s already saying in the teaser promo we can at least identify it, and give you a chance to do some research on your own before you think about nibbling at the marketing bait.

Here’s how his teaser promo starts:

“Why Nvidia Is Going All-In On This $10 TechBio Stock

“And why you should get in before July 1 ahead of the next cash wave”

And then some more enthusiasm…

“Right under investors’ noses, the greatest AI stock story EVER is unfolding.

“Nvidia, the $2.5 trillion artificial intelligence powerhouse, has just bet BIG on one under–the–radar biotech trading for just $10.

“Why is the world’s #1 AI company investing in biotech?

“Consider this…

“Nvidia’s investment portfolio consists of only 5 stocks total. And a shocking 97% of it is concentrated in just two holdings – with this $10 biotech being one of them.

“THAT is how convinced the AI leader is that this tiny biotech will usher in the next great tech revolution.”

Well, maybe. Yes, NVIDIA thinks that biotech is one emerging area in which artificial intelligence might build some big businesses and help identify some big breakthroughs, and they’ve been spending on that pretty heavily because they want the next generation of bio-focused AI companies to use NVIDIA hardware and software, giving them exposure to whatever future might be built.

And sometimes those partnerships and deals with earlier-stage companies also take the form of a capital infusion from NVIDIA, both to get them a piece of the potential upside and to “lock in” a partner to using NVIDIA’s systems and tools. That’s not so unusual, we see these kinds of partnerships and co-investments pretty regularly in the technology world.

Then the ad gets a little silly, frankly:

“And Nvidia has set themselves up for a massive windfall… investing just ahead of a bombshell announcement that could send shockwaves through the market….

“And most importantly, Marc will reveal the major announcement – coming within days –– that he says could light a raging fire under this $10 stock… and thrust the entire AI biotech revolution into hyperdrive.”

So that’s the idea — that NVIDIA has invested in a little AI biotech company, and there’s going to be some big catalyst this summer that sends the stock soaring, generating a windfall for NVIDIA.

Now, to be clear, that will NOT matter to NVIDIA in any real way. They invested about $50 million into this little biotech company last year as part of their partnership deal with them, which is roughly the amount of operating income NVDA pulls in during one eight-hour workday, and if that investment soars in value 10X to $500 million, which would be a shockingly strong outcome, it will still still be essentially a rounding error in either NVIDIA’s income statement ($80 billion in revenue over the past year) or its market value (recently topping $3.4 trillion, making them the largest publicly traded company in the world).

But yes, news might matter to that little biotech company itself. Lichtenfeld is teasing Recursion Pharmaceuticals (RXRX)[5], which this year announced the latest stage in their NVIDIA partnership, Recursion’s participation in NVIDIA’s BioNeMo cloud drug discovery platform[6] and the launch of BioHive-2[7], Recursion’s second-generation supercomputer for drug discovery (and, they say, the largest such supercomputer dedicated to the pharmaceutical industry, and the 35th most powerful supercomputer in the world), built with NVIDIA parts (including more than 500 of NVIDIA’s H100 GPUs — so it could be that part of the reason NVIDIA bought RXRS shares was to help fund the purchase of those GPUs, which would have cost about $20 million). If you want a little more color on the partnership, you can see their press release from last July[8], or their blog post about the collaboration here[9].

And here’s how Recursion describes itself:

“Recursion Pharmaceuticals is a clinical stage TechBio company leading the space by decoding biology to industrialize drug discovery. Enabling its mission is the Recursion OS, a platform built across diverse technologies that continuously expands one of the world’s largest proprietary biological and chemical datasets. Recursion leverages sophisticated machine-learning algorithms to distill from its dataset a collection of trillions of searchable relationships across biology and chemistry unconstrained by human bias. By commanding massive experimental scale — up to millions of wet lab experiments weekly — and massive computational scale — owning and operating one of the most powerful supercomputers in the world, Recursion is uniting technology, biology and chemistry to advance the future of medicine.”

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You can hear the basic spiel from the company by listening to one of their investor conference presentations — the most recent talk they gave was only about 20 minutes, healthcare[11]-conference">at the Jefferies[12] Global Healthcare Conference.

And this is a fairly catalyst-heavy period for Recursion, which is probably the reason for Lichtenfeld’s “six month opportunity” bet — they have data coming out from two of their Phase 2 clinical trials coming out in the second half of this year, both for very rare diseases… they expected a “topline data readout” for REC-994, a treatment for Cerebral Cavernous Malformation, in the third quarter (so, “anytime after July 1”), and “preliminary data” for REC-2282, targeting Neurofibromatosis Type 2, in the fourth quarter of 2024. THey also might launch another Phase 2 trial sometime soon, and they have other data coming out in the first quarter of next year for two other Phase 2 trials. They’re also expecting to release Phase 1 results from their Clostridioides difficile infection treatment at an infectious disease conference next week, and launch Phase 2 later this year. This is their slide of expected “milestones”:

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And whether or not AI is involved, a biotech company with a half-dozen different clinical trial updates and news releases coming over the next year or so is likely to attract the attention of investors. We have no idea whether the news will be shocking or big for any of these trials, but that’s probably not all that likely, just because they’re mostly very rare diseases — probably bigger news would be advancements of any of their partnerships, which are mostly targeting bigger diseases, or some exciting new partnerships or great new compounds identified by BioHive-2… or even revenue they might earn by sharing BioHive-2 or their other tools with partners or customers.

You’ll have to run the odds on those bets on your own, I’m afraid — this is a partnership heavy company with a handful of early-stage clinical trials, and it’s an AI story that has been attracting investors for more than a year. They will probably continue to lose hundreds of millions of dollars a year for at least a few more years, particularly because more clinical trials and more investment in their supercomputer adds to their operating costs (their R&D spending, particularly, is running at about $240 million a year, which swamps the $10-15 million in research and partnership revenue they generally receive in a given quarter). At the current pace of cash burn, they have about one year’s worth of cash on the books, roughly $300 million as of the first quarter… which means they are very likely to sell more shares, as they have done in each of the past three quarters. That’s fine if they’re reporting great news from their clinical trials, or inspiring investor hope about future developments and potential… not so fine if they have a couple bad announcements of failed trial results or scrapped partnership deals and have to raise money at lower share prices.

That’s the dance of early-stage biotech, no matter who you are — Recursion has a better story than some, particularly because they are easy to tie to the NVIDIA story with that small investment NVDA made in RXRX shares last year, as part of their collaboration, but they’re still an early stage biotech company that has to prove both that its drugs work in human beings, and that their drug discovery platform is particularly valuable compared to the handful of other publicly-traded AI drug discovery companies who are all trying to establish a leading position (the most-teased stocks in that group over the past year are Exscientia (EXAI)[14] and Absci (ABSI)[15], in addition to Recursion). Just as a reminder of how story-driven this group is, here’s the chart of those three “AI Drug Discovery” stocks going back to January of 2023, covering the current manic period for AI-related companies… that’s the S&P 500 in purple, for context:

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And lest we overthink things, I should note that those two biggest spikes for RXRX shares, in green, came when they announced their NVIDIA collaboration last summer, and again in February of this year when NVIDIA was forced to file its first 13F[17], and that reminded investors of the fact that NVDA owned some shares of the company… so clearly, any publicity about their connection to the leading AI darling is still the biggest catalyst for the stock in any given moment (NVDA’s share ownership of RXRX hasn’t changed since the deal was announced, but it also wasn’t big enough to be detailed in a quarterly SEC filing last year — it wasn’t until another company NVDA owns some shares of, ARM Holdings (ARM)[18], came public late in 2023 that NVDA’s portfolio of investments in other companies grew to become large enough that they had to file a 13F… which also caused some manic trading in some even tinier companies that NVDA has owned for many years as venture, partnership or collaboration investments, like SoundHound (SOUN), or might have wished they didn’t have to admit to still owning, like TuSimple (TSPH) or Nano X Imaging (NNOX)[19], just because that 13F filing tied those stocks to NVIDIA and made it appear, to some uninformed investors, that NVIDIA had just invested in those firms).

And here’s a chart if we add some members of the previous wave of AI Drug Discovery stocks that tried to tempt investors before ChatGPT[20] was released (late 2022). Schrödinger (SDGR) probably belongs in this older group, many of which were hyped-up in 2021 or earlier, but we can also add Abcellera (ABCL), and BioXcel Therapeutics (BTAI)[21], one of the very prominent “Drug discovery AI” IPOs from the pre-COVID era… and if you want to stretch the AI story a little in the biotech world you can throw in Lantern Pharma (LTRN)[22], Benevolent AI (BAI in Amsterdam, not in this chart), Relay Therapeutics (RLAY)[23], or Predictive Oncology (POAI)[24]. I’ll bring back this chart to cover almost three years, back to when the newest of these stocks went public, so this goes back to October of 2021… that’s still the S&P 500, in purple:

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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, but that chart should serve as a good reminder that early stage biotech ain’t easy, no matter how much AI you pour onto it.  There will probably be some big winners in AI drug discovery, whoever develops the most capable platforms or identifies the most blockbuster drugs, and maybe some of those winners will be small pure-play companies like the heavily teased Exscientia or Recursion Pharma… but 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 will help push them over the top, or that they’ll announce fantastic clinical trial results over the next few quarters?  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 and/or call options on NVIDIA and Schrodinger.  I have stop-loss trades entered for NVIDIA that could trip at any time, but I will not alter those trades or otherwise trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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