As many veteran investors can attest, biotech stocks are difficult to trade. Their potential is enormous, but so is their risk. Too many of these names end up being complete busts. If you pick the right biotech name, though… ka-ching! If you own a big enough stake in one of these winners, it could make you a millionaire.

With that as a backdrop, here’s a closer look at a curious biotech name, Recurring pharmaceuticals (RXRX 1.27%). It’s risky, but it’s not unreasonable to say that this company has the potential to change the game and make millionaires.

The story of Recursion Pharmaceuticals

Never heard of it? Don’t sweat. A lot of people didn’t. Its $2 billion market cap doesn’t turn many heads. Losses that are persistently higher than its meager revenues don’t draw any crowds.

You mostly own though biotech stocks for the promise of their research and development (R&D) pipeline and the company’s potential to develop new therapies around its core science. That’s where Recursion Pharmaceuticals shines.

The most distant is Recursion REC-994 for the treatment of cavernous malformations of the brain. The orphan drug has already demonstrated its effectiveness through the last part of phase 2 testing, and in September it was confirmed to be safe and tolerable for most patients. A meeting with the Food and Drug Administration (FDA) to discuss next development steps is in the works.

That said, recursion works four other drugs which are not too far from REC-994, while two other treatments are in the early stages of research and development. However, it’s not the therapies Recursion is working on that serve as the heart of the optimistic argument here. It is how these and any future drugs have been and will be developed that makes Recursion such a promising prospect.

See, the company’s main profit center is ultimately destined to be its drug development software platform, Recursion OS, which focuses on figuring out how drugs will (or won’t) work without so much many expensive and time-consuming clinical trials. preclinical work.

The basic need behind the optimistic argument

It was a dream for a long time the pharmaceutical industry to minimize its initial R&D effort by offloading this work to a computer. Unfortunately, until the advent of artificial intelligence (AI) and high-performance computers, this was neither practical nor possible.

Now it is. With the Recursion operating system, drug developers can digitally simulate how a therapeutic molecule might be created and then simulate how that molecule is apt to work as a treatment for diseased or damaged bodies. The company reports that it has identified nearly 4 trillion associations between chemical and biological if-then relationships, or 50+ petabytes of data that could be useful to anyone trying to create a new drug with a specific purpose or mechanism of action in mind.

The need for such a solution has never been greater either. The Congressional Budget Office reports that the typical cost to create and bring a new therapy to market is now in the $1 billion to $2 billion range each. In some cases, it can be more, exceeding $4 billion. Some of these treatments may not produce much profit in their lifetime.

And these are only the drugs that are eventually approved. Nine out of 10 drugs that start clinical trials don’t finish those trials simply because they don’t work well enough or are considered too dangerous to use. However, it takes time and money just to start this clinical trial. If nothing else, Recursion’s AI-based platform could have bypassed this waste, allowing drug companies to narrow their investments to the most promising prospects.

Surely this is also the future. Precedence research states that AI-assisted drug development the software business is slated to grow at an annual rate of 21.5% through 2033, consistent with Global Market Insights’ outlook.

Risk and reward align, but both are still significant

There are still risks here, of course. Chief among these risks are uncertainty and skepticism. Pharmaceutical companies seem reluctant to try this new technology. They may also be unwilling to pay for access to Recursion Pharmaceuticals’ know-how and information, opting to continue using their long-standing (read “comfortable”) approaches to research and development.

There’s also plenty of potential, though, especially given Recursion’s three-pronged approach. Not only does it provide access to its operating system, it also sells access to its rich datasets and uses its technology to develop and co-develop its own treatments.

Image source: Recursion Pharmaceuticals.

If all goes as hoped, these multiple tailwinds could turn Recursion stock into a bag of 10 or better — certainly enough to consider it a millionaire-maker kind of young. Even if that growth doesn’t materialize, know that the analyst community’s current one-year price target is $10.14. That’s more than 50% above the current share price, which isn’t a bad start for anything waiting.

Just know that this name is still not the right choice for everyone portfolio. As compelling as the story is, it’s still a biotech name, and you still (mostly) appreciate the story over the results. That means there is still a chance of a complete collapse. If you can’t take that risk, think twice before taking the plunge.