Why Recursion Pharmaceuticals Stock Is Skyrocketing Today

Shares of Recursion Pharmaceuticals (NASDAQ: RXRX) were skyrocketing around 20% higher as of 11 a.m. ET on Friday. The big gain for the biotech stock came after the U.S. Food and Drug Administration (FDA) announced on Thursday that it plans to replace the use of animals in testing drugs with "more effective, human-relevant methods," including artificial intelligence (AI) models.

Recursion uses AI in its drug discovery and development processes. The company built one of the largest datasets in the biopharmaceutical industry with over 60 petabytes of data.

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What will the FDA's move mean for Recursion?

The FDA will initially focus on monoclonal antibodies with its initiative to replace animal testing and later expand to other types of drugs. How will the agency's move impact Recursion? It's too soon to know for sure.

However, it's possible that other drugmakers could be more interested in teaming up with Recursion with the FDA promoting the use of AI models in drug development. Recursion already partners with four big pharmaceutical companies: Bayer, Merck KGaA, Roche's Genentech unit, and Sanofi.

Is Recursion Pharmaceuticals stock a buy?

Recursion Pharmaceuticals stock isn't a good fit for risk-averse investors. The company remains unprofitable and is losing more money as it ramps up clinical development of several candidates. Recursion's most advanced program is only in phase 1/2 testing. There's no guarantee that any of the pipeline candidates will be successful in clinical studies and win regulatory approvals.

However, aggressive investors could find Recursion Pharmaceuticals attractive. Its collaborations with big drugmakers give it more stability than many clinical-stage biotech companies have. The company is also backed by Nvidia. Recursion's AI-driven processes hold significant potential. This is a risky pick, but one that just might pay off handsomely over the long run.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Roche Holding AG. The Motley Fool has a disclosure policy.