Recursion Pharmaceuticals (RXRX Quick QuoteRXRX - Free Report) and Schrodinger (SDGR Quick QuoteSDGR - Free Report) are pioneering the use of artificial intelligence (AI) in drug discovery for various indications across different disease areas. They leverage machine learning and computational platforms to accelerate the development of novel therapeutics, positioning themselves at the forefront of the AI-driven biotech sector.

Both RXRX and SDGR have the potential to shift the paradigm of drug discovery and development, which has historically been complex, costly, and prone to failure. Traditional biotech companies rely on a “trial-and-error” approach, leading to significant cash burn during early research and development. The high failure rates and funding challenges often result in financial instability or bankruptcy, hindering progress in the sector.

In contrast, AI-powered models could help identify promising candidates with higher probabilities of success in clinical development. This approach could reduce research costs, improve efficiency, and allow the company to deliver cheaper breakthrough therapies.

Additionally, the companies generate incremental revenues by licensing their AI platform to other drug makers. Even when candidates fail in clinical studies, Recursion Pharmaceuticals and Schrodinger could use the resulting data to refine and enhance their AI models, improving accuracy and long-term outcomes.

The Case for RXRX Stock

Recursion Pharmaceuticals uses its AI-driven drug discovery platform, Recursion OS, developed in collaboration with NVIDIA Corporation, to test clinical compounds against a virtual library of human biology. Earlier this year, RXRX acquired Exscientia, which added several clinical and preclinical candidates to the latter’s portfolio.

The stock faced a massive setback recently after it discontinued the development of its lead candidate, REC-994, for treating symptomatic cerebral cavernous malformation and the development of REC-2282 for the neurofibromatosis type II indication (NF2).  The decision was part of RXRX’s strategic pipeline reprioritization efforts, following unfavorable efficacy results from separate mid-stage studies of these candidates.

Recursion Pharmaceuticals also discontinued the mid-stage study on REC-3964 for treating clostridioides difficile infection to focus on other areas with greater unmet need. The company is currently looking to out-license the development rights to REC-3964.

As part of its strategic pipeline reprioritization efforts, Recursion Pharmaceuticals has shifted its focus and resources to develop other candidates in its clinical pipeline. Such candidates include REC-4881, which is being developed for familial adenomatous polyposis in a phase Ib/II TUPELO study. Earlier this month, the company reported encouraging preliminary data from this study. In the phase II open-label portion of the TUPELO study, REC-4881 showed a preliminary median 43% reduction in polyp burden by week 13. Additional data from the TUPELO study is expected in the second half of 2025.

Recursion Pharmaceuticals is also evaluating REC-1245, a new chemical entity for treating biomarker-enriched solid tumors and lymphoma, in the phase I/II DAHLIA study. Data readout from the phase I portion of the DAHLIA study is expected in the first half of 2026. Other candidates in early-stage development include REC-617 (advanced solid tumors) and REC-3565 (B-cell malignancies) in separate early-stage studies. The company ended first-quarter 2025 with a cash balance of $509 million, which is expected to fuel operations into mid-2027 based on its current business plan.

Additionally, RXRX has ongoing collaboration agreements with pharma giants like Roche, Bayer, Merck and Sanofi (SNY Quick QuoteSNY - Free Report) to develop candidates for several oncology indications with differentiated mechanisms of action. The company recently received $7 million in collaboration revenues from Sanofi, following the achievement of a significant discovery milestone. Recursion Pharmaceuticals recognized collaboration revenues of $15 million in the first quarter of 2025, up slightly from the year-ago quarter.

The Case for SDGR Stock

Schrodinger, on the other hand, uses its differentiated, physics-based computational platform to enable the discovery of high-quality, novel molecules for drug development. The company’s clinical pipeline is currently in the early stages of development.

SDGR’s lead candidate, SGR-1505, a MALT1 inhibitor, is currently being evaluated in a phase I dose escalation study in patients with relapsed or refractory B-cell malignancies. The study aims to assess the drug’s safety, pharmacokinetics and pharmacodynamics while determining the candidate’s maximum tolerated dose and/or recommended dose. Additional exploratory groups will further examine these factors and early signs of anti-tumor activity. Initial study results are expected in June 2025.

Schrodinger had earlier completed a different phase I study of SGR-1505 to assess its safety, tolerability, pharmacokinetics, and food/drug interactions. The candidate was well tolerated, with no serious side effects or dose-limiting toxicities. At the 100mg twice daily dose, SGR-1505 achieved more than 90% inhibition of IL-2 secretion, confirming target engagement and meeting pharmacodynamic goals. These results support its ongoing early-stage B-cell malignancies study. SGR-1505 enjoys the FDA’s Orphan Drug designation for the potential treatment of mantle cell lymphoma in the United States.

The company’s second investigational candidate, SGR-2921, a CDC7 inhibitor, is being evaluated as a monotherapy in a separate phase I dose escalation study in patients with relapsed or refractory acute myeloid leukemia (AML) or high-risk myelodysplastic syndrome. Initial results are expected in the second half of 2025. Please note that the candidate enjoys the FDA’s Fast Track and Orphan Drug designations for the AML indication in the United States.

Schrodinger’s clinical-stage pipeline comprises a third investigational candidate, SGR-3515, a novel Wee1/Myt1 co-inhibitor, which is also currently undergoing phase I development for patients with advanced solid tumors. The company expects to share initial results in the second half of 2025.

Besides its pipeline programs, SDGR also out-licenses its computational software to several other large biotech firms, like Bristol Myers, Eli Lilly (LLY Quick QuoteLLY - Free Report) and Novartis. The company generated total revenues of $59.6 million in first-quarter 2025, up 63% year over year. The figure comprised $48.8 million (up 46%) in software revenues and $10.7 million (up 234%) in drug discovery revenues.

How Do Estimates Compare for RXRX & SDGR?

The Zacks Consensus Estimate for Recursion Pharmaceuticals’ 2025 revenues and loss per share implies a year-over-year improvement of 22% and 21%, respectively. The loss per share estimate for 2025 has narrowed from $1.41 per share to $1.34 per share over the past 60 days, while that for 2026 has narrowed from $1.25 per share to $1.17 per share over the same timeframe.

RXRX Estimate Movement

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Schrodinger’s 2025 revenues implies a year-over-year improvement of 21%, but loss per share is expected to widen by 2%. The loss per share estimate for 2025 has widened from $2.52 per share to $2.61 over the past 60 days, while that for 2026 has widened from $2.18 per share to $2.20 over the same timeframe.

SDGR Estimate Movement

Image Source: Zacks Investment Research

Price Performance and Valuation of RXRX & SDGR

Year to date, Recursion Pharmaceuticals stock has plunged 39.6%, while Schrodinger stock is up 10.9%. The industry has declined 2% in the same timeframe.

RXRX & SDGR Price Chart

Image Source: Zacks Investment Research

Both RXRX and SDGR are priced higher than the industry from a valuation standpoint. SDGR is more expensive than RXRX, going by the price/book-value ratio. Recursion Pharmaceuticals’ shares currently trade at 1.78 times its book value, much lower than 4.2 times for Schrodinger.

Furthermore, RXRX is trading significantly below its five-year mean of 3.64, compared to SDGR, which is trading higher than its five-year mean of 4.09. This makes RXRX more attractive to investors from a valuation standpoint.

RXRX & SDGR Valuation Chart

Image Source: Zacks Investment Research

RXRX vs. SDGR: Which is a Better Pick?

Recursion Pharmaceuticals and Schrodinger face intense competition from other biotech firms, tech-driven drug discovery companies, and pharmaceutical giants, all leveraging computational tools and scalable platforms. Rivalry from companies like Relay Therapeutics, Isomorphic Labs, and even tech giants like Alphabet and Microsoft could challenge their ability to differentiate themselves and sustain their competitive edge. Investors are also apprehensive of the pipeline potential as the investigational candidates of both companies are still in the early stages of development and far from commercialization. There are chances that RXRX and SDGR will not have a product in the market for a long time.

Despite the challenges, both these Zacks Rank #3 (Hold) stocks have the potential to revolutionize the drug discovery process by delivering breakthrough therapies at a lower cost compared to traditional drug/biotech companies. Their in-house clinical pipeline, as well as ongoing collaboration agreements, have the potential to drive significant growth for the company in the future, which will boost shareholder wealth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, investors should exercise caution before investing in Schrodinger at its current stock price. The stock appears to be nearing its peak, trading above its five-year average, which may indicate an impending decline. Additionally, analysts anticipate wider losses for SDGR in 2025, potentially triggering a sell-off.

Based on the above discussion, Recursion Pharmaceuticals, with its innovative pipeline of candidates, encouraging collaboration agreement, narrowing loss estimates, and cheaper valuation, is a far better bargain for investors looking to invest in AI-powered drug discovery stocks with higher growth potential. RXRX is thus a clear-cut winner.