Fannie Mae, Freddie Mac shares tumble after conservatorship comments
Investing.com -- Morgan Stanley (NYSE:MS) initiated coverage on three AI-integrated biotechnology firms, Absci, Schrodinger (NASDAQ:SDGR), and Recursion Pharmaceuticals, flagging divergent business models and upcoming catalysts in a sector under pressure.
The brokerage rated Absci “overweight” with a $7 price target, and assigned “equal weight” ratings to Schrodinger and Recursion with price targets of $28 and $5, respectively.
Absci combines generative AI with lab validation through its Integrated Drug Creation Platform. Its lead candidate, ABS-101, is a TL1A monoclonal antibody in Phase I for inflammatory bowel disease.
Interim data from this trial, expected in 2H25, is being closely watched for indicators of safety, pharmacokinetics, and immunogenicity.
Absci is in discussions with three biopharma firms for potential partnerships and aims to use any resulting non-dilutive funding to extend its cash runway, currently guided through 1H27.
A second candidate, ABS-201, targets androgenetic alopecia and could address a U.S. population of 80 million, representing a $7B–$14B market opportunity.
A Phase I trial is planned for 2026, with a proof-of-concept readout expected in 2H26. Morgan Stanley does not yet assign financial value to this program due to its early stage.
Schrodinger’s model includes a software licensing segment that contributed $180 million in 2024 revenue, up 13% year-over-year, and showed 98-100% customer retention for contracts over $500K.
FY25 guidance indicates expected software revenue growth of 10–15%, or about $203 million.
Peak modeled contribution from the software business is $404 million by 2035, though consensus projects up to $497 million.
The company’s proprietary pipeline includes SGR-1505, which posted early efficacy in B-cell malignancies with 18% response in CLL/SLL and 100% in WM in a Phase I trial.
No dose-limiting toxicities were reported. Additional data for SGR-1505 and two other oncology programs (SGR-2921 and SGR-3515) are expected in 2H25.
Schrodinger’s price target was lowered from $31 to $28 due to increasing competitive pressure in CLL.
Recursion has refocused its pipeline following the discontinuation of three programs. Its lead drug, REC-4881, is in a Phase Ib/II trial for familial adenomatous polyposis.
Early data showed a median 43% reduction in polyps across six patients. Further efficacy and safety results are expected later this year.
Additional programs include REC-617 and REC-1245, both in early-stage trials. Recursion maintains partnerships with Bayer (OTC:BAYRY), Roche/Genentech, and Sanofi (NASDAQ:SNY), with potential economics totaling ~$20 billion.
The brokerage models $840 million in risk-adjusted peak U.S. sales for REC-4881, with Street consensus at $409 million.
Despite $85B+ in AI-biotech deal flow from 2019 to mid-2025, these stocks have underperformed broader biotech indices since 2023.
Morgan Stanley cites valuation overhangs, volatile clinical results, and lack of near-term revenue visibility but maintains that platform innovation and partnerships may unlock longer-term value.