Executive Summary / Key Takeaways

• Recursion Pharmaceuticals is pioneering the TechBio space, integrating AI, machine learning, and massive wet-lab data generation (Recursion OS) to industrialize drug discovery and development, aiming to fundamentally improve the speed, cost, and probability of success compared to traditional methods.
• The recent combination with Exscientia plc (EXAI) has accelerated the evolution to Recursion 2.0, integrating advanced chemistry design and automated synthesis capabilities, positioning the company with a full-stack platform and targeting over $100 million in annual operational synergies.
• A strategic pipeline prioritization in Q1 2025 has sharpened focus on a core set of clinical and preclinical programs in precision oncology and rare diseases with potential first-in-class or best-in-class profiles, supported by encouraging early data readouts for programs like REC-4881 (FAP) and preclinical data for REC-7735 (PI3Kα H1047R).
• Significant strategic partnerships with major pharmaceutical companies (Roche (RHHBY)/Genentech, Sanofi (SNY), Merck KGaA (MKKGY), Bayer (BAYRY)) provide external validation, non-dilutive funding through milestones (>$450M earned to date, >$20B potential), and access to diverse targets, while collaborations like Tempus and HealthVerity enhance the platform's data universe for causal AI and clinical operations.
• With $500.5 million in cash and cash equivalents as of March 31, 2025, and a targeted 2025 cash operational burn of <= $450 million (down from ~$600M combined in 2024), Recursion projects a cash runway into mid-2027, supported by operational efficiencies and potential future partnership milestones.

The TechBio Frontier: Building a Learning System

Recursion Pharmaceuticals stands at the vanguard of the emerging TechBio sector, driven by a foundational belief that the inherent complexity of biology necessitates a radical departure from traditional drug discovery methods. The company's mission is to decode biology to industrialize the process of finding new medicines, aiming to dramatically improve the speed, reduce the cost, and ultimately increase the probability of success in bringing therapies to patients.

At the heart of Recursion's approach is the Recursion Operating System (OS), a sophisticated platform designed to map and navigate the vast, intricate relationships within the "Recursion Data Universe." This universe is built upon proprietary, purpose-built datasets generated through massive-scale wet-lab experimentation, integrated with computational tools powered by AI and machine learning. The core innovation lies in the iterative loop between physical and digital realms: fit-for-purpose wet-lab data feeds computational models to generate in silico hypotheses and predictions, which are then validated back in the wet lab, creating a virtuous cycle of learning that continuously refines the platform and improves subsequent predictions.

The Recursion OS has evolved through distinct generations. Starting with Recursion 0.1, focused on phenomics and repurposing, it progressed to Recursion 1.0, incorporating transcriptomics and enabling the discovery of new chemical entities. The most significant leap came with the acquisition of Exscientia plc in November 2024, leading to the Recursion 2.0 platform. This combination integrated Exscientia's strengths in AI-driven chemistry design and automated synthesis with Recursion's large-scale biological data generation and AI capabilities.

This integrated, full-stack approach is a key differentiator in the competitive landscape. While many competitors in the TechBio space focus on point solutions (e.g., computational chemistry, specific omics data analysis) or operate solely in either the wet-lab (traditional biotech) or dry-lab (pure AI/software) domains, Recursion aims for end-to-end industrialization. This positions Recursion uniquely against companies like Schrödinger (SDGR), which is strong in physics-based computational chemistry, or Relay Therapeutics (RLAY), focused on protein dynamics. Recursion's ability to generate and integrate massive, multimodal proprietary datasets across biology and chemistry, coupled with significant on-premise compute power like the BioHive-2 supercomputer (benchmarked at 23.32 petaflops), provides a robust moat. This integrated capability is designed to offer tangible benefits: faster hypothesis validation, the ability to generate candidates with fewer molecules synthesized compared to industry averages, and overall reduced time and cost in the early stages of discovery. Management believes this approach allows them to "spend less and go faster" in R&D.

The strategic vision is to leverage the Recursion OS in three ways: advancing an internal pipeline of potential medicines, discovering new therapies in collaboration with large biopharmaceutical partners, and selectively leveraging its tools and data for other partners. This multi-pronged strategy, underpinned by a continuously learning platform, aims to mitigate the bimodal risk often faced by traditional biotech companies reliant on one or two lead assets. The historical journey, marked by significant funding rounds, strategic acquisitions like Valence and Cyclica, and the transformative Exscientia merger, has built the foundation for this integrated TechBio engine.

The Integrated Engine: Platform & Partnerships Driving Value

The Recursion OS serves as the central engine powering the company's strategic objectives. Its capabilities span multiple layers of biological and chemical understanding. The platform's scale is notable: generating up to millions of wet-lab experiments weekly, including sequencing over one million transcriptomes. Beyond proprietary data, Recursion strategically integrates external datasets to enrich its models. Collaborations with Tempus and HealthVerity, for instance, provide access to vast amounts of de-identified patient-centric multimodal oncology data (Tempus) and real-world data for over 340 million covered lives in the US (HealthVerity). This data is crucial for training causal AI models, enhancing biological insights, improving patient stratification, and optimizing clinical trial design and operations. Early successes in ClinTech include reducing recruitment timelines significantly for programs like REC-4881 by leveraging real-world data and machine learning for site selection and patient matching.

The integration of Exscientia's capabilities into Recursion 2.0 has added critical dimensions, particularly in chemistry. The platform now incorporates advanced generative AI for molecular design, active learning to drive efficient multi-parameter optimization, and automated synthesis. This allows Recursion to move from hit identification to development candidate nomination with significantly fewer synthesized compounds than the industry average, further enhancing R&D efficiency.

This powerful platform is a key asset in attracting and executing strategic partnerships with leading pharmaceutical companies. These collaborations are not merely funding mechanisms; they represent external validation of Recursion's technology and provide access to diverse therapeutic areas and challenging targets. Key partnerships include:

• Roche and Genentech: A broad collaboration in neuroscience and GI oncology. Recursion builds "Phenomaps" and identifies potential therapeutic programs. The collaboration has already resulted in significant milestones, including a $150 million upfront payment and a $30 million milestone for the first accepted neuroscience Phenomap. Potential future map and option fees could exceed $500 million, with per-program milestones potentially exceeding $300 million.
• Sanofi: Focused on discovering novel small molecule candidates across oncology and immunology. Recursion leads early discovery, with Sanofi responsible for later development and commercialization. This partnership has yielded over $130 million in cash inflows to date, including a $100 million upfront payment and multiple discovery milestones, such as a recent $7 million payment for advancing a fourth partnered program targeting an immune cell. Potential future milestones could reach $555 million for research and $1.8 billion for development/regulatory achievements.
• Merck KGaA: Collaboration to discover novel small molecule drug candidates in oncology, neuroinflammation, and immunology, with Recursion performing drug design and discovery. This partnership began with a $20.1 million upfront payment.
• Bayer: An earlier collaboration that continues to advance programs, with recent focus on oncology targets.

Collectively, these partnerships have generated over $450 million in cash inflows for Recursion to date. More importantly, they represent the potential for over $20 billion in future milestones before royalties, providing substantial non-dilutive funding potential and validating the platform's ability to deliver value on challenging targets. Management expects roughly $200 million worth of milestones from existing partnerships over the next two years.

Sharpening the Pipeline & Catalysts Ahead

Leveraging the insights and capabilities of the Recursion OS, the company is advancing a focused internal pipeline of clinical and preclinical programs. This portfolio is concentrated in precision oncology and rare diseases, areas where the platform's ability to decode complex biology and identify novel targets or differentiated molecules is particularly valuable.

In Q1 2025, Recursion undertook a significant pipeline prioritization, a disciplined, data-driven decision to sharpen focus and reallocate resources towards programs with the highest potential for differentiation and unmet need. This involved discontinuing internal development for certain programs based on the totality of available data:

• REC-2282 (NF2): Discontinued based on Phase 2 data showing limited overall tumor shrinkage and clinical activity, despite technically passing a futility threshold in one cohort.
• REC-994 (CCM): Discontinued based on long-term extension data showing no promising trends in MRI or functional outcomes, indicating results were indistinguishable from natural history.
• REC-3964 (C. difficile): Internal development discontinued (considering out-licensing) due to the evolving treatment landscape resulting in low unmet need (~5% recurrence rates), shifting focus to areas with greater commercial and technical promise.
• REC-4539 (LSD1): Placed on strategic pause to ensure a competitive Target Product Profile based on internal and external data.

The go-forward pipeline now includes over five clinical and preclinical programs, each selected for its potential first-in-class or best-in-class profile and clear development path:

• REC-617 (CDK7): A selective, reversible CDK7 inhibitor for advanced solid tumors, precision-designed using Recursion 2.0 to optimize therapeutic index. Early Phase 1 monotherapy data showed encouraging activity, including a confirmed partial response in platinum-resistant ovarian cancer and a manageable safety profile. Combination studies are on track to initiate in 1H 2025, with additional monotherapy data expected in 2H 2025.
• REC-1245 (RBM39): A potential first-in-class RBM39 molecular degrader for biomarker-selected solid tumors and lymphomas, identified through phenotypic insight. IND-enabling studies were completed rapidly. Early Phase 1 safety and PK monotherapy data are expected in 1H 2026.
• REC-3565 (MALT1): A selective MALT1 inhibitor for B-cell malignancies, designed using generative AI to avoid known off-target toxicities. Phase 1 dose escalation recently initiated, with early safety and PK monotherapy data expected in 2H 2026.
• REC-7735 (PI3Kα H1047R): A preclinical candidate targeting a common PI3Kα mutation in breast cancer. Developed using generative AI for high selectivity (100x over wild-type, 10x over other sparing inhibitors), preclinical data shows dose-dependent tumor regression without hyperglycemia seen with standard-of-care. Development candidate nomination is expected in 2H 2025.
• REC-4881 (MEK1/2): An allosteric MEK1/2 inhibitor for Familial Adenomatous Polyposis (FAP), a rare inherited condition with high unmet need and no approved therapies. Preliminary Phase 1b/2 data showed a median 43% reduction in polyp burden at week 13 (n=6) and improvement in Spigelman stage for 50% of patients, with a safety profile generally consistent with the class. Additional data is expected in 2H 2025.
• REV102 (ENPP1): An orally bioavailable ENPP1 inhibitor being developed with Rallybio (RLYB) for hypophosphatasia (HPP), a rare metabolic bone disease. Preclinical data in HPP models shows improved survival and bone defects, supporting potential first-in-class oral therapy for adult-onset HPP. Phase 1 initiation is expected in 2H 2026.

These upcoming milestones in 2025 and 2026 represent critical catalysts for Recursion, serving as proof points for the platform's ability to translate biological insights into potentially differentiated clinical assets.

Financial Performance & Path to Efficiency

Recursion's financial profile reflects its stage as a clinical-stage TechBio company making significant investments in its platform and pipeline. For the three months ended March 31, 2025, the company reported total revenue of $14.745 million, a 7% increase from $13.794 million in the prior-year period, driven primarily by revenue recognized from strategic partnerships with Sanofi and Merck.

Operating costs and expenses saw substantial increases, largely due to the integration of Exscientia and continued investment. Cost of revenue increased 96% to $21.829 million (vs. $11.166M in Q1 2024), primarily due to including Exscientia's operations and customers. Research and development expenses rose 92% to $129.634 million (vs. $67.560M), driven by Tempus data purchases ($27.1M), Exscientia integration costs ($25.8M), and personnel. General and administrative expenses increased 74% to $54.650 million (vs. $31.408M), including $8.1 million from Exscientia and $9.2 million in salaries. The net loss for Q1 2025 was $202.487 million, compared to $91.373 million in Q1 2024. The accumulated deficit as of March 31, 2025, stood at $1.6 billion.

Despite ongoing losses, Recursion maintains a focus on managing its capital resources. As of March 31, 2025, the company held $500.5 million in cash and cash equivalents. The company has historically funded operations through equity financings, including recent ATM sales ($36.9M net proceeds in Q1 2025 before terminating the Jefferies (JEF) agreement and entering a new $500M facility with Citi (C)) and proceeds from strategic partnerships ($217M received to date).

Management projects that existing cash and cash equivalents will be sufficient to fund operations for at least the next 12 months and expects a cash runway extending into mid-2027. This outlook is supported by a targeted reduction in cash operational burn (excluding partnership inflows, non-cash effects, and transaction costs) to less than or equal to $450 million for 2025, down from an estimated combined burn of approximately $600 million in 2024. This planned efficiency gain stems from the pipeline prioritization, operational synergies from the Exscientia integration (targeting over $100M annually), and leveraging the platform to increase R&D efficiency.

While the company is still finalizing the purchase price allocation for the Exscientia acquisition and is working to remediate a material weakness in internal control over financial reporting related to integration and revenue recognition, these efforts are part of the broader strategy to build a scalable and efficient TechBio company.

Risks and the Long-Term Vision

Investing in Recursion involves significant risks inherent in the biotechnology sector and the ambitious nature of its TechBio strategy. The company has a history of substantial operating losses and negative cash flows and will require significant additional capital to fund future operations, including potential commercialization. The success of its pipeline programs is uncertain, with clinical trials facing high failure rates. While the platform aims to improve these probabilities, it is still an unproven approach over the full drug discovery and development lifecycle compared to traditional methods.

Integration risks from the Exscientia acquisition, including finalizing accounting and integrating internal controls, pose operational challenges. Dependence on third parties for clinical trials and manufacturing, intellectual property protection, and potential legal proceedings (such as the class action lawsuit related to Exscientia) are also factors to consider. Furthermore, the concentration of voting power with the CEO through Class B common stock allows him to significantly influence stockholder decisions.

Despite these challenges, Recursion's long-term vision remains compelling: to build a learning system that fundamentally transforms drug discovery. The company is investing heavily in data generation, compute infrastructure, and AI models with the goal of eventually moving towards "autonomous discovery" and simulating biology in a "virtual cell." This vision, if realized, could dramatically reduce the time and cost of bringing new medicines to market and increase the probability of success across a broad range of diseases, including rare and complex conditions that are currently underserved.

Conclusion

Recursion Pharmaceuticals is executing an ambitious strategy to industrialize drug discovery through its integrated TechBio platform. By combining large-scale wet-lab data generation, powerful AI/ML capabilities, and strategic partnerships, the company is building a differentiated engine designed to identify and advance novel therapeutic candidates more efficiently than traditional approaches. The recent integration of Exscientia's chemistry expertise has further strengthened this platform, creating Recursion 2.0 and targeting significant operational synergies.

While the company continues to incur substantial operating losses as it invests in its platform and pipeline, a focused R&D portfolio and a commitment to increasing efficiency are key components of its path forward. With a projected cash runway into mid-2027, supported by existing capital, targeted reductions in cash burn, and potential partnership milestones, Recursion has resources to pursue its near-term objectives. The upcoming clinical and preclinical data readouts in 2025 and 2026 represent critical catalysts that will provide crucial validation for the platform's ability to deliver differentiated medicines. If Recursion can successfully translate its technological advantages into clinical success and continue to demonstrate operational efficiency, it is well-positioned to be a leader in the evolving landscape of technology-driven biopharma.