Is Recursion Pharmaceuticals a Buy Ahead of Its Merger With Exscientia?

Core Viewpoint - The merger between Exscientia and Recursion Pharmaceuticals aims to create a leading AI-driven drug discovery company, despite challenges in clinical evidence supporting AI's effectiveness in drug development [1][2]. Company Overview - Recursion Pharmaceuticals is set to become the largest AI-fueled drug discovery business following its merger with Exscientia, which has raised concerns about its current clinical progress and financial health [3][4]. - The combined entity will leverage different methodologies: Recursion focuses on large-scale experiments and data mining, while Exscientia utilizes published data and patient samples for drug candidate discovery [4][5]. Clinical Development - Following the merger, Recursion anticipates reporting results from 10 clinical trials over the next 18 months, with the potential for some candidates to become approved drugs if AI-driven discovery proves effective [6]. - The company has established partnerships with major pharmaceutical firms such as Sanofi, Bayer, Merck KGaA, and Roche, with potential milestone payments exceeding $20 billion, excluding royalties [7]. Financial Position - Recursion Pharmaceuticals has a market capitalization of approximately $1.6 billion, which is considered high for a clinical-stage drugmaker that has not yet entered phase 3 trials [8]. - As of June 30, 2024, Recursion has accumulated a deficit of $1.2 billion, raising concerns about its financial sustainability given its lack of advanced drug candidates [11]. Industry Challenges - The value proposition of Recursion's technology is questioned by big pharma, as improvements are primarily focused on the early stages of drug development, which may not justify the high costs associated with later stages [9]. - Despite its promise to expedite drug development, Recursion has not yet initiated any phase 3 trials, indicating a slower-than-expected progress in bringing new drug candidates to market [10].