Down Over 40%, Is Recursion Pharmaceuticals a Buy on the Dip?

Core Insights - The drug development industry is expected to benefit significantly from advancements in machine learning and artificial intelligence, which can streamline the process of discovering new drug candidates [1][2]. Company Overview - Recursion Pharmaceuticals has gained attention for its AI-powered drug discovery platform aimed at reducing trial and error in drug development [3]. - The company reported successful phase 2 results for its lead candidate, REC-994, which was selected using a machine-learning approach [6]. Recent Developments - Following the announcement of phase 2 results, Recursion's stock initially surged but then fell by 40.5% within a few weeks, leading investors to consider it a potential bargain [4][5]. - The phase 2 study for REC-994 met primary safety endpoints but failed to show significant benefits in reducing cerebral lesions, leading to questions about the program's future [7][8]. Challenges and Concerns - Despite the AI capabilities, Recursion has not advanced any of its discovered candidates into late-stage clinical trials, raising concerns about the effectiveness of its platform [10]. - The company’s current lead candidate, REC-617, was acquired from Exscientia rather than developed internally, indicating potential shortcomings in its drug discovery process [11]. - Recursion's acquisition of Exscientia for $688 million involved issuing new shares, which has led to significant dilution of existing shares, complicating long-term investment returns [12]. Market Position - Recursion currently has a market cap of $2.6 billion, which is considered high given the lackluster performance of its new lead candidate [14].