Recursion Pharmaceuticals is looking to use AI to speed up R&D in the biotech industry.
The company has yet to show the value of its approach and faces significant uncertainty.

Artificial intelligence (AI) is all the rage on Wall Street these days, but not every AI stock is equally successful. Some of the bigger names in the field, like Nvidia, have seen their shares soar in recent years, while other, smaller ones, like Recursion Pharmaceuticals (NASDAQ: RXRX), continue to struggle.

Recursion, a healthcare-focused AI company, could have some catalysts in the next 12 to 18 months, however. Can the stock bounce back this year?

Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »

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What Recursion Pharmaceuticals does

Recursion Pharmaceuticals is helping pioneer the use of AI in drug discovery. The company’s operating system tests clinical compounds and helps predict which ones are most likely to make it through the grueling clinical and regulatory hoops required before approval. While Recursion Pharmaceuticals was founded in 2013, more pharmaceutical leaders have been using AI to aid their processes in recent years.

And last year, the U.S. Food and Drug Administration announced that it was phasing out animal testing in favor of newer methods, including AI-based models. So, Recursion Pharmaceuticals was arguably ahead of the curve. However, the biotech has had little meaningful success. It currently has no approved products and no investigational medicines in late-stage studies.

That could change in the next year or so. Recursion Pharmaceuticals plans to release data from ongoing early-stage clinical trials for various pipeline candidates. Now, since these are phase 1 studies (for the most part), which focus on safety and tolerability rather than efficacy, they are unlikely to significantly jolt the stock. So, even if Recursion Pharmaceuticals records decent clinical progress this year, it might not perform well on the stock market.

Is the stock a buy?

Recursion Pharmaceuticals hoped that its use of AI would give it an edge over its peers, enabling it to develop and market medicines faster than competitors. Not only has the company not yet succeeded in launching a single medicine, but its competitive advantage is now evaporating as more of its peers are doing the same. That means we should evaluate Recursion Pharmaceuticals as we would any other biotech company. And once we do, the drugmaker looks risky.

True, some of its candidates look promising, including REC-617, a potential cancer medicine with a novel, differentiated mechanism of action. It could improve standards of care across several forms of cancer, including breast, colorectal, and lung, three of the leading causes of cancer death worldwide. It’s also worth noting that Recursion Pharmaceuticals has entered into partnerships with several pharmaceutical giants, including Roche and Sanofi.

It is seeking to develop medicines in collaboration with these companies. Translation: Recursion Pharmaceuticals can access funding more easily than it otherwise would, thanks to these deals. Even with these strengths, the company still faces significant clinical and regulatory hurdles to obtain approval for a single product, and if it fails, its shares will sink further. That’s why risk-averse investors should stay a safe distance away from Recursion Pharmaceuticals.

Should you buy stock in Recursion Pharmaceuticals right now?

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Prosper Junior Bakiny has positions in Nvidia and Recursion Pharmaceuticals. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Roche Holding AG. The Motley Fool has a disclosure policy.

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