Recursion Approaches Key Data Milestone, Starting 18-Month Readout Phase

After years of advocating for artificial intelligence's potential in drug development, Recursion is poised to present substantial data. Next month, the Salt Lake City-based biotech firm will reveal its first Phase 2 study results, initiating a series of ten trial readouts over the next 18 months. This influx of data is crucial for Recursion to differentiate itself from other companies that have failed after setbacks with their primary programs.

Company leader Gibson has likened the forthcoming data releases to the early, tumultuous days of SpaceX, complete with both major successes and notable failures. He acknowledges that while disappointments are inevitable, they are part of the learning process that will eventually revolutionize the industry. Despite the potential for costly failures, Gibson has secured the company's financial future, raising $216 million in a secondary offering in June and recently acquiring rival Exscientia in an all-stock deal, bringing in more drugs, technology, and nearly $400 million in cash.

Industry experts, like Joshua Elkington of Axial, commend Gibson's strategic financial maneuvers, highlighting his ability to capitalize on market highs and consolidate gains without overextending. However, the upcoming clinical trials pose a new risk. A failure could jeopardize Recursion's primary drug programs and damage its reputation, as well as the broader narrative around AI in biotech. Despite a 75% drop in stock value since its 2021 IPO, Recursion maintains a valuation of $2.2 billion, with $1.7 billion in enterprise value. Success in these trials is seen as essential for sustaining this valuation.

Shahram Seyedin-Noor of Civilization Ventures recalled Gibson's initial pitch in 2016 and noted the limits of Recursion's technology and its ability to remain at the cutting edge of AI. Nonetheless, he praised Gibson’s leadership and expressed confidence in the company's resilience, even in the face of potential negative results.

Interestingly, the Phase 2 data set to be released next month involves a drug that predates Recursion's AI technology. This drug, tempol (REC-994), was identified during Gibson’s PhD research at the University of Utah. Tempol is being tested for treating cerebral cavernous malformation (CCM), a rare neurological disorder that causes brain capillaries to form lesions, potentially leading to strokes, seizures, and other severe symptoms.

Tempol has not yet received FDA approval, though it is being investigated by other companies for treatments related to Covid-19 and ataxia-telangiectasia. Recursion’s study, which includes 62 patients and a placebo group, primarily aims to evaluate the drug’s safety and tolerability. Secondary endpoints will assess potential signs of efficacy through patient-reported scores and MRI-based metrics. However, defining meaningful improvements is challenging due to the variability in disease symptoms.

Jefferies analyst Dennis Ding pointed out the difficulty in interpreting the data, noting that even the FDA lacks a clear understanding of what constitutes a clinically meaningful improvement in CCM. Following the upcoming Phase 2 data, Recursion will release two more Phase 2 readouts involving drugs previously developed by The Ohio State University and Takeda, expected in late 2024 and early 2025. Recursion’s first internally designed drug, REC-3964, is slated to begin Phase 2 trials for C. diff infections by the end of the year, though the timing for results is unspecified.

While some question whether Recursion's drugs can be truly classified as AI-derived, ARTIS Ventures' Vasudev Bailey emphasizes the value of AI-assisted tools in drug development. However, he warns against overstating their capabilities.

Recursion's future will likely hinge on the success of its near-term pipeline, determining if the company can maintain its momentum. Gibson often compares Recursion’s approach to tech giants like Netflix, Tesla, and Amazon, suggesting that these upcoming readouts could establish the company as a major player or a cautionary tale. Positive results could validate Recursion's early adoption of automated labs and algorithms, potentially leading to significant advancements in partnership with companies like Nvidia. Conversely, failure could underscore the limitations of relying solely on an AI narrative in the competitive biotech landscape.

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