RECURSION PHARMACEUTICALS INC

Business Overview

Recursion is a leading clinical stage TechBio company decoding biology to industrialize drug discovery. Central to our mission is the Recursion Operating System (OS), a platform built across diverse technologies that enables us to map and navigate trillions of biological, chemical, and patient-centric relationships across over 50 petabytes of proprietary data. We frame this integration of the physical and digital components as iterative loops, where scaled ‘wet-lab’ biology, chemistry, and patient-centric experimental data are organized by ‘dry-lab’ computational tools in order to identify, validate, and translate therapeutic insights. We believe Recursion’s unbiased, data-driven approach to understanding biology will bring more, new, and better medicines at higher scale and lower cost to patients.

There are three key value-drivers at Recursion:

•An expansive pipelineof internally developed clinical and preclinical programs focused on precision oncology and genetically driven rare diseases with significant unmet need and market opportunities that could potentially exceed $1 billion in annual sales in some cases

•Transformational partnerships with leading biopharma and technology companies to map and navigate intractable areas of biology, identify novel targets, and develop potential new medicines by using advanced computational and data resources

•An industry-leading dataset intentionally designed to capitalize on computational tools and accelerate value created through our pipeline, partnerships and technology products

Key Achievements in 2023

Pipeline

•Five phase 2 clinical-stage programs with multiple upcoming data readouts expected, including REC-994 in cerebral cavernous malformation (CCM) in Q3 2024, REC-2282 in neurofibromatosis type 2 (NF2) in Q4 2024, REC-4881 in familial adenomatous polyposis (FAP) in H1 2025, and REC-4881 in AXIN1 or APC mutant solid tumors in H1 2025

•Completed a Phase 1 study for REC-3964 in healthy volunteers for the potential treatment of Clostridioides difficile (C. difficile) infection with a favorable safety and tolerability profile

•Advanced our RBM39 program in homologous recombination proficient ovarian cancer and other solid tumors to IND-enabling studies

•In-licensed a program (Target Epsilon) that emerged from our fibrosis collaboration with Bayer that represents a novel approach to treating fibrotic diseases with compelling early data

Partnership

•Made significant progress against both the gastrointestinal-oncology and neuroscience portions of our collaboration with Roche and Genentech, including Roche exercising its Small Molecule Validated Hit Option to further advance our first partnership program in GI-oncology

•Updated our collaboration with Bayer to focus on challenging oncology indications with high unmet need, commensurate with higher per program milestone payments

•Entered into a collaboration with NVIDIA to accelerate the construction, optimization and deployment of foundation models for biology and chemistry as well as host Recursion-built computational and data tools on BioNeMo (NVIDIA’s drug discovery platform) – additionally, NVIDIA invested $50 million in Recursion via a private placement

•Entered into a collaboration with Tempus giving Recursion access to over 20 petabytes of proprietary deidentified, multimodal patient oncology data for the purpose of training causal AI models for the discovery of novel therapeutic hypotheses, biomarker strategies and patient cohort selection

•Entered into a partnership with Enamine to generate enriched screening libraries with insights from Recursion’s protein-ligand interaction predictions spanning across Enamine’s massive library of approximately 36 billion compounds

Recursion OS

•Built, scaled and industrialized multiple tools and technologies to heavily automate workflows across the drug discovery process, creating one of the most complete full-stack TechBio solutions

•Created LOWE (Large Language Model-Orchestrated Workflow Engine) connecting wet-lab and dry-lab components of the Recursion OS using a natural language interface to streamline complex drug discovery tasks

•Deployed large language models (LLMs) to map scientific literature in conjunction with our internally derived proprietary maps for the purpose of autonomously identifying novel opportunities in areas of unmet need

•Deployed Phenom-1, a vision transformer utilizing hundreds of millions of parameters trained on billions of biological images from our proprietary data, which we believe to be the world’s largest phenomics foundation model at this time

•Deployed new digital chemistry tools to predict the ligand-protein interactions for approximately 36 billion compounds in the Enamine REAL Space, reported to be the largest synthesizable chemical library

•Produced over 1 trillion human induced pluripotent stem cell (hiPSC)-derived neuronal cells since 2022, likely making Recursion one of the world’s largest producers of neuronal cells

•Began training causal AI models leveraging over 20 petabytes of multimodal precision oncology patient data from Tempus to support the discovery of potential biomarker-enriched therapeutics at scale

Company Building

•Acquired Cyclica and Valence Discovery to bolster digital chemistry and generative AI capabilities

•Expanded our operations in Salt Lake City and Montréal and opened our Canadian headquarters in Toronto with a focus on growing our machine learning and digital chemistry teams

•Committed to quadrupling the capacity of our supercomputer, BioHive-1, to support our pipeline, partnerships and the construction of foundation models across the multiple modalities of biology, chemistry and patient-centric data – we believe that this expansion should make our supercomputer a top 50 supercomputer across any industry according to the TOP500 list

Vision, Mission, People and Culture

Human biology is an incredibly complex system for which human intelligence alone is insufficient to fully comprehend it. Our world is transiting its next industrial revolution based on extraordinary progress in automation, computation, machine learning (ML), and artificial intelligence (AI). This progress is apparent through the rapid rise of LLMs, generative AI, and accessible applications like ChatGPT. Undoubtedly, remarkable shifts in perception occurred in 2023 amongst technology and biopharma companies as well as among regulators and policymakers, who highlight the utility of AI/ML for broad drug discovery and development from novel target discovery through next-generation manufacturing.

However, a key lesson from numerous other industries is that computational sophistication alone is rarely sufficient to create disruptive change. It is when computational sophistication is paired with the right data, typically in an iterative process of ongoing learning, prediction, and refinement, that outsized change is created.

Figure 1. A simple formula is used across technology industries to map and navigate complex systems. First, high-dimensional data is generated, aggregated and organized to create digital representations. Then, AI/ML algorithms make predictions about that system that can be tested in reality. The result is a virtuous cycle of learning and iteration.

Recursion was founded in 2013 with a vision to capitalize on the convergence of advancements in computation and machine learning to address the decreasing efficiency of drug discovery and development. We believe that this opportunity represents one of the most positively impactful applications of ML and AI. Our vision is to leverage technology to map and navigate biology, chemistry, and patient-centric outcomes in order to increasingly transition the process of developing medicines from discovery to design. We believe that neither advanced computational approaches, massive datasets, nor human intelligence alone can fundamentally shift the efficiency curve of drug discovery and development; instead, we believe that those companies that augment their teams with sophisticated computational tools and focus deeply on generating and aggregating the right datasets will have a significant advantage. Our success and the success of the burgeoning TechBio sector has the promise to drive more, new, and better medicines to patients at higher scale and lower prices in the coming decades. We are working to not only lead this space but define it.

Figure 2. Eroom’s Law observes that while technology advancements have made many processes faster and less expensive over the years, drug discovery is becoming slower and more expensive.1,2 Recursion was created to take advantage of the discontinuity between these fields and harness the power of accelerating technological innovations to improve the efficiency of drug discovery and development.

Our mission at Recursion, Decoding Biology to Radically Improve Lives, flows naturally from our vision. We interpret our mission expansively and believe it to be a durable direction and source of inspiration for our team. We started pioneering, scaling, and industrializing phenomics (data based on images of cellular structures) over a decade ago, but we recognize that drug discovery is made up of many steps, and a point solution targeting one or two steps is insufficient to generate efficiencies across the entire process. To decode biology, we must construct a full-stack technology platform capable of integrating and industrializing many complex workflows. Success in decoding biology implies our ability to predict ways to navigate it. The ability to predictably navigate biology may enable us to build an expansive pipeline of medicines, either by ourselves, with partners, or both. As part of that work, we seek not only to radically improve the lives of patients who could benefit from the medicines we help to deliver, but the lives of those who care for those patients, the lives of our employees and their families, as well as the communities in which we operate our company.

1 Adapted from Scannell, J et al (2012). Diagnosing the decline in pharmaceutical R&D efficiency. Nat Rev Drug Discov, 11, 191-200.

2 Adapted from Roser, M et al. (2013). Technological Change. OurWorldInData.org.

Figure 3: Recursion’s Founding Principles and Values support our ambitious mission. Together, these elements shape Recursion’s culture by guiding our people to high-impact decision-making and behaviors.

Our culture at Recursion is intentionally designed to fuel our mission. We believe culture drives delivery. Essential to decoding biology in our context is the Recursion Mindset, a deep commitment to achieving impact at unprecedented scale through pioneering new industrialized approaches. To decode biology, we intentionally source talent from an incredible breadth of fields from multiple industries. For all of our employees, Recursion is a new kind of company. The guideposts for teaching our people to successfully transition to TechBio and deliver our mission are our Founding Principles and Values. They are the essential shape of our culture. Our Founding Principles direct us in making scientific and technical decisions that further our mission. Our Values define the day-to-day behaviors that further our mission.

Figure 4. Recursion’s team requires operating at the interface of many diverse fields. Building a TechBio company requires fluency in operating at the interface of many disciplines and fields not previously attuned to working as closely in traditional biopharma.

How Recursion is Industrializing the Drug Discovery Process

The traditional drug discovery and development process is characterized by substantial financial risks, with increasing and long-term capital outlays for development programs that often fail to reach patients as marketed products. Historically, it has taken over ten years and an average capitalized R&D cost of approximately $2 billion per approved medicine to move a drug discovery project from early discovery to an approved therapeutic. Such productivity outcomes have culminated in a rapidly declining internal rate of return for the biopharma industry.

Figure 5. Historical biopharma industry R&D metrics. The primary driver of the cost to discover and develop a new medicine is clinical failure. Less than 4% of drug discovery programs that are initiated result in an approved therapeutic, resulting in a risk-adjusted cost of approximately $1.8 to $2.6 billion per new drug launched.3,4,5,6,7

Despite significant investment and brilliant scientists, these metrics point to the need to evolve a more efficient drug discovery process and explore new tools. Traditional drug discovery relies on basic research discoveries from the scientific community to elucidate disease-relevant pathways and targets to interrogate. Coupled with biology’s incredible complexity, this approach has forced the industry to rely on reductionist hypotheses of the critical drivers of complex diseases, which can create a ‘herd mentality’ as multiple parties chase a limited number of therapeutic targets. The situation has been exacerbated by human bias (e.g., confirmation bias and sunk-cost fallacy). Accentuating this problem, the sequential nature of current drug discovery activities and the challenges with aggregation and relatability of data across projects, teams and departments lead to frequent replication of work and long timelines to discharge the scientific risk of such hypotheses. Despite decades of accumulated knowledge, the result is that drug discovery has unintentionally created hurdles for innovation.

Simultaneously, exponential improvements in computational speed and reductions in data storage costs driven by the technology industry, coupled with the rapid rise of large language models, generative AI and other ML tools, have transformed complex industries from media to transportation to e-commerce. Historically, the biopharma sector has been slow to embrace such innovations. Within the past 18 months, there have been remarkable shifts in perception among technology and biopharma companies as well as among regulators and policymakers, who highlight the utility of AI/ML for broad drug discovery and development from novel target discovery through next-generation manufacturing. We believe this rapid acceleration and adoption of these technologies demonstrates the growing consensus that AI/ML is a catalyst for substantial leaps in drug discovery.

At Recursion, we are pioneering the integration of innovations across biology, chemistry, automation, data science and engineering to industrialize drug discovery in a full-stack solution across dozens of key workflows and processes critical in discovering and developing a drug. For example, by combining advances in high content microscopy with arrayed CRISPR genome editing techniques, we can rigorously profile massive, high-dimensional biological and chemical perturbation libraries in multiple human cellular contexts to create digital ‘maps’ of human biology. Leveraging advances in scaled computation, we can conduct massive virtual screens to predict the protein targets for billions of chemical compounds. Similarly, data generated from our automated DMPK module and InVivomics platform enables us to predict ADME properties and identify toxicity signals, respectively, significantly faster than traditional methods. We believe that by harnessing advances in technology to industrialize drug discovery, we can derive novel biological insights not previously described by scientific researchers, reduce the effects of human bias inherent in discovery biology and reduce translational risk at the program outset.

3 Zhou, S. and Johnson, R. (2018). Pharmaceutical Probability of Success. Alacrita Consulting, 1-42

4 Steedman M, and Taylor K. (2020). Ten years on: Measuring the return from pharmaceutical innovation. Deloitte. 1-44.

5 DiMasi et al. (2016). Innovation in the pharmaceutical industry: New estimates of R&D costs. Journal of Health Economics. 47, 20-33.

6 Paul, et al. (2010). How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nature Reviews Drug Discovery. 9,203-214

7 Martin et al. (2017). Clinical trial cycle times continue to increase despite industry efforts. Nature Reviews Drug Discovery. 16, 157

Figure 6. Recursion’s approach to drug discovery. We utilize our Founding Principles on the right to build datasets which are scalable, reliable and relatable in order to elucidate novel biological and chemical insights and industrialize the drug discovery process.

We have used our approach to generate, aggregate, and integrate one of the largest biological, chemical, and patient-centric datasets in the world at over 50 petabytes at the end of 2023. This dataset includes proprietary phenomics, transcriptomics, predicted protein-ligand binding interactions, InVivomics, ADME data, and more across many biological and chemical contexts as well as preferred access to over 20 petabytes of multimodal oncology patient data from Tempus. Additionally, we have built a proprietary suite of software applications within the Recursion OS which has identified over 5 trillion predicted biological and chemical relationships. With our approach, we endeavor to turn drug discovery into a search problem where we map and navigate biology in an unbiased manner to discover new insights and translate them into potential new medicines at scale.

Business Strategy and Value Drivers

While most small to medium-sized biopharma companies are focused on a narrow slice of biology or a single therapeutic area, the Recursion OS allows us to discover and translate at scale across biology. However, we are cognizant that building disease-area expertise, especially in clinical development, is essential. We have developed a multi-pronged, capital-efficient business model focused on key value-drivers that enable us to demonstrate our progress over time while continuing to invest in the development of the Recursion OS, which we believe is the engine of value creation in the long-term. While our mapping and navigating tools have the plasticity to be applied across therapeutic areas and modalities, our business model is tailored to maximize value and advance programs cost-effectively based on the nature of market and regulatory dynamics associated with our three value drivers (internal pipeline, transformational partnerships, and fit-for-purpose proprietary biological, chemical, and patient-centric data).

Figure 7. We harness the value and scale of our Recursion OS using a capital efficient business strategy. Our business strategy is segmented into our following value-drivers: (i) internally developed programs in capital-efficient therapeutic areas; (ii) partnered programs in resource-intensive therapeutic areas; and (iii) proprietary, fit-for-purpose data and models. *Includes a single oncology indication from our Roche and Genentech collaboration.

Value Driver 1 - Internally Developed Programs in Capital Efficient Therapeutic Areas

We believe that the primary currency of any biotechnology company today is clinical-stage assets. These programs can be valued using a variety of models by stakeholders in the biopharma ecosystem and most importantly, present the potential to meet critical patient needs. For Recursion, these assets have a variety of additional benefits, including: (i) validation of key elements of the Recursion OS, (ii) growing our expertise in clinical development and (iii) building in-house processes to facilitate smooth interaction with regulatory agencies and advance medicines towards the market. If the Recursion OS evolves as designed, then it will continuously improve with more iterations such that future programs could be more novel and potentially more valuable than today’s programs. Operating as a vertically integrated TechBio company that leverages technology at every step from target discovery through clinical development (and even marketing and distribution) may be the long-term business model with the most upside for our stakeholders, including both investors and patients. We may be opportunistic about selling or licensing assets after they achieve key value-inflection milestones so that we can re-invest in our long-term strategy.

Value Driver 2 - Partnered Programs in Resource Intensive Therapeutic Areas

We believe that in its current form, our Recursion OS is already capable of delivering many more therapeutic insights than we would be able to shepherd alone today. As such, we have chosen to partner with experienced, top-tier biopharma companies like Bayer, Roche, and Genentech to explore intractable and resource-intensive areas of biology. The key advantages of these partnerships are that: (i) we are able to deploy the Recursion OS to turn latent value into tangible value in areas of biology where it would be challenging for us to do so alone; (ii) the clinical development paths for these large therapeutic areas are often resource-intensive and highly complex; and (iii) we are able to learn from our colleagues at these top-tier companies such that it could give us a competitive advantage in the industry over the longer term. This strategy also embeds us in the discovery process of large pharmaceutical companies and gives rise to an alternative long-term business model whereby we become a valued partner of many such companies. Based on how value is ascribed across our industry today, this model alone is not yet feasible to maximize our business impact. However, we feel that due to shifts within the biopharma industry there is some potential for this portion of our business model to accrete notable value over the long-term.

Value Driver 3 - Proprietary, Fit-for-Purpose Training Data and Models

As has been demonstrated in many other industries, a value driver and competitive advantage can be generated from the creation of a proprietary dataset. At Recursion, we have generated what we believe to be one of the largest fit-for-purpose, relatable biological, chemical, and patient-centric datasets on Earth. Spanning multiple omics technologies and more than 200 million unique experiments, the over 50 petabytes of data that Recursion generates, aggregates, and integrates has the fundamental purpose of being used to train machine learning models. Through intensive internal work, Recursion uses this data and our own models, algorithms, and software to advance our own internal pipeline of medicines (Value Driver 1) as well as in partnership with our collaborators to advance additional discovery programs (Value Driver 2). As our field increasingly recognizes the potential for a technology-driven revolution in drug discovery, our data has increasing potential to drive value directly. We increasingly see the potential to license select models and subsets of our data to a growing universe of collaborators for which internal efforts would be minimal, but value could be significant.

Competitive Landscape and Differentiation

There are a few key factors that differentiate Recursion from other technology-enabled drug discovery companies.

1. Recursion utilizes many biology, chemistry, and patient-centric proprietary datasets and modular toolsto industrialize drug discovery, while most other competitor companies rely on a point solution to solve one important step in drug discovery. We recognize that drug discovery is made up of many steps, and a point solution is insufficient to generate efficiencies across the entire process. To decode biology, we must construct a full-stack technology platform capable of integrating and industrializing many complex workflows. In part, Recursion’s LOWE (LLM-Orchestrated Workflow Engine) is a natural progression of workflow automation. In the future, we believe the Recursion OS will also utilize large population genetics datasets and data from payer and healthcare systems to drive greater efficiencies and more precision medicine solutions for patients.

2. Recursion integrateswet-lab and dry-lab capabilities in-house to create a virtuous cycle of iteration. Fit-for-purpose wet-lab experimental data are translated by dry-lab digital tools intoin silico hypotheses and testable predictions, which in turn generates more wet-lab data from which improved predictions can be made. Recursion is well positioned compared to companies of a similar stage either focused more specifically on the wet-lab only (traditional biotech or pharma companies) or dry-lab only (companies facing rapidly commoditized algorithms and a challenge differentiating on non-proprietary data).

3. Recursion has achieved asignificant scale with respect to its scientific, technological, and business endeavors. With five clinical-stage programs, an exciting preclinical pipeline, two of the largest discovery partnerships in the biopharma industry with Roche/Genentech and Bayer, and three technology-focused partnerships, Recursion has achieved a scale, level of integration, and stage that few other TechBio companies have.

The Recursion OS

The creation of virtuous cycles of physical experiments andin silico models has been a competitive advantage for leaders in many industries outside of biopharma. In drug discovery, virtuous cycles of experimentation (wet-lab assays) and machine learning (dry-lab predictions) is an approach to efficiently mapping and navigating biology and chemistry at unparalleled scale and efficiency. Critically, by closely integrating the wet-lab and dry-lab in an iterative manner, one can create cycles of virtuous learning, where large fit-for-purpose wet-lab datasets support betterin silico model generation and enable more focused future wet-lab experiments.

Figure 8. Recursion’s virtuous cycle of wet-lab and dry-lab.(1) Profile biological and chemical systems using automation to scale a small number of data-rich assays, including phenomics, transcriptomics, InVivomics, and ADME to generate massive, high quality empirical data; (2) aggregate and analyze the resultant data using a variety of in-house software tools; and (3) map and navigate leveraging proprietary software tools to infer relationships between biology and chemistry. These inferred relationships serve as the basis of our ability to predict how to navigate between biological states using chemical or biological perturbations, which we can then validate in our automated laboratories, completing a virtuous cycle of learning and iteration.

The Recursion OS is composed of many wet and dry-lab modules. Each module is both a capability as well as a set of standardized workflows that have been scaled and automated, in some cases, to a very high degree. In order to drive greater efficiency, these modules have been industrialized so that they can be plugged into drug discovery and development activities related to both our internal pipeline as well as large pharma partnerships. Connecting standardized workflows together can be thought of like modular programming but in a biological and chemical context. The general connected modular framework for carrying out industrialized, unbiased drug discovery and development is the Recursion OS.

Figure 9. The Recursion OS is composed of many wet- and dry-lab modules that can be connected to carry out industrialized, unbiased drug discovery and development. Each module is both a capability as well as a set of standardized workflows that have been scaled and automated, in some cases, to a very high degree.

Figure 10. The Recursion OS is meant to industrialize the drug discovery and development process through multiple cycles of learning and iteration. The Recursion OS is built on biologically native cycles of wet-lab and dry-lab modules leveraging phenomics, transcriptomics and InVivomics to drive discovery and validation of targets and compounds, while chemically native cycles of predictive ADME drive optimization of validated hits towards development candidates suitable for human clinical trials.

Wet Lab (Physical)

In order to create large and relatable datasets, standardization and scale are two critical requirements that can be best achieved through automation. Standardization means that the experiment is executed consistently every time, day after day, year after year - and that any deviations can be detected, tracked, and quantified. It involves meticulous metadata collection, prospective/retrospective experiment execution analysis, standard results storage, quantitative quality control and more. At the same time, massive scale, with millions of experiments executed per week, requires execution of multi-step assays processed rapidly and in a tightly orchestrated manner. This combination of precise repetition, high speed and massive volumes favors relying on robots over highly trained scientists, whose time is better spent on context-specific problems. In addition, automation of high-dimensional experiment readouts at scale enables cost reductions in the large high-dimensional digital datasets that can underpin today’s cutting-edge opportunities in machine learning.

Data utilized by the Recursion OS spans staining and multi-timepoint live-cell phenomics (brightfield), transcriptomics, proteomics, InVivomics, ADME assays, as well as predicted protein-ligand relationships. Recursion also has a physical library of over 1.7 million compounds, including over 1 million new chemical entity (NCE) starting point substances, a large library of known chemical entities which can serve as guideposts, and more than 500,000 compounds belonging to our collaborators. Further, Recursion has generated a custom whole-genome arrayed CRISPR guide library. Together, these tools allow Recursion to explore millions of different biological perturbations in our own wet labs. We have executed over 200 million phenomics and over 700,000 whole transcriptomics experiments across different biological and chemical contexts in multiple human cell types. In 2023, with the completion of our automated DMPK module, we have now conducted tens of thousands of ADME experiments. Our tissue culture facility has scaled the production of over 50 human cell types and has also enabled work at scale in co-cultures and complex iPSC-derived cell types. Since 2022, for example, Recursion generated more than 1 trillion hiPSC-derived neuronal cells for our partnered work with Roche and Genentech - a scale achieved by few other companies in the world.

Figure 11. Diverse datasets utilized by the Recursion OS are highly complementary and add useful context, like the different layers of digital maps of Earth. Multiple data modalities help identify connections within and between layers to enable decoding biology at scale.

Automation

While we do not consider ourselves to be hardware innovators, we have leveraged a significant team of automation scientists to assemble and synchronize advanced but widely-available robotic components, such as liquid dispensers, plate washers, incubation stations, automated HPLC, mass spectrometry and automated microscopy camera systems, to efficiently execute millions of experiments per week across a variety of data-rich outputs with only a small team overseeing the process at any given time. These robotic systems are modular by design and easily configurable to allow us to create complex and variable workflows. Furthermore, we have recently operationalized a fully integrated system that processes plates continuously through all steps in our primary experimental workflows. This fully integrated system is interoperable with the existing batch processing work cells but provides greater walk-away time for our operators and greater throughput in a smaller footprint.

Figure 12. Our high-throughput automation platforms make our labs look more like sophisticated manufacturing facilities than biology R&D laboratories. Our high throughput phenomics platform (top) can execute up to 2.2 million experiments each week with high quality to enable downstream analyses. We are increasingly automating many other of our assays at Recursion.

Cell Culture and Cell Differentiation Tools

We have built a state-of-the-art cell culture facility to consistently produce high-quality, primary mammalian cells, such as vein, kidney, lung, liver, skin and immune cell subsets, as well as stem cell-derived and cancer cell lines. In total, over 50 cell types have been onboarded to our high-throughput discovery systems. In 2022, we greatly expanded our cell culture facility footprint to perform work using human induced pluripotent stem cell (hiPSC) lines. Specifically, we have developed protocols using CRISPR genome editing technologies to generate knock-out or knock-in lines. We have developed protocols to differentiate hiPSCs into several distinct cell types using 3D and 2D differentiation methods. Furthermore, we have developed internal capabilities to characterize these cells using standardized and partly automated methods. Lastly, we have developed a scalable platform to produce 50-100 billion cells of interest per week and cryopreserve cells in assay-ready frozen format. Since 2022, our team produced over 1 trillion hiPSC-derived cells of interest to support various ongoing projects.

Figure 13. Various cells grown at scale for phenomics assays in-house by Recursion. These cells represent a variety of iPSC-derived neuronal cell types to support our neuroscience research.

Phenomics

Cellular morphology is a holistic measure of cellular state that integrates changes from underlying layers of cell biology, including gene expression, protein production and modification and cell signaling, into a single, powerful readout. Image-based -omics can be two to four orders of magnitude more data-dense per dollar than other -omics datasets that focus on these more proximal readouts, enabling us to generate far more data per dollar spent to inform our drug discovery efforts. We currently generate up to 13.2 million images or 110 terabytes of new data per week across up to 2.2 million experiments. Our phenomics approach builds on the recent explosion of powerful computer vision and ML approaches driven by the technology industry over the last decade. Modern ML tools can be trained to identify the most salient features of images without relying on any pre-selected, disease-specific subject matter expertise, even if these features are imperceptible to the human eye. Using these tools, we can capture the aggregate cellular response induced by a disease-causing perturbation or therapeutic and quantify these changes in an unbiased manner, freeing us from human bias. In contrast, traditional drug discovery relies on presumptive target hypotheses and bespoke biological signaling assays that only capture narrow, pre-determined biology and thus limit the scope of biological exploration.

Figure 14. AI/ML models can detect cellular phenotypes that are indistinguishable to the human eye. Most morphological differences within our images are too subtle for the human eye to detect, but AI models like Phenom-1 deployed in our Recursion OS can readily distinguish between them. The heatmap of similarities shown here between learned embeddings of these images shows clear separation where even well-trained cell biologists or pathologists would be hard-pressed to describe consistent differences.

Imaging data that we generate can be broadly and consistently used across various biological and chemical contexts to create vast, relatable datasets rather than creating data islands of custom one-off imaging readouts. Previously, most of our phenomics data consisted of fluorescent microscopy images that capture composite changes in cellular morphology. This protocol, consisting of six subcellular dyes imaged in six different channels, has been optimized to capture a wide array of biology across nearly any adherent human cell type that can be cultured and perturbed in laboratory conditions. In 2023, we expanded how we gather phenomics data and started capturing dynamic timepoint information from our cells throughout an assay using brightfield imaging. This technique offers the benefit of being able to capture data within the same well over time and across assays (e.g., we can capture a transcriptomic endpoint from the same experimental well in which we imaged cells over time after a perturbation of interest). Brightfield imaging, which increasingly comprises our phenomics experiments, enables faster, more cost-effective image analysis across multiple timepoints and modalities. With these broadly applicable approaches, we can capture the effects of a wide range of biological and pharmacological phenomena of interest, including phenotypic changes induced by small molecules, genetic gain- and loss-of-function, toxins, secreted factors, cytokines, infectious agents, or any combination of the above.

Figure 15. A cellular image leveraging our fluorescent staining protocol (left) compared to a brightfield cellular image (right), both of which capture multiple levels of information about the cellular state. Brightfield imaging, which increasingly comprises our phenomics experiments, enables faster, more cost-effective image analysis across multiple timepoints and modalities.

Figure 16. Maps made with phenomics data from both Cell Paint and Brightfield techniques demonstrate highly similar results. Heatmaps reveal relationships between genes that span a wide variety of well-documented cellular systems.

Transcriptomics

We have developed an in-house transcriptomics laboratory platform, complete with walk up automation and push button digital data processing, capable of profiling up to 25,000 samples per week covering expression of nearly 20,000 genes from samples drawn from any of our biological modules. At the end of 2023, we had leveraged our transcriptomics platform to sequence over 700,000 individual transcriptome samples to improve our biological understanding of many of our programs and to begin to create another layer of orthogonal biological mapping data to complement our phenomics mapping data. In 2024, we intend to further scale and automate this capacity to enable more hits identified from our phenomics platform to be confirmed using an orthogonal, transcriptomic readout as part of our industrialized program generation workflows and we expect to be able to approach whole-genome scale mapping in this data-layer as well. This approach of combining high dimensional, large scale data layers from the Recursion OS, across phenomics and transcriptomics allows us to increase our confidence around which insights to prioritize for scientist follow-up, while at the same time minimizing cost and human effort. Similar to how we scaled transcriptomics to complement phenomics, we expect to scale additional data types like proteomics, metabolomics, lipidomics, and others.

Figure 17. Recursion utilizes an adapted transcriptomic experimental process to leverage industry-standard sequencing systems at vastly reduced cost per sample.

InVivomics

In vivo studies are an important tool for assessing efficacy and safety of a compound within the context of a complete, complex whole-organism system. Like other steps in the drug discovery and development process, conventionalin vivo studies are fraught with human bias and limited in the post-study endpoints that they measure. Using our In Vivo Data Collection Infrastructure (which we call InVivomics), we can collect more holistic measurements of an individual animal’s behavior and physiological state using continuous video feeds and sensor technology (e.g., temperature), surveilling animals uninterrupted in their home environment and analyzing readouts live throughout studies in progress across days, weeks, or even months.

In 2023, our Digital Vivarium consisted of over one-thousand digital mouse cage units. These support digital tolerability studies, which allow us to identify phenotypic responses unique to different modes of toxicity and prioritize which compounds and doses should be used in efficacy studies. We also conduct InVivomic efficacy studies to evaluate treatment effects early based on whole-animal digital observations. We have also initiated the expansion of our InVivomics tolerability studies into rats to leverage the advantages of whole-animal digital observations for exploratory non-GLP toxicology studies.

Figure 18. Our proprietary, scalable Smart Housing System forin vivo studies automatically collects and analyzes video and sensor data from all cages continuously.

ADME Data

In 2023 Recursion’s custom-built high-throughput robotic ADME experimentation platform entered production. High quality, reproducible data is evaluated against a rigorously designed set of standard controls and QC metrics to ensure data quality. This data is included in our warehousing system that connects experimental data. We will be deploying this fast-growing dataset to build predictive models for the microsomal stability, plasma protein binding, microsomal protein binding and passive permeability outcomes. These predictive models aim to ultimately prioritize the acquisition of high-quality compounds into the Recursion collection to accelerate our programs. We have also built an analytical laboratory equipped with state-of-the-art liquid chromatography-mass spectrometry equipment. Our analytical chemistry team supports work throughout the lifecycle of our programs, including assessing compound identity and purity for quality control, bioanalysis of compound concentration in plasma and tissue samples fromin vivo studies, and biomarker identification and validation activities in support of preclinical and clinical translational efforts.

Figure 19. Recursion’s automated DMPK module allows for automated assay execution across plasma protein binding, microsomal stability and cell permeability studies at scale and in both human and rodent cells to advance programs while generating state-of-the-art training data for ML and AI algorithm development. The system has been designed to potentially add new modules into the automated workflow, such as additionalin vitro absorption, distribution, metabolism, excretion, and toxicity (ADMET) testing.

Chemistry

Our in-house chemistry tools include physical compound collections, state-of-the-art compound storage and handling infrastructure and high-precision analytical equipment. The physical capabilities paired with our cutting-edge computational and digital chemistry platforms combine to accelerate hit identification and progression through virtuous cycles of potency and property optimization to deliver differentiated drug candidates. We have a total in-house chemical library of over 1.7 million small molecules from a combination of commercial, semi-proprietary, proprietary, and partner sources and use this library to identify chemical starting points for discovery campaigns. Over 1 million of these compounds reside within the Recursion’s novel chemical entity library curated by our computational and medicinal chemists and designed for highly druggable chemical properties while avoiding undesirable chemical properties, such as poor solubility and permeability. While this library has been constructed to maximize chemical diversity, we have ensured that several analogs of many compound cores are included to help identify emergent SAR for early hits and to enable rapid hit expansion into readily available analogs. Additionally, we have curated a selection of approximately 10,000 clinical-stage and preclinical compounds from public forums or filings, covering approximately 1,000 unique mechanisms of action, for which an abundance of existing data and annotations currently exist. These well-characterized molecules are frequently used as tool compounds within our work and may be advanced as therapeutic programs if the Recursion OS reveals unique and previously undisclosed biological activity.

Figure 20. Our state-of-the-art compound storage and handling infrastructure. These tools provide the potential to store up to more than 60 million compounds (in plated formats) onsite.

In December 2023, we entered into a collaboration with Enamine to generate and design enriched compound libraries for the global drug discovery industry. By leveraging Recursion’s MatchMaker AI model, a product added to Recursion after the acquisition of Cyclica in 2023, to identify compounds in the Enamine REAL Space predicted to bind to high-value targets, we believe we can generate more powerful compound libraries for drug discovery purposes. Recursion is expanding our chemical libraires by leveraging MatchMaker and other Recursion-developed predictive ML models to select compounds that represent tractable starting points and have an increased probability of exhibiting biological activity on our phenomics platform. We believe that the scale of our total in-house chemical library is comparable to the scale of chemical libraries curated by some large pharmaceutical companies. We plan to substantially increase the size and diversity of our NCE library over the coming years through a combination of partnerships and investments in automated chemical microsynthesis in order to more fully understand novel biological and chemical relationships. With the completion of our recent wet-laboratory expansion, we now have the potential capability to store up to more than 60 million compounds (in plated formats) onsite.

Figure 21. Our MatchMaker technology predicted the protein target(s) for ~36 billion chemical compounds in the Enamine REAL Space, reported to be the world’s largest searchable chemical library. We use the predicted interactions as a complementary data layer in our multiomics dataset for honing mechanistic predictions from our wet-labs and for accelerating SAR cycles through better predictions for our internal pipeline and within our partnerships.

Patient-Centric Genomics Data

In 2023, we entered into a collaboration with Tempus giving Recursion access to over 20 petabytes of proprietary deidentified, multimodal patient oncology data, spanning DNA and RNA tumor sequencing data, imaging, and health records collected from the diagnostic profiling of hundreds of thousands of cancer patients. We believe this data gives Recursion a unique opportunity to fuse the “reverse genetics” approach of our wet-lab platform (identifying cellular phenotypes associated with particular genetic perturbations) with a patient-centric “forward genetics” dataset (identifying genotypes associated with disease-related phenotypes including but not limited to cancer type, progression, response, and survival). In particular, we intend to use this dataset to train causal AI models making use of both patient data and Recursion-proprietary experimental data to go beyond mere correlations or associations in patient data to improve the speed, precision, and scale of therapeutic development in oncology by identifying superior therapeutic targets and well-calibrated populations to accelerate our oncology clinical trials.

Figure 22. Integration of Recursion reverse-genetics and Tempus forward-genetics data. New potential causal nodes beyond known drivers in lung cancer. At top right, a distribution of potential genetic targets in lung cancer prioritized based on literature-derived evidence. At bottom right, re-ranking of these genes making use of joint Recursion-Tempus evidence using our causal discovery workflow discovers several novel targets with therapeutic impact potentially comparable to known non-small-cell lung cancer drivers.

Dry Lab

Processing and Data Storage Infrastructure

The Recursion OS is built on top of a core technology stack that is highly scalable and flexible. We have adopted a hybrid-cloud strategy, leveraging the benefits of both public and private cloud infrastructure depending on the context and our needs.

Public Cloud. The public cloud is our default choice for production workloads and applications. The scale, elasticity of compute and storage, and economies of scale offered by public cloud computing providers enable us to cost-effectively execute our strategy. We benefit from large capital and investments from cloud service providers to utilize at-scale technologies that would otherwise be cost-prohibitive to build on our own.

Private Cloud. We make use of owned infrastructure to orchestrate the activities in our labs and transfer the data to the public cloud. We also own and operate GPU-based high-performance computing to train our state-of-the-art machine learning models. Owning this infrastructure is critical both for resiliency (on-premises laboratories) and for availability (GPUs) at a time when GPU availability continues to be at a premium.

BioHive-1 and High-Performance Computing in a Private Cloud. Much of our deep learning model training and research happens with our world-class supercomputer named BioHive-1. BioHive-1 is built on NVIDIA’s DGX SuperPod architecture and as of November 2023 is ranked #157 on the TOP500 list of the world’s most powerful supercomputers. In November 2023, we committed to working with NVIDIA to expand BioHive-1 to increase the computational capacity by over 4X. We project that upon completion and benchmarking, BioHive-1 will be in the top 50 most powerful supercomputers in the world across any industry (according to the TOP500 list) and will be the most powerful supercomputer owned and operated by any biopharma company. We believe that a combination of compute, data and talent will enable us to train industry leading AI/ML foundation models.

Figure 23. We believe BioHive-1 is one of the most powerful supercomputers dedicated to drug discovery. In November 2023, we committed to adding over 500 NVIDIA H100 Tensor Core GPUs to the more than 300 NVIDIA A100 Tensor Core GPUs already in place, which will increase our computational capacity by more than 4X.

The Recursion Data Universe

Modern approaches to drug discovery are built on significant datasets, in both structured and unstructured forms, as well as from various sources, proprietary, licensed, and public. Recursion enables access to the Data Universe through a combination of modern Data Lake / Warehouse tools for our structured data, and proprietary tools for managing our large volume of unstructured data. Recursion combines these data sources as part of The Recursion Data Universe, which compromises the following data sets, among others:

•Proprietary, Unstructured: This represents the data we generate from our scientific platforms, and consists of high-resolution images from our phenomics assays, sequence readouts from our transcriptomics assays, mass spectrometry data from our DMPK module, and video data from our InVivomics assays.

•Proprietary, Structured: To enable access to all this data, Recursion keeps significant metadata and structured data related to the outcomes from our experiments. This includes the embeddings output from our deep learning models, as well as various analyses of the data from our assays. Our unique use of high dimensional readouts from our assays enables comparison over time in ways not otherwise possible in industry.

•Licensed, Structured and Unstructured: In 2023, we entered into a collaboration with Tempus giving Recursion access to over 20 petabytes of proprietary deidentified, patient-centric, multimodal oncology data for the purpose of training causal AI models. We are adding this data to our Data Universe and enabling further data layers to our drug discovery workflows.

•Public, Structured: We regularly make use of public datasets as part of the Recursion Data Universe to expand our understanding of biology and chemistry. Sources include the UK Biobank, TCGA and DepMap from the Broad Institute of MIT and Harvard.

Mapping and Navigating to Drive Insights and Outcomes

The Recursion Data Universe spans many petabytes of biological, chemical, and patient-centric data, relatable across years of experiment execution and data types. We have also built a rapidly growing suite of in-house software applications designed to process and translate this data into rapidly actionable insights. Increasingly, these tools and data are joined in automated workflows to rapidly prosecute drug discovery programs.

A core part of the Recursion Data Universe is our maps of biology and chemistry: massivein silico datasets created from our physical assays (e.g., phenomics) as well asin silico models (e.g., MatchMaker). Our maps predict relationships and interactions and allow Recursion to be extremely efficient in what studies to prioritize for a given drug discovery opportunity. By layering different maps from different technical modalities or from different biological or chemical spaces, we create a drug discovery “atlas” in which insights are further strengthened and understood by looking across map layers in an unbiased manner (e.g., characterizing a compound across phenomics, transcriptomics, ligand-target binding, in vitro andin vivo ADMET, etc.).

Collectively, our phenotypic maps contain over 5 trillion inferred relationships generated by ML tools without human bias, spanning across genetic perturbations as well as a large number of small- and large-molecule perturbations. Our ability to query the relationships between any perturbations in our phenotypic maps changes drug discovery from an iterative trial-and-error process into a computationally driven search problem. Unlike a traditional high-throughput screen, in which many compounds are profiled for their activity against a single target at a time, our mapping and navigating approach enables every compound we profile to be analyzed not just for its activity against a single target, but for its inferred activity againstall possible targetsin our arrayed CRISPR library, as well as its similarity to every compound we have previously analyzed – producing a super-linear growth in biological and chemical relationships.

Figure 24. Mapping and navigating enable simultaneous genome-wide screening. Traditional pharma high-throughput screening methods (left) screen thousands to millions of compounds simultaneously against single targets, but little or no information about other targets. Recursion’s mapping and navigating approach (right) enables us, in a single experiment, to infer the activity of a compound against all potential targets in our arrayed CRISPR knockout screen.

LOWE: Large-Language Model (LLM) Orchestrated Workflow Engine

The growing number of AI tools and datasets at Recursion – comprised of many wet-lab and dry-lab modules that can be connected – increases the complexity of our early drug discovery workflows. Moreover, each module often requires specific expertise to operate and is only accessible to highly trained data scientists or machine learning engineers. LOWE is an LLM agent designed to orchestrate complex drug discovery workflows using a natural language interface. These workflows chain together a variety of steps and tools, from finding significant relationships within Recursion’s maps of biology and chemistry to generating novel compounds and scheduling them for synthesis and experimentation. Through its natural language interface and interactive graphics, LOWE puts state-of-the-art AI tools into the hands of every drug discovery scientist at Recursion in a simple and scalable way.

LOWE not only represents the next evolution of the Recursion OS, but also how we believe drug discovery will be done at every company in the next 5 to 10 years. Today, LOWE is directed by scientists who formulate hypotheses and ask questions. In the future, we believe LOWE could be combined with additional AI agents capable of formulating hypotheses and learning from results, effectively thinking like a biologist or chemist. LOWE is a first step towards the development of autonomous ‘AI scientists’ for therapeutic discovery.

Figure 25. LOWE can orchestrate both wet-lab and dry-lab complex drug discovery tasks using natural language. In the examples above, LOWE has i) identified a list of targets involved in non-small cell lung cancer, ii) identified the top 50 commercially available compounds that have a similar structure to an initial hit, and iii) designed a phenomics experiment to test the compounds for phenosimilarity to a given target.

Because LOWE deploys via a web-based application, the most up to date versions of data and modules are automatically propagated for usage so that version control is not an issue. At Recursion, we are working on an autonomous agent that interfaces with a set of drug discovery modules, whereby a human scientist would review a set of potential programs for further advancement. Whether running via human prompts or autonomously, LOWE maintains a precise record of the commands being made, versions of the data and modules being called, and results being relayed so that workflows could be replicated in the future and computational and experimental results can be collected as evidence for the progression of programs for our internal pipeline, external partners, or regulatory groups.

Other Enabling Software Tools and LLMs

Additional internal software tools drive efficiency by enabling us to map and navigate data spanning more than 5 trillion predicted biological and chemical relationships, prioritize disease, target, and compound opportunities, design large experimental layouts, and automatically execute and continuously monitor experimental protocols. For example, MapApp enables scientists to explore relationships using several visualizations, statistical measurements and data layers including known information about compounds or known relationships between genes and diseases to rapidly distinguish novel insights. Other tools monitor real-time onsite reagent supplies, enable consistent control strategies, and design standards that make each week’s data relatable across time. Additionally, these tools automatically flag experiments or processes which miss quality requirements or stall at some point in the process and notify the appropriate personnel.

Figure 26. Our MapApp tool allows scientists to simultaneously view multiple relationships between genes and compounds.

Large Language Model (LLM) Cataloging of Scientific Literature. To efficiently initiate programs from our maps of biology, we use a proprietary in-house workflow that incorporates LLMs. This automated approach allows us to rapidly search for and prioritize the most promising opportunities from the large number of insights in our maps. In service to this process, we deploy LLMs to map the corpus of scientific literature against our internally derived proprietary maps in order to automatically surface critical data arbitrages. By layering these LLM-derived maps of scientific literature onto our proprietary maps, we can focus our work on novel and emerging biological, chemical, and patient-centric opportunities rather than the well-trodden and highly competitive diseases and targets the rest of the industry are focused on.

Computational Tools and Foundation Models in Biology

To understand, explore and relate new or existing data, we must normalize, transform and analyze that data. Our tools in this layer manage the streaming of our data at scale to the appropriate public and private cloud, the transformation of data into mathematical representations through our in-house proprietary foundation models, and the analyses performed on our data as parameterized and requested by users. Anomalies are flagged to the team for fast resolution.

Phenom-1. Our phenomics-based foundation model, Phenom-1, is a large vision transformer utilizing hundreds of millions of parameters trained on billions of cellular images from our proprietary phenomics library. Phenom-1 demonstrated the scaling hypothesis within a biological context, namely that larger models trained on larger datasets lead to improved performance. Also, Phenom-1 performed up to 28% better at recapitulating known biological relationships.8

8 Kraus, O et al. (2023). Masked Autoencoders are Scalable Learners of Cellular Morphology. NeurIPS 2023 Generative AI and Biology (GenBio) Workshop

Figure 27. Image reconstruction tasks demonstrate impressive visual results of Phenom-1, our phenomics foundation model. Reconstructing partially masked images was the training task which has enabled emergent capabilities of the model in drug discovery tasks such as detecting biological relationships.

Forward- and Reverse-Genetics Causal AI Models. We invested in deepening the translational potential of the Recursion OS by incorporating patient-relevant, forward-genetics data through our collaboration with Tempus. Recursion’s maps of biology represent a “reverse genetics” strategy, in which we identify and relate to each other the cellular phenotypes induced by genetic and chemical perturbations. Patient genomic datasets like those from Tempus represent a “forward genetics” strategy, cataloging genetic factors associating with patient phenotypes, including cancer type, progression, and more factors ascertainable from the health record. We seek to combine these forward genetics datasets with Recursion’s experimental capabilities to build causal AI models that may better predict which programs are likely to translate therapeutic benefits for patients and which patients are more likely to benefit from such treatments.

Other Foundation Models. With the vast patient-centric data from Tempus and our own growing proprietary multiomics datasets, we anticipate the construction and application of more foundation models, including large language models, across biology, chemistry and translation. When specific foundation models are combined, we believe that a grand canonical foundation model which incorporates in-cellular insights through in-patient causal outcomes could drive a more deterministic and holistic understanding of biology, chemistry, and patient-centric care. We believe these increasingly sophisticated models will enable us to develop more, new, and better medicines at higher scale and lower cost to patients.

Figure 28. Phenom-1 demonstrates that the scaling hypothesis holds within a biological system. This scaling plot illustrates how increasing the compute power (X-axis), which isrequiredfor dataset size and model complexity, improved the model's ability to recapitulate known biological relationships (Y-axis). This observed improvement was not directed as part of the training, but rather emerged as a result of scaling the model.

Computational Tools and Foundation Models in Chemistry

The acquisitions of Cyclica and Valence in May 2023 added industry-leading capabilities in digital chemistry, machine learning, and artificial intelligence to Recursion’s existing small molecule drug discovery capabilities. We are leveraging these capabilities to advance our internal and partnership drug discovery programs.

MatchMaker, a tool acquired during the Cyclica acquisition, is an AI-enabled deep learning engine that uses both AlphaFold2 structures and homology models to predict the polypharmacology of small molecules across the proteome. We utilized MatchMaker to successfully predict the protein target interactions of several commercially available libraries, including the 36 billion compound Enamine REAL Space collection. Predicting the proteome profiling of 36 billion molecules was a massive computational exercise involving thein-silico evaluation of over 2.8 quadrillion molecule-target pairs. Achieving this exercise was an important step in bridging the gap between the protein universe and the chemical universe and enabling us to intelligently search vast chemical libraries to identify molecules for profiling in our wet-lab platforms.

MolE, developed in-house by Recursion, is a self-supervised foundation model for chemistry. MolE learns generalizable, graph-based representations of compounds and transforms them into robust, task-specific ML models via fine-tuning. Fine-tuned MolE models span endpoints related to drug efficacy and safety. MolE models are trained across a wide array of public and private datasets, including the massive-scale data generated by Recursion’s phenomics and DMPK platforms.9

Our digital chemistry platform is a core part of Recursion’s software ecosystem, comprising an integrated suite of proprietary and commercial tools, enabling our medicinal and computational chemistry team to scale and advance programs from hit to candidate. Key aspects of this platform include: (i) unified access to and visualization of chemical structures and assay data, including internally generated high or low-dimensional assay data, externally generatedin vitro orin vivo data, and ADME data; (ii) integrated predictive modeling, chemical search and computational chemistry capabilities; and (iii) molecular design and collaboration. We intend to further invest in predictive and digital chemistry capabilities across three domains: (i) chemistry-centric ML model development, (ii) chemistry-centric data generation and (iii) digital and physical chemistry process development to drive the Design-Make-Test-Analyze cycle of chemistry optimization more efficiently, including the roll-out of industrialized workflows that integrate chemistry and biological assay steps autonomously.

9 Méndez-Lucio, O et al. (2022). MolE: a molecular foundation model for drug discovery. Presented at NeurIPS 2022.

Bridging Insights to Program Advancement with the Recursion OS

The Recursion OS is an integrated, multi-faceted system for iteratively mapping andnavigating massive biological and chemical datasets that contain trillions of inferred relationships between disease-causative perturbations and potentially therapeutic compounds. Collectively, the components of the Recursion OS can be joined together in a modular way to identify, validate and advance a broad portfolio of novel therapeutic programs quickly, cost-effectively and with minimal human intervention and bias - industrializing drug discovery. We use standardized, automated workflows to identify programs and advance them through key stages of the drug discovery and development process which includes:

•Patient Connectivity and Novelty (i.e., program initiation)

•Hit and Target Validation

•Compound Optimization

•Translation

•IND Enabling Studies

•Clinical Development

Late-stage clinical failures are the primary driver of costs in today’s pharmaceutical R&D model. Reducing the rate of costly, late-stage failures and accelerating the timeline from hit to a clinical candidate would create a more sustainable R&D model. To achieve this more sustainable model, we believe that in its ideal state, a drug discovery funnel would morph from the being shaped like the letter ‘V’ to being shaped like the letter ‘T,’ where a broad set of possible therapeutics could be narrowed rapidly to the best candidate, which would advance through subsequent steps of the process quickly and with no attrition. Recursion’s goal is to leverage technology to reshape the typical drug discovery funnel towards its ideal state by moving failure as early as possible to rapidly narrowing the funnel into programs with the highest probability of success.

Figure 29. Reshaping the drug discovery funnel. Recursion’s goal is to leverage technology to reshape the typical drug discovery funnel towards its ideal state by moving failure as early as possible to rapidly narrowing the funnel into programs with the highest probability of success.

We believe we have made progress in reshaping the traditional drug discovery funnel in the following ways:

•Broaden the funnel of therapeutic starting points. Our flexible and scalable mapping tools and infrastructure enable us to infer trillions of relationships between human cellular disease models and therapeutic candidates based on real empirical data from our own wet labs.

•Identify failures earlier when they are relatively inexpensive. Our proprietary navigation tools enable us to explore our massive biological, chemical, and patient-centric datasets to validate more and varied hypotheses rapidly. While this strategy results in an increase in early-stage attrition, the system is designed to rapidly prioritize programs with a higher likelihood of downstream success because they have been explored in the context of high-dimensional, systems-biology data. Over time, and as our OS improves, we expect that moving failure earlier in the pipeline will result in an overall lower cost of drug development.

•Accelerate delivery of high-potential drug candidates to the clinic. The Recursion OS contains chemistry tools that enable highly efficient exploration of chemical space as well as translational tools that improve the robustness and utility ofin vivo studies.

By leveraging our Recursion OS to explore and advance our programs, we have shown leading indicators of improvement when compared to the traditional drug discovery process, particularly with respect to cost and time. Across all Recursion programs from late 2017 through 2023, the average amount of time to reach the validated lead stage is approximately 11 months. By the end of 2024, we believe that Recursion programs could reach the validated lead stage in about half that time or less. Ultimately, we believe that future iterations of the Recursion OS will enable even greater improvements minimizing the total dollar-weighted failure and maximizing the likelihood of success.

Figure 30. The trajectory of our drug discovery funnel mirrors the ‘ideal’ pharmaceutical drug discovery funnel. We believe that, compared to industry averages, our approach enables us to: (i) identify low-viability programs earlier in the research cycle, (ii) spend less per program and (iii) rapidly advance programs to a validated lead candidate. All industry data has been adapted from Paul, et al. Nature Reviews Drug Discovery. (2010) 9, 203–214. The cost to IND has been inflation-adjusted using the US Consumer Price Index (CPI). The Recursion data shown for the transition stages and time to validated lead is the average of all Recursion programs since late 2017 through 2023. The Recursion data shown for cost to IND pertains to the actual and projected costs for a novel chemical entity to reach IND.

The Recursion OS has not only improved speed and cost, but also led us to explore novel targets which could give us a competitive advantage where multiple parties often simultaneously pursue a limited number of similar target hypotheses. Below one can see quantitative measures for how we prioritize programs characterized by (i) strong genetically driven biological evidence and (ii) differentiated novel biology.

Figure 31. We use LLMs to organize relationships within public data as well as our own proprietary data and software tools to identify starting points for all of our internal programs. We prioritize programs at scale by focusing on targets where our proprietary data provides a distinct arbitrage that suggests we can drive towards novel target identification and selection in oncology. Each circle represents a gene that can be searched by the Recursion OS across a number of biological and pharmacological factors. Circles in green reflect targets for drugs that have obtained regulatory approval for the treatment of specific diseases and are adapted from Ochoa, D. et al. Nucleic Acids Research. (2023).

Our Pipeline

All of the programs in our internal pipeline are built on unique biological insights surfaced through the Recursion OS where: (i) the etiology of the disease is well defined but the subsequent impacts of the disease are generally obscure, the primary targets are typically considered undruggable, or the primary targets are extensively recognized in association with a particular disease and (ii) there is a high unmet medical need, no approved therapies, or significant limitations to existing treatments. Several of our internal pipeline programs could have potential market opportunities of more than $1 billion in annual sales. We currently have five programs in or planning to initiate Phase 2 clinical studies and we are preparing to submit an IND for a sixth program in H2 2024. In addition to our clinical stage programs, we are actively developing dozens of preclinical and discovery programs.

Clinical Programs

•REC-994 for the potential treatment of cerebral cavernous malformation, or CCM — SYCAMORE, a Phase 2, randomized, double-blind, placebo-controlled, safety, tolerability and exploratory efficacy study is underway. Orphan Drug Designation has been granted in the US and EU. We expect to share Phase 2 data in Q3 2024. This trial was fully enrolled in June 2023 and the vast majority of participants who completed 12 months of treatment continue to elect to enter the long-term extension study.

•REC-2282 for the potential treatment of neurofibromatosis type 2, or NF2 — POPLAR, an adaptive, Phase 2/3, randomized, multicenter study is underway. Enrollment of Phase 2 is expected to complete in H1 2024. Orphan Drug Designation in the US and EU as well as Fast Track Designation in the US have been granted. We expect to share Phase 2 safety and preliminary efficacy data in Q4 2024.

•REC-4881 for the potential treatment of familial adenomatous polyposis, or FAP — TUPELO, a Phase 1b/2, open label, multicenter study is underway with Part 1 complete. FPI for Part 2 is anticipated in H1 2024. Orphan Drug Designation in the US and EU as well as Fast Track Designation in the US have been granted. We expect to share Phase 2 safety and preliminary efficacy data in H1 2025.

•REC-4881 for the potential treatment of AXIN1 or APCmutant cancers — LILAC, a Phase 2 open label, multicenter study in solid tumors initiated at the end of 2023 with FPI anticipated in Q1 2024. We expect to share Phase 2 safety and preliminary efficacy data in H1 2025.

•REC-3964 for the prevention of recurrent Clostridioides difficile infection — a Phase 1 study in healthy volunteers completed in Q3 of 2023. REC-3964 was well tolerated with no serious adverse events (SAEs) reported. We expect to initiate a Phase 2 study in 2024.

We believe that the number of potential programs we can generate with our Recursion OS is key to the future of our company, as a greater volume of validated programs has a higher likelihood of creating value. Additionally, we believe that our large number of potential programs makes us an attractive partner for larger pharmaceutical companies. The static or declining level of R&D output at several large pharmaceutical companies indicates an ongoing requirement for new projects to sustain their product pipelines.

Figure 32. The power of our Recursion OS as exemplified by our expansive therapeutic pipeline. All populations defined above are US and EU5 incidence unless otherwise noted. EU5 is defined as France, Germany, Italy, Spain and UK.1 Prevalence for hereditary and sporadic symptomatic population.2 Annual US and EU5 incidence for all NF2-driven meningiomas.3 Prevalence for adult and pediatric population. Our program has the potential to address several indications.4 We have not finalized a target product profile for a specific indication.5 Incidence for US only.6 2L drug-treatable population.72L drug-treatable population comprising ovarian, prostate, breast and pancreatic cancers with no HRR mutations.8

REC-994 for Cerebral Cavernous Malformation – Phase 2

REC-994 is an orally bioavailable, superoxide scavenger small molecule currently under development for the treatment of symptomatic CCM. CCM is among the largest rare disease opportunities and has no approved therapies to date. REC-994 demonstrated excellent tolerability and suitability for chronic dosing in Phase 1 SAD and MAD trials in healthy volunteers directed and executed by Recursion. SYCAMORE, a Phase 2 randomized, double-blind, placebo-controlled, safety, tolerability and exploratory efficacy study is underway, and Orphan Drug Designation has been granted in the US and EU. We expect to share Phase 2 data in Q3 2024. This trial was fully enrolled in June 2023, with the vast majority of participants who completed 12 months of treatment electing to enter the long-term extension portion of the study.

CCM is a neurovascular condition that impacts approximately 360,000 symptomatic individuals in the US and EU5. Yet, with only around 30% of patients exhibiting noticeable symptoms, the disease is severely underdiagnosed, potentially affecting over 1 million patients. CCM originates from genetic mutations in any of three genes involved in endothelial function: CCM1, CCM2, or CCM3 and approximately 20% of patients inherit a familial form of CCM in an autosomal dominant pattern. Sporadic disease in the remaining population is caused by somatic mutations that arise in the same genes. CCM manifests as vascular malformations of the spinal cord and brain characterized by abnormally enlarged capillary cavities without intervening brain parenchyma. Patients with CCM lesions are at substantial risk for seizures, headaches, progressive neurological deficits, and potentially fatal hemorrhagic stroke. Current non-pharmacologic treatments include microsurgical resection and stereotactic radiosurgery. Given the invasive and risky nature of these interventions, these options are reserved for a subset of patients with significant symptomatology and/or easily accessible lesions. Rebleeds and other negative sequelae of treatment further limit the effectiveness of these interventions. There is no approved pharmacological treatment that affects the rate of growth of CCM lesions or their propensity to bleed or otherwise induce symptoms. Hence, CCM remains a serious health condition resulting in progressive neurologic impairment and a high risk of death due to hemorrhagic stroke.

Figure 33. Vascular malformations (cavernomas) in the brain of a CCM patient.10

CCM2 knock-down in human endothelial cells revealed pronounced structural and functional phenotypes that are distinct from healthy cells. We hypothesized that these observed structural changes could be used to enable unbiased drug discovery. Fluorescent microscopy and automated cellular quantification and profiling software enabled high throughput analysis. More than 2,000 commercially available and known chemical entities were rapidly evaluated with this strategy based on the hypothesis that hits from this library could be more quickly translated to the clinic. The novel use of REC-994 for CCM was discovered leveraging this early form of the Recursion OS. The exciting aspect of this novel, unbiased approach was that the drug candidates chosen using automated software analysis outperformed those chosen by human analysis in subsequent orthogonal screens.

Figure 34: Rescue of structural phenotypes associated with loss of CCM2. Immunofluorescence images of endothelial cells treated with siCTRL, siCCM2, or siCCM2 treated with REC-994, Simvastatin, or Cholecalciferol stained for DNA (blue), actin (green) and VE-cadherin (red). According to a machine learning classifier trained on images, REC-994 shows image-based rescue.

10 Cooper, AD. et al. (2008). Susceptibility-weighted imaging in familial cerebral cavernous malformations. Neurology, 71, 382.

REC-994 is a small molecule therapeutic designed to alleviate neurological symptoms associated with CCM and potentially reduce the accumulation of new lesions. REC-994 is an orally bioavailable superoxide scavenger with pharmacokinetics supporting once-daily dosing in humans. The putative mechanism of action of REC-994 is through reduction of reactive oxygen species and decreased oxidative stress that leads to stabilization of endothelial barrier function. In addition, REC-994 exhibits anti-inflammatory properties which could be beneficial in reducing disease-associated pathology.

Figure 35. REC-994 mechanism of action and proposed potential therapeutic impact.

The activity of REC-994 as a potential treatment for CCM was further confirmed in orthogonal functional assays and in acute and chronicin vivo models. REC-994 demonstrated benefit on acute to subacute disease-relevant hemodynamic parameters such as vascular dynamics and vascular permeability. Chronic administration of REC-994 was also tested in two endothelial-specific knockout mouse models for the two most prevalent genetic causes, CCM1 and CCM2. These mouse models faithfully recapitulate the CNS cavernous malformations of the human disease. Mice treated with REC-994 demonstrated a decrease in lesion number and/or size compared to vehicle treated controls. Notably, 24-hour circulating plasma levels of REC-994 in thisin vivo experiment were consistent with exposures seen in humans at a 200 mg daily dose.

Figure 36. REC-994 rescues acetylcholine-induced vasodilation defect and dermal permeability defect in Ccm2 endothelial specific knockout mice.11

Figure 37. REC-994 reduces lesion severity in chronic mouse models of CCM Disease. Mice treated with REC-994 demonstrated a statistically significant decrease in the number of small-size lesions, with a trend toward a decrease in the number of mid-size lesions.11

We conducted a Phase 1 Single Ascending Dose (SAD) study in 32 healthy human volunteers using active pharmaceutical ingredients with no excipients in a powder-in-bottle (PIB) dosage form. Results showed that systemic exposure (Cmax and AUC) generally increased in proportion to REC-994 dose after both single and multiple doses. Median Tmax and t 1/2 appeared to be independent of dose. There were no deaths or SAEs reported during this study and no TEAEs that led to the withdrawal of subjects from the study. These data supported a MAD study in healthy human volunteers.

11 Gibson, et al. (2015). Strategy for identifying repurposed drugs for the treatment of cerebral cavernous malformation. Circulation, 131(3), 289-99.

A subsequent Phase 1 Multiple Ascending Dose (MAD) study was conducted in 52 healthy human volunteers and was designed to investigate the safety, tolerability, and PK of multiple oral doses of REC-994, to bridge from the PIB dosage form to a tablet dosage form, as well as to assess the effect of food on PK following a single oral dose. Overall, multiple oral doses of REC-994 were well tolerated in healthy male and female subjects at each dose level administered in this study. There appeared to be no dose-related trends in TEAEs, vital signs, ECGs, pulse oximetry, physical examination findings, or neurological examination findings. Pharmacokinetic results support once-daily oral dosing with tablet formulation.

Table 1. Summary of Adverse Events from Phase 1 Multiple Ascending Dose Study. AE=adverse event; MAD=multiple ascending dose; SAE=serious adverse event; TEAE=treatment-emergent adverse event.

Recursion initiated the SYCAMORE study, a two-part Phase 2 trial in CCM patients in Q1 2022. Part 1 is a randomized, double-blind, placebo-controlled trial to investigate the safety, efficacy, and PK of daily doses of REC-994 (200 mg and 400 mg) compared to placebo in participants with symptomatic CCM over a treatment period of 12 months. Part 2 is an optional, double-blind, long-term extension (LTE) study of daily doses of REC-994 (200 mg and 400 mg) for participants completing Part 1 of the study. Currently, there is no regulatory precedent or registrational pathway for CCM drug development. Results from the ongoing Phase 2 study are expected to inform a pivotal trial design with guidance from the FDA.

Figure 38. Phase 2 study schema for REC-994. Phase 2 trial design to assess the efficacy and safety of REC-994 in patients with symptomatic CCM. Enrollment criteria includes MRI-confirmed lesion(s), diagnosis of familial or sporadic CCM, and having symptoms directly related to CCM. Primary outcome measures are safety and tolerability. Secondary measures are focused on efficacy, including clinician-measured outcomes, imaging of CCM lesions, acute stroke scales and patient reported outcomes. This trial was fully enrolled in June 2023 and the vast majority of participants who completed 12 months of treatment continue to enter the long-term extension study.

To our knowledge, the REC-994 program is the first industry sponsored therapeutic program in clinical trials for CCM. If approved, REC-994 would be the first pharmacologic disease-modifying treatment for CCM, one of the largest areas of unmet need in the rare disease space. There are currently three other active programs in clinical development for CCM.

•OV-888, a ROCK2 inhibitor from Ovid Therapeutics, is currently in Phase 1, with a signal-finding trial expected to initiate in H2 2024.

•NRL-1049, a ROCK inhibitor from Neurelis in-licensed from BioAxone BioSciences, is currently in Phase 1.

•Atorvastatin, a competitive HMG-CoA reductase inhibitor, is being studied in an investigator sponsored Phase 1/2 study in CCM patients with a recent history of symptomatic bleeds.

REC-2282 for Neurofibromatosis Type 2 - Phase 2/3

REC-2282 is a small molecule HDAC inhibitor currently under development for the treatment of NF2-mutant meningiomas. In prior clinical trials, the molecule was well tolerated, including in patients dosed for multiple years. In contrast to approved HDAC inhibitors, REC-2282 is both CNS-penetrant and orally bioavailable. An adaptive, Phase 2/3, randomized, multicenter study is underway with enrollment of Phase 2 expected to complete in H1 2024. Orphan Drug Designation in the US and EU as well as Fast Track Designation in the US have been granted. We expect to share Phase 2 safety and preliminary efficacy data in Q4 2024.

Neurofibromatosis type 2 (NF2) is an autosomal dominant, inherited, rare, tumor syndrome that predisposes affected individuals to multiple nervous system tumors, the most common of which are bilateral vestibular schwannomas, intracranial meningiomas, spinal meningiomas and other spine tumors such as ependymomas.

Approximately one-half of individuals with NF2 have meningiomas and most of these individuals will have multiple meningiomas. In patients with NF2 the incidence of meningiomas increases with age, and lifetime risk may be as high as 75%. Combined, we believe NF2-driven meningiomas occur in approximately 33,000 patients per year in the US and EU5. Patients with NF2 are diagnosed typically in their late teens or early 20s and present with hearing loss which is usually unilateral at the time of onset, focal neurological deficits, and symptoms relating to increasing intracranial pressure.

Although most meningiomas are benign, their location often makes complete resection untenable, and subsequently patients with NF2 experience loss of hearing, facial paralysis, poor balance, and visual difficulty. Spinal tumors can result in weakness and disability and some patients become wheelchair bound. Many patients with multi-tumor disease die in early adulthood. Due to the catastrophic nature of the disease and lack of non-surgical options for management, new approaches to treatment are needed, particularly those directed toward shrinking tumor burden.

We selected REC-2282 for our NF2 program through the application of a brute-force approach by developing a high content phenotypic screen to identify cellular and structural changes associated with the genetic knockdown of NF2 by siRNA in HUVEC cells. Transfected NF2-deficient cells were treated with thousands of compounds to discover molecules that restored the structural defects associated with loss of NF2. REC-2282 reversed this complex cellular phenotype back to a healthy state (wildtype) in four independent screens at concentrations between 0.1 to 1 μM, in line with efficacious concentration levels in our preclinical experiments. Additionally, REC-2282 failed to exhibit the same level of dose dependent rescue in the evaluation of hundreds of other tumor suppressor or oncogene knockdown models, providing further evidence of a selective effect in the specific context of NF2 loss of function. Together, these experiments demonstrated robust and reproducible activity in disease relevant settings suggesting the therapeutic potential of REC-2282 in treating NF2-mutant tumors.

Figure 39. REC-2282 rescued the loss of NF2. A) Immunofluorescent images of human endothelial cells treated with siRNA control or siRNA NF2. B) REC-2282 rescued the high-dimensional disease phenotype as evidenced with a left shift from the disease to the healthy state. HUVEC, human umbilical vein endothelial cells; NF2, neurofibromatosis type 2; siRNA, small interfering RNA.

REC-2282, is an orally bioavailable, CNS-penetrating, pan-histone deacetylase, or HDAC, inhibitor with PI3K/AKT/mTOR pathway modulatory activity. By comparison to marketed HDAC inhibitors, REC-2282 is uniquely suited for patients with NF2 and NF2-mutant CNS tumors, due to its oral bioavailability, CNS-exposure, and as of yet undocumented cardiovascular liabilities.

Figure 40. REC-2282 would be a first-in-class HDAC inhibitor for the potential treatment of NF2 meningiomas. We believe REC-2282 is well suited for NF2 vs other HDAC inhibitors due to its oral bioavailability and CNS-exposure.12,13,14

NF2 disease is driven by mutations in the NF2 gene, which encodes an important cell signaling modulator, merlin. Loss of merlin results in activation of multiple signaling pathways converging on PI3K/AKT/mTOR among others and results in enhanced cell proliferation. Anti-neoplastic effects of HDAC inhibitors, like REC-2282, are thought to derive primarily via disruption of the protein phosphatase 1 (PP1)-HDAC interaction, and the subsequent inhibition of PI3K/AKT signaling leading to growth arrest and apoptosis of cancer cells.

12 Sborov, D.W et al. (2017) A phase 1 trial of the HDAC inhibitor AR-42 in patients with multiple myeloma and T- and B-cell lymphomas. Leuk Lymphoma, 58(10), 2310-2318.

13 Collier KA, et al. (2021). A phase 1 trial of the histone deacetylase inhibitor AR-42 in patients with neurofibromatosis type 2-associated tumors and advanced solid malignancies. Cancer Chemother Pharmacol. 87(5), 599-611.

14 Prescribing Information of Vorinostat/Belinostat/Romidepsin respectively.

Figure 41. REC-2282 acts on an important pathway in tumor development to inhibit the growth of tumor cells. A potential mechanism of action of REC-2282 in NF2.15

After we discovered the novel use of REC-2282 for NF2 using our platform, we performed a literature search to better understand the molecule and validate its activity in disease relevant preclinical models. REC-2282 has been shown to be pharmacologically active in various human cancer cell lines and human cancer xenograft models. REC-2282 had been shown to inhibitin vitro proliferation of vestibular schwannoma, or VS, and meningioma cells by inducing cell cycle arrest and apoptosis at doses that correlate with AKT inactivation. In preclinical models, REC-2282 inhibited the growth of primary human VS and Nf2-deficient mouse schwannoma cells, as well as primary patient-derived meningioma cells and the benign meningioma cell line, Ben-Men-1.

In animal models of NF2, REC-2282 suppressedin vivo tumor growth of an Nf2-deficient mouse vestibular schwannoma allograft. In addition, REC-2282 suppressedin vivo tumor growth of human vestibular schwannoma xenograft models in mice fed chow formulated to deliver 25 mg/kg/day REC-2282 for 45 days. REC-2282 also suppressed the growth of meningioma cells in an orthotopic mouse model of NF2-deficient meningioma that contained luciferase-expressing Ben-Men-1 meningioma cells. These animal data served as a functional and orthogonal validation of our platform findings.

15 Adapted from Petrilli and Fernández-Valle. (2016). Role of Merlin/NF2 inactivation in tumor biology. Oncogene, 35(5), 537-48.

Figure 42. REC-2282 shrinks vestibular schwannoma xenografts in SCID-ICR mice and prevents growth & regrowth of tumors in the NF2-deficient meningioma mouse model.(A) Change in VS tumor volume for each control mouse, demonstrating a mean 6% increase. (B) REC-2282 significantly reduces the mean size of VS tumor volume by ~28% across SCID-ICR mice implanted with VS xenografts. Error bars shown are the 95% CI. P=0.006. C) REC-2282 also suppressed the growth of Ben-Men-1-LucB tumor xenografts as measured by tumor bioluminescence.16,17

Four Investigator-Sponsored Trials (ISTs) of REC-2282 (previously referred to as AR-42) have been completed. In study AR-42-001, REC-2282 was administered as monotherapy. In the other 3 trials, REC-2282 was administered in combination with anti-neoplastic agents: decitabine (AR-42-002), pazopanib (AR-42-003) and pomalidomide (AR 42 004), respectively. In these studies, REC-2282 was given to 77 patients with solid or hematological malignancies in doses ranging from 20 mg to 80 mg three times a week for three weeks followed by one week off-treatment in four-week cycles. Multiple patients were treated for multiple years using this dosing regimen at the 60 mg dose and the longest recorded treatment duration is 4.4 years at the 40 mg dose. The majority of adverse events were transient cytopenia that did not result in dose reduction or stoppage. The MTD in patients with solid tumors was determined to be 60 mg. The REC-2282 plasma exposure in patients with hematological malignancies and solid tumors generally increased with increasing doses. There were no consistent signs of plasma REC-2282 accumulation across a 19-day administration period nor obvious differences in PK between hematologic and solid tumor patients.

In another early Phase 1 pharmacodynamic IST conducted by Ohio State University, it appeared that REC-2282 suppressed aberrant activation of ERK, AKT and S6 pathways in vestibular schwannomas from adult patients undergoing tumor resection. These results may be difficult to achieve with single pathway inhibitors of ALK or MEK.

Recursion is currently enrolling patients in POPLAR, an adaptive, Phase 2/3, randomized, multicenter study to evaluate the efficacy and safety of REC-2282 in patients with progressive NF2-mutated meningiomas with underlying NF2 disease and sporadic meningiomas with documented NF2 mutations. The study is designed to accelerate the path to potential product registration by allowing for initiation of a confirmatory Phase 3 study prior to full completion of Phase 2. This is a two-staged Phase 2/3 with enrollment done in two parts. Cohort A is a signal seeking Phase 2 in which 20 adult subjects and up to nine adolescent subjects will begin treatment on two active dose arms. Subject safety will be monitored by an independent Data Monitoring Committee, which will apply dose modification and stopping rules as indicated. After all 20 adult subjects have completed six months of treatment, an interim analysis will be performed for the purpose of 1) determination of go/no-go criteria for Cohort B, or the Phase 3 portion of the study, 2) selection of the dose(s) to carry forward, 3) re-estimation of sample size for the planned Phase 3 and 4) agreement from FDA to initiate the Phase 3. Subjects in the Phase 2 portion will continue treatment for up to 26 months total and then have the option to enroll in an Extension study. The Phase 3 portion currently requires recruitment of an additional 60 subjects (adult and potentially adolescent subjects), who will receive treatment for up to 26 months. The planned primary endpoint is Progression-Free Survival (PFS).

16 Adapted from Jacob A, et al. (2012). Triological Society Thesis Preclinical Validation of AR42, a Novel Histone Deacetylase Inhibitor, as Treatment for Vestibular Schwannomas. Laryngoscope, 122(1), 174-189.

17 Burns SS, et al. (2013). Histone Deacetylase Inhibitor AR-42 Differentially Affects Cell-cycle Transit in Meningeal and Meningioma Cells, Potently Inhibiting NF2-Deficient Meningioma Growth. Cancer Res; 73(2), 792-803.

Figure 43. Phase 2/3 study schema for REC-2282. Phase 2/3 two-staged study design to assess the safety, tolerability, and preliminary efficacy of REC-2282 in patients with progressive NF2-mutated meningiomas. Enrollment criteria include MRI-confirmed progressive meningioma and either (1) sporadic meningiomas with confirmed NF2 mutation or (2) confirmed diagnosis of NF2 disease. The primary outcome measure for the Phase 2 portion of the study is progression-free survival (PFS) rate at 6 months.

There are currently eight active programs in clinical development targeting NF2-driven brain tumors.

•Brigatinib, an approved ALK inhibitor for NSCLC from Takeda Pharmaceuticals, is in Phase 2 for NF2 disease meningioma, vestibular schwannoma, and ependymoma.

•Neratinib, an approved HER2 inhibitor for HER2+ breast cancer after trastuzumab-based therapy from Puma Biotechnology, is in Phase 2 for NF2 disease meningioma, vestibular schwannoma, and ependymoma

•Crizotinib, an ALK/ROS1 inhibitor, is being studied in an investigator sponsored Phase 2 study in progressive vestibular schwannoma in NF2 patients.

•Selumetinib, a MEK inhibitor from AstraZeneca, is being studied in a Phase 2 study for NF2 related tumors.

•GSK2256098, a FAK inhibitor from GlaxoSmithKline, is being studied in a basket Phase 2 for meningiomas with a variety of targeted therapies and genetic alterations, including NF2 mutation.

•IK-930, a TEAD inhibitor from Ikena Oncology, is being studied in a basket Phase 1 for advanced solid tumors driven by hippo signaling, including patients with NF2 mutations.

•VT-3989, a TEAD inhibitor from Vivace Therapeutics, is being studied in a basket Phase 1 for advanced malignant mesothelioma and other tumors with NF2 mutations, including meningiomas.

•IAG933, a TEAD inhibitor from Novartis, is being studied in a basket Phase 1 for advanced malignant mesothelioma and other tumors with NF2 mutations, including meningiomas.

REC-4881 for Familial Adenomatous Polyposis (FAP) - Phase 1b/2

REC-4881 is an orally bioavailable, non-ATP-competitive, allosteric small molecule inhibitor of MEK1 and MEK2 currently under development to reduce polyp burden and progression to adenocarcinoma in FAP patients. REC-4881 was well tolerated in prior clinical studies, demonstrating dose dependent increases in exposure and pharmacological activity. Recursion is currently enrolling patients in TUPELO, a Phase 1b/2, open label, multicenter study with FPI in the Part 2 portion anticipated in H1 2024. Orphan Drug Designation in the US and EU as well as Fast Track Designation in the US have been granted. We expect to share Phase 2 safety and preliminary efficacy data in H1 2025.

FAP is a rare tumor predisposition syndrome affecting approximately 50,000 patients in the US and EU5 with no approved therapies. FAP is a genetic disorder resulting from a heterogeneous spectrum of point mutations in the adenomatous polyposis coli (APC) gene. The APCgene is a tumor suppressor gene which encodes a negative regulator of the Wnt signaling pathway.

FAP is characterized by progressive development of hundreds to thousands of adenomatous polyps in the lower gastrointestinal tract, mainly in the colon and rectum, and is associated with up to a 100% lifetime risk of colorectal cancer before age 40 if left untreated. The standard of care for patients with FAP is colectomy in late teenage years. Without surgical intervention, affected patients will progress to colorectal cancer by early adulthood. Post-colectomy, patients receive endoscopic surveillance every 6-12 months to monitor disease progression given the ongoing risk of malignant transformation.

Despite removing the main at-risk organ, approximately 50% of patients will develop adenomatous lesions in the neo-rectum. Once endoscopic management is no longer sufficient, additional surgical procedures are required. Similarly, these patients also develop duodenal (particularly ampullary) adenomas which also require endoscopic management. In the presence of larger adenomas and evidence of carcinoma, patients require additional localized surgery, including radical Whipple procedures. There are currently no approved therapies for FAP.

Insights from Recursion OS

The novel use of REC-4881 for FAP was discovered by leveraging knock-down of the FAP disease gene APC in human cells using the Recursion OS. To select REC-4881 as a potential therapeutic for FAP, Recursion developed a high content phenotypic screen to identify cellular and structural changes associated with knockdown of APC using small interfering RNA (siRNA) in osteosarcoma U2OS cells. Using machine vision and automated analysis software, Recursion quantified hundreds of cellular parameters associated with APCknockdown. This complex phenotype was used as the basis for a chemical screen of more than 3,000 known drugs and bioactive compounds, revealing several RAF and MEK inhibitors, including REC-4881, which reversed the structural defects associated with loss of APC. REC-4881 exhibited highly specific and potent reversal of cellular phenotypes when compared to the MEK inhibitors selumetinib and binimetinib.

Figure 44. REC-4881 rescued phenotypic defects of cells with APCknockdown. Compared to thousands of other molecules tested, REC-4881 rescued phenotypic defects substantially better (including better rescue than other MEK inhibitors) for APC-specific knockdown.

REC-4881 is an orally bioavailable, non-ATP-competitive, allosteric small molecule inhibitor of MEK1 and MEK2 (IC50 2-3 nM and 3-5 nM, respectively) that is being developed to reduce polyp burden and progression to adenocarcinoma in FAP patients.

FAP is driven by loss of function of APC, which is a critical component of the β-catenin destruction complex, leading to aberrant activation of the Wnt pathway. This Wnt-on state can lead to RAS stabilization, activation of the RAS/ERK pathway and the activation of MYC, leading to cell proliferation and survival - including the growth of adenomas seen in FAP. REC-4881 inhibits MEK1/2 thereby inhibiting ERK activation, decreasing MYC activity, restoring cells back to a Wnt-off state and inhibiting cell proliferation.

Lending further support for the use of MEK inhibitors in FAP, studies have shown that ERK signaling is activated in adenoma epithelial cells and tumor stromal cells, including fibroblasts and vascular endothelial cells. In addition, genomic events resulting in alteration of mitogen-activated protein kinase signaling, such as activating mutations in KRAS, are frequent somatic events that promote the growth of adenomas in FAP. Overall, suppression of aberrant MAPK signaling in adenomas of FAP with REC-4881 has the potential to regress or slow the growth of these tumors by acting on core pathways driving their growth.

Figure 45. REC-4881 inhibits APC-mutation induced MAPK signaling to block cell proliferation in the context of FAP. A potential mechanism of action of REC-4881 in cells with loss of function mutations in APC.18

We validated the findings from the initial phenotypic screens using tumor cell lines and spheroids grown from human epithelial tumor cells with a mutation in APC. REC-4881 inhibited both the growth and organization of spheroids in these models and, in tumor cell lines, had well over a 1,000-fold selectivity range in cells harboring APC mutations.

We subsequently evaluated REC-4881 in a disease relevant preclinical model of FAP. Mice harboring truncated Apc, or Apc Min, were treated with multiple oral daily doses of REC-4881 or celecoxib (as a comparator) over an eight-week period. Mice treated with celecoxib had approximately 30% fewer polyps than did those treated with vehicle, whereas mice treated with 1 mg/kg or 3 mg/kg REC-4881 exhibited approximately 50% fewer polyps than vehicle-treated mice. Mice that were treated with 10 mg/kg REC-4881, the highest dose tested, exhibited an approximately 70% reduction in total polyps.

In FAP, polyps arising from mutations in APCmay progress to high-grade adenomas through accumulation of additional mutations and eventually to malignant cancers. To evaluate the activity of REC-4881 on both benign polyps and advanced adenomas, gastrointestinal tissues from mice treated with REC-4881 were histologically evaluated and polyps were classified as either benign or high-grade adenomas. While celecoxib reduced the growth of benign polyps in the model, a large proportion of polyps that remained were dysplastic. By contrast, treatment with REC-4881 specifically reduced not only benign polyps, but also precancerous high-grade adenomas, a finding with the potential for translational significance.

18 Jeon, WJ, et al. (2018). Interaction between Wnt/β-catenin and RAS-ERK pathways and an anti-cancer strategy via degradations of β-catenin and RAS by targeting the Wnt/β-catenin pathway. npj Precision Oncology, 2(5).

Figure 46. REC-4881 reduces GI polyp count and high-grade adenomas in the Apc Min mouse model of FAP. GI polyp count (left panel) and the percent of high-grade adenomas (right panel) after oral administration of indicated dose of REC-4881, celecoxib, or vehicle control for 8 weeks. Polyp count at the start of dosing reflects animals sacrificed at the start of study (15 weeks of age). P < 0.001 for all REC-4881 treatment groups versus vehicle control. Quantification of high-grade adenomas versus total polyps was based on blinded histological review by a pathologist. While celecoxib reduces benign polyps, the majority of remaining lesions are high grade adenomas. By contrast, REC-4881 reduces both polyps and high-grade adenomas.

In the Phase 1 dose escalation study previously conducted by Millenium Pharmaceuticals in 51 participants with non-hematologic malignancies (Study C20001), TAK-733 (REC-4881) was administered in the dose range of 0.2 mg QD to 22 mg QD for 21 days. The maximum tolerated dose (MTD) was determined to be 16 mg QD in this study. In this study, REC 4881 exposures increased in a less than dose-proportional manner.

The most commonly reported AEs were rashes, with rash of any type reported in 34 participants (67%); 4 of the 7 participants who discontinued study drug treatment due to an AE discontinued for rash or some type of skin condition. Fourteen (27%) participants experienced at least 1 treatment-emergent SAE; the only SAEs that occurred in more than 1 participant were metastatic melanoma (3 participants; 6%), pulmonary embolism (2; 4%) and anemia (2; 4%). Five participants died during the study; all deaths were due to disease progression.

REC-4881-101 was a safety and PK study conducted by Recursion in healthy volunteers to confirm comparability of REC-4881 with TAK-733. Twenty-five (25) healthy participants, separated into 2 cohorts, were exposed to single doses of REC-4881 4 mg and 8 mg (under fed and fasting conditions) and single doses of REC-4881 12 mg (under fasting conditions). Each cohort received single doses of study drug across 3 study periods with each period separated by 14 days.

REC-4881 was generally well tolerated. No deaths or SAEs were reported during the study. For both cohorts, the percentage of participants reporting TEAEs was comparable between participants who received REC-4881 and placebo. No apparent relationship with the dose of REC-4881 or food conditions was observed. All TEAEs were assessed by the Investigator as being of Grade 1 severity except 1 (blurred vision reported with 4 mg REC-4881/fed). Two additional participants reported treatment-related eye disorders (blurred vision in both eyes in 1 participant with 8 mg REC-4881/fasted and vitreous floaters in 1 participant with 12 mg REC-4881/fasted). In all instances, the symptoms resolved. Notably, no instance of QTcF abnormality (change from baseline or prolongation) was noted in these healthy participants.

Recursion is currently enrolling patients in TUPELO, a Phase 1b/2, open label, multicenter study to evaluate efficacy, safety, pharmacokinetics, and pharmacodynamics of REC-4881 in patients with FAP. The study is being conducted in two parts. Part 1 evaluated the PK, safety, tolerability, and PD in participants with FAP following administration of REC-4881 in single and multiple doses. Five FAP patients received single dose and 14 days of

REC-4881 treatment at 4 mg QD. 4 mg QD was generally well tolerated with a safety profile consistent with other MEK inhibitors. Preliminary PD data suggests the 4 mg dose may be pharmacologically active in FAP patients. Part 2 will assess the efficacy, safety, PK, and PD following administration of once daily doses of REC-4881 to participants with FAP who have previously undergone a colectomy/proctocolectomy and have a confirmed germline APC mutation. Study drug will be administered orally for 3 months.

Figure 47. Phase 1b/2 study schema for REC-4881 in FAP. Phase 1b/2 clinical study to assess the efficacy, safety, and pharmacokinetics of REC-4881 in patients with classical FAP. Enrollment criteria include (1) Confirmed APCmutation; (2) ≥ 55 years of age; (3) Post-colectomy/proctocolectomy; (4) No GI cancer; (5) Polyps in duodenum (including ampulla of Vater and/or rectum/pouch). Outcome measures: PK, safety, tolerability, preliminary efficacy (change from baseline in polyp burden, histological grade, extent of desmoid disease).

There are currently three active programs in clinical development for FAP.

•ALFA, also known as eicosapentaenoic acid from SLA Pharma, is currently in Phase 3 for FAP patients that harbor a pathogenic APCmutation and have had a previous colectomy.

•Flynpovi, a combination of CPP-1X and sulindac from Panbela, is currently in Phase 3 for FAP patients with a focus on lower GI disease. Further guidance on a regulatory path forward is expected in H2 2024.

•eRapa, an mTORC1 inhibitor also known as encapsulated rapamycin from Emtora Biosciences, is currently in Phase 2 for FAP patients.

REC-4881 for AXIN1 or APC Mutant Cancers - Phase 2

REC-4881 is an orally bioavailable, non-ATP competitive, allosteric small molecule inhibitor of MEK1 and MEK2 being developed for the treatment of AXIN1 or APC mutant cancers. REC-4881 was well tolerated in prior clinical studies, demonstrating dose dependent increases in exposure and pharmacological activity. Recursion initiated LILAC, a Phase 2 study in AXIN1 or APCmutant cancers at the end of 2023, and FPI is anticipated in Q1 2024. We expect to share safety and preliminary efficacy data in H1 2025.

AXIN1 and APC function as critical tumor suppressors that form part of the beta-catenin destruction complex, directly and indirectly regulating beta-catenin and RAS levels, respectively, in the cell. Aberrant activation of the Wnt and RAS pathways through inactivating mutations in AXIN1 or APC appear frequently across a wide variety of human cancers with an estimated 65,000 patients in the US and EU5 eligible for treatment in the second line. These tumors are often considered clinically aggressive and less sensitive to treatments with chemotherapies and/or immunotherapies, representing a heavily refractory population. Accordingly, there is a substantial need for developing therapeutics for patients harboring mutations in AXIN1 or APC, as these mutations are considered undruggable. There are no treatments specifically approved for AXIN1 or APC mutant cancers.

The REC-4881 program for AXIN1 or APC mutant cancers is our first program nominated solely based on our inferential search approach. In our HUVEC map, we discovered that REC-4881 exhibited a phenotypically opposite relationship across clinically relevant doses to the gene knockout of AXIN1, in addition to the previously uncovered relationship with APC. We interpreted this relationship as a second novel insight around this molecule and that the use of REC-4881 could potentially restore the biological consequences driven by AXIN1 or APC loss, found in many cancers.

Two additional insights provided us with conviction in this interpretation:

•AXIN1 and APC are central components of the beta-catenin destruction complex. This destruction complex physiologically regulates the levels of beta-catenin and RAS in cells. As AXIN1 and APC exist together in a complex, they are considered functionally related. Our map revealed a strong degree of phenotypic similarity between the gene knockout of AXIN1 and APC, suggesting that this axis of biology is recapitulated in our high dimensional embedding space.

•Our Phase 1b/2 program for REC-4881 in FAP was initiated using our brute-force screen approach where we discovered a concentration dependent cellular restoration from a modeled disease state (APC gene knockdown by siRNA) to a modeled healthy state (wildtype) in the U2OS cell type. Our map imputed a similar phenotypic effect with REC-4881 across concentrations in HUVEC, suggesting alignment between the brute-force approach and the inferential search approach. These discoveries arose from two different cell contexts, were conducted at different points in time, and under different conditions, robustly validating our interpretation.

Figure 48. Insights from Recursion OS. REC-4881 displays a phenotypic opposite relationship across clinically relevant doses to genetic knockout of AXIN1 and APC in HUVEC.

On the basis of our inference generation from our Recursion OS, we advanced REC-4881 into two PDX mouse studies, focusing on HCC and Ovarian tumors. A PDX clinical trial (PCT) is a population study with PDX models that can be used to assess efficacy and predict responders to treatment in the preclinical setting. Across 29 total PDX models, treatment with single-agent REC-4881 resulted in a significantly better response in AXIN1 or APC mutant models versus wildtype models. These responses led to a significant benefit in PFS (modeled as the time of tumor doubling from baseline), observed specifically in AXIN1 or APC mutant models, providing further evidence of a biomarker driven effect.

Figure 49. Tumor growth inhibition and PFS across 29 PDX mouse models. REC-4881 shows enhanced activity in mouse models with AXIN1 or APC mutant tumors. Tumor volumes were measured three per week after randomization in two dimensions using a caliper, and the volume was expressed in mm3 using the formula: V = (L x W x W)/2, where V is tumor volume, L is tumor length (the longest tumor dimension), and W is tumor width (the longest tumor dimension perpendicular to L). %TGI was calculated using the formula %TGI = (TV vehicle - TV treatment) / (TV vehicle – TV initial) *100 for all mice (Wong, H, et al. Clin Cancer Res., 2012, 18(14): 3846-3855).

LILAC, a Phase 2 open label, multicenter study in select tumor types initiated towards the end of 2023 with FPI anticipated in Q1 2024. This phase 2, open label, multicenter study is designed to evaluate the safety, tolerability, PK, PD, and preliminary anti-tumor activity of REC-4881 administered orally (PO) at an initial dose of 12 mg on a once daily (QD) schedule in participants with unresectable locally advanced or metastatic cancer harboring AXIN1 or APCmutations. Participants must have progressed on at least one prior line of therapy in order to be eligible for the trial.

The study will consist of two arms – an AXIN1 cohort and an APC cohort and two parts. In Part 1, a maximum of 20 participants will be enrolled in a 1:1 allocation across each arm. In Part 2, up to 20 additional patients may be enrolled in each arm. Once the first six cumulative participants have enrolled in Part 1, enrollment will be briefly paused, and a safety assessment will be conducted by a Safety Review Committee to review the completion of the first four weeks of study drug. The study will follow a Bayesian design with futility analysis after the first 10 participants have been enrolled in each arm of the trial. Study drug may be administered for up to 2 years. Disease status will be evaluated every eight weeks, for the first 24 weeks, and then every 12 weeks, until treatment discontinuation or withdrawal. The primary endpoints for this study are safety, tolerability, and preliminary anti-tumor activity as measured by Objective Response Rate (ORR). We expect to share safety and preliminary efficacy data in H1 2025.

Figure 50. Phase 2 study schema for REC-4881 in AXIN1 or APC mutant cancers. Phase 2 open label, multicenter clinical study to assess the efficacy, safety, and pharmacokinetics of REC-4881 in patients with AXIN1 or APCmutant cancers. Enrollment criteria include (1) unresectable, locally advanced, or metastatic cancers; (2) ≥ 55 years of age; (3) confirmed AXIN1 or APC mutation by NGS (tissue or blood); (4) no MEK inhibitor treatment within 2 months of initial dose; (5) ≥ 1 prior line of therapy; and (6) ECOG PS 0-1. The primary endpoints are safety, tolerability, and preliminary anti-tumor activity as measured by Objective Response Rate (ORR).

There are currently 3 active programs in clinical development for AXIN1 or APCmutant cancers.

•FOG-001, a TCF-blocking β-catenin inhibitor from FogPharma, is being studied in a Phase 1/2 trial in patients with locally advanced or metastatic solid tumors with Wnt activating mutations, including AXIN1 or APC.

•Tegavivint, a TBL1 inhibitor from Iterion Therapeutics, is being studied in a Phase 1/2 trial in combination with pembrolizumab in patients with advanced hepatocellular carcinoma harboring mutations in either CTNNB1 or AXIN1.

•DKN-01, an anti-DKK1 monoclonal antibody from Leap Therapeutics, is being studied in a Phase 2 trial in combination with pembrolizumab in patients with advanced or recurrent endometrial cancer harboring Wnt activating mutations, including AXIN1 or APC.

REC-3964 for Clostridioides difficile Infection - Phase 2

REC-3964 is an orally bioavailable, small molecule inhibitor of C. difficile glucosyltransferase. This molecule has the potential to prevent recurrent disease and be used as secondary prophylaxis therapy in high-risk patients with C. difficile infections, a leading cause of antibiotic-induced diarrhea and a major cause of morbidity and mortality. A Phase 1 study in healthy volunteers completed in Q3 2023 and demonstrated that REC-3964 was well tolerated with no serious adverse events (SAEs) reported. We expect to initiate a Phase 2 study in 2024.

C. difficile-induced diarrhea is a leading cause of antibiotic-induced diarrhea and arises from the disruption of normal bacterial flora in the colon. Toxins A, or TcdA, and B, or TcdB, secreted by the bacterium are responsible for considerable morbidity, including severe diarrhea, colitis, toxic megacolon, sepsis, extended hospital stays and potentially, death. More than 730,000 patients are diagnosed in the US and EU5 each year. Recurrence of disease occurs in 20-30% of patients treated with standard of care. Standard of care includes antibiotic therapies which can further impair gut flora and lead to relapse.

Insight Recursion OS

REC-3964 is a new chemical entity that was identified with our brute-force approach which utilized phenomics to identify cellular and structural changes in epithelial cells associated with the pathological changes resulting from exposure to C. difficile toxins. Structure-activity-relationship (SAR) was driven through the Recursion OS to identify structural series that restored structural defects resulting from C. difficile toxins’ effects. REC-3964 was identified from a lead benzodiazepinedione structural series that confers selective antagonism against the C. difficile toxins’ effects with nanomolar potency on our platform, and dose dependent cellular restoration to a modeled healthy state in human endothelial cells.

Figure 51. REC-3964 rescued the phenotype of human epithelial cells treated with C. difficile toxin. REC-3964 was identified as demonstrating concentration-responsive rescue in HUVEC cells treated with C. difficile toxin B on Recursion’s phenomics platform.

REC-3964 was validated in orthogonal functional assays including the Electrical Cell-substrate Impedance Sensing (ECIS) assay where it demonstrated concentration-dependent activity in blocking toxin-mediated barrier disruption.

We have shown in a target-based validation assay that REC-3964 selectively inhibits the toxin’s innate glucosyltransferase (IC50 = 4.7-9 nM), suggesting suppression of toxin-induced glycosylation of Rho-GTPases in host cells as the most likely mode of action. REC-3964 has negligible off-target activity, does not target the host’s glucosyltransferases, produces favorable gut and plasma exposure levels following oral dosing, and is non-mutagenic. Further, in anin vivo hamster model of C. difficile infection, treatment with REC-3964 significantly prolonged the survival of animals relative to bezlotoxumab and vehicle treated controls.

Figure 52. REC-3964 blocks C. difficile Toxin B-mediated endothelial barrier disruption. Transendothelial resistance was quantified with ECIS after incubation of HUVEC cells with 10ng/mL TcdB from C. difficile in the presence of REC-3964. Barrier resistance is shown on a normalized scale with 0% representing the resistance in the absence of REC-3964, and 100% representing the resistance of healthy monolayers that were not exposed to toxin B. Data are presented as Mean ± SEM, N≥3 independent experiments.

Figure 53. C. difficile infected model hamsters treated with REC-3964 survive longer than vehicle treated animals. REC-3964 was administered by oral gavage twice daily for 5 consecutive days along with groups for vehicle and vancomycin (50 mg/kg, QD). N=5 in untreated and vancomycin treated animals and N=10 in vehicle and REC-3964 treated animals.

Figure 54. REC-3964 selectively inhibits the toxin’s innate UDP-glucose glucosyltransferase. (A) Autocatalytic event releases C. difficile toxin’s glucosyltransferase enzymatic domain into the infected cell, which locks Rho family GTPases in the inactive state. Inactivation of Rho GTPases alters cytoskeletal dynamics, induces apoptosis and impairs barrier function which drives the pathological effects of C. difficile infection. (B) REC-3964 binds and blocks catalytic activity of the toxin’s innate glucosyltransferase with no effect on the host protein.19

Figure 55. REC-3964 significantly extended survival over the standard of care, bezlotoxumab, in a human disease relevant CDI hamster model. REC-3964 was administered at 200 mg/kg by oral gavage twice daily for 7 consecutive days along with groups for vehicle and vancomycin (50 mg/kg, QD). Bezlotoxumab was administered at 10 mg/kg BID 2 days prior to inoculation with C. difficile (strain 630). N=10 hamsters per group. Clinical observations were conducted from Day 0 to Day 7, with surviving animals monitored until Day 14. REC-3964 demonstrated a significant difference in the probability of survival vs bezlotoxumab at the end of treatment (p<0.001, log-rank test).

19 Awad, MM. et al. (2014). Clostridium difficile virulence factors: Insights into an anaerobic spore-forming pathogen. Gut Microbes. 5(5), 579-593.

We conducted a Phase 1 healthy volunteer study to evaluate the safety, tolerability, and PK of REC-3964 at increasing oral doses in comparison with placebo. A total of 90 healthy subjects participated in this study with 48 subjects in the Single Ascending Dose (SAD) study and 42 subjects in the Multiple Ascending Dose (MAD) study. The SAD study included a cohort of healthy elderly subjects (age > 65 years). REC-3964 monotherapy was safe and well tolerated at single doses up to 1200 mg (SAD) and multiple doses (MAD) up to 900 mg.

In the SAD study, the most frequently reported TEAE with REC-3964 was contact dermatitis (4 subjects, 11.1%). All TEAEs were mild in severity and the only TEAE that was considered related to REC-3964 was a single TEAE of fatigue. There were no serious adverse events (SAEs), deaths, or TEAEs that led to discontinuation. In the MAD study, the most frequently reported TEAEs with REC-3964 were fatigue and headache (6 subjects each, 17.6%). All TEAEs were mild in severity. For subjects receiving REC-3964, 11.8% (n=4) had TEAEs considered to be related to treatment, consisting of abdominal distension (3 subjects) and flatulence (1 subject). Abdominal distension was also considered to be related to the study drug for 25% (n=2) of subjects who received placebo. There were no serious adverse events (SAEs), deaths, or TEAEs that led to discontinuation.

PK analysis demonstrated that exposures (AUC) increased approximately dose-proportionally across the dose ranges tested and the half-life ranged from approximately 7 to 10 hours. The peak and systemic exposure to REC-3964 was comparable between healthy elderly subjects and subjects aged ≤ 65 years. As a result, BID dosing is expected to reach targeted trough concentrations.

There were no clinically meaningful trends or clinically significant abnormalities in hematology and chemistry and no clinically relevant effects on ECG parameters (including QTcF) or vital signs after administration of single or multiple doses of REC-3964.

We plan to initiate a Phase 2 open label, multicenter study in 2024 to evaluate the safety, tolerability, efficacy, and PK of REC-3964 at doses of either 250 mg or 500 mg both administered orally (PO) twice a day (BID) over a 28-day period compared to an observational cohort after an initial cure with vancomycin. The primary endpoints for this study will be safety, tolerability, and preliminary efficacy as assessed by the rate of recurrent Clostridioides difficile infection (rCDI).

Table 2. Summary of Adverse Events from Phase 1 Multiple Ascending Dose Study. AE=adverse event; MAD=multiple ascending dose; SAE=serious adverse event; TEAE=treatment-emergent adverse event.

Figure 56. Planned Phase 2 study schema of REC-3964 for prevention of rCDI. Phase 2 open-label, multicenter clinical study to assess the safety, tolerability, PK, and efficacy of REC-3964 at two dose levels. Enrollment criteria include (1) High risk for rCDI; (2)C. difficile associated diarrhea with confirmation of toxin positivity (3) No fulminant CDI; (4) No history of chronic diarrheal illness due to other causes. The primary endpoints are safety, tolerability, and efficacy as determined by the rate of reduction of rCDI after initial clinical cure with vancomycin.

There are a number of approved drugs for the treatment and prevention of C. difficile infection.

•Antibiotics are the main treatment for C. difficile infection with vancomycin and fidaxomicin as the two most commonly prescribed. Metronidazole may also be prescribed for severe cases. However, the efficacy of antibiotic therapy decreases with each recurrence.

•Bezlotoxumab is a human monoclonal antibody against C. difficile toxin B approved for reducing CDI recurrence in patients receiving antibiotics who are at high-risk for CDI recurrence.

•Stool derived microbiome products are used to prevent recurrent C. difficile infection with RBX2660 and SER-109 approved for this indication, following antibiotic treatment for recurrent CDI.

There are currently 2 active programs in clinical development for the prevention of recurrent C. difficile infection.

•VE303, an oral microbiome therapeutic from Vedanta Biosciences, is being studied in a Phase 3 trial in patients with ≥ 1 prior occurrence of CDI, including a high-risk for recurrence population.

•LMN-201, an oral biologic from Lumen Bioscience, is being studied in a Phase 2 trial in patients newly diagnosed with CDI planning to receive antibiotic treatment.

To our knowledge, REC-3964 is the first orally bioavailable, non-antibiotic, C. difficile toxin inhibitor that selectively targets bacterial toxin while sparing the host.

Selected Preclinical Programs

•Novel CDK12-adjacent target, RBM39, for the potential treatment of HR-proficient ovarian cancers and other Solid Tumors (previously identified as Target Gamma).

•Potential first-in-class novel chemical entity for the treatment of an undisclosed indication in Fibrosis (Target Epsilon)

HR-Proficient Ovarian Cancers and other Solid Tumors (Previously Identified as Target Gamma)

Using inferential search, we identified compounds that inhibit RBM39 and phenocopy the loss of CDK12, but not CDK13. We further optimized these molecules to generate lead candidates with oral bioavailability capable of single agent activity in homologous recombination proficient (HR-proficient) ovarian cancers and other solid tumors. There are approximately 200,000 drug-treatable patients per year in the US and EU5 whose tumors lack mutations in the homologous recombination repair (HRR) pathway and who have progressed on frontline therapies. While PARP inhibitors have significantly improved outcomes for patients with HR-deficient cancers, patients with HR-proficient tumors have poorer prognosis and unfavorable outcomes. We expect to submit an IND for this program in H2 2024.

Mutations in DNA repair pathways and genomic instability are a fundamental hallmark of cancer. Large-scale genomic datasets highlight cancers such as ovarian, breast, prostate, pancreatic, non-small cell lung, and small-cell lung cancers harboring molecular alterations within the DDR repair network. Cancers with genetic alterations in the DDR pathway such as homologous recombination (HR) can often be treated with DDR inhibitors, such as PARP inhibitors. However, patients with HR-proficient tumors do not derive significant clinical benefit from PARP inhibitors. Accordingly, there is a high unmet need for developing therapeutics that can regulate DNA repair mechanisms for the treatment of HR-proficient cancers, including ovarian cancer.

Reports suggest that genetic or pharmacologic depletion of CDK12 can reduce the expression of several genes involved in the homologous recombination repair pathway such as BRCA1 and BRCA2, inducing a BRCA-like phenotype and DDR response. Thus, CDK12 has received considerable interest as a therapeutic target and tumor biomarker for HR-proficient cancers. Despite reports of functional redundancy, we observed that the genetic knockout of CDK12 could be clearly distinguished phenotypically from that of CDK13. Using map-based inference to characterize and relate cellular phenotypes, we identified RBM39 as an alternative target that selectively mimics CDK12 loss, but not CDK13, providing a novel approach for targeting CDK12 biology while circumventing any toxicities that may arise due to CDK13. We subsequently discovered REC-1170204 as an RBM39 molecular glue degrader that closely mimics the phenotypic loss of CDK12 and RBM39, but not CDK13. Functionally, REC-1170204 treatment globally impacts the expression of many DDR genes but does so in a CDK12 independent manner.

Figure 57: Inferred map relationships between CDK12, CDK13, RBM39 and REC-1170204. Map representation demonstrating a high degree of phenotypic similarity between CDK12, RBM39 and multiple concentrations of REC-1170204. CDK13 shows little or no functional similarity to CDK12, RBM39 or any concentration of REC-1170204.

Product Concept

We aim to discover and develop novel, orally bioavailable, small molecules that drive de novo sensitivity in HR-proficient tumors. While the biological and clinical evidence supporting CDK12 as a therapeutic target is promising, the high homology of CDKs makes targeting a single homolog difficult and prone to off-target toxicity. Mimicking the effects of CDK12 inhibition via alternative novel targets could be a route to treating HR-proficient tumors. We intend to position our lead candidate as a single agent for the potential treatment of HR-proficient ovarian cancers and other HR-proficient solid tumors.

In vivo efficacy studies evaluated REC-1170204 as a single agent and in combination with niraparib in OV0273, an ovarian BRCA proficient patient derived xenograft (PDX) model. We observed statistically significant responses in both single agent REC-1170204 and combination versus either niraparib or vehicle arms. REC-1170204 also demonstrated a significant survival benefit as a monotherapy, or in combination with niraparib at >30 days post final dose. As a result of our strategic collaboration with Tempus, we are leveraging genomic data across all tumor types to identify clinical biomarkers for patient expansion. We are advancing our lead candidate through IND-enabling studies with IND submission expected in H2 2024.

Figure 58. REC-1170204 ± niraparib inhibits tumor growth in the OV0273 PDX mouse model. In the OV0273 PDX model, mice were treated with a representative lead molecule REC-1170204 (100 mg/kg, BID, PO) ± niraparib (40 mg/kg, QD, PO) for 28 days. Single agent REC-1170204 or in combination with niraparib resulted in a statistically significant response vs either niraparib or vehicle arms, where the reduction in tumor volume is plotted using a logarithmic scale (y-axis). In addition, there was a statistically significant improvement in survival > 30 days post final dose. *p<0.05, ** p<0.01, **** p<0.0001.

Undisclosed Indication in Fibrosis – Target Epsilon

Phenotypic screening of human PBMCs was used to identify novel and structurally diverse small molecules that reverse the phenotypic features of disease-state fibrocyte cells into those of healthy-state cells. The power of the Recursion OS revealed a relationship between the small molecule hits and a novel target that could impact fibrotic diseases. The most promising hit compounds were confirmed as potent inhibitors of this novel target (Target Epsilon) in validation experiments. Optimized hit compounds were found to be effective in anin vivo mouse model of fibrosis. This program is now entering IND-enabling studies.

Fibrotic diseases carry a high, mostly unmet clinical need and can afflict all major organs. Patients across fibrotic disease indications may benefit from the modulation of common pathways and cells involved in driving pathogenesis of fibrosis. Immune cells, particularly monocyte-derived cell populations including fibrocytes closely associated with collagen producing myofibroblasts, can drive a fibrotic response exceeding what is necessary for injury repair. Monocyte-derived cells produce growth factors that promote the continued activation of mesenchymal populations. Molecules that modulate this immuno-mesenchymal interface may enable a shift towards a pro-resolution and tissue repair response. Despite the important role these cell types play in fibrotic processes there are no current therapies to effectively target the accumulation and differentiation of these pathogenic cell populations. With limited treatment options, two approved anti-fibrotics, patients need greater therapeutic efficacy to address this burden.

With the critical role that monocyte-derived immune cells play in fibrotic disease, we developed a phenotypic screening assay from hPBMC-derived fibrocytes that could capture key features of disease in this important cell type. Human recombinant pentraxin-2 (PTX-2)is a constitutive, anti-inflammatory, innate immune plasma protein whose circulating level is decreased in chronic human fibrotic diseases. PTX-2 has an impact on monocyte differentiation to fibrocytes and macrophage polarization state, which elicit tissue repair and reduce fibrosis. Leveraging Recursion’s phenotypic screening platform, we identified multiple structurally diverse and novel small molecules that were able to phenotypically mimic the morphological effects of PTX-2 on hPBMC-derived fibrocytes and macrophages. The hPBMC-fibrocyte reversal assay was also leveraged for optimization of the identified compounds. Using inferential search of Recursion’s HUVEC phenomap, we identified a putative binding target (Epsilon) for the small molecules which was later confirmed through biochemical binding assays with the isolated protein. The identified target represents a novel approach to modulating immuno-mesenchymal cell populations in fibrosis.

Figure 59: Phenotypic screening assay. Differentiation of human PBMCs into fibrocytes can be reversed by Pentraxin-2, a tissue repair protein, to mimic a healthy state. Small molecules are identified which rescue disease state to healthy state.

Figure 60: Target and compound identification and validation related to Target Epsilon.(1) Disease Score of 1.0 reflects “disease state” while disease score of 0.0 reflects “healthy state”; (2) cosine similarity between REC-1169575 and genetic knockout of Epsilon is the cosine of the angle between the two vectors in high-dimensional space. Values near 1.0 suggest the angle between perturbations is near 0° and is interpreted as directionally phenosimilar; and (3) Target Epsilon NanoBRET assay.

Product Concept

We aim to discover and develop an orally bioavailable immuno-mesenchymal modulator offering a novel mechanism of action designed to treat fibro-inflammatory diseases. We are targeting a small molecule with single agent efficacy that reverses fibrosis by modulating fibrocytes, fibrotic macrophages, and adaptive immune cells. Discovered using Recursion’s phenomics platform, our lead molecule has shown promise in bothin vitro andin vivo models of fibrosis, suggesting that it might restore immuno-mesenchymal homeostasis and tissue integrity by targeting immune and mesenchymal cell populations. It exhibits a unique profile with immunomodulatory effects on multiple cell types and shows anti-fibrotic effects, with the possibility of differentiating from current treatment options.

We identified multiple structurally distinct small molecules capable of imparting the desired phenotypic rescue of the fibrocyte disease model. REC-1169575, a representative lead molecule, is a potent compound with an EC 50 of 0.40 µM in the fibrocyte reversal assay and an IC 50 of 12nM at target Epsilon. In digital tolerability, REC-1169575 was well-tolerated in C57BL/6 mice at all doses (30, 200, and 300 mg/kg/day, PO x 6 days). REC-1169575 did not significantly affect the body weight, breathing rate, motion, or body temperature of the mice. In a rodent in vivo efficacy model of fibrosis, REC-1169575 significantly reduced collagen, an important histological marker of fibrosis.

Figure 61: REC-1169575 reduces collagen in a mouse model of fibrosis. There was a statistically significant reduction in collagen ratio, a marker of fibrosis, in both our representative lead molecule REC-1169575 (50 mg/kg BID, PO) and a control molecule known to inhibit fibrosis, SB525334, a selective inhibitor of TGF-beta receptor type 1 compared to fibrosis-induced vehicle treated mice. *p<0.05 (Kruskal-Wallis test)

Therapeutics Partnerships

We have and in the future may collaborate with third parties to broadly explore diverse disease domains (such as fibrosis, neuroscience, oncology, immunology and inflammation) in order to identify novel target insights and potential therapeutics that may include small molecules, large molecules, gene therapies and cell therapies. We may also explore a communal asset-type strategy where we license search results from our phenomaps to partners.

The goal of every partnership is to create therapeutics, yet the approach may take multiple forms:

•Novel Therapeutics. Without any presumptive target hypothesis, we can identify differentiated therapeutics by rapidly evaluating large compound libraries within our maps of human cellular biology.

•Novel Targets. By profiling diverse biological perturbations (such as genetic factors) on our platform, we may be able to identify novel druggable targets that we can then exploit with partners to generate therapeutic candidates.

Roche & Genentech Collaboration and License Agreement

On December 5, 2021, we entered into a Collaboration and License Agreement with Genentech, Inc. and F. Hoffmann-La Roche Ltd, pursuant to which we will construct, using our imaging technology and proprietary machine learning algorithms, unique maps of the inferred relationships amongst perturbation phenotypes in a given cellular context and together with Roche and Genentech will create multimodal models and maps to further expand and refine such inferred relationships, in both cases with the goal to discover and develop therapeutic small molecule programs in a gastrointestinal cancer indication and in key areas of neuroscience.

Upfront Payment. In January 2022, Roche paid us an upfront cash payment of $150.0 million.

Phenomap Creation, Acceptance and Access. Under the Collaboration Agreement, we are responsible for creating a certain number of phenomaps in each of the Exclusive Fields. We will also provide Roche with limited access to our pre-existing human umbilical vein endothelial cells (HUVEC) phenomap. Roche will have specified rights to query or access the phenomaps to generate novel inferences that may lead to the discovery or development of therapeutic products.

Phenomap-Related Options. Each of the phenomaps requested by Roche and created by Recursion may be subject to either an initiation fee, acceptance fee or both. Such fees could exceed $250.0 million for sixteen (16) accepted phenomaps. In addition, for a period of time after Roche’s acceptance of certain phenomaps, Roche will have the option to obtain, subject to payment of an exercise fee, rights to use outside the collaboration the raw images generated in the course of creating those phenomaps. If Roche exercises its External Use Option for all twelve (12) eligible phenomaps, Roche’s associated exercise fee payments to Recursion could exceed $250.0 million.

Collaboration Programs and Roche Options. Roche and Recursion will collaborate to select certain novel inferences with respect to small molecules or targets generated from the phenomaps for further validation and optimization as collaboration programs. Roche and Recursion may also combine sequencing datasets from Roche with Recursion’s phenomaps and collaborate to generate new algorithms to produce multimodal maps from which additional collaboration programs may be initiated. For every collaboration program that successfully identifies potential therapeutic small molecules or validates a target, Roche will have an option to obtain an exclusive license to develop and commercialize such potential therapeutic small molecules or to exploit such target in the applicable Exclusive Field. In October 2023, Roche exercised its Small Molecule Validated Hit Option to further advance our first partnership program in GI-oncology.

Payments if Roche Exercises Option for a Collaboration Program. Under the collaboration, Roche may initiate up to forty (40) small molecule collaboration programs. Each small molecule collaboration program, if optioned and successfully developed and commercialized by Roche, could yield more than $300.0 million in research, development, commercialization and net sales milestones for Recursion, as well as mid- to high-single digit tiered royalties on net sales. Recursion is also eligible for research, development, commercialization and net sales milestones for target collaboration programs optioned by Roche.

Recursion Programs. If Roche does not exercise its options in the Collaboration Agreement for certain collaboration programs, we may, with Roche’s prior consent, choose to independently validate, develop and commercialize products in a limited number of such programs, subject to agreed milestones and royalties to Roche. Roche will have rights to obtain an exclusive license to exploit such products by providing notice and paying us an opt-in fee and economics exceeding those that would otherwise be applicable if Roche had exercised its option for such program.

Exclusivity. During an agreed period of time after the Collaboration Agreement’s effective date, we are subject to certain exclusivities that limit our ability to conduct certain research and development activities with respect to compounds and targets in the Exclusive Fields, other than pursuant to the collaboration with Roche. However, we may continue pursuing products that we are researching and developing in the Exclusive Fields as of the effective date of the Collaboration Agreement.

Termination. The Collaboration Agreement includes standard termination provisions, including for material breach or insolvency and for Roche’s convenience. Certain of these termination rights can be exercised with respect to a particular Exclusive Field or exclusive license, as well as with respect to the entire Collaboration Agreement.

Figure 62. Under our collaboration with Roche & Genentech, we are creating multimodal maps of cellular biology to elucidate novel targets and starting points.

Bayer AG Amended and Restated Research Collaboration and Option Agreement

On August 28, 2020, Recursion and Bayer entered into a Research Collaboration and Option Agreement, which was subsequently expanded on December 1, 2021, for research and collaboration on a certain number of projects related to fibrosis. On November 8, 2023, the parties amended and restated the original Bayer Agreement to re-align the collaboration with Bayer’s strategic shift in focus to oncology. As a result, the parties wound down their joint work in fibrosis and the exclusivities with respect to the field of fibrosis were terminated.

Under the Restated Agreement, Recursion will collaborate with Bayer for the remainder of the five-year period under the original Agreement (extendable by up to 2 years to enable completion of certain research activities), to initiate up to seven programs in oncology. During certain agreed time periods within the collaboration term, Recursion is prohibited from conducting certain research and development activities with respect to certain identified genes of relevance in oncology outside of the collaboration, either by itself or together with third parties. However, Recursion may continue research and development activities for any such identified genes that it has initiated prior to the date of identification of such gene.

Under each oncology project, Recursion will work with Bayer to identify potential lead candidates for development. Under the Restated Agreement, Bayer has the first option to license potential candidates; each such license could potentially result in option exercise fees and development and commercial milestones paid to Recursion with an aggregate value of up to approximately $210.0 million for one license and up to approximately $1.5 billion if each program is licensed, as well as tiered royalties for each such license, ranging from low- to mid-single digit percentages of sales, depending on commercial success. Royalty periods for each license are on a country-by-country basis, and the duration of each such period is tied to the duration of patent or regulatory exclusivity in each country (with a minimum term of 10 years each).

If Bayer does not exercise its option with respect to a lead candidate or otherwise discontinues a project prior to completion, within a specified period of time, Recursion may exercise an option to negotiate with Bayer in good faith to obtain an exclusive license under Bayer’s interest in any lead series developed pursuant to the project and backup compounds related thereto, as well as a non-exclusive license under Bayer’s background intellectual property necessary for Recursion’s use of the project results related to such compounds.

Bayer may terminate the collaboration at any time without cause. Either party may terminate the agreement for a material breach by the other party. The term of each license agreement continues on a product-by-product and country-by-country basis until the later of (a) the expiration of the last to expire valid claim of the licensed patents covering such product in such country, (b) the expiration of any applicable regulatory exclusivity period for such product in such country and (c) ten years after the first commercial sale of such product in such country. Bayer may terminate each such license agreement at any time without cause. Either party may terminate each such license agreement for the other party’s uncured material breach.

Technology Partnerships

While we focus on the generation and utilization of the Recursion Data Universe to maximize our pipeline and partnership value-drivers, we are exploring ways to make small, select data layers and foundation models externally available to drive additional value and technology and data collaborations that strengthen our platform. Large datasets generated for training AI models are rare and valuable, especially with respect to biology and chemistry, where most data generated is siloed and not relatable across experimental contexts. The Recursion OS has generated, and continues to generate, highly relatable and reliable datasets used to train foundation models. Our collaborations with NVIDIA, Tempus and Enamine highlight how data, foundation models and compute are integral value drivers in the TechBio space and for Recursion.

NVIDIA

In July 2023, we entered a strategic collaboration with NVIDIA to accelerate the development of our groundbreaking AI foundation models for biology and chemistry using our supercomputer, BioHive-1, and priority access on NVIDIA DGX™ Cloud. We intend to optimize and distribute these models for internal use in addition to possible commercial license or release on BioNeMo, NVIDIA’s cloud service for generative AI in drug discovery. During the JP Morgan

Healthcare Conference in 2024 we released, with NVIDIA, Phenom-Beta on the BioNeMo platform. Phenom-Beta is a smaller, yet still powerful, version of the Phenom-1 model discussed above. In November 2023, we committed to working with NVIDIA to expand BioHive-1, increasing the computational capacity by over 4X. We project that upon completion and benchmarking, BioHive-1 will be in the top 50 most powerful supercomputers in the world across any industry (according to the TOP500 list) and will be the most powerful supercomputer owned and operated by any biopharma company.

Tempus

In November 2023, we entered a collaboration with Tempus to gain preferred access to one of the world’s largest proprietary, de-identified, patient-centric oncology datasets, spanning DNA, RNA, health records and more to support the discovery of potential biomarker-enriched therapeutics at scale through the training of causal AI models. By combining the forward genetics approach of Tempus with the reverse genetics approach at Recursion, we believe we have an opportunity to improve the speed, precision, and scale of therapeutic development in oncology.

Enamine

In December 2023, we entered a collaboration with Enamine to generate and design enriched compound libraries for the global drug discovery industry. By leveraging Recursion’s MatchMaker, an AI model, to identify compounds in the Enamine REAL Space predicted to bind to high-value targets, we believe we can generate more powerful compound libraries for drug discovery purposes. Enamine may offer the resulting libraries to customers for purchase and will co-brand any libraries under both the Enamine and Recursion’s MatchMaker trademarks. This collaboration is an example of how select data layers can drive value in novel ways.

People and Culture

Essential to leading and defining TechBio is our team of over 500 Recursionauts, balanced between life scientists such as chemists and biologists (approximately 35% of employees) and computational and technical experts such as data scientists and software engineers (approximately 40% of employees). This kind of functional balance intentionally stands in contrast to traditional biotechnology companies. Together our team creates an environment where empirical data, statistical rigor and creative thinking is brought to bear on the problems we address. While we are united in a common mission, Decoding Biology to Radically Improve Lives, our strength lies in our differences: expertise, gender, race, disciplines, experience and perspectives. Deliberately building and cultivating this culture is critical to achieving our audacious goals.

Figure 63. Breakdown of Recursion’s over 500 employees across life sciences, technology and strategic operations.

One of the most critical elements supporting Recursion’s leadership in TechBio is what we call the Recursion Mindset – a deep belief and commitment to industrialization through automation, systems-thinking, algorithms and data to deliver our mission. Broadly at the company we apply this mindset to eliminate toil and inefficiency creating space for our creative energy to be pointed at Recursion’s hardest problems. The Recursion Mindset is made manifest through our Founding Principles and supported by our Culture and Values. Our Founding Principles are the guideposts to our approach to technical and scientific decision-making. Our Values are the core behaviors that define our Culture and are the simplest definition of how we will achieve our mission. Combined they are the shape of our culture and guide us to reimagine how medicines are made on the path to delivering our mission.

Figure 64. Recursion’s Founding Principles. These six founding principles differentiate our approach from nearly every other biopharma company, enable us to lead TechBio and form the foundation for a mindset we teach and enrich for at Recursion.

Figure 65. Recursion’s Values. These five values support our founding principles and guide our culture at Recursion.

Diversity, Equity, Inclusion and Belonging

At Recursion, we believe in the moral and business case for diversity. The research-based evidence is unequivocal that diverse perspectives support better complex decision-making, foster greater innovation and ultimately result in greater company performance and success. We seek the best talent by maximizing diversity at the top of the recruiting funnel and then mitigating bias through objective decision-making throughout the hiring process. We foster an environment of inclusion for candidates and employees to unleash the strength of our differences. Lastly, acknowledging the breadth of societal injustice and inequities we pursue fair and equitable outcomes across all people-decisions through process design and supported by analytics.

Employee Recruitment, Development and Training

We take a design-thinking approach to building the employee experience at Recursion. It is a fit-for-purpose system that finds, grows and retains top talent to deliver our mission. Our people are mission-driven, humble, bright, generous of spirit and constructively dissatisfied with the status quo. We employ a targeted approach to identify, attract and hire diverse employees across highly technical scientific disciplines including: biology, chemistry, data science, machine learning, engineering, robotics, clinical development and more. We seek people that are a fit for our commitment to industrialization as defined by our Recursion Mindset, which is manifested in our Founding Principles and Values.

Culturally, we instill an expectation to be constantly learning and teaching in pursuit of growing ourselves as fast as Recursion. Most notable is a 2-day experience offered year-round to all employees called Decoding Recursion. It is an opportunity for close interaction with senior leaders who teach the Recursion Mindset through stories. The need to learn is reinforced throughout our performance system which creates accountability for our learning, delivery and impact on others.

People stay at Recursion because of the opportunity to impact the world and grow in a place where they feel challenged, supported and connected. Throughout the employee experience we create moments, rituals, programs and spaces that inspire ambition, reward contributions and growth and foster belonging.

Employee Health and Safety

We have dedicated Standard Operating Procedures to manage occupational health and safety, safety training and injury and illness and incident reporting. Every employee is responsible to ensure these procedures and policies are followed. We offer extensive training to ensure understanding and compliance. Compliance is mandatory for all laboratory employees per requirements of the Occupational Safety and Health Administration standard on Hazardous Chemicals in Laboratories. Our Co-Founder and CEO is the Director of Public Safety at the company and has the ultimate responsibility for chemical hygiene within the organization. Our Chemical Hygiene Officer and Lab Manager oversees the day-to-day management of institutional chemical hygiene.

Read more about how we invest in and motivate our people to achieve our mission in Recursion’s latest Environmental, Social and Governance Report, available at our corporate website.

Facilities

Headquarters

Our United States headquarters is in downtown Salt Lake City, Utah where we lease 105,419 square feet of office and laboratory space. The lease for this space expires in May 2028. In November 2022, we expanded into 103,634 square feet of office and laboratory space adjacent to our headquarters under a lease that expires in May 2032. Our modern headquarters is a draw for local, national and international talent.

Figure 66. Our headquarters is centrally located in downtown Salt Lake City, Utah. We are a proud founding member of BioHive, the branding effort of the life science hub of Utah. Working with state and local government, we are helping to create a burgeoning life science ecosystem around a downtown cluster of companies centered around our headquarters.

Satellite Offices and Facilities

Toronto and Montréal. In June 2023, we celebrated the opening of our 28,110 square foot Toronto site, which serves as the headquarters for Recursion Canada. The lease for this space expires in November 2032. The new site represents Recursion’s significant growth in Canada and our continued investment in the local economy. Following the acquisition of Cyclica, we consolidated our Toronto based teams into our new headquarters. In addition to our Recursion Canada headquarters we have a site in Montréal that houses our semi-autonomous artificial intelligence research engine, Valence Labs, which is located in the world-renowned artificial intelligence and machine learning hub MILA.

Figure 67. Recursion’s satellite offices and facilities. Left panel: Mila, the Quebec Artificial Intelligence Institute, is recognized worldwide for its major contributions to AI. Right panel: Government and biotech leaders celebrate the opening of our Toronto office, home to Recursion’s Canadian headquarters and our largest site outside of our global headquarters in Salt Lake City, Utah. This site, along with the Mila Montreal office, serves as multidisciplinary hubs across data science and machine learning.

Digital Vivarium. We lease a property that serves as a rodent vivarium. This lease expires in May 2028. We use this facility to conduct drug-discovery enabling pharmacokinetic, pharmacodynamic and exploratory safety studies. The facility is equipped with proprietary, digitally enabled cage technology.

Corporate Social Responsibility

We believe that to achieve our mission, we mustact like the company we aim to be, which means we must be a good corporate citizen. In recognition of our commitment to excellence in environmental, social and governance stewardship, Recursion received a Prime Rating in 2023 for ESG performance from Institutional Shareholder Services (ISS). The ISS ESG Corporate Rating provides an assessment of a company's environmental, social and governance activity. A Prime Rating is awarded to companies with ESG performance above a sector-specific threshold and is defined by ISS as "absolute best in class". Additionally, as of January 2024, Recursion was ranked 16 out of over 900 companies (approximately top 2%) in the pharmaceutical category by Morningstar Sustainalytics 20 which gives an in-depth analysis of a company’s ESG performance and compares it to industry peers. This ranking places Recursion in Sustainalytics’ 2024 Top-Rated ESG Companies List.

To date, we have focused our community efforts in areas of impact that are aligned with our Values and our strengths, including: (i) diversity, equity and inclusion in technology and biotechnology (e.g., in 2020 the Recursion Foundation launched Altitude Lab, a life science incubator and accelerator for diverse health care entrepreneurs); (ii) the growth and sustainability of our local life science and technology ecosystems (e.g., Recursion is a founding member of BioHive, a Utah life science collective); and (iii) the promotion of sustainable environmental practices (e.g., Recursion aims to achieve net-zero greenhouse gas emissions across our operations by the year 2030). We believe that through these principles of community engagement, we can extend our mission of radically improving lives to those in our communities.

Read more about how we are delivering on that belief in Recursion’s Environmental, Social and Governance Report.

20 Copyright © 2023 Morningstar Sustainalytics. All rights reserved. This section contains information developed by Sustainalytics (www.sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or its third-party suppliers (Third Party Data) and are provided for informational purposes only. They do not constitute an endorsement of any product or project, nor an investment advice and are not warranted to be complete, timely, accurate or suitable for a particular purpose. Their use is subject to conditions available at https://www.sustainalytics.com/legal-disclaimers

Commercialization

We may retain significant development and commercial rights to some of our drug candidates. If marketing approval is obtained, we may commercialize our drug candidates on our own, or potentially with a partner, in the United States and other geographies. We currently have no sales, marketing, or commercial product distribution capabilities. Decisions to create this infrastructure and capability will be made following further advancement of our drug candidates and based on our assessment of our ability to build the necessary capabilities and infrastructure with competitive advantage. Clinical data, the size of the addressable patient population, the size of the commercial infrastructure, manufacturing needs and major trends as to how value is accrued in the industry may all influence or alter our commercialization plans.

Manufacturing

We currently utilize contract development and manufacturing organizations to produce drug substance and investigational drug product in support of the assets within our pipeline. To date, we have obtained drug substance and drug product for our drug candidates from third party contract manufacturers. We are in the process of developing our supply chain for each of our drug candidates on a project-by-project basis based on our development needs.

Strategic Agreements

To achieve our mission, we may partner with leading biotechnology companies, pharmaceutical companies and academic research institutions to access datasets, molecules, or other intellectual property.

Tempus Master Agreement

On November 3, 2023, Recursion Pharmaceuticals, Inc., or the Company, and Tempus Labs, Inc., or Tempus entered into a Master Agreement, or the Tempus Agreement pursuant to which Tempus may provide certain services and deliverables to the Company and/or license certain data to the Company. The term of the Tempus Agreement is five years from the effective date of the Tempus Agreement, or the Term.

Under the terms of the Tempus Agreement, the Company is granted a limited right to access Tempus’s proprietary database of de-identified clinical and molecular data for certain therapeutic product development purposes, including to develop, train, improve, modify, and create derivative works of the Company’s machine learning/artificial intelligence models for the purposes of therapeutic product development. The Company is permitted to download a maximum number of de-identified records at any one time, subject to an aggregate cap in the total unique records that can be downloaded over the course of the Term, and to retain each downloaded record for a period of 180 days from the date of download. After such 180-day period, The Company may elect to license such downloaded records for a longer period subject to additional terms and the payment of additional fees.

In exchange for these rights, the Company will pay Tempus an initial license fee in an amount equal to $22.0 million, or the Initial License Fee and annual license fees during the Term ranging between $22.0 million and $42.0 million, which, together with the Initial License Fee, totals up to $160.0 million over the Term, subject to the Company’s early termination, which may be triggered only following the third anniversary of the Master Agreement’s effective date, and payment by the Company of an early termination fee (as further discussed below). The Initial License Fee and each annual license fee shall be payable at the Company’s option either in the form of (x) cash, (y) shares of Class A Common Stock of the Company or (z) a combination of cash and shares of Class A Common Stock in such proportion as is determined by the Company in its sole discretion; provided that (a) the aggregate number of shares of Class A Common Stock that the Company may issue in connection with all payments under this Agreement shall not exceed 19.9% of the aggregate total of shares of Class A Common Stock and the Company’s Class B Common Stock outstanding on November 2, 2023 or the date immediately preceding the date of any shares of Class A Common Stock issued pursuant to the Tempus Agreement, whichever is less (the “Share Maximum”).

In the event that all or any portion of the Initial License Fee or any annual license fee is payable in the form of shares of Class A Common Stock, the Company shall, subject to the Share Maximum, issue to Tempus a number of shares of Class A Common Stock equal to (1) the amount of such fee divided by (2) the volume weighted average price of Class A Common Stock for the seven trading day period ending on the trading day immediately preceding (and including) the date that is five business days before the date on which such fee is paid (any shares so issued, the “Tempus Shares”).

The Company has agreed to use commercially reasonable efforts to prepare and file a registration statement (or a prospectus supplement to an effective registration statement on Form S-3ASR that will become automatically effective upon filing with the SEC pursuant to Rule 462(e)) with the Securities and Exchange Commission as soon as practicable but in no event later than 30 days after each issuance of Tempus Shares under the Tempus Agreement, and to use its commercially reasonable efforts to have the registration statement declared effective as promptly as possible but in any event within 30 days following initially filing (or up to 90 days in the event of full SEC review). After such registration, the Company has agreed to use commercially reasonable efforts to keep such registration statement effective until such date that all Tempus Shares covered by such registration statement have been sold thereunder or may be sold without restriction or volume limitation under Rule 144 as promulgated by the SEC under the Securities Act of 1933, as amended.

The Tempus Agreement also grants the Company the right to access and use Tempus’ LENS software that permits the viewing and analysis of clinical, molecular, and other health data maintained by Tempus. Company will pay Tempus a six-figure annual license fee for the duration of the Term for the use of such software.

In addition to mutual rights to terminate for an uncured breach of the Tempus Agreement, the Company may terminate the Tempus Agreement for convenience after three years upon 90 days prior notice, subject to payment by the Company of an early termination fee equal to (a) an amount per unique record that Company has downloaded prior to termination less (b) the sum of any annual license fees paid prior to termination, which could result in early payment of the aggregate annual license fees contemplated by the Tempus Agreement to the extent all records made available under the Tempus Agreement have been downloaded.

Either party may assign its rights under the Tempus Agreement subject to limited restrictions, but the Company may not assign the Tempus Agreement without Tempus’s consent if the proposed assignee is a large pharmaceutical company.

REC-994: University of Utah Research Foundation Agreements

In February 2016, we entered into an Amended and Restated License Agreement with the University of Utah Research Foundation, or UURF, pursuant to which we obtained an exclusive license under certain patents and a non-exclusive license under certain know-how, in each case controlled by UURF and related to the drug tempol, or REC-994, to make, have made, use, offer to sell, sell, import and distribute products incorporating REC-994 worldwide for the treatment of cerebral cavernous malformation, or CCM. In partial consideration for the license rights, we issued UURF equity in our company. In addition, we agreed to reimburse UURF for a specified portion of costs associated with the filing, maintenance and prosecution of the licensed patent rights. The Amended and Restated License Agreement will expire on a country-by-country basis upon the expiration of the last-to-expire patent within the patent rights in the applicable country. UURF may terminate the agreement for an uncured material breach, if we cease commercially diligent efforts to develop or commercialize a licensed product or service, or our bankruptcy or insolvency.

REC-2282: Ohio State Innovation Foundation In-License

In December 2018, we entered into an Exclusive License Agreement with the Ohio State Innovation Foundation, or OSIF, pursuant to which we obtained an exclusive, sublicensable, non-transferable, royalty-bearing license under certain patents and fully-paid up, royalty-free, nonexclusive license under certain know-how, in each case controlled by OSIF and related to the pan-histone deacetylase inhibitor, OSU-HDAC42, or REC-2282, to develop, make, have made, use, sell, offer for sale and import products incorporating OSU-HDAC42 worldwide. OSIF also assigned certain assets to us, relating to the pharmaceutical composition known as AR-42. OSIF retains the right to use and allow other academic, nonprofit and government institutions to use the licensed intellectual property for research, non-commercial and educational purposes. OSIF shall not practice, have practiced, or transfer such reserved rights for any clinical purpose other than completion of the existing clinical trials at the time of the license agreement without our prior written consent. We are developing REC-2282 for the treatment of NF2 and are evaluating the utility of the compound in additional disease states using our platform.

Pursuant to the agreement, we must use commercially reasonable efforts to commercialize licensed products and are required to meet certain diligence milestones within two years following the execution of the agreement, including the initiation of clinical trials. The license agreement is also limited by and made subject to certain rights and regulations of the government, including the Bayh-Dole Act.

In consideration for the license, we paid OSIF an upfront payment of $2.0 million dollars and are obligated to pay OSIF certain milestones, totaling up to $20.0 million dollars, as well as mid-single digit royalties on net sales of the licensed products. In addition, we owe 25% of any non-royalty sublicensing consideration prior to a Phase II clinical trial or 15% of such sublicensing consideration after initiation of a Phase II clinical trial, provided that milestone payments are creditable against these sublicensing fees. In 2022 we paid OSIF $1.0 million dollars upon dosing of the first patient in the Phase 2 study of REC-2282 for the treatment of NF2.

The agreement expires on the expiration of the last valid claim within the licensed patents. We may terminate this agreement on 90 days prior written notice to OSIF. Either party may terminate the agreement on 60 days prior written notice for an uncured, material breach by the other party, or bankruptcy or insolvency of the other party.

REC-4881: Takeda License Agreement

In May 2020, we entered into a License Agreement, or the Takeda In-License, with Takeda Pharmaceutical Company Limited, or Takeda, pursuant to which we obtained an exclusive (even as to Takeda and its affiliates), worldwide, sublicensable under certain conditions, transferable, royalty-bearing license to certain Takeda patents, know-how and materials related to develop, manufacture and commercialize Takeda’s clinical-stage compound known as TAK-733, a non-ATP-competitive allosteric inhibitor of MEK1 and MEK2, subject to a non-exclusive, royalty-free, irrevocable, fully paid up, license back to Takeda to use the licensed compounds for non-clinical research purposes. We are currently developing the compound REC-4881 for the treatment of FAP, and patients with spontaneous APC-mutant tumors. We are also evaluating the utility of the compound in additional disease states using our platform.

We are required to use commercially reasonable efforts to develop and commercialize at least one licensed product in each of (a) the US, (b) at least three of the following European countries: the United Kingdom, France, Germany, Italy and Spain and (c) Japan.

Upon execution of the agreement, we paid an upfront fee of $1.5 million to Takeda. Under the Takeda In-License, we are obligated to pay Takeda milestones amounts totaling up to $39.5 million upon achievement of specified development and regulatory milestone events. In addition, we are obligated to pay Takeda low-to-mid single-digit royalties based on net sales of products containing the licensed compounds by us, our affiliates or sublicensees, subject to specified reductions. Our obligation to pay royalties continues on a country-by-country basis until the latest of expiration of the last to expire patent licensed by Takeda that covers the product, expiration of any regulatory exclusivity period for the product and ten years after the first commercial sale of the product, in such country. As of the date of this filing, we have not made any milestone or royalty payments to Takeda.

Each party has the right to terminate the license agreement for the other party’s material uncured breach, insolvency or bankruptcy. In addition, we may terminate the agreement without cause any time after May 2023, and Takeda may terminate the agreement if we have not conducted any material activities in support of the development or commercialization of the licensed compounds or any product containing a licensed compound and have not demonstrated that we used commercially reasonable efforts towards the development of such compounds or products for a period of 12 consecutive months and such failure is not due to events beyond our reasonable control. Further, Takeda may terminate the license agreement if we challenge the validity or enforceability of a licensed patent. Upon termination for any reason other than for Takeda’s breach of the license agreement, upon Takeda’s request we are obligated to negotiate in good faith, for a period of 120 days, terms and conditions of a license to Takeda under certain technology developed by us during the term of the agreement for the purpose of developing, commercializing and otherwise exploiting the licensed compounds and products containing the licensed compounds.

Target Epsilon: Bayer License Agreement

In December 2023, we entered into a License Agreement with Bayer, the Bayer License Agreement, pursuant to which we obtained (a) an assignment of certain compounds, know-how and inventions related primarily to fibrosis, and (b) an exclusive, sublicensable and royalty-bearing license under certain project know-how related to fibrosis to research, develop, manufacture and commercialize products as independent research tools in all fields worldwide, subject to a non-exclusive, royalty-free license back to Bayer to use such licensed project know-how solely for internal research and development purposes.

We are required to use commercially reasonable efforts to develop and commercialize at least one product in one of the following countries: (a) the US, (b) Japan, or (c) a country of the European Union.

Under the Bayer License Agreement, we are obligated to pay Bayer milestone amounts totaling up to approximately $34 million upon achievement of specified development, regulatory and sales milestones. In addition, we are obligated to pay Bayer low single-digit royalties based on net sales of products containing certain compounds by us, our affiliates, or sublicensees, subject to specified reductions. Our obligation to pay royalties continues on a product-by-product and country-by-country basis until the latest of: (a) expiration of the last to expire patent filed by us, our affiliates or sublicensees that covers the product, and (b) ten years after the first commercial sale of the product in such country. As of the date of this filing, we have not made any milestone or royalty payments to Bayer.

Each party has the right to terminate the license agreement for the other party’s material uncured breach. In addition, we may terminate the agreement without cause. Upon termination by us without cause or by Bayer for our breach, Bayer would have the right to use, practice, develop and exploit (including the right to sublicense) certain assigned know-how solely for Bayer’s internal research and development purposes.

Competition

Our efforts to date have resulted in several clinical-stage programs, an expansive pipeline of differentiated programs in early discovery and preclinical development, several partnerships with large pharma and technology companies, as well as an intellectual property portfolio comprising patents, trademarks, software and trade secrets. We believe that our differentiated approach provides us with a significant competitive advantage. We are a hybrid company, competing within multiple categories of the pharmaceutical, biotechnology, and technology industries where companies are similarly working to integrate rapidly advancing technologies into their drug discovery and development activities and/or are creating scalable scientific platforms. Notable competitors include:

•TechBio Companies. Such companies apply computational tools to unlock novel insights or accelerate drug discovery and development across different points in the value chain. Representative examples include Relay Therapeutics, Exscientia, Isomorphic Labs, Schrodinger, and AbCellera.

•Scalable Platform Companies. Such companies are applying novel scientific approaches or engineering novel therapeutic modalities with the potential to seed large numbers of therapeutic candidates. These companies may compete directly with our pipeline of predominantly small molecule therapeutics. Representative companies include Moderna, BioNTech, and Roivant Sciences.

•Traditional Biopharma Companies. Such companies, while primarily engaged in late-stage clinical development and product commercialization, are increasingly making their own investments in the application of ML and advanced computational tools across the drug discovery and development value chain. Such investments may include partnerships with other biotechnology companies (including Recursion) from which we may benefit. Representative companies include Janssen (a subsidiary of Johnson & Johnson), Merck, and Pfizer.

•Large Technology Companies. Large technology companies constantly seek growth opportunities. Technology-enabled drug discovery may represent a compelling opportunity for these companies, some of which have research groups or subsidiaries focused on drug discovery and others of which have signed large technology partnerships with biopharma companies. Representative companies include Alphabet, Microsoft, and Amazon.

Intellectual Property

Our intellectual property focus is the industrialization of phenomics, a new class of -omics data, and have applied industry knowledge to date to continue to build out and expand a variety of other cutting-edge technologies. Further, we have generated algorithmic, software and statistical insights in the course of our work. Within the burgeoning field of technology-enabled drug discovery, we seek to protect our innovations, with a combination of patents and trade secrets and for each novel technology or improvement we develop, we consider the appropriate course of intellectual property protection.

Our commercial success depends in part on our ability to obtain, maintain, enforce and defend intellectual property rights owned or licensed by us that are directed to our current and future drug product candidates and methods of their use, drug development and product development technologies, and know how, without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of others, and to prevent others from infringing, misappropriating or otherwise violating our intellectual property and proprietary rights. We seek to protect our proprietary position by, among other methods, filing or licensing U.S. and foreign patents and patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position.

As for our current and future drug product candidates that we are developing and seeking to commercialize, we have and will continue to pursue composition of matter and therapeutic method of use patents, dosage formulation patents, therapeutic use patents on novel indications, and other relevant aspects of our current or future drug product candidates, where available. In addition, we have and will continue to pursue patents with respect to our proprietary drug discovery platform and drug development technologies. We may also continue to seek patent protection, either alone or jointly with our collaborators, as our collaboration agreements may dictate.

We believe in the benefits of open-source science and that open-source data sharing drives value for us and society as a whole. For example, we have published certain key findings and datasets derived from our platform around COVID-19 under terms designed to allow anyone to make use of the data, in the hope that the data would be useful in fighting the global pandemic. We have also released some of the largest open-sourced biological datasets in the world under terms that allow for broad academic and non-commercial use.

Patents

As of February 2024, we currently own or license at least 300 patents or patent applications worldwide, including over 170 issued patents or allowed patent applications in the US and other strategic markets, covering all aspects of our business, including Platform IP and Program IP.

•Platform IP: Approximately one-third of the patents and patent applications that we own or license worldwide relate to the Recursion platform, including patents and applications related to the Recursion OS IP, as well as many other inventions related to cell perturbations, gene editing, drug discovery, drug development and hardware solutions. Through our acquisition of Cyclica Inc., we obtained approximately 4 patent families related to drug discovery. We also pursue a strategy of seeking patent protection on smaller discrete inventions throughout the breadth of our pipeline, ranging from experiment design, operations within our labs, data collection and analysis (including deep learning insights).

•Recursion Program IP: A breakdown of our Program IP portfolio is below:

▪REC-2282: We exclusively license OSIF’s interest in patents and patent applications related to REC-2282 from OSIF; these patents and patent applications relate to composition of matter and methods of use for REC-2282. Currently, we expect our licensed issued patents related to REC-2282 to generally expire between 2024 and 2035, excluding any patent term extension, or other mechanisms for effecting patent term, and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fee. With respect to NF-2, orphan drug exclusivity in the U.S. would run seven years from marketing authorization.

▪REC-994: We exclusively license UURF’s interest in patents and patent applications related to use of REC-994 for treatment or prevention of CCM from UURF. Currently, we expect our licensed issued patents related to REC-994 to generally expire in 2035, excluding any patent term extension, or other mechanisms for effecting patent term, and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fee. With respect to CCM, orphan drug exclusivity in the U.S. would run seven years from marketing authorization.

▪REC-4881: We own patent applications, or exclusively license Takeda’s interest in patents and patent applications from Takeda, related to composition of matter and methods of use for REC-4881. Currently, we expect our licensed issued patents related to REC-4881 to generally expire in 2029, excluding any patent term extension, or other mechanisms for effecting patent term, and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fee. With respect to FAP, orphan drug exclusivity in the U.S. would run seven years from marketing authorization.

▪REC-3964: We own patent applications, including an allowed US patent application, related to the composition of matter and methods of use of REC-3964. Upon issuance, we expect our patents resulting from these patent applications will expire no earlier than 2042, excluding any patent term adjustment or patent term extension, or other mechanisms for effecting patent term, and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fee.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the field of biotechnology has emerged in the United States and in Europe, among other countries. Changes in the patent laws and rules, either by legislation, judicial decisions, or regulatory interpretation in other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, importing, or otherwise commercializing any of our patented inventions, either directly or indirectly, will depend in part on our success in obtaining, defending and enforcing patent claims that cover our technology, inventions and improvements. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our platform and drug candidates and the methods used to manufacture them. Moreover, our issued patents and those that may issue in the future may not guarantee us the right to practice our technology in relation to the commercialization of our drug product candidates. The area of patent and other intellectual property rights in biotechnology is an evolving one with many risks and uncertainties, which may prevent us from commercializing our drug candidates and future drug candidates and practicing our proprietary technology.

Our issued patents and those that may issue in the future may be challenged, narrowed, circumvented, or invalidated, which could limit our ability to stop competitors from marketing related platforms or drug candidates or limit the length of the term of patent protection that we may have for our drug candidates, future drug candidates and platforms. In addition, the rights granted under any issued patents may not provide us with complete protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that achieve similar outcomes but with different approaches. For these reasons, we may have competition for our drug candidates. Moreover, the time required for the development, testing and regulatory review of our candidate products may shorten the length of effective patent protection following commercialization. For this and other risks related to our proprietary technology, inventions, improvements, platforms and drug candidates, please see the section titled “Risk Factors—Risks Related to Our Intellectual Property.”

Our commercial success will also depend in part on not infringing upon the intellectual property and proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies for our products or processes or to obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products may have an adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the USPTO to determine priority of invention. For more information, please see “Risk Factors—Risks Related to Our Intellectual Property.”

Some of our pending patent applications in the United States are provisional patent applications. Provisional patent applications are not eligible to become issued patents until, among other things, we file a non-provisional patent application within 12 months of filing of one or more of our related provisional patent applications. If we do not timely file any non-provisional patent applications, we may lose our priority date with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. While we intend to timely file non-provisional patent applications relating to our provisional patent applications, we cannot predict whether any such patent applications will result in the issuance of patents that provide us with any competitive advantage.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a nonprovisional patent application related to the patent. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent. A U.S. patent also may be accorded patent term adjustment, or PTA, under certain circumstances to compensate for delays in obtaining the patent from the USPTO. In some instances, such a PTA may result in a U.S. patent term extending beyond 20 years from the earliest date of filing a non-provisional patent application related to the U.S. patent. In addition, in the United States, the term of a U.S. patent that covers an FDA-approved drug may also be eligible for patent term extension (PTE), which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. However, with respect to patent term extensions granted as a result of the FDA regulatory review period, the restoration period cannot be longer than five years, the total patent term including the restoration period must not exceed 14 years following FDA approval, only one patent applicable to each regulatory review period may be extended and only those issued claims covering the approved drug or a method for using it may be extended. We may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. There can be no assurance that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.

Rapidly evolving patent laws in the United States and elsewhere make it difficult to predict the breadth of claims that may be allowed or enforced in our patents. Moreover, patent offices in general can require that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we are able to obtain patents, the patents may be substantially narrower than anticipated.

Our ability to maintain and defend our intellectual property and proprietary position for our drug product candidates, methods of their use, and other proprietary technologies will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of the patent applications that we may file or license from third parties will result in the issuance of any patents. The issued patents that we own, may receive in the future, or license from third parties may be challenged, invalidated, held unenforceable, narrowed or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against third parties, including our competitors, with similar technology. Furthermore, third parties, including our competitors, may be able to independently develop and commercialize similar drugs or products, or duplicate our technology, business model or strategy without infringing our patents.

Trademarks

As of February 2024, our trademark portfolio comprises more than 70 registered trademarks or active trademark applications worldwide, among which we have issued trademarks in the U.S. for “Recursion” and “Recursion Pharmaceuticals.”

Trade Secrets

In addition to our reliance on patent protection for our inventions, drug candidates and programs, we also rely on trade secrets, know-how, confidentiality agreements and continuing technological innovation to develop and maintain our competitive position. For example, some elements of manufacturing processes, proprietary assays, analytics techniques and processes, knowledge gained through clinical experience such as approaches to dosing and administration and management of patients, as well as computational-biological algorithms, and related processes and software, are based on unpatented trade secrets and know-how that are not publicly disclosed. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees, advisors and consultants, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. As a result, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived of by the individual during the course of employment, and which relate to or are reasonably capable or being used in our current or planned business or research and development are our exclusive property. In addition, we take other appropriate precautions, such as physical and technological security measures, to guard against the misappropriation of our proprietary technology by third parties. However, such agreements and policies may be breached, and we may not have adequate remedies for such breaches. For more information regarding the risks related to our intellectual property, see “Risk Factors—Risks Related to Our Intellectual Property.”

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the relevant regulatory authority.

U.S. Drug Development

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA. Drugs also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

•Our drug candidates are considered small molecule drugs and must be approved by the FDA through the new drug application, or NDA, process before they may be legally marketed in the United States. The process generally involves the following: completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP;

•submission to the FDA of an investigational new drug, or IND, application, which must become effective before human clinical trials in the U.S. may begin;

•approval by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before each trial may be initiated;

•performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and other clinical trial-related regulations to establish substantial evidence of the safety and efficacy of the investigational product for each proposed indication;

•submission to the FDA of an NDA;

•a determination by the FDA within 60 days of its receipt of an NDA to accept the filing for review;

•satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

•potential FDA audit of the preclinical study and/or clinical trial sites that generated the data in support of the NDA filing;

•payment of user fees for FDA review of the NDA;

•FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States; and

•compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies.

The data required to support an NDA is generated in two distinct developmental stages: preclinical and clinical. The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for any current and future drug candidates will be granted on a timely basis, or at all.

Preclinical Studies and IND

Before testing any drug product candidate in humans, the product candidate must undergo rigorous preclinical testing. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP and ICH regulations for safety/toxicology studies. The preclinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational product to humans and must become effective before human clinical trials may begin.

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials, which are generally required for FDA approval of an NDA, to commence. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development along with any subsequent changes to the investigational plan. Some long-term nonclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

Clinical Trials

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB must also approve the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA. The FDA will generally accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP and GMP requirements, and the FDA is able to validate the data through an onsite inspection, if deemed necessary, and the practice of medicine in the foreign country is consistent with the United States.

Clinical trials in the United States generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.

•Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the drug candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, tolerability and safety of the drug, the side effects associated with increasing doses, and if possible to gain early evidence on effectiveness.

•Phase 2 clinical trials involve studies in disease-affected patients to determine the dose and dosing schedule required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information are collected, possible adverse effects and safety risks are identified, and a preliminary evaluation of efficacy is conducted.

•Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, are conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA. The sponsor is also responsible for submitting written IND safety reports, including reports of serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing that suggest a significant risk for human subjects, and any clinically significant increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated checkpoints based on access to certain data from the trial.

Concurrent with clinical trials, companies usually complete additional animal safety studies and also must develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process, as performed by the manufacturing facility, must be capable of consistently producing quality batches of our drug candidates. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that our drug candidates do not undergo unacceptable deterioration over their labeled shelf life.

NDA Review Process

Following completion of the clinical trials, data is analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling, chemistry, and manufacturing information to ensure product quality and other relevant data. In short, the NDA is a request for approval to market the drug in the United States for one or more specified indications and must contain proof of safety and efficacy for a drug.

The application must include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of an NDA must be obtained before a drug may be legally marketed in the United States.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for each marketed human drug. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

The FDA reviews all submitted NDAs before it accepts them for filing and may request additional information rather than accepting the NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of a new molecular-entity NDA and respond to the applicant, and six months from the filing date of a new molecular-entity NDA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the review process is often extended by FDA requests for additional information or clarification.

Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies and/or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.

Under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data.

The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivity—patent or non-patent—for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant an orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product.

Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety, or providing a major contribution to patient care or in instances of drug supply issues. However, competitors may receive approval of either a different product for the same indication or the same product for a different indication but that could be used off-label in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do for the same product, as defined by the FDA, for the same indication we are seeking approval, or if a drug candidate is determined to be contained within the scope of the competitor’s product for the same indication. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the European Union has similar, but not identical, requirements and benefits.

Expedited Development and Review Programs

The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs that meet certain criteria. Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor can request the FDA to designate the product for fast track status any time before receiving NDA approval, but ideally no later than the pre-NDA meeting with the FDA.

Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies.

A product may also be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, which is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. FDA may withdraw drug approval or require changes to the labeled indication of the drug if confirmatory post-market trials fail to verify clinical benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with the drug. If the FDA concludes that a drug shown to be effective can be safely used only if distribution or use is restricted, it may require such post-marketing restrictions as it deems necessary to assure safe use of the product.

Additionally, a drug may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to ensure an efficient drug development program. Fast track designation, priority review, accelerated approval and breakthrough therapy designations do not change the standards for approval, but may expedite the development or approval process.

Post-approval Requirements

Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping requirements, requirements to report adverse events and comply with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations, known as “off-label promotion,” and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the development of additional data or preclinical studies and clinical trials.

The FDA may also place other conditions on approvals including the requirement for REMS, to assure the safe use of the product. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP regulations. Manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation, and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, its manufacturer or the NDA holder, including recalls.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls;

•fines, warning letters, or holds on post-approval clinical studies;

•refusal of the FDA to approve pending applications or supplements to approved applications;

•suspension or revocation of product approvals;

•product seizure or detention;

•refusal to permit the import or export of products; or

•injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

FDA Regulation of Companion Diagnostics

Safe and effective use of a therapeutic product may rely upon an in vitro companion diagnostic for use in selecting the patients that will be more likely to respond to that therapy. If anin vitro diagnostic is essential to the safe and effective use of the therapeutic product and if the manufacturer wishes to market or distribute such diagnostic for use as a companion diagnostic, then the FDA will require separate approval or clearance of the diagnostic as a companion diagnostic to the therapeutic product. According to FDA guidance, an unapproved or uncleared companion diagnostic device used to make treatment decisions in clinical trials of a drug generally will be considered an investigational medical device unless it is employed for an intended use for which the device is already approved or cleared. If used to make critical treatment decisions, such as patient selection, the diagnostic device generally will be considered a significant risk device under the FDA’s Investigational Device Exemption, or IDE, regulations. The sponsor of the diagnostic device will be required to comply with the IDE regulations for clinical studies involving the investigational diagnostic device. According to the guidance, if a diagnostic device and a drug are to be studied together to support their respective approvals, both products can be studied in the same clinical trial, if the trial meets both the requirements of the IDE regulations and the IND regulations. The guidance provides that depending on the details of the clinical trial protocol, the investigational product(s), and subjects involved, a sponsor may seek to submit an IDE alone (e.g., if the drug has already been approved by FDA and is used consistent with its approved labeling), or both an IND and an IDE.

Pursuing FDA approval/clearance of anin vitro companion diagnostic would require either a pre-market notification, also called 510(k) clearance, or a pre-market approval, or PMA, or a de novo classification for that diagnostic. The review of companion diagnostics involves coordination of review with the FDA’s Center for Devices and Radiological Health.

510(k) clearance process

To obtain 510(k) clearance, a pre-market notification is submitted to the FDA demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet required the submission of a PMA application. The FDA’s 510(k) clearance process may take three to 12 months from the date the application is submitted and filed with the FDA, but may take longer if FDA requests additional information, among other reasons. In some cases, the FDA may require clinical data to support substantial equivalence. In reviewing a pre-market notification submission, the FDA may request additional information, which may significantly prolong the review process. Notwithstanding compliance with all these requirements, clearance is never assured.

After a device receives 510(k) clearance, any subsequent modification of the device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or require a PMA. In addition, the FDA may make substantial changes to industry requirements, including which devices are eligible for 510(k) clearance, which may significantly affect the process.

De novo classification process

If a new medical device does not qualify for the 510(k) pre-market notification process because no predicate device to which it is substantially equivalent can be identified, the device is automatically classified into Class III. The Food and Drug Administration Modernization Act of 1997 established a different route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification process. This process allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents a low or moderate risk, rather than requiring the submission and approval of a PMA. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk and requires PMA or that general controls would be inadequate to control the risks and special controls cannot be developed.

Obtaining FDA marketing authorization, de novo down-classification, or approval for medical devices is expensive and uncertain, may take several years and generally requires significant scientific and clinical data.

PMA process

The PMA process, including the gathering of clinical and nonclinical data and the submission to and review by the FDA, can take several years or longer. The applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness, including information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications are subject to an application fee. In addition, PMAs for medical devices must generally include the results from extensive preclinical and adequate and well-controlled clinical trials to establish the safety and effectiveness of the device for each indication for which FDA approval is sought. In particular, for a diagnostic, the applicant must demonstrate that the diagnostic produces reproducible results. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System Regulation, or QSR, which imposes extensive testing, control, documentation and other quality assurance and GMP requirements.

After a device is placed on the market, it remains subject to significant regulatory requirements. Among other requirements, medical devices may be marketed only for the uses and indications for which they are cleared or approved, device manufacturers must establish registration and device listings with the FDA and a medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the Quality System Regulation, or QSR, which cover the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices. Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA and the FDA also may inspect foreign facilities that export products to the U.S.

Other U.S. Regulatory Matters

•Our current and future arrangements with healthcare providers, third-party payors, customers and others may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, which may constrain the business or financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but are not limited to: the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug or medical device manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Moreover, the ACA (as defined below) provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

•The federal criminal False Claims Act and Civil Monetary Penalties Laws, and the civil False Claims Act that can be enforced by private citizens through civil whistleblower or qui tam actions, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government and/or impose exclusions from federal health care programs and/or penalties for parties who engage in such prohibited conduct;

•The Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations also impose obligations on covered entities such as health insurance plans, healthcare clearinghouses and certain health care providers and their respective business associates, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

•the FD&C Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

•The federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to Centers for Medicare & Medicaid Services, or CMS, information regarding certain payments and other transfers of value to physicians and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members; and

•Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, state laws that require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and require the registration of their sales representatives, state laws that require biotechnology companies to report information on the pricing of certain drug products and state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Pricing and rebate programs must also comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. In addition, the distribution of pharmaceutical and/or medical device products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical and/or medical device products. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act as well as other applicable consumer safety requirements.

The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings, injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals or refusal to allow a firm to enter into supply contracts, including government contracts.

U.S. Patent-Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of any future drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits restoration of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term restoration period is generally one-half the time between the effective date of an IND or the issue date of the patent, whichever is later, and the submission date of an NDA plus the time between the submission date of an NDA or the issue date of the patent, whichever is later, and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug, a method for using it, or a method of manufacturing it, is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, if and when our products receive FDA approval, we may apply for restoration of patent term for our currently owned or licensed patents covering products eligible for patent term extension to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA. Similar provisions are available in Europe and certain other jurisdictions to extend the term of a patent that covers an approved drug. We may seek patent term extension for any of our issued or licensed patents in any jurisdiction where these are available; however, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for a generic version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness or generate such data themselves.

European Union Drug Development

Similar to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated, it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

The EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency. Recently enacted Clinical Trials Regulation EU No 536/2014 ensures that the rules for conducting clinical trials in the EU will be identical. In the meantime, Clinical Trials Directive 2001/20/EC continues to govern all clinical trials performed in the EU.

European Union Drug Review and Approval

In the European Economic Area, or EEA, which is composed of the 28 Member States of the European Union and three European Free Trade Association States (Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations.

•The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific, or technical innovation or which are in the interest of public health in the EU.

•National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SOPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SOPC, labeling or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the Member States Concerned).

Under the above described procedures, before granting the MA, EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. Similar to the U.S. patent term-restoration, Supplementary Protection Certificates, or SPCs, serve as an extension to a patent right in Europe for up to five years. SPCs apply to specific pharmaceutical products to offset the loss of patent protection due to the lengthy testing and clinical trials these products require prior to obtaining regulatory marketing approval.

Coverage and Reimbursement

Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, for example, principal decisions about reimbursement for new products are typically made by CMS. CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare, and private third-party payors often follow CMS’s decisions regarding coverage and reimbursement to a substantial degree. However, no uniform policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor-by-payor basis.

Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical drug candidates. There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific drug candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication. We may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of our products. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

In addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biological products, will apply to companion diagnostics.

In addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow the price structures of the United States and generally prices tend to be significantly lower.

Healthcare Reform

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private third-party payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.

The United States government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, was passed which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the U.S. Department of Health and Human Services, or HHS, Secretary as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and adding a rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. Additionally, for a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer.

Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have passed.

On November 20, 2020, the HHS Office of Inspector General (“OIG”) issued a final rule eliminating the federal Anti-Kickback Statute safe harbors for rebates paid by manufacturers to Medicare Part D plan sponsors, Medicaid managed care organizations, and those entities’ pharmacy benefit managers, the purpose of which is to further reduce the cost of drug products to consumers. OIG created two safe harbors for certain point-of-sale reductions in price on prescription pharmaceutical products and certain pharmacy benefit manager service fees. On December 2, 2020, OIG and CMS each issued a final rule that set forth modifications to the federal Anti-Kickback Statute, Civil Monetary Penalties Law and Physician Self-Referral Law (or the Stark Law) (respectively) regulations to remove regulatory barriers to value-based care arrangements. CMS’s final rule also clarifies and updates certain long-standing terms that appear throughout the Stark Law regulations.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 2029 unless additional congressional action is taken. The American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our drugs, if approved, and accordingly, our financial operations.

Additionally, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drug products. For example, the federal Inflation Reduction Act, signed into law on August 16, 2022, contains multiple provisions that could have an adverse effect on our ability to generate revenue, attain profitability, or commercialize our drug candidates if approved, as the statute includes provisions intended to reduce the cost of prescription drugs under Medicare. In addition to the direct impact of the IRA on federal drug reimbursement, the statute may also lead to similar reductions in payments from private payers. Various members of the current U.S. Congress have indicated that lowering drug prices continues to be a legislative and political priority, and some have introduced other proposals aimed at drug pricing. Similarly, at the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Available Information

Our principal executive office is located at 41 S Rio Grande Street, Salt Lake City, UT 84101. Our telephone number is (385) 269-0203.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, are available free of charge on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Our website is www.recursion.com. Investors and others should note that we announce material financial and other information to our investors using our investor relations website (https://ir.recursion.com/), SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media and blogs to communicate with our stakeholders and the public about our company, our services and other issues. It is possible that the information we post on social media and blogs could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our company to review the information we post on the social media channels and blogs listed on our investor relations website. Information contained in, or that can be accessed through, our website is not a part of, and is not incorporated into, this report.

This report includes citations to information published by third parties, including academic and industry research, publications, surveys, and studies. While we believe that such information is reliable, we have not separately verified such information, and such information is not a part of, and is not incorporated into, this report.