
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ~~March 31,~~June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40323 RECURSION PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware~~________________________________________________~~46-4099738 (State or other jurisdiction of incorporation or organization)~~________________(I.R.S.~~ (I.R.S. Employer Identification No.) 41 S Rio Grande Street Salt Lake City, UT 84101 (Address of principal executive offices) (Zip code) (385) 269 - 0203 (Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.00001	RXRX	Nasdaq Global Select Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer

☐

Accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of ~~April 30,~~July 31, 2023, there were ~~184,643,171~~204,038,332, 7,644,871 and ~~7,716,209~~3,905,069 of the registrant’s Class A, B and Bexchangeable common stock, par value $0.00001 per share, outstanding, respectively.

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TABLE OF CONTENTS


		Page
Part I	Financial Information	1
Item 1.	Financial Statements (unaudited)	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1823
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2632
Item 4.	Controls and Procedures	2632
Part II	Other Information	2834
Item 1.	Legal Proceedings	2834
Item 1A.	Risk Factors	2834
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2836
Item 5.	Other Information	36
Item 6.	Exhibits	2940
	Signatures	3043

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” about us and our industry within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this report may include without limitation those regarding:

•our research and development programs;

•the initiation, timing, progress, results, and cost of our current and future preclinical and clinical studies, including statements regarding the design of, and the timing of initiation and completion of, studies and related preparatory work, as well as the period during which the results of the studies will become available;

•the ability of our clinical trials to demonstrate the safety and efficacy of our drug candidates, and other positive results;

•the ability and willingness of our collaborators to continue research and development activities relating to our development candidates and investigational medicines;

•future agreements with third parties in connection with the commercialization of our investigational medicines and any other approved product;

•the timing, scope, or likelihood of regulatory filings and approvals, including the timing of Investigational New Drug applications and final approval by the U.S. Food and Drug Administration, or FDA, of our current drug candidates and any other future drug candidates, as well as our ability to maintain any such approvals;

•the timing, scope, or likelihood of foreign regulatory filings and approvals, including our ability to maintain any such approvals;

•the size of the potential market opportunity for our drug candidates, including our estimates of the number of patients who suffer from the diseases we are targeting and potential annual sales;

•our ability to identify viable new drug candidates for clinical development and the rate at which we expect to identify such candidates, whether through an inferential approach or otherwise;

•our expectation that the assets that will drive the most value for us are those that we will identify in the future using our datasets and tools;

•our ability to develop and advance our current drug candidates and programs into, and successfully complete, clinical studies;

•our ability to reduce the time or cost or increase the likelihood of success of our research and development relative to the traditional drug discovery paradigm;

•our ability to improve, and the rate of improvement in, our infrastructure, datasets, biology, technology tools and drug discovery platform, and our ability to realize benefits from such improvements;

•our expectations related to the performance and benefits of our BioHive supercomputer;

•our ability to realize a return on our investment of resources and cash in our drug discovery collaborations;

•our ability to integrate acquired businesses with our existing programs and platform and realize a return on acquired assets;

•our ability to scale like a technology company and to add more programs to our pipeline each year;

•our ability to successfully compete in a highly competitive market;

•our manufacturing, commercialization and marketing capabilities and strategies;

•our plans relating to commercializing our drug candidates, if approved, including the geographic areas of focus and sales strategy;

•our expectations regarding the approval and use of our drug candidates in combination with other drugs;

•the rate and degree of market acceptance and clinical utility of our current drug candidates, if approved, and other drug candidates we may develop;

•our competitive position and the success of competing approaches that are or may become available;

•our estimates of the number of patients that we will enroll in our clinical trials and the timing of their enrollment;

•the beneficial characteristics, safety, efficacy and therapeutic effects of our drug candidates;

•our plans for further development of our drug candidates, including additional indications we may pursue;

•our ability to adequately protect and enforce our intellectual property and proprietary technology, including the scope of protection we are able to establish and maintain for intellectual property rights covering our current drug candidates and other drug candidates we may develop, receipt of patent protection, the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, the

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protection of our trade secrets, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

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•the impact of any intellectual property disputes and our ability to defend against claims of infringement, misappropriation, or other violations of intellectual property rights;

•our ability to keep pace with new technological developments;

•our ability to utilize third-party open source software and cloud-based infrastructure, on which we are dependent;

•the adequacy of our insurance policies and the scope of their coverage;

•the potential impact of a pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, or natural disaster, global political instability or warfare, and the effect of such outbreak or natural disaster, global political instability or warfare on our business and financial results;

•our ability to maintain our technical operations infrastructure to avoid errors, delays, or cybersecurity breaches;

•our continued reliance on third parties to conduct additional clinical trials of our drug candidates, and for the manufacture of our drug candidates for preclinical studies and clinical trials;

•our ability to obtain and negotiate favorable terms of, any collaboration, licensing, or other arrangements that may be necessary or desirable to research, develop, manufacture, or commercialize our platform and drug candidates;

•the pricing and reimbursement of our current drug candidates and other drug candidates we may develop, if approved;

•our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

•our financial performance;

•the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;

•our ability to raise substantial additional funding;

•the impact of current and future laws and regulations, and our ability to comply with all regulations that we are, or may become, subject to;

•the need to hire additional personnel and our ability to attract and retain such personnel;

•the impact of any current or future litigation, which may arise during the ordinary course of business and be costly to defend;

•the need to raise additional capital may cause dilution to our stockholders, restrict our operations, require us to relinquish rights to our technologies or drug candidates, and divert management’s attention from our core business;

•our anticipated use of our existing resources and the net proceeds from our initial public offering; and

•other risks and uncertainties, including those listed in the section titled “Risk Factors.”

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate, and financial trends that we believe may affect our business, financial condition, results of operations and prospects. These forward-looking statements are not guarantees of future performance or development. These statements speak only as of the date of this report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report. While we believe such information forms a reasonable basis for such statements, the information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon them.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Recursion Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share amounts)
March 31, December 31,
2023 2022
Assets
Current assets
Cash and cash equivalents $ 473,145 $ 549,912
Restricted cash 1,311 1,280
Other receivables 2,057 2,753
Other current assets 15,612 15,869
Total current assets 492,125 569,814
Restricted cash, non-current 7,920 7,920
Property and equipment, net 90,004 88,192
Operating lease right-of-use assets 35,116 33,255
Intangible assets, net 1,318 1,306
Goodwill 801 801
Other assets, non-current 82 —
Total assets $ 627,366 $ 701,288
Liabilities and stockholders’ equity
Current liabilities
Accounts payable $ 4,247 $ 4,586
Accrued expenses and other liabilities 25,041 32,904
Unearned revenue 57,761 56,726
Notes payable 661 97
Operating lease liabilities 4,440 5,952
Total current liabilities 92,150 100,265
Unearned revenue, non-current 57,091 70,261
Notes payable, non-current 1,179 536
Operating lease liabilities, non-current 46,771 44,420
Total liabilities 197,191 215,482
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.00001 par value; 2,000,000,000 shares (Class A 1,989,032,117 and Class B 10,967,883) authorized as of March 31, 2023 and December 31, 2022; 192,230,854 shares (Class A 184,514,645 and Class B 7,716,209) and 191,022,864 shares (Class A 183,209,655 and Class B 7,813,209) issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 2 2
Additional paid-in capital 1,135,056 1,125,360
Accumulated deficit (704,883) (639,556)
Total stockholders’ equity 430,175 485,806
Total liabilities and stockholders’ equity $ 627,366 $ 701,288


	June 30,		December 31,
	2023		2022
Assets
Current assets
Cash and cash equivalents	$	405,870	$	549,912
Restricted cash	3,325		1,280
Other receivables	3,051		2,753
Other current assets	18,774		15,869
Total current assets	431,020		569,814

Restricted cash, non-current	7,629		7,920
Property and equipment, net	89,768		88,192
Operating lease right-of-use assets	34,899		33,255
Intangible assets, net	42,757		1,306
Goodwill	60,516		801
Other assets, non-current	110		—
Total assets	$	666,699	$	701,288

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	2,086	$	4,586
Accrued expenses and other liabilities	32,873		32,904
Unearned revenue	73,105		56,726
Notes payable	676		97
Operating lease liabilities	5,219		5,952
Total current liabilities	113,959		100,265

Unearned revenue, non-current	32,436		70,261
Notes payable, non-current	1,155		536
Operating lease liabilities, non-current	45,850		44,420
Deferred tax liabilities	4,336		—
Total liabilities	197,736		215,482

Commitments and contingencies (Note 7)

Stockholders’ equity
Common stock, $0.00001 par value; 2,000,000,000 shares (Class A 1,989,032,117 and Class B 10,967,883) authorized as of June 30, 2023 and December 31, 2022; 206,737,332 shares (Class A 195,051,012, Class B 7,679,871 and Exchangeable 4,006,449) and 191,022,864 shares (Class A 183,209,655, Class B 7,813,209 and Exchangeable 0) issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	2		2
Additional paid-in capital	1,250,570		1,125,360
Accumulated deficit	(781,609)		(639,556)
Total stockholders’ equity	468,963		485,806

Total liabilities and stockholders’ equity	$	666,699	$	701,288

See the accompanying notes to these condensed consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share amounts)

Three months ended March 31,
2023 2022
Revenue
Operating revenue $ 12,134 $ 5,299
Grant revenue — 34
Total revenue 12,134 5,333
Operating costs and expenses
Cost of revenue 12,448 7,799
Research and development 46,677 32,441
General and administrative 22,874 21,074
Total operating costs and expenses 81,999 61,314
Loss from operations (69,865) (55,981)
Other income, net 4,538 2
Net loss $ (65,327) $ (55,979)
Per share data
Net loss per share of Class A and B common stock, basic and diluted $ (0.34) $ (0.33)
Weighted-average shares (Class A and B) outstanding, basic and diluted 191,618,238 170,690,392


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenue
Operating revenue	$	11,016	$	7,653	$	23,150	$	12,952
Grant revenue	1		21		1		55
Total revenue	11,017		7,674		23,151		13,007

Operating costs and expenses
Cost of revenue	9,382		14,227		21,829		22,026
Research and development	55,060		38,439		101,737		70,880
General and administrative	28,290		21,199		51,165		42,273
Total operating costs and expenses	92,732		73,865		174,731		135,179

Loss from operations	(81,715)		(66,191)		(151,580)		(122,172)
Other income, net	4,989		631		9,527		633
Net loss	$	(76,726)	$	(65,560)	$	(142,053)	$	(121,539)

Per share data
Net loss per share of Class A, B and Exchangeable common stock, basic and diluted	$	(0.38)	$	(0.38)	$	(0.71)	$	(0.71)
Weighted-average shares (Class A, B and Exchangeable) outstanding, basic and diluted	201,415,475		172,212,390		198,957,804		171,455,595

See the accompanying notes to these condensed consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)

Three months ended March 31,
2023 2022
Net loss $ (65,327) $ (55,979)
Unrealized loss on investments — (222)
Net realized loss on investments reclassified into net loss — 39
Other comprehensive loss — (183)
Comprehensive loss $ (65,327) $ (56,162)


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Net loss	$	(76,726)	$	(65,560)	$	(142,053)	$	(121,539)

Unrealized gain (loss) on investments	—		112		—		(110)
Net realized loss on investments reclassified into net loss	—		—		—		39
Other comprehensive income (loss)	—		112		—		(71)
Comprehensive loss	$	(76,726)	$	(65,448)	$	(142,053)	$	(121,610)

See the accompanying notes to these condensed consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ (unaudited)

(in thousands, except share amounts)


		Common Stock (Class A and B)			Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity			Common Stock			Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity
		Shares	Amount											(Class A, B and Exchangeable)
Balance as of December 31, 2022		191,022,864	$	2	$	1,125,360	$	(639,556)	$	—	$	485,806
														Shares	Amount		Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity
Balance as of March 31, 2023													Balance as of March 31, 2023	192,230,854	$	2
Net loss	Net loss	—	—		—		(65,327)		—		(65,327)		Net loss	—	—
Stock option exercises and other	Stock option exercises and other	1,207,990	—		882		—		—		882		Stock option exercises and other	2,394,131	—		4,912		—		—		4,912
Stock-based compensation	Stock-based compensation	—	—		8,814		—		—		8,814		Stock-based compensation	—	—		11,811		—		—		11,811
Balance as of March 31, 2023		192,230,854	$	2	$	1,135,056	$	(704,883)	$	—	$	430,175
Class A shares and stock options issued for acquisitions													Class A shares and stock options issued for acquisitions	6,878,653	—		68,499		—		—		68,499
Exchangeable shares issued for acquisitions													Exchangeable shares issued for acquisitions	5,233,694	—		30,292		—		—		30,292
Class A shares issued for exchangeable shares													Class A shares issued for exchangeable shares	1,227,245	—		—		—		—		—
Exchangeable shares redeemed													Exchangeable shares redeemed	(1,227,245)	—		—		—		—		—
Balance as of June 30, 2023													Balance as of June 30, 2023	206,737,332	$	2	$	1,250,570	$	(781,609)	$	—	$	468,963


		Common Stock (Class A and B)			Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity			Common Stock			Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity
		Shares	Amount											(Class A, B and Exchangeable)
Balance as of December 31, 2021		170,272,462	$	2	$	943,142	$	(400,080)	$	(126)	$	542,938
														Shares	Amount		Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity
Balance as of December 31, 2022													Balance as of December 31, 2022	191,022,864	$	2
Net loss	Net loss	—	—		—		(55,979)		—		(55,979)		Net loss	—	—
Other comprehensive loss		—	—		—		—		(183)		(183)
Stock option exercises and other	Stock option exercises and other	805,626	—		1,158		—		—		1,158		Stock option exercises and other	3,602,121	—		5,794		—		—		5,794
Stock-based compensation	Stock-based compensation	—	—		5,632		—		—		5,632		Stock-based compensation	—	—		20,625		—		—		20,625
Balance as of March 31, 2022		171,078,088	$	2	$	949,932	$	(456,059)	$	(309)	$	493,566
Class A shares and stock options issued for acquisitions													Class A shares and stock options issued for acquisitions	6,878,653	—		68,499		—		—		68,499
Exchangeable shares issued for acquisitions													Exchangeable shares issued for acquisitions	5,233,694	—		30,292		—		—		30,292
Class A shares issued for exchangeable shares													Class A shares issued for exchangeable shares	1,227,245	—		—		—		—		—
Exchangeable shares redeemed													Exchangeable shares redeemed	(1,227,245)	—		—		—		—		—
Balance as of June 30, 2023													Balance as of June 30, 2023	206,737,332	$	2	$	1,250,570	$	(781,609)	$	—	$	468,963

See the accompanying notes to these condensed consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands, except share amounts)


	Common Stock			Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity
	(Class A, B and Exchangeable)
	Shares	Amount
Balance as of March 31, 2022	171,078,088	$	2	$	949,932	$	(456,059)	$	(309)	$	493,566
Net loss	—	—		—		(65,560)		—		(65,560)
Other comprehensive gain	—	—		—		—		112		112
Stock option exercises and other	1,737,321	—		3,787		—		—		3,787
Stock-based compensation	—	—		5,674		—		—		5,674
Balance as of June 30, 2022	172,815,409	$	2	$	959,393	$	(521,619)	$	(197)	$	437,579


	Common Stock			Additional Paid-in-Capital		Accumulated Deficit		Accumulated other comprehensive loss		Stockholders’ Equity
	(Class A, B and Exchangeable)
	Shares	Amount
Balance as of December 31, 2021	170,272,462	$	2	$	943,142	$	(400,080)	$	(126)	$	542,938
Net loss	—	—		—		(121,539)		—		(121,539)
Other comprehensive loss	—	—		—		—		(71)		(71)
Stock option exercises and other	2,542,947	—		4,944		—		—		4,944
Stock-based compensation	—	—		11,307		—		—		11,307
Balance as of June 30, 2022	172,815,409	$	2	$	959,393	$	(521,619)	$	(197)	$	437,579

See the accompanying notes to these condensed consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)
Three months ended March 31,
2023 2022
Cash flows from operating activities
Net loss $ (65,327) $ (55,979)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 3,728 2,767
Stock-based compensation 8,814 5,632
Fixed asset impairment 1,169 —
Lease expense 1,988 1,742
Other, net 716 402
Changes in operating assets and liabilities:
Other receivables and assets (317) (7,551)
Unearned revenue (12,134) 144,701
Accounts payable (339) 1,344
Accrued development expense 676 1,413
Accrued expenses and other current liabilities (9,846) (15,903)
Operating lease liabilities (2,444) (1,265)
Other, net — 85
Net cash provided by (used in) operating activities (73,316) 77,388
Cash flows from investing activities
Purchases of property and equipment (5,175) (4,342)
Purchase of an intangible asset (165) —
Sales and maturities of investments — 147,646
Net cash provided by (used in) investing activities (5,340) 143,304
Cash flows from financing activities
Proceeds from equity incentive plans 1,946 2,106
Repayment of long-term debt (24) (22)
Net cash provided by financing activities 1,922 2,084
Effect of exchange rate changes on cash, cash equivalents and restricted cash (2) —
Net change in cash, cash equivalents and restricted cash (76,736) 222,776
Cash, cash equivalents and restricted cash, beginning of period 559,112 295,349
Cash, cash equivalents and restricted cash, end of period $ 482,376 $ 518,125
Supplemental schedule of non-cash investing and financing activities
Accrued property and equipment $ 244 $ 4,328
Right-of-use asset additions and modifications 3,520 1,548
Financed equipment purchase 1,214 —
Supplemental schedule of cash flow information
Cash paid for operating leases $ 2,444 $ 1,265
Cash paid for interest 13 14


	Six months ended June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(142,053)	$	(121,539)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	9,271		5,553
Stock-based compensation	20,625		11,307
Fixed asset impairment	1,169		2,806
Lease expense	3,991		3,757
Other, net	739		594
Changes in operating assets and liabilities:
Other receivables and assets	(1,131)		(9,351)
Unearned revenue	(23,200)		137,048
Accounts payable	(2,856)		358
Accrued development expense	1,747		2,877
Accrued expenses and other current liabilities	(3,643)		(14,833)
Operating lease liabilities	(5,442)		(2,812)
Net cash provided by (used in) operating activities	(140,783)		15,765

Cash flows from investing activities
Net cash and restricted cash acquired in the acquisition of a business	1,915		—
Purchases of property and equipment	(9,143)		(20,817)
Purchase of an intangible asset	(165)		—
Sales and maturities of investments	—		169,061
Net cash provided by (used in) investing activities	(7,393)		148,244

Cash flows from financing activities
Proceeds from equity incentive plans	5,757		4,796
Repayment of long-term debt	(48)		(44)
Net cash provided by financing activities	5,709		4,752

Effect of exchange rate changes on cash, cash equivalents and restricted cash	179		—

Net change in cash, cash equivalents and restricted cash	(142,288)		168,761
Cash, cash equivalents and restricted cash, beginning of period	559,112		295,349
Cash, cash equivalents and restricted cash, end of period	$	416,824	$	464,110

Supplemental schedule of non-cash investing and financing activities
Issuance of shares for the acquisitions of businesses	$	98,791	$	—
Accrued property and equipment	6		4,174
Right-of-use asset additions and modifications	4,160		3,990
Financed equipment purchase	1,214		—

Supplemental schedule of cash flow information
Cash paid for operating leases	$	5,442	$	2,812
Cash paid for interest	25		28

See the accompanying notes to these condensed consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1. Description of the Business

Recursion Pharmaceuticals, Inc. (Recursion, the Company, we or our) was originally formed as a limited liability

company on November 4, 2013 under the name Recursion Pharmaceuticals, LLC. In September 2016, the Company converted to a Delaware corporation and changed its name to Recursion Pharmaceuticals, Inc.

Recursion is a clinical stage TechBio company decoding biology to industrialize drug discovery. The Recursion Operating System (OS), a platform built across diverse technologies, enables the Company to map and navigate trillions of biological and chemical relationships within the Recursion Data Universe, one of the world’s largest proprietary biological and chemical datasets. The Company integrates physical and digital components as iterative loops of atoms and bits scaling wet lab biology and chemistry data organized into virtuous cycles with computational tools to rapidly translate in silico hypotheses into validated insights and novel chemistry.

As of ~~March 31,~~June 30, 2023, the Company had an accumulated deficit of ~~$704.9~~$781.6 million. The Company expects to incur substantial operating losses in future periods and will require additional capital to advance its drug candidates. The Company does not expect to generate significant revenue until the Company successfully completes significant drug development milestones with its subsidiaries or in collaboration with third parties, which the Company expects will take a number of years. In order to commercialize its drug candidates, the Company or its partners need to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as the uncertainty of clinical trial outcomes, uncertainty of additional funding and a history of operating losses.

The Company has funded its operations to date primarily through the issuance of convertible preferred stock and the issuance of Class A common stock (see Note 7,8, “Common Stock” for additional details). Additionally, we have received payments of $180.0 million from our strategic partnerships (see Note 8,9, “Collaborative Development Contracts” for additional details). Recursion will likely be required to raise additional capital. As of ~~March 31,~~June 30, 2023, the Company did not have any unconditional outstanding commitments for additional funding.Subsequent to June 30, 2023, Recursion entered into a private placement with NVIDIA Corporation (see Note 14, “Subsequent Events” for additional details). If the Company is unable to access additional funds when needed, it may not be able to continue the development of its products or the Company could be required to delay, scale back or abandon some or all of its development programs and other operations. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, could materially harm its business, financial condition and results of operations.

Recursion believes that the Company’s existing cash and cash equivalents will be sufficient to fund the Company’s operating expenses and capital expenditures for at least the next 12 months.

Note 2. Basis of Presentation

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended December 31, 2022.

It is management’s opinion that these condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial statements. ~~Revenues~~Revenue and net loss for any interim period are not necessarily indicative of future or annual results.

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Recent Accounting Pronouncements

New accounting pronouncements are routinely issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by Recursion as of the specified effective date. The Company does not expect

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the impact of recently issued standards that are not yet effective will have a material impact on its condensed consolidated financial statements and disclosures.

Note 3. Supplemental Financial Information

Property and Equipment


		March 31,		December 31,			June 30,		December 31,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Lab equipment	Lab equipment	$	53,323	$	47,524	Lab equipment	$	58,436	$	47,524
Leasehold improvements	Leasehold improvements	42,958		41,872		Leasehold improvements	46,714		41,872
Office equipment	Office equipment	21,839		20,164		Office equipment	22,006		20,164
Construction in progress	Construction in progress	5,518		8,747		Construction in progress	212		8,747
Property and equipment, gross	Property and equipment, gross	123,638		118,307		Property and equipment, gross	127,368		118,307
Less: Accumulated depreciation	Less: Accumulated depreciation	(33,634)		(30,115)		Less: Accumulated depreciation	(37,600)		(30,115)
Property and equipment, net	Property and equipment, net	$	90,004	$	88,192	Property and equipment, net	$	89,768	$	88,192

Depreciation expense on property and equipment was ~~$3.6~~$4.0 million and ~~$2.7~~$7.5 million during the three and six months ended ~~March 31,~~June 30, 2023,respectively, and $2.7 million and $5.4 million during the three and six months ended June 30, 2022, ~~respectively.~~respectively. The Company recorded an impairment of $1.2 million and $2.8 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, respectively, related to a construction ~~project~~projects for leasehold improvements as the Company no longer intended to use them. The ~~impairment was~~impairments were recorded in “General and Administrative” in the Condensed Consolidated Statements of Operations.

For the ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company initiated and completed a project to upgrade the BioHive supercomputer for $1.7 million. The supercomputer was classified as office equipment in the above table. The increase in lab equipment from the prior year was driven by the completion of several labs in the headquarters expansion. The majority of the balance was included in construction in progress in the prior year. ~~The construction in progress balance primarily relates to lab equipment under construction.~~

Accrued Expenses and Other Liabilities


		March 31,		December 31,			June 30,		December 31,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Accrued compensation	Accrued compensation	$	10,240	$	20,433	Accrued compensation	$	15,851	$	20,433
Accrued development expenses	Accrued development expenses	4,048		3,372		Accrued development expenses	5,119		3,372
Accrued early discovery expenses	Accrued early discovery expenses	3,227		3,192		Accrued early discovery expenses	3,009		3,192
Materials received not invoiced	Materials received not invoiced	4,036		2,028		Materials received not invoiced	2,304		2,028
Accrued other expenses	Accrued other expenses	3,490		3,879		Accrued other expenses	6,590		3,879
Accrued expense and other liabilities	Accrued expense and other liabilities	$	25,041	$	32,904	Accrued expense and other liabilities	$	32,873	$	32,904

Notes Payable

In January 2023, the Company entered into a financing agreement for borrowing $1.9 million as part of the supercomputer upgrade project. The debt will be repaid over a three-year period at a 7% interest rate. As of ~~March 31,~~June 30, 2023, the outstanding balance was $1.2 million.

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In 2018, the Company borrowed $992 thousand, which was available as part of a lease agreement for use on tenant improvements. ~~Under the terms of the lease, the~~The note will be repaid over a 10-year period at an 8% interest rate. As of ~~March 31,~~June 30, 2023, the outstanding balance was ~~$609~~$585 thousand.

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Interest Income, ~~Net~~net


		Three months ended March 31,					Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022		2023		2022
Interest income	Interest income	$	4,660	$	87	Interest income	$	4,957	$	652	$	9,617	$	739
Interest expense	Interest expense	(19)		(14)		Interest expense	(26)		(14)		(45)		(28)
Interest income, net	Interest income, net	$	4,641	$	73	Interest income, net	$	4,931	$	638	$	9,572	$	711

For the three and six months ended ~~March 31,~~June 30, 2023 and 2022, interest income primarily related to earnings on cash and cash equivalents in money market funds. Interest income was included in “Other income, net” on the Condensed Consolidated Statements of Operations.

Note 4. Acquisitions

Results of operations of acquired companies are included in the Recursion results of operations as of the respective acquisition dates. The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of acquisition. Any purchase price in excess of these net assets is recorded as goodwill. The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.

Valence Discovery Inc.

On May 16, 2023, Recursion acquired all of the outstanding equity interests in Valence Discovery Inc. (Valence), a privately-held machine learning (ML) / artificial intelligence (AI) digital chemistry company. The integration of Valence’s AI-based chemistry engine into Recursion’s operating system will allow Recursion to expand its technology-enabled drug discovery process. This will accelerate Recursion’s digital chemistry capabilities and its drug discovery process.

The acquisition of Valence was accounted for as a business combination using the acquisition method of accounting. The aggregate upfront consideration for the acquisition of Valence consisted of 2,168,020 shares of Recursion Class A common stock, 5,904,827 shares of a subsidiary of Recursion, exchangeable for shares of Recursion’s Class A common stock, 792,011 shares issued upon exercise of stock options held by Valence equity award holders and deferred liabilities for additional consideration. An immaterial amount of the aforementioned share consideration had not yet been issued as of June 30, 2023. Additionally, the final number of shares to be issued had not yet been finalized and so are subject to change.

The following table summarizes total consideration:


(in thousands)
Fair value of Recursion Class A common stock	$	11,122
Fair value of Exchangeable stock	30,292
Fair value of equity awards issued to Valance equity award holders	1,933
Deferred liabilities for additional consideration	358
Total consideration	$	43,705

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The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


(in thousands)
Cash	$	4,235
Other receivables	485
Intangible asset - technology	15,000
Accounts payable and accrued liabilities	(494)
Deferred income taxes	(2,892)
Other long-term liabilities	(378)
Total identifiable net assets	$	15,956
Goodwill	27,749
Total assets acquired and liabilities assumed	$	43,705

The intangible asset related to Valence’s ML and AI digital chemistry platform. The estimated fair value of the intangible asset was determined using a cost approach. This valuation technique provides the fair value of an asset based on estimates of the total costs to develop the technology. Significant inputs used to determine the total cost includes the length of time required and service hours performed by Company employees. The technology intangible asset is being amortized on a straight-line basis over its four-year useful life.

Goodwill was calculated as the excess of the consideration transferred over the net assets recognized. The goodwill recognized represents the assembled workforce and expected synergies, including the ability to: (i) leverage Valence’s digital chemistry platform across Recursion’s business; (ii) leverage Valence’s ML and AI capabilities; (iii) integrate Recursion’s data and operating system into Valence’s platform; and (iv) accelerate Recursion’s pipeline. Goodwill was also impacted by the establishment of a deferred tax liability for the acquired identifiable intangible assets which have no tax basis. The goodwill is not deductible for tax purposes.

Recursion’s condensed consolidated statement of operations included no net revenue and an immaterial operating loss associated with Valence’s operations. As the acquisition occurred in May 2023, the Company is still finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. The primary areas subject to change relate to the valuation of the intangible asset, other receivables and deferred taxes. To assist management in the allocation, the Company engaged external specialists. The Company will finalize the amounts recognized as the information necessary to complete the analysis is obtained. The Company expects to finalize these amounts as soon as possible but no later than one year from the acquisition date.

Cyclica Inc.

On May 25, 2023, Recursion acquired all of the outstanding equity interests in Cyclica Inc. (Cyclica), a privately-held Company that has built a digital chemistry software suite which enables mechanism of action deconvolution and generative chemistry suggestions based on desired targets. Cyclica’s platform is expected to enhance the optimization of Recursion’s compounds for efficacy while minimizing liabilities through generative machine learning approaches.

The acquisition of Cyclica was accounted for as a business combination using the acquisition method of accounting. The aggregate upfront consideration for the acquisition of Cyclica consisted of 5,706,089 shares of Recursion Class A common stock, cash payments, 1,000,873 shares issuable upon exercise of stock options held by Cyclica equity award holders and deferred liabilities for additional consideration. Approximately 753 thousand of the aforementioned shares of Class A common stock consideration had not yet been issued as of June 30, 2023.

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The following table summarizes total consideration:


(in thousands)
Fair value of Recursion Class A common stock	$	49,415
Cash	6,434
Fair value of equity awards issued to Cyclica equity award holders	6,030
Deferred liabilities for additional consideration	341
Total consideration	$	62,220

The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


(in thousands)
Cash	$	2,429
Restricted cash	1,685
Other receivables	737
Investments	1,000
Other current assets	385
Intangible assets - technology	28,000
Accounts payable and accrued liabilities	(579)
Unearned revenue	(1,754)
Deferred income taxes	(1,443)
Other liabilities, current	(66)
Other liabilities, non-current	(139)
Total identifiable net assets	$	30,255
Goodwill	31,965
Total assets acquired and liabilities assumed	$	62,220

The intangible assets are related to Cyclica’s digital chemistry platforms. The estimated fair value of the intangible assets were determined using a cost approach. This valuation technique provides the fair value of an asset based on estimates of the total costs to develop the technology. Significant inputs used to determine the total cost includes the length of time required and service hours performed by Company employees. The technology intangible assets are being amortized on a straight-line basis over their three-year useful lives.

Goodwill was calculated as the excess of the consideration transferred over the net assets recognized. The goodwill recognized represents the assembled workforce and expected synergies, including the ability to: (i) leverage Cyclica’s digital chemistry platform across Recursion’s business; (ii) leverage Cyclica’s ML and AI capabilities; (iii) integrate Recursion’s data and operating system into Cyclica’s platform; and (iv) accelerate Recursion’s pipeline. Goodwill was also impacted by the establishment of a deferred tax liability for the acquired identifiable intangible assets. The goodwill is not deductible for tax purposes.

Recursion’s condensed consolidated statement of operations included immaterial net revenue and an immaterial operating loss associated with Cyclica’s operations. As the acquisition occurred in May 2023, the Company is still finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. The primary areas subject to change relate to the valuation of the intangible assets, other receivables and deferred taxes. To assist management in the allocation, the Company engaged external specialists. The Company will finalize the amounts recognized as the information necessary to complete the analysis is obtained. The Company expects to finalize these amounts as soon as possible but no later than one year from the acquisition date.

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Pro forma financial information

The following table presents the unaudited pro forma combined results of operations of Recursion, Valence and Cyclica as if the acquisitions had occurred on January 1, 2022:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Net revenue	$	11,258	$	7,837	$	23,437	$	13,463
Net loss	(79,586)		(71,447)		(153,037)		(138,213)

The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of Recursion, Valence and Cyclica. In order to reflect the occurrence of the acquisition on January 1, 2022 as required, the unaudited pro forma financial information includes adjustments to reflect the incremental amortization expense to be incurred based on the fair values of the identifiable intangible assets acquired, the additional stock compensation expense associated with the issuance of equity compensation related to the acquisitions and the reclassification of acquisition costs incurred during the six months ended June 30, 2023 to the six months ended June 30, 2022. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on January 1, 2022. In addition, the unaudited pro forma financial information is not a projection of the future results of operations of the combined company nor does it reflect the expected realization of any cost savings or synergies associated with the acquisition.

Note 5. Leases

The Company has entered into various long-term real estate leases primarily related to office, research and development and operating activities. The Company’s leases have remaining terms from under 1 year to 109 years and some of those leases include options that provide Recursion with the ability to extend the lease term for five years. The options are included in the lease term when it is reasonably certain that the option will be exercised.

For the ~~three~~six months ended ~~March 31,~~June 30, 2023,, Recursion entered into a lease ~~modification~~modifications resulting in an increase to the ~~related~~ right-of-use asset and lease liability of ~~$3.5~~$3.4 million. The ~~modification~~modifications had no impact to the Condensed Consolidated Statements of Operations.

In May 2022, the Company entered into a lease agreement for laboratory and office space in Toronto, Ontario with approximately ~~26,320~~28,110 square feet (the “Toronto Lease”). This lease was separated into multiple lease components based on the intended use of the portions of the space. For some of those components, the right of use began May 2022 when the control of the assets ~~were~~was obtained. The right of use ~~asset~~ for the remaining ~~lease~~ component ~~is expected to begin in~~began June 2023 when the ~~second quarter~~control of ~~2023~~.the asset was obtained. The Toronto Lease terms for each component are ten years with a five-year renewal option. The Toronto Lease includes provisions for escalating rent payments and a tenant improvement allowance of up to ~~$1.5~~$1.6 million. Total fixed payments are expected to be approximately ~~$10.8~~$11.1 million with additional variable expenses, including building expenses.

See Note ~~6, “Commitments~~7, “Commitments and Contingencies” for information on the Industry lease.

The components of the lease cost are as follows:


		Three months ended March 31,					Three months ended June 30,				Six months ended June 30, 2023
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022		2023		2022
Operating lease cost	Operating lease cost	$	1,998	$	1,827	Operating lease cost	$	2,020	$	1,957	$	4,018	$	3,784
Variable lease cost	Variable lease cost	657		204		Variable lease cost	499		465		1,157		669
Short-term lease cost						Short-term lease cost	41		—		41		—
Lease cost	Lease cost	$	2,655	$	2,031	Lease cost	$	2,560	$	2,422	$	5,216	$	4,453

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Lease term and discount rates as of ~~March 31,~~June 30, 2023 were:


(in thousands)	~~March 31,~~June 30, 2023
Operating leases
Weighted-average remaining lease term (years)	~~7.3~~7.2
Weighted-average discount rate	~~7.6~~7.8	%

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Maturities of operating lease liabilities as of ~~March 31,~~June 30, 2023 were:


(in thousands)	(in thousands)	March 31, 2023		(in thousands)	Operating leases
Remainder of 2023	Remainder of 2023	$	5,906	Remainder of 2023	$	4,258
2024	2024	9,561		2024	9,934
2025	2025	9,745		2025	10,155
2026	2026	9,996		2026	10,349
2027	2027	10,254		2027	10,593
Thereafter	Thereafter	24,081		Thereafter	24,249
Total lease payments	Total lease payments	69,543		Total lease payments	69,538
Less: imputed interest	Less: imputed interest	(18,332)		Less: imputed interest	(18,469)
Present value of lease liabilities	Present value of lease liabilities	$	51,211	Present value of lease liabilities	$	51,069

Note 5.6. Goodwill and Intangible Assets

Goodwill

~~There were no~~The following table summarizes the changes toin the carrying amount of goodwill:


(in thousands)
Balance as of December 31, 2022	$	801
Additions from acquisitions	59,715
Balance as of June 30, 2023	$	60,516

The additions to goodwill relate to the acquisition of Cyclica and Valence during the three months ended ~~March 31, 2023 and~~ ~~2022.~~June 30, 2023. See Note 4, “Acquisitions” for additional details. No goodwill impairment was recorded during the three and six months ended ~~March 31,~~June 30, 2023 and 2022.

Intangible Assets, Net

The following table summarizes intangible assets:


		March 31, 2023						December 31, 2022							June 30, 2023						December 31, 2022
(in thousands)	(in thousands)	Gross carrying amount		Accumulated Amortization		Net carrying amount		Gross carrying amount		Accumulated Amortization		Net carrying amount		(in thousands)	Gross carrying amount		Accumulated Amortization		Net carrying amount		Gross carrying amount		Accumulated Amortization		Net carrying amount
Definite-lived intangible asset		$	1,376	$	(962)	$	414	$	1,211	$	(809)	$	402
Definite-lived intangible assets														Definite-lived intangible assets	$	44,376	$	(2,523)	$	41,853	$	1,211	$	(809)	$	402
Indefinite-lived intangible asset	Indefinite-lived intangible asset	904		—		904		904		—		904		Indefinite-lived intangible asset	904		—		904		904		—		904
Intangible assets, net	Intangible assets, net	$	2,280	$	(962)	$	1,318	$	2,115	$	(809)	$	1,306	Intangible assets, net	$	45,280	$	(2,523)	$	42,757	$	2,115	$	(809)	$	1,306

The definite-lived intangible assets balance increased during the three and six months ended June 30, 2023 due to the Company’s acquisitions. See Note 4, “Acquisitions” for additional details on the intangible assets acquired.

Amortization expense was ~~$152~~$1.6 million and $1.7 million during the three and six months ended June 30, 2023, respectively. Amortization expense was $76 thousand and ~~$76~~$152 thousand during the three and six months ended ~~March 31, 2023 and~~

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June 30, 2022, respectively. Amortization expense was included in research and development in the Condensed Consolidated Statements of Operations.

The indefinite-lived intangible asset represents the Recursion domain name that the Company purchased. No indefinite-lived intangible asset impairment charges were recorded during the three and six months ended ~~March 31,~~June 30, 2023 and 2022.

Note 6.7. Commitments and Contingencies

Contract Obligations

In the normal course of business, the Company enters into contracts with clinical research organizations, drug manufacturers and other vendors for preclinical and clinical research studies, research and development supplies and other services and products for operating purposes. These contracts generally provide for termination on notice and are cancellable contracts.

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The Company purchases directors and officers liability insurance coverage that provides for reimbursement to the Company for covered obligations and this is intended to limit the Company’s exposure and enable it to recover a portion of any amounts it pays under its

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indemnification obligations. The Company had no liabilities recorded for these agreements as of ~~March 31,~~June 30, 2023 and December 31, 2022, as no amounts were probable.

Employee Agreements

The Company has signed employment agreements with certain key employees pursuant to which, if their employment is terminated following a change of control of the Company, the employees are entitled to receive certain benefits, including accelerated vesting of equity incentives.

Legal Matters

In February 2021, the Company entered into a lease agreement for laboratory and office space (the Industry Lease) with Industry Office SLC, LLC (the landlord). ~~For the~~ ~~three months ended~~In March ~~31,~~ 2023, the Company ~~determined there were several issues related~~sent a letter to the ~~agreement including~~landlord detailing numerous construction delays and irregularities, deficiencies and deviations from applicable structural drawings and/or non-conforming conditions with applicable building codes. On June 23, 2023, the ~~assets being constructed and the timing of the project. The Company is in negotiations with the landlord. There are~~landlord filed a ~~wide-range of potential outcomes, some of which include: the termination of the lease contract or legal action. Several of the potential outcomes could require~~lawsuit against the Company (Industry Office SLC, LLC v. Recursion Pharmaceuticals, Inc., Case No. 230904627) in the Third District Court for Salt Lake County, State of Utah, alleging anticipatory repudiation and breach of contract. The Plaintiff seeks monetary damages and attorney’s fees. In July 2023, the Company filed a motion to ~~distribute a payment to the landlord.~~dismiss. The Company is unable to estimate the possible ~~payment~~damages or range of ~~payments.~~ damages associated with the Landlord’s complaint. As of ~~March 31,~~June 30, 2023, the Company had no liability recorded for these events as an unfavorable outcome was not probable.

Note 7.8. Common Stock

Each share of Class A common stock entitles the holder to one vote per share and each share of Class B common stock entitles the holder to 10 votes per share on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s Board of Directors. As of ~~March 31,~~June 30, 2023 and December 31, 2022, no dividends had been declared.

Valence Acquisition Exchangeable Shares

In May 2023, in connection with the acquisition of Valence, the Company entered into an agreement to issue up to 5,904,827 shares of Class A common stock (the “Exchange Shares”), that may be issued upon exchange, retraction or redemption of exchangeable shares of 14998685 Canada Inc., a corporation governed by the laws of Canada and an indirect wholly-owned subsidiary of Recursion. Each exchangeable share of a subsidiary of Recursion entitles the holder to exchange those shares on a one-for-one basis for Recursion’s Class A common stock. The shares are entitled to receive dividends economically equivalent to dividends declared by Recursion, are non-voting and are subject to customary adjustments for stock splits or other reorganizations. In addition, the Company may

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require all outstanding exchangeable shares to be exchanged into an equal number of Class A common stock upon the occurrence of certain events and at any time following the seventh anniversary of the closing of the Valence acquisition. The exchangeable shares are substantially the economic equivalent of the Class A shares. The Company’s calculation of weighted-average shares outstanding includes the exchangeable shares.

Private Placement

In October 2022, Recursion issued 15,336,734 shares of the Company’s Class A common stock (the Shares) at a purchase price of $9.80 per share in a private placement (the 2022 Private Placement) to qualified institutional buyers and institutional accredited investors (the Purchasers) for net proceeds of $143.7 million, after deducting fees and offering costs of $6.6 million.

Registration Rights ~~Agreement~~Agreements

Acquisitions

In May 2023, in connection with the acquisition of Valence, the Company entered into a Registration Agreement providing for the registration for resale of the shares of Class A common stock and Exchange Shares issued or issuable in such transaction. A registration statement on Form S-3ASR (File No. 333-272281) was filed to register the resale shares by the Sellers. The agreement must remain effective for a period of not less than three years.

In May 2023, in connection with the acquisition of Cylica, the Company entered into a Registration Agreement providing for the registration for resale of the shares of Class A common stock issued in such transaction. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed in June 2023 to register the resale shares by the Sellers. The agreement must be continuously effective until the earlier of the date that all shares have been sold thereunder or are able to be publicly sold by relying on Rule 144 of the Securities Act without registration.

Private Placement

In October 2022, in connection with the 2022 Private Placement, the Company entered into a Registration Rights Agreement ~~(the Agreement)~~ providing for the registration for resale of the ~~Shares.~~shares of Class A common stock issued in such transaction. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed in October 2022 to register the resale of the ~~Shares~~shares of Class A common stock by the Purchasers. The ~~Agreement~~agreement must remain effective until registrable securities covered by the ~~Agreement~~agreement have been publicly sold by the holders or all shares cease to be registrable securities. In the event the holders cannot sell their shares due to certain circumstances causing the ~~Agreement~~agreement to be ineffective, the Company must pay each holder of shares outstanding on the date and each month thereafter 1.0% of the aggregate purchase price paid by the holder without limit until the ~~Agreement~~agreement is cured. As of ~~March 31,~~June 30, 2023, there was no accrued liability related to this agreement, as it was not probable that a payment would be required.

Class A and B Common Shares Authorization

In April 2021, the Company’s Board of Directors authorized two classes of common stock, Class A and Class B. The rights of the holders of Class A and B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible at any time into one share of Class A common stock.

All Class B common stock is held by Christopher Gibson, Ph.D., the Company’s Chief Executive Officer (CEO), or his affiliates. As of ~~March 31,~~June 30, 2023, Dr. Gibson and his affiliates held outstanding shares of Class B common stock representing approximately ~~29%~~28% of the voting power of the Company’s outstanding shares. This voting power may increase over time as Dr. Gibson vests in and exercises equity awards outstanding. If all the exchangeable equity awards held by Dr. Gibson had been fully vested, exercised and exchanged for shares of Class B common stock as of ~~March 31,~~June 30, 2023, Dr. Gibson and his affiliates would hold approximately ~~32%~~31% of the voting power of the

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Company’s outstanding shares. As a result, Dr. Gibson will be able to significantly influence any action requiring the approval of Recursion stockholders, including the election of the Board of Directors; the adoption of amendments to the Company’s certificate of incorporation and bylaws; and the approval of any merger, consolidation, sale of all or substantially all of the Company’s assets, or other major corporate transaction.

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Note 8.9. Collaborative Development Contracts

Roche and Genentech

Description

In December 2021, Recursion entered into a collaboration and license agreement with Roche and Genentech (collectively referred to as Roche). Recursion is constructing, using the Company’s imaging technology and proprietary machine-learning algorithms, unique maps of the inferred relationships amongst perturbation phenotypes in a given cellular context with the goal to discover and develop therapeutic small molecule programs in a gastrointestinal cancer indication and in key areas of neuroscience. 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 multi-modal 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.

Pricing

In January 2022, Recursion received a $150.0 million non-refundable upfront payment from the Company’s collaboration with Roche. Recursion is eligible for additional milestone payments based on performance progress of the collaboration. 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 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 12 eligible Phenomaps, Roche’s associated exercise fee payments to Recursion could exceed $250.0 million. Under the collaboration, Roche may initiate up to 40 programs, each of which, if successfully developed and commercialized, could yield more than $300.0 million in development, commercialization and net revenue milestones for Recursion, as well as tiered royalties on net revenue.

Accounting

This agreement represents a transaction with a customer and therefore is accounted for in accordance with Accounting Standards Codification (ASC) 606. Recursion has determined that it has three performance obligations, one related to gastrointestinal cancer and two in neuroscience. These performance obligations are for performing research and development services for Roche to identify targets and medicines. The performance obligations also include potential licenses related to the intellectual property. The Company concluded that licenses within the contract are not distinct from the research and development services as they are interrelated due to the fact that the research and development services significantly impact the potential licenses. Any additional services are considered customer options and will be considered as separate contracts for accounting purposes.

The Company has determined the transaction price to be $150.0 million, comprised of the upfront payment. Recursion will fully constrain the amounts of variable consideration to be received from potential milestones considering the stage of development and the risks associated with the remaining development required to achieve each milestone. Recursion will re-evaluate the transaction price each reporting period.

The transaction price was allocated to the performance obligations based on the estimated relative stand-alone selling price of each performance obligation as determined using an expected cost plus margin approach. The Company recognizes revenue over time based on costs incurred relative to total expected costs to perform the research and development services. Recursion determined that this method provides a faithful depiction of the transfer of control to the customer. This method of recognizing revenue requires the Company to make estimates of total costs to provide the services required under the performance obligations. Significant inputs used to determine the total costs included the length of time required, service hours performed by Company employees and materials

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costs. A significant change in these estimates could have a material effect on the timing and amount of revenue recognized in future periods. Recursion has estimated the completion of the performance obligations by 2025.

Bayer AG

Description

In August 2020, the Company entered into a Research Collaboration and Option Agreement (the Bayer Agreement) with Bayer AG (Bayer) for a five-year term pursuant to which the Company and Bayer may initiate approximately 10 research projects related to fibrosis across multiple organ systems, including the lung, liver and heart. Under the agreement, the Company contributed compounds from its proprietary library and Bayer contributed compounds from its proprietary library and will contribute scientific expertise throughout the collaboration. Under each research project, the Company will work with Bayer to identify potential candidates for development. Under the agreement, Bayer has the first option for licenses to potential candidates.

Pricing

In October 2020, the Company received a $30.0 million non-refundable upfront payment. Each such license could potentially result in option exercise fees and development and commercial milestone payments payable to the Company, with an aggregate value of up to approximately $100.0 million (for an option on a lead series) or up to approximately $120.0 million (for an option on a development candidate), as well as tiered royalties for each such license, ranging from low- to mid-single digit percentages of sales, depending on commercial success.

Accounting

The Company determined that it has one performance obligation under the agreement, which is to perform research and development services for Bayer. Recursion determined the transaction price to be $30.0 million, comprised of the upfront payment. The Company allocated the amount to the single performance obligation. The Company is recognizing revenue over time by measuring progress towards completion of the performance obligation. This method of recognizing revenue requires the Company to make estimates of the total time to provide the services required under the performance obligation. A significant change in these estimates could have a material effect on the timing and amount of revenue recognized in future periods. Recursion has estimated the completion of the performance obligation inby 2023.

Additional Revenue Disclosures

Recursion recognized ~~$12.1~~$11.0 million and $23.1 million of operating revenue during the three and six months ended ~~March 31,~~June 30, 2023, respectively, primarily all of which was included in the unearned revenue balance as of December 31, 2022. Of the revenue recognized during the three and six months ended ~~March 31,~~June 30, 2022, $2.5 million ~~was~~and $5.0 million, respectively, were included in the unearned revenue balance as of December 31, 2021. Revenue recognized was from upfront payments received at the inception of the related contracts, which decreased the initial unearned revenue recognized. As of ~~March 31,~~June 30, 2023, the Company had ~~$7.2~~$7.1 million of costs incurred to fulfill a contract on its Condensed Consolidated Balance Sheet within “Other current assets.”

Unearned revenue was classified as short-term and long-term on the Condensed Consolidated Balance Sheets based on the Company’s estimate of revenue that will be recognized during the next twelve months.

Note 9.10. Stock-Based Compensation

In April 2021, the Board of Directors and the stockholders of the Company adopted the 2021 Equity Incentive Plan (the 2021 Plan). Under the 2021 Plan, 16,186,000 shares of Class A common stock were reserved. Additionally, shares were reserved for all outstanding awards under the previous 2016 Plan. The Company may grant stock options, restricted stock units (RSUs), stock appreciation rights, restricted stock awards and other forms of stock-based compensation.

As of ~~March 31,~~June 30, 2023, ~~20,652,818~~7,218,696 shares of Class A common stock were available for grant.

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The following table presents the classification of stock-based compensation expense for stock options and RSUs for employees and non-employees within the Condensed Consolidated Statements of Operations:


		Three months ended March 31,					Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022		2023		2022
Cost of revenue	Cost of revenue	$	1,011	$	348	Cost of revenue	$	1,415	$	480	$	2,426	$	828
Research and development	Research and development	2,683		1,635		Research and development	4,329		2,095		7,012		3,729
General and administrative	General and administrative	4,578		3,361		General and administrative	5,643		2,926		10,221		6,288
Total	Total	$	8,272	$	5,344	Total	$	11,387	$	5,501	$	19,659	$	10,845

Stock Options

Stock options are primarily granted to executive leaders at the Company, generally vest over four years and expire no later than 10 years from the date of grant.

Stock option activity during the ~~three~~six months ended ~~March 31,~~June 30, 2023 was as follows:


(in thousands except share data)	(in thousands except share data)	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value		(in thousands except share data)	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2022	Outstanding as of December 31, 2022	16,154,924	$	5.10	7.5	$	67,997	Outstanding as of December 31, 2022	16,154,924	$	5.10	7.5	$	67,997
Granted	Granted	2,757,614	8.55					Granted	5,083,268	6.23
Cancelled	Cancelled	(671,116)	7.41					Cancelled	(769,263)	8.50
Exercised	Exercised	(582,395)	2.03			3,527		Exercised	(1,974,737)	2.18			12,508
Outstanding as of March 31, 2023		17,659,027	$	5.65	7.6	$	50,807
Exercisable as of March 31, 2023		9,233,673	$	4.02	6.6	$	37,544
Outstanding as of June 30, 2023								Outstanding as of June 30, 2023	18,494,192	$	5.59	7.3	$	62,653
Exercisable as of June 30, 2023								Exercisable as of June 30, 2023	10,429,518	$	4.22	6.6	$	47,163

The fair value of options granted to employees is calculated on the grant date using the Black-Scholes option valuation model. The weighted-average grant-date fair values of stock options granted during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022 were ~~$5.32~~$5.55 and ~~$7.42,~~$6.57, respectively.

The following weighted-average assumptions were used to calculate the grant-date fair value of stock options:


		Three months ended March 31,					Six months ended June 30,
		2023		2022			2023		2022
Expected term (in years)	Expected term (in years)	6.3		6.2		Expected term (in years)	5.8		6.2
Expected volatility	Expected volatility	64	%	63	%	Expected volatility	66	%	63	%
Expected dividend yield	Expected dividend yield	—		—		Expected dividend yield	—		—
Risk-free interest rate	Risk-free interest rate	3.5	%	1.7	%	Risk-free interest rate	3.6	%	1.9	%

As of ~~March 31,~~June 30, 2023, ~~$37.1~~$37.6 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next three years.

RSUs

Equity awards granted to employees primarily consist of RSUs and generally vest over four years. The weighted-average grant-date fair value of RSUs generally is determined based on the number of units granted and the quoted price of Recursion’s common stock on the date of grant.

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The following table summarizes Recursion’s RSU activity during the ~~three~~six months ended ~~March 31,~~June 30, 2023:


		Stock units	Weighted-average grant date fair value			Stock units	Weighted-average grant date fair value
Outstanding as of December 31, 2022	Outstanding as of December 31, 2022	6,894,525	$	8.17	Outstanding as of December 31, 2022	6,894,525	$	8.17
Granted	Granted	1,916,806	9.05		Granted	13,306,404	8.68
Vested	Vested	(484,444)	8.58		Vested	(1,235,509)	4.70
Forfeited	Forfeited	(303,686)	8.31		Forfeited	(473,167)	8.08
Outstanding as of March 31, 2023		8,023,201	$	8.19
Outstanding as of June 30, 2023					Outstanding as of June 30, 2023	18,492,253	$	8.48

The fair market value of RSUs vested was ~~$5.2~~$9.8 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023. As of ~~March 31,~~June 30, 2023, ~~$59.8~~$150.1 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over approximately the next ~~three~~four years.

Note ~~10.~~11. Income Taxes

The Company did not record any U.S. income tax expense during the three and six months ended ~~March 31,~~June 30, 2023 and 2022. The Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. Foreign taxes were insignificant during the three and six months ended ~~March 31, 2023.~~June 30, 2023 and 2022.

Net operating losses (NOLs) and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to annual limitation due to ownership changes that have occurred previously or that could occur in the future under Section 382 of the Internal Revenue Code, as amended and similar state provisions. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of ownership has occurred or whether there have been multiple ownership changes since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of ownership, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company files income tax returns in the United States, Canada, United Kingdom, Utah, California and Massachusetts. The Company is not currently under examination in any of these jurisdictions. The Company is subject to income tax examinations on all federal returns since the ~~2019~~2016 tax return.

Note ~~11.~~12. Net Loss Per Share

For the three and six months ended ~~March 31,~~June 30, 2023 and 2022,, Recursion calculated net loss per share of Class A, ~~and~~ Class B and Exchangeable common stock using the two-class method. Basic net loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of stock options and other contingently issuable shares. For periods presented in which the Company reports a net loss, all potentially dilutive shares are anti-dilutive and as such are excluded from the calculation. For the three and six months ended ~~March 31,~~June 30, 2023 and 2022~~2022,~~ , the Company reported a net loss and therefore basic and diluted loss per share were the same.

The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A, ~~and~~ Class B and Exchangeable common stock are substantially identical, except with respect to voting. As a result, the undistributed

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earnings for each period are allocated based on the contractual participation rights of the Class A, ~~and~~ Class B and Exchangeable common shares as if the earnings for the period had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings

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are allocated on a proportionate basis and the resulting amount per share for Class A, ~~and~~ Class B and Exchangeable common stock was the same during the three and six months ended ~~March 31,~~June 30, 2023 and ~~2022~~.2022.

The following tables set forth the computation of basic and diluted net loss per share of Class A, ~~and~~ Class B and Exchangeable common stock:


		Three months ended									Three months ended						Six months ended
		March 31, 2023				March 31, 2022					June 30, 2023						June 30, 2023
(in thousands, except share amount)	(in thousands, except share amount)	Class A		Class B		Class A		Class B		(in thousands, except share amount)	Class A		Class B		Exchangeable		Class A		Class B		Exchangeable
Numerator:	Numerator:									Numerator:
Allocation of undistributed earnings	Allocation of undistributed earnings	$	(62,679)	$	(2,648)	$	(53,022)	$	(2,957)	Allocation of undistributed earnings	$	(71,945)	$	(2,932)	$	(1,849)	$	(133,067)	$	(5,520)	$	(3,466)
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	183,851,596		7,766,642		161,674,169		9,016,223		Weighted average common shares outstanding	188,863,596		7,697,294		4,854,585		186,371,442		7,731,777		4,854,585
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.34)	$	(0.34)	$	(0.33)	$	(0.33)	Net loss per share, basic and diluted	$	(0.38)	$	(0.38)	$	(0.38)	$	(0.71)	$	(0.71)	$	(0.71)


	Three months ended				Six months ended
	June 30, 2022				June 30, 2022
(in thousands, except share amounts)	Class A		Class B		Class A		Class B
Numerator:
Allocation of undistributed earnings	$	(62,479)	$	(3,081)	$	(115,476)	$	(6,063)
Denominator:
Weighted average common shares outstanding	164,116,317		8,096,073		162,901,989		8,553,606
Net loss per share, basic and diluted	$	(0.38)	$	(0.38)	$	(0.71)	$	(0.71)

The Company excluded the following potential common shares from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

Three months ended
March 31, 2023 March 31, 2022
Stock based compensation 8,534,876 12,089,621


	Three months ended June 30,		Six months ended June 30,
	2023	2022	2023	2022
Stock based compensation	7,719,063	8,229,000	7,996,333	10,481,602

Note ~~12.~~13. Fair Value Measurements

The fair value hierarchy consists of the following three levels:

•Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets that the company has the ability to access;

•Level 2 — Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations in which all significant inputs are observable in the market; and

•Level 3 — Valuations using significant inputs that are unobservable in the market and include the use of judgment by the company's management about the assumptions market participants would use in pricing the asset or liability.

The Company is required to maintain a cash balance in a collateralized account to secure the Company’s credit cards. Additionally, the Company holds restricted cash related to an outstanding letter of credit issued by J.P.

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Morgan, which was obtained to secure certain Company obligations relating to tenant improvements. Recursion also holds restricted cash related to a Bill and Melinda Gates Foundation grant.

The following tables summarize the Company’s assets and liabilities that are measured at fair value on a recurring basis:


				Basis of fair value measurement									Basis of fair value measurement
(in thousands)	(in thousands)	March 31, 2023		Level 1		Level 2		Level 3		(in thousands)	June 30, 2023		Level 1		Level 2		Level 3
Assets	Assets									Assets
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market funds	Money market funds	$	408,711	$	408,711	$	—	$	—	Money market funds	$	363,545	$	363,545	$	—	$	—
Restricted cash	Restricted cash	9,231		9,231		—		—		Restricted cash	10,954		10,954		—		—
Total assets	Total assets	$	417,942	$	417,942	$	—	$	—	Total assets	$	374,499	$	374,499	$	—	$	—

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			Basis of fair value measurement
(in thousands)	December 31, 2022		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	404,613	$	404,613	$	—	$	—
Restricted cash	9,200		9,200		—		—
Total assets	$	413,813	$	413,813	$	—	$	—

In addition to the financial instruments that are recognized at fair value on the Condensed Consolidated Balance Sheet, the Company has certain financial instruments that are recognized at amortized cost or some basis other than fair value. The carrying amount of these instruments are considered to be representative of their approximate fair values.

The following tables summarize the Company’s financial instruments that are not measured at fair value:


		Book values				Fair values					Book values				Fair values
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022		(in thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Liabilities	Liabilities									Liabilities
Current portion of notes payable	Current portion of notes payable	$	661	$	97	$	661	$	97	Current portion of notes payable	$	676	$	97	$	676	$	97
Notes payable, net of current portion	Notes payable, net of current portion	1,179		536		1,179		536		Notes payable, net of current portion	1,155		536		1,155		536
Total liabilities	Total liabilities	$	1,840	$	633	$	1,840	$	633	Total liabilities	$	1,831	$	633	$	1,831	$	633

Note ~~13.~~14. Subsequent Events

~~Cyclica Inc.~~Stock purchase agreement

On ~~May 8,~~July 11, 2023, Recursion ~~and its indirect wholly owned subsidiary (the “Cyclica Purchaser”)~~ entered into a ~~definitive agreement~~Stock Purchase Agreement for a private placement with NVIDIA Corporation (2023 Private Placement), pursuant to which ~~subject to applicable closing conditions,~~ the ~~Cyclica Purchaser will, among other things acquire all~~Company sold an aggregate of 7,706,363 shares of the ~~outstanding equity securities of Cyclica Inc. (“Cyclica”) to be paid in the form of shares of Recursion~~Company’s Class A common stock ~~(the “Class A Shares”), cash~~at a price of $6.49 per share for gross proceeds of approximately $50.0 million, before deducting expenses. As of the time of the closing of the 2023 Private Placement, the shares issued were not registered under the Securities Act of 1933, as amended. In connection with the 2023 Private Placement, the Company and the assumption by Recursion of outstanding options to purchase shares of Cyclica. Following the completion of the Cyclica Acquisition, Recursion would issue up to approximately 6.9 million Class A Shares in the Cyclica Acquisition (including Class A Shares issuable upon the exercise of options to purchase shares of Cyclica assumed by Recursion in the Cyclica Acquisition) based on a reference price of Class A Shares of $5.78 (the “Reference Price”), which is the volume weighted average price of Class A Shares over the 30 days ended May 5, 2023. The purchase price for the Cyclica Acquisition is subject to customary closing and post-closing purchase price adjustments, which may result in the issuance of additional or fewer Class A Shares. In addition, under the terms of the Cyclica Purchase Agreement, in certain circumstances Recursion may pay cash consideration to Cyclica shareholders in lieu of Class A Shares at a value based on the Reference Price, which may result in the issuance of fewer Class A Shares. Recursion expects to close the transaction in the second quarter of 2023.

Cyclica has built a digital chemistry software suite which enables mechanism of action deconvolution and generative chemistry suggestions based on desired targets. Cyclica’s platform is expected to enhance the optimization of Recursion’s compounds for efficacy while minimizing liabilities through generative machine learning approaches. Cyclica is located in Toronto Canada and the teams at Cyclica will be fully integrated into Recursion.

~~Valence Discovery Inc.~~

~~On May 8, 2023, Recursion and its indirect wholly owned subsidiary (the “Valence Purchaser”)~~purchasers entered into a ~~definitive agreement (the “Valence Purchase Agreement”) pursuant to which, subject to applicable closing conditions,~~Registration Rights Agreement providing for the ~~Valence Purchaser will, among other things, acquire all~~registration for resale of the ~~outstanding equity securities of Valence Discovery Inc. (“Valence”)~~shares. The Company is required to ~~be paid in~~use commercially reasonable efforts to prepare and file a registration statement (or a prospectus supplement within 30 days after the ~~form of (i) Class A Shares and shares~~closing date of the ~~Valence Purchaser~~2023 Private Placement, and to use commercially reasonable efforts to have the registration statement declared effective as soon as practicable and in any event within 90 days following the closing date). After the registration, the Company has

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(agreed to use commercially reasonable efforts to keep the “Exchangeable Shares”), (ii) cash and (iii) the assumption by Recursion of outstanding options to purchase shares of Valence. Each Exchangeable Share will be exchangeable into one Class A Share at the option of the holder, subject to certain adjustments. Following the completion of the Valence Acquisition, Recursion will issue up to approximately 8.2 million Class A Sharesregistration statement continuously effective until such date that all Registrable Securities (as such term is defined in the ~~Valence Acquisition (including Class A Shares issuable upon~~Registration Rights Agreement) covered by the exchange of Exchangeable Shares and upon the exercise of options to purchase shares of Valence assumed by Recursion in the Valence Acquisition) based on the Reference Price. The purchase price for the Valence Acquisition is subject to customary closing and post-closing purchase price adjustments, which may result in the issuance of additionalregistration statement or fewer Class A Shares (including Class A Shares issuable upon the exchange of Exchangeable Shares). In addition, under the terms of the Valence Purchase Agreement, in certain circumstances Recursion may pay cash consideration to Valence shareholders in lieu of Exchangeable Shares or Class A Shares at a value based on the Reference Price, which may result in the issuance of fewer Class A Shares (including Class A Shares issuable upon the exchange of Exchangeable Shares). Recursion expects to close the transaction in the second quarter of 2023.prospectus supplement have been sold.

Valence is a machine learning (ML) / artificial intelligence digital chemistry company that creates chemical compound and interaction representations using graph neural networks. Valence designs novel chemical matter using artificial intelligence and proprietary computation tools. Valence is located in ~~Montr~~éal ~~Canada and will work on applied ML research across chemistry and biology.~~At-the-Market offering program

On August 8, 2023, the Company entered into an Open Market Sales agreement (the “Sales Agreement”) with Jefferies LLC, whereby the Company may issue shares of Class A common stock, representing an aggregate offering price of up to $300.0 million, from time to time, through an “at the market offering” program under which Jefferies acts as the sales agent.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion and analysis of the financial condition of Recursion Pharmaceuticals, Inc. (Recursion, the Company, we, us or our) and the results of operations. This commentary should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying notes appearing in Item 1, “Financial Statements” and the Company’s audited consolidated financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report on Form 10-K for the year ended December 31, 2022. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Note About Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in the Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.

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.

Overview

Recursion is a clinical stage TechBio company leading this burgeoning space by decoding biology and chemistry 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 and chemical relationships within the Recursion Data Universe, one of the world’s largest proprietary biological and chemical datasets. We frame this integration of the physical and digital components as iterative loops of atoms and bits. Scaled ‘wet-lab’ biology and chemistry data built in-house (atoms) are organized into virtuous cycles with ‘dry-lab’ computational tools (bits) to rapidly translate in silico hypotheses into validated insights and novel chemistry. Our focus on mapping and navigating the complexities of biology and chemistry beyond the published literature and in a target-agnostic way differentiates us from other companies in our space and leads us to confront a fundamental cause of failure for the majority of clinical-stage programs - the wrong target is chosen due to an incomplete and reductionist view of biology. Our balanced team of life scientists and computational and technical experts creates an environment where empirical data, statistical rigor and creative thinking are brought to bear on our decisions.

We leverage our Recursion OS to enable three key value drivers:

1.An expansive pipeline of internally-developed clinical and preclinical programs focused on genetically-driven rare diseases and oncology with significant unmet need and market opportunities in some cases potentially in excess of $1 billion in annual sales

2.Transformational partnerships with leading biopharma companies to map and navigate intractable areas of biology, identify novel targets and develop potential new medicines that are further developed in resource-heavy clinical trials overseen by our partners

3.Development of one of the largest fit-for-purpose proprietary biological and chemical datasets in the world at a time when advances in AI paired with the right training data are creating disruptive value.

1823

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Recursion ~~finished the first quarter of 2023 with~~has a portfolio of clinical-stage, preclinical and discovery programs and ~~continued~~continues scaling its Recursion OS with more than 200 million total phenomics experiments, the initiation of multi-timepoint live-cell microscopy, transcriptomics, proteomics, inVivomics, data related to multi-target compound interactions and physicochemical properties, as well as large language model derived disease relevance and target-compound relationships. The total size of the proprietary Recursion Data Universe is over 25 petabytes and the number of ~~experiments to over 192 million, size of its proprietary data to over 23 petabytes and number of~~predicted biological and chemical relationships ~~to over 3~~is approximately 4 trillion. Data have been generated by the Recursion OS across 4850 human cell types, an in-house chemical library of approximately 1.7 million compounds, and an in silico library of over 1 trillion small molecules, by a team of ~~approximately 500~~over 550 Recursionauts that is balanced between life scientists and computational and technical ~~experts (total number of employees cited here does not account for employees associated with Cyclica and Valence acquisitions).~~experts.

Summary of Business Highlights

~~Digital Chemistry and Generative AI Acquisitions~~

•~~Cyclica:~~ Cyclica has built an industry-leading digital chemistry software suite which enables mechanism of action deconvolution, generative chemistry and molecular optimization tools. Recursion completed a prospective, blinded evaluation of their software against challenging internal programs, where we gained deep confidence in the power of their tools and reinforced our belief that this team could accelerate Recursion’s work across its pipeline and partnerships by rapidly advancing the discovery of new chemical entities. We believe that Cyclica’s tools will enhance the optimization of our compounds for efficacy while minimizing liabilities through generative machine learning approaches. The company is located in Toronto,

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~~where Recursion maintains its biggest hub outside of its headquarters, and the teams at Cyclica will be fully integrated into Recursion.~~

•~~Valence:~~ Valence is a ML/AI-native digital chemistry company which has pioneered the development of novel hybrid graph neural networks and transformers for state-of-the-art chemical property prediction. The small team at Valence has led a massive open-science movement with a network of academic collaborators at the pinnacle of machine learning, chemistry and other fields. Based in Montréal, where Recursion also maintains a ML research team, Valence will work on cutting-edge applied ML research across chemistry and biology. We believe that the technology they have built and will build will enable acceleration of our work at Recursion across many fields, beginning with generative design of new molecules, DMPK predictions and more. Combined with Recursion’s wet-lab data generation capabilities and one of the largest relatable datasets in the industry, the team will also accelerate ongoing internal work to build foundation models, large-language models and other approaches leveraging active learning.

•~~Financial Impact of Acquisitions:~~ ~~See Note 13, “Subsequent Events” to the Condensed Consolidated Financial Statements.~~

~~Internal~~ Pipeline

•Cerebral Cavernous Malformation (CCM) (REC-994): Our Phase 2 SYCAMORE clinical trial is a double-blind, placebo-controlled safety, tolerability and exploratory efficacy study of this drug candidate in 60 participants with CCM. WeThis study was fully enrolled as of June 2023 with 62 participants and all participants

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who have ~~enrolled the majority of participants associated with this study, and most participants who have~~thus far finished their first year of treatment have ~~now~~ enrolled in the long-term extension study. We expect to share ~~top-line~~Phase 2 proof-of-concept data in H2 2024.

•Neurofibromatosis Type 2 (NF2) (REC-2282): Our Phase 2/3 POPLAR clinical trial is a ~~parallel group,~~ two ~~stage, randomized, multicenter~~part study of ~~this drug candidate~~REC-2282 in ~~approximately 90~~ participants with progressive ~~NF2-mutated~~NF2-mutated meningiomas. ~~Enrollment~~Part A of the study is ongoing and weis exploring two doses of REC-2282 in approximately 23 adults and 9 adolescents. We expect to share a Phase 2 ~~interim~~ safety, ~~analysis~~tolerability, pharmacokinetics and preliminary efficacy in H2 2024.

•Familial Adenomatous Polyposis (FAP) (REC-4881): ~~Our Phase 2~~We have enrolled multiple participants in our TUPELO clinical trial ~~is a multicenter, randomized, double-blind, placebo-controlled two-part clinical trial to evaluate efficacy, safety and pharmacokinetics of this drug candidate~~which evaluates REC-4881 in patients with FAP. We ~~continue~~are now providing guidance on a data readout and expect to ~~advance this study.~~share Phase 2 safety, tolerability, pharmacokinetics and preliminary efficacy in H1 2025.

•AXIN1 or APC~~APC~~ Mutant Cancers (REC-4881): We will evaluate REC-4881 ~~is being studied for the potential treatment of~~ ~~AXIN1~~ or ~~APC~~ ~~mutant cancers with an initial focus on solid tumors harboring these mutations. We are developing~~in a Phase 2 ~~open-label~~biomarker enriched study ~~for REC-4881~~ in ~~participants~~patients with unresectable, locally advanced or metastatic cancer with AXIN1 or APC mutations. WeThe IND was accepted by the FDA and we expect to initiate athis Phase 2 ~~biomarker enriched~~ study ~~across select~~ ~~AXIN1~~ or ~~APC~~ ~~mutant solid tumors~~ in ~~early 2024.~~Q4 2023.

•Clostridioides difficile ~~Colitis~~Infection (REC-3964): Our Phase 1 clinical trial is a first-in-human protocol evaluating single and multiple doses of REC-3964 in healthy volunteers and will assess the safety, tolerability and pharmacokinetic profile of REC-3964. ~~We have enrolled the majority of participants associated with this study,~~Single ascending dose and multiple ascending dose studies are now complete. REC-3964 has been well tolerated and no safety issues have been identified to date. We expect to share Phase 1 safety and PKpharmacokinetics data in ~~H2 2023.~~Q3 2023.

•RBM39 HR-Proficient Ovarian Cancer: ~~In January 2023, we disclosed that~~ RBM39 (previously identified as Target Gamma) is ~~the~~a novel CDK12-adjacent target identified by the Recursion OS. We believe ~~that~~ we can modulate this target to produce a ~~potentially~~ therapeutic effect in HR-proficient ovarian ~~cancer. We have advanced this~~cancer and potentially in other tumor types. This program tois in the preclinical stage and ~~have initiated~~ IND-enabling ~~studies.~~studies are progressing.

~~Transformational Collaborations~~Partnerships

•NVIDIA: In July 2023, we announced a $50 million investment and collaboration with NVIDIA. We will continue to build our own foundation models for biology and chemistry and NVIDIA will assist in optimizing these models, provide priority access to computational resources on NVIDIA’s cloud service DGX Cloud, and potentially host commercially-licensable machine learning and foundation models developed by Recursion on BioNeMo, NVIDIA’s marketplace for generative AI in drug discovery. In this partnership, we will maintain control of our proprietary data and models as well as how and where we could host our technology tools as we expand our business strategy of data as a value driver. Since the announcement in July, we have already deployed our digital chemistry technology together with NVIDIA’s computational resources to predict the ligand-protein interactions for approximately 36 billion compounds in the Enamine REAL Space, reported to be the world’s largest searchable chemical library, where we evaluated 2.8 quadrillion target-compound pairs.

•Roche-Genentech and Bayer: We continue to advance ~~efforts~~our collaborations to discover potential new therapeutics with our strategic partners ~~in the areas of neuroscience~~Roche-Genentech and ~~a single indication in gastrointestinal oncology (Roche-Genentech) as well as fibrotic disease (Bayer).~~Bayer. In the near-term, there is the potential for option exercises associated with partnership programs or option exercises associated with map building initiatives or data ~~sharing and additional partnerships in large, intractable areas of biology or technological innovation.~~sharing.

~~Recursion OS~~Platform

•~~Industrialized Program Generation:~~Digital Chemistry and Generative AI Capabilities: ~~This end-to-end process validates map-based insights without human intervention. Following~~In May 2023, we acquired Cyclica and Valence Discovery to bolster our digital chemistry and generative AI capabilities and drive value across our pipeline, partnerships and platform. Shortly after closing these acquisitions, we used Cyclica’s digital chemistry tools to predict the ~~proposal~~protein-ligand interactions for the over 1 million compounds in our internal, non-partnered chemical library. Now, less than one quarter after the closing of ~~disease model starting points, Industrialized Program Generation~~these acquisitions, we worked with our partners at NVIDIA to predict the protein-ligand interactions of approximately 36 billion compounds in the Enamine REAL Space, reported to be the world’s largest searchable chemical library. As part of the Cyclica acquisition, Recursion acquired four platform patent families, which includes four pending U.S. patent applications directed to our platform with expiration, upon issuance, expected to be no earlier than 2035.

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~~carries~~This brings the total number of patent families related to the Recursion Platform to at least 25, and includes patents that, upon issuance, are expected to expire as late as 2042.

•Accelerating Pipeline and Partnership Value: For our internal pipeline, we have used our digital chemistry tools to deconvolve proteome-wide biological targets to confirm that certain compounds operate through a novel mechanism of action which was previously predicted by our functional phenomics maps. Such proteomic mapping capabilities provide an additional data layer to efficiently identify the most promising novel chemical series.

•Foundation Model Construction: We continue to use our supercomputer, BioHive-1, to train a proprietary phenomics foundation model. As we have trained on larger quantities of our proprietary data, emergent properties have arisen out of the ~~programmatic selection~~models and we have seen significant improvements over previous deep learning production models. We are also in the early stages of exploring more powerful and broadly useful foundation models based on our large-scale proprietary multi-omics data, which includes phenomics across 50 human cell types and approximately 1.7 million compounds, multi-timepoint live-cell microscopy, transcriptomics, proteomics, inVivomics, multi-target compound ~~hits, compound ordering coordination~~interactions, physicochemical properties, as well as predicted protein-ligand relationships. We may explore commercial licensing of some of our models in collaboration with NVIDIA and their BioNeMo platform in the coming year, though our state-of-the-art models will only be available to our team and close partners.

•Large Language Models: One year ago, more than 40 employees were dedicated to exploring our maps of biology and chemistry to initiate programs at Recursion. Today, those same employees have been redeployed and our newest internal programs are being initiated autonomously. This efficiency and scale is through the deployment of large language models to map scientific literature in conjunction with our internally derived proprietary maps to identify opportunities for scientific arbitrage in areas of unmet need. These opportunities are then automatically prioritized for confirmation and validation ~~through phenomic~~in our highly-automated wetlabs. This is a significant step towards our vision of autonomous drug discovery and ~~transcriptomic profiling. Given~~biological exploration.

•Valence Labs - Powered by Recursion: In July 2023 at the ~~large number~~International Conference for Machine Learning, we launched Valence Labs, Recursion’s cutting-edge machine learning research center for biology and chemistry in Montréal that aims to promote open-science and academic research. Recursion’s commitment to open-science helps us recruit and retain the best talent in the field of ~~proto-programs that are expected from this process, we look forward to leveraging the digital chemistry technology and expertise of the Cyclica and Valence teams~~generative AI, allows us to design and ~~optimize chemical structures for novel biological targets.~~set the standards by which ML and AI are deployed in drug discovery, and may drive additional biopharma companies to consider partnering with Recursion to get access to our proprietary state-of-the-art tools, technology, datasets and programs.

Additional Corporate Updates

•Chief Medical Officer: In May 2023, David Mauro, M.D., Ph.D. joined Recursion as its Chief Medical Officer. Dr. Mauro has over 20 years experience in oncology drug development and has guided more than 25 Investigational New Drug candidates through the translational, preliminary and later stages of development at various companies.

•Chief Legal Officer: In July 2023, Recursion named Nathan Hatfield, J.D., M.B.A. as Chief Legal Officer. Mr. Hatfield has worked at Recursion for over 6 years, previously serving as SVP and Head of Legal. Prior to Recursion, Mr. Hatfield was a securities attorney at the law firm Wilson Sonsini Goodrich & Rosati.

•Toronto Office: In June 2023, we celebrated the opening of our Canadian Headquarters in Toronto with government officials as well as members of the technology and biotechnology communities.

•ESG Reporting: In ~~March~~June 2023, Recursion ~~released its second annual~~received a favorable ESG ~~report. Materials~~Risk Rating from ~~this report can be found at~~ ~~www.Recursion.com/esg~~.

•~~Annual Shareholder Meeting:~~ ~~The~~Morningstar Sustainalytics which ranked Recursion ~~Annual Shareholder Meeting will be held on June 16, 2023 at 12:00 pm Mountain Time. In preparation for this meeting, Recursion released its annual Proxy Statement in April 2023.~~as the #1 biotechnology company out of approximately 400 companies and the #14 pharmaceuticals company out of approximately 900 companies.

Financing and Operations

We were incorporated in November 2013. ~~In October 2022, we issued 15,336,734 shares of our Class A common stock at a purchase price of $9.80 per share in a private placement (the Private Placement) to qualified institutional buyers and~~ ~~institutional accredited investors (the Purchasers) for net proceeds of $143.7 million, after deducting fees and offering costs of $6.6 million.~~ On April 20, 2021, we closed our Initial Public Offering (IPO) and issued 27,878,787 shares of Class A common stock at a price of $18.00 per share, raising net proceeds of $462.4 ~~million~~million.. Prior to our IPO, we had raised approximately $448.9 million in equity financing from investors in addition to $30.0 million in an upfront payment from our collaboration with Bayer AG (Bayer). In January 2022, we received an upfront payment of $150.0 million from our collaboration with Roche. See Note 8,9, “Collaborative Development Contracts” to the Condensed Consolidated Financial Statements for additional information on the collaborations.In October 2022, we issued 15,336,734 shares of our Class A common stock at a purchase price of $9.80 per share in the 2022 Private Placement to qualified institutional buyers and institutional accredited investors (the Purchasers) for net

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proceeds of $143.7 million, after deducting fees and offering costs of $6.6 million. On July 11, 2023, we issued an aggregate of 7,706,363 shares of the Company’s Class A common stock at a purchase price of $6.49 per share for gross proceeds of approximately $50.0 million, before deducting expenses in the 2023 Private Placement with NVIDIA Corporation. See Note 14, “Subsequent Events” to the Condensed Consolidated Financial Statements for additional information on the 2023 Private Placement.

We use the capital we have raised to fund operations and investing activities across platform research operations, drug discovery, clinical development, digital and other infrastructure, creation of our portfolio of intellectual property and administrative support. We do not have any products approved for commercial sale and have not generated any revenues from product sales. We had ~~unrestricted~~ cash and cash equivalents of ~~$473.1~~$405.9 million as of ~~March 31,~~June 30, 2023. Based on our current operating plan, we believe that our cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.

Since inception, we have incurred significant operating losses. Our net losses were ~~$65.3~~$76.7 million and ~~$56.0~~$142.1 million during the three and ~~three~~six months ended ~~March 31,~~June 30, 2023, respectively. Our net losses were $65.6 million and $121.5 million during the three and six months ended June 30, 2022, respectively. As of ~~March 31,~~June 30, 2023, our accumulated deficit was ~~$704.9~~$781.6 million.

We anticipate that we will need to raise additional financing in the future to fund our operations, including the potential commercialization of any approved product candidates. Until such time, if ever, as we can generate significant product revenue, we expect to finance our operations with our existing cash and cash equivalents, any future equity or debt financings and upfront, milestone and royalty payments, if any, received under current or future license or collaboration agreements. We may not be able to raise additional capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition may be adversely affected.

Components of Operating Results

Revenue

Operating revenue is generated through research and development agreements derived from strategic alliances. We are entitled to receive variable consideration as certain milestones are achieved. The timing of revenue recognition is not directly correlated to the timing of cash receipts.

Cost of Revenue

Cost of revenue consists of the Company’s costs to provide services for drug discovery required under performance obligations with partnership customers. These primarily include materials costs, service hours performed by our

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employees and depreciation of property and equipment.

Research and Development

Research and development expenses account for a significant portion of our operating expenses. We recognize research and development expenses as they are incurred. Research and development expenses consist of costs incurred in performing activities including:

•costs to develop and operate our platform;

•costs of discovery efforts which may lead to development candidates, including research materials and external research;

•costs for clinical development of our investigational products;

•costs for materials and supplies associated with the manufacture of active pharmaceutical ingredients, investigational products for preclinical testing and clinical trials;

•personnel-related expenses, including salaries, benefits, bonuses and stock-based compensation for employees engaged in research and development functions;

•costs associated with operating our digital infrastructure; and

•other direct and allocated expenses incurred as a result of research and development activities, including those for facilities, depreciation, amortization and insurance.

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We recognize expenses associated with third-party contracted services as they are incurred. Upon termination of contracts with third parties, our financial obligations are generally limited to costs incurred or committed to date. Any advance payments for goods or services to be used or rendered in future research and product development activities pursuant to a contractual arrangement are classified as prepaid expenses until such goods or services are rendered.

General and Administrative

We expense general and administrative costs as incurred. General and administrative expenses consist primarily of ~~salaries~~salaries; including employee benefits and stock-based compensation. General and administrative expenses also include facilities, depreciation, information technology, professional fees for auditing and tax, legal fees for corporate and patent matters and insurance costs.

Other Income, ~~(Loss),~~ Net

Other income, ~~(loss),~~ net consists primarily of interest earned on cash and cash equivalents.

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Results of Operations

The following table summarizes our results of operations:


(in thousands, except percentages)	(in thousands, except percentages)	Three months ended March 31,				Change				(in thousands, except percentages)	Three months ended June 30,				Change				Six months ended June 30,				Change
		2023		2022		$		%			2023		2022		$		%		2023		2022		$		%
Revenue	Revenue									Revenue
Operating revenue	Operating revenue	$	12,134	$	5,299	$	6,836	>100%		Operating revenue	$	11,016	$	7,653	$	3,364	44	%	$	23,150	$	12,952	$	10,198	79	%
Grant revenue	Grant revenue	—		34		(34)		(100.0)	%	Grant revenue	1		21		(20)		(96)	%	1		55		(55)		(98)	%
Total revenue	Total revenue	12,134		5,333		6,802		>100%		Total revenue	11,017		7,674		3,344		44	%	23,151		13,007		10,143		78	%

Operating costs and expenses	Operating costs and expenses									Operating costs and expenses
Cost of revenue	Cost of revenue	12,448		7,799		4,649		59.6	%	Cost of revenue	9,382		14,227		(4,845)		(34)	%	21,829		22,026		(196)		(1)	%
Research and development	Research and development	46,677		32,441		14,237		43.9	%	Research and development	55,060		38,439		16,621		43	%	101,737		70,880		30,858		44	%
General and administrative	General and administrative	22,874		21,074		1,800		8.5	%	General and administrative	28,290		21,199		7,091		33	%	51,165		42,273		8,892		21	%
Total operating costs and expenses	Total operating costs and expenses	81,999		61,314		20,686		33.7	%	Total operating costs and expenses	92,732		73,865		18,867		26	%	174,731		135,179		39,554		29	%

Loss from operations	Loss from operations	(69,865)		(55,981)		(13,884)		(24.8)	%	Loss from operations	(81,715)		(66,191)		(15,523)		(23)	%	(151,580)		(122,172)		(29,411)		(24)	%
Other income, net	Other income, net	4,538		2		4,536		>100%		Other income, net	4,989		631		4,358		>100%		9,527		633		8,893		>100%
Net loss	Net loss	$	(65,327)	$	(55,979)	$	(9,348)	16.7	%	Net loss	$	(76,726)	$	(65,560)	$	(11,165)	(17)	%	$	(142,053)	$	(121,539)	$	(20,518)	(17)	%

Summary

Our financial performance during the three and ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to ~~2022~~the prior periods included; (i) an increase in research and development costs due to increased platform costs as we have expanded and upgraded our capabilities, additionally for the three and six months ended ~~March 31,~~June 30, 2022 platform costs decreased due to a reallocation of spending to cost of revenue for our strategic partnerships and (ii) an increase in ~~revenue and cost of~~ revenue recognized due to progression on our strategic partnership with Roche.

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Revenue

The following table summarizes our components of revenue:


		Three months ended March 31,				Change					Three months ended June 30,				Change				Six months ended June 30,				Change
(in thousands, except percentages)	(in thousands, except percentages)	2023		2022		$		%		(in thousands, except percentages)	2023		2022		$		%		2023		2022		$		%
Revenue	Revenue									Revenue
Operating revenue	Operating revenue	$	12,134	$	5,299	$	6,836	>100%		Operating revenue	$	11,016	$	7,653	$	3,364	44	%	$	23,150	$	12,952	$	10,198	79	%
Grant revenue	Grant revenue	—		34		(34)		(100.0)	%	Grant revenue	1		21		(20)		(96)	%	1		55		(55)		(98)	%
Total revenue	Total revenue	$	12,134	$	5,333	$	6,802	>100%		Total revenue	$	11,017	$	7,674	$	3,344	44	%	$	23,151	$	13,007	$	10,143	78	%

For the three and ~~three~~six months ended ~~March 31,~~June 30, 2023, the increase in revenue compared to prior period was due to revenue recognized from our strategic partnership with Roche, which has progressed from primarily cell type evaluation work to inference based Phenomap building and additional cell type evaluation work.

Cost of Revenue

The following table summarizes our cost of revenue:


(in thousands, except percentages)	(in thousands, except percentages)	Three months ended March 31,				Change				(in thousands, except percentages)	Three months ended June 30,				Change				Six months ended June 30,				Change
		2023		2022		$		%			2023		2022		$		%		2023		2022		$		%
Total cost of revenue	Total cost of revenue	$	12,448	$	7,799	$	4,649	59.6	%	Total cost of revenue	$	9,382	$	14,227	$	(4,845)	(34)	%	$	21,829	$	22,026	$	(197)	(1)	%

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For the three months ended ~~March 31,~~June 30, 2023,, the ~~increase~~decrease in cost of revenue compared to prior period was due to our strategic partnership with ~~Roche,~~Bayer, for which ~~has progressed from primarily cell type evaluation~~less brute-force work ~~to inference based Phenomap building and additional cell type evaluation work.~~was required.

Research and Development

The following table summarizes our components of research and development expense:


(in thousands, except percentages)	(in thousands, except percentages)	Three months ended March 31,				Change				(in thousands, except percentages)	Three months ended June 30,				Change				Six months ended June 30,				Change
		2023		2022		$		%			2023		2022		$		%		2023		2022		$		%
Research and development expenses
Research and development expense										Research and development expense
Platform	Platform	$	18,492	$	5,314	$	13,178	>100%		Platform	$	21,514	$	10,686	$	10,828	>100%		$	40,006	$	16,000	$	24,006	>100%
Discovery	Discovery	13,505		12,361		1,144		9.3	%	Discovery	16,449		12,398		4,051		33	%	29,954		24,759		5,195		21	%
Clinical	Clinical	11,522		11,112		410		3.7	%	Clinical	12,479		12,551		(72)		(1)	%	24,001		23,663		338		1	%
Stock based compensation	Stock based compensation	2,833		1,764		1,069		60.5	%	Stock based compensation	4,483		2,165		2,318		>100%		7,315		3,929		3,386		86	%
Other	Other	325		1,890		(1,565)		(82.8)	%	Other	135		639		(504)		(79)	%	461		2,529		(2,068)		(82)	%
Total research and development expenses		$	46,677	$	32,441	$	14,236	43.9	%
Total research and development expense										Total research and development expense	$	55,060	$	38,439	$	16,621	43	%	$	101,737	$	70,880	$	30,857	44	%

Significant components of research and development expense include the following allocated by development phase: Platform, which refers primarily to expenses related to screening of product candidates through hit identification; Discovery, which refers primarily to expenses related to hit identification through development of candidates; and Clinical, which refers primarily to expenses related to development of candidates and beyond.

For the three and ~~three~~six months ended ~~March 31,~~June 30, 2023, the increase in research and development expenses compared to the prior period was due to increased platform costs as we have expanded and upgraded our capabilities in platform including our chemical technology, machine learning and transcriptomics platform. Additionally, for the three and six months ended ~~March 31,~~June 30, 2022 platform costs decreased due to a reallocation of spending to cost of revenue for our strategic partnerships.

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General and Administrative Expense

The following table summarizes our general and administrative expense:


(in thousands, except percentages)	(in thousands, except percentages)	Three months ended March 31,				Change				(in thousands, except percentages)	Three months ended June 30,				Change				Six months ended June 30,				Change
		2023		2022		$		%			2023		2022		$		%		2023		2022		$		%
Total general and administrative expenses		$	22,874	$	21,074	$	1,800	8.5	%
Total general and administrative expense										Total general and administrative expense	$	28,290	$	21,199	$	7,091	33	%	$	51,165	$	42,273	$	8,892	21	%

For the three and ~~three~~six months ended ~~March 31,~~June 30, 2023, the increase in general and administrative ~~expenses~~expense compared to prior period was primarily driven by an increase in salaries and wages of ~~$1.2~~$3.0 million and $4.3 million, respectively, and increases in ~~other administrative costs associated with growth in the size of the Company’s operations.~~software and depreciation expense.

Other Income, Net

The following table summarizes our components of other income, net:


(in thousands, except percentages)	(in thousands, except percentages)	Three months ended March 31,				Change				(in thousands, except percentages)	Three months ended June 30,				Change				Six months ended June 30,				Change
		2023		2022		$		%			2023		2022		$		%		2023		2022		$		%
Interest income	Interest income	$	4,660	$	87	$	4,573	>100%		Interest income	4,957		652		4,306		>100%		9,617		739		8,879		>100%
Interest expense	Interest expense	(19)		(14)		(5)		31.6	%	Interest expense	(26)		(14)		(12)		91.1	%	(45)		(28)		(17)		60.8	%
Other	Other	(103)		(71)		(32)		45.5	%	Other	57		(7)		64		>100%		(45)		(78)		33		(41.8)	%
Other income, net	Other income, net	$	4,538	$	2	$	4,536	>100%		Other income, net	$	4,988	$	631	$	4,358	>100%		$	9,527	$	633	$	8,895	>100%

For the three and ~~three~~six months ended ~~March 31,~~June 30, 2023, the increase in interest income ~~primarily~~ related to earnings on cash and cash equivalents in money market funds.

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Liquidity and Capital Resources

Sources of Liquidity

We have not yet commercialized any products and do not expect to generate revenue from the sales of any product candidates for at least several years. ~~Unrestricted cash~~Cash and cash equivalents totaled ~~$473.1~~$405.9 million and $549.9 million as of ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

We have incurred operating losses and experienced negative operating cash flows and we anticipate that the Company will continue to incur losses for at least the foreseeable future. Our net loss was ~~$65.3~~$76.7 million and ~~$56.0~~$142.1 million during the three and six months ended ~~March 31,~~June 30, 2023, respectively. Our net loss was $65.6 million and $121.5 million during the three and six months ended June 30, 2022, respectively. As of ~~March 31,~~June 30, 2023 and December 31, 2022, we had an accumulated deficit of ~~$704.9~~$781.6 million and $639.6 million, respectively.

We have financed our operations through the private placements of preferred stock and Class A common stock issuances. As of ~~March 31,~~June 30, 2023, we have received net proceeds of $448.9 million from the sale of preferred stock and $606.1 million from Class A common stock issuances. See Note 7,8, “Common Stock” to the Condensed Consolidated Financial Statements for additional details on ~~the~~ Class A common stock issuances. Additionally, as of ~~March 31,~~June 30, 2023, we have received proceeds of $180.0 million from our strategic partnerships. See Note 8,9, “Collaborative Development Contracts” to the Condensed Consolidated Financial Statements for additional details on the collaborations. Subsequent to June 30, 2023, Recursion entered into the 2023 Private Placement with NVIDIA Corporation, see Note 14, “Subsequent Events” to the Condensed Consolidated Financial Statements for additional details.

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Cash Flows

The following table is a summary of the Condensed Consolidated Statements of Cash Flows for each of the periods presented below:


		Three months ended March 31,					Six months ended June 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Cash provided by (used in) operating activities	Cash provided by (used in) operating activities	$	(73,316)	$	77,388	Cash provided by (used in) operating activities	$	(140,783)	$	15,765
Cash provided by (used in) investing activities	Cash provided by (used in) investing activities	(5,340)		143,304		Cash provided by (used in) investing activities	(7,393)		148,244
Cash provided by financing activities	Cash provided by financing activities	1,922		2,084		Cash provided by financing activities	5,709		4,752

Operating Activities

Cash used by operating activities increased during the ~~three~~six months ended ~~March 31,~~June 30, 2023 as a result of an upfront payment of ~~$150.0~~$150.0 million from our strategic partnership with Roche received during the ~~three~~six months ended ~~March 31,~~June 30, 2022.

Cash provided by operating activities during the ~~three~~six months ended ~~March 31,~~June 30, 2022 included an upfront payment of ~~payment of~~ ~~$150.0~~$150.0 million from our strategic partnership with ~~Roche.~~Roche.

Investing Activities

Cash used by investing activities during the ~~three~~six months ended ~~March 31,~~June 30, 2023 consisted primarily of purchases of property and equipment ~~purchases~~ of ~~$5.2~~$9.1 million, which included $1.7 million for a project to upgrade the BioHive supercomputer and ~~$2.3 million for~~ lab equipment purchases. The cash used was partially offset by $1.9 million of net cash acquired in the acquisition of a business.

Cash provided by investing activities during the ~~three~~six months ended ~~March 31,~~June 30, 2022 was driven by sales and maturities of investments ~~$147.6~~of $169.1 million, partially offset by purchases of property and equipment of $20.8 million.

Financing Activities

Cash provided by financing activities during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022 primarily included proceeds from equity incentive plans of $~~1.9~~5.8 million and~~$2.1~~ $4.8 million, respectively.

Critical Accounting Estimates and Policies

A summary of the Company’s significant accounting estimates and policies is included in Note 2, “Summary of Significant Accounting Policies” in our 2022 Annual Report. ~~There~~Except as noted below, there were no significant changes in the Company’s application of its critical accounting policies during the ~~three~~six months ended ~~March 31,~~June 30, 2023.

Business Combinations

Amounts allocated to assets and liabilities are based upon fair value estimates. These fair value estimates could require us to make significant estimates and assumptions, especially with respect to intangible assets. We make estimates of fair value based upon assumptions believed to be reasonable and that of a market participant. These estimates are based on available historical information as well as future expectations and the estimates are inherently uncertain. The use of alternative estimates and assumptions could increase or decrease the estimated fair values, the amounts allocated to identifiable intangible assets acquired, future amortization expense and the value of goodwill.

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Recently Issued and Adopted Accounting Pronouncements

See Note 2, “Basis of Presentation” in Item 1 of this Quarterly Report on Form 10-Q for information regarding recently issued and adopted accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates of our cash and cash equivalents. As of ~~March 31,~~June 30, 2023, our cash and cash equivalents primarily consisted of money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in U.S. interest rates. A hypothetical 100 basis point decrease in interest rates as of as of ~~March 31,~~June 30, 2023, would have an insignificant effect on net loss in the ensuring year.

Foreign Currency Exchange Risk

Our employees and our operations are primarily located in the United States and Canada and our expenses are generally denominated in U.S. and Canadian dollars. We also have entered into a limited number of contracts with vendors for research and development services that have underlying payment obligations denominated in foreign currencies. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we do not have a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have had a material effect on our financial results during the three and six months ended ~~March 31,~~June 30, 2023 and ~~2022~~.2022.

Inflation Risk and Market Volatility

In recent months, inflation has continued to increase significantly in the U.S. and overseas resulting in rising costs for transportation, wages, construction and other goods and services. Inflation and supply chain disruptions have increased our overall operating expenses. In addition, the capital and credit markets have been experiencing volatility and disruption, which has exerted downward pressure on stock prices and credit capacity. There is no assurance that such markets will be a source of future financing for Recursion, nor that other funding sources would be available or sufficient, particularly if current levels of market disruption and volatility continue or worsen. Although we do not believe that the above conditions have materially changed our overall financial position, if our costs continue to increase, we may not be able to fully offset those increased costs through reduced spending or additional financing efforts and failure to do so could harm our business, financial condition and results of operations.

Item 4. Controls and Procedures.

The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives as management necessarily applies its judgment in evaluating the cost-benefit

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relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to

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provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~March 31,~~June 30, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

As of June 30, 2023, management is in the process of integrating the internal controls of the acquired businesses into Recursion's existing operations as part of planned integration activities. There ~~has been~~were no ~~change~~other changes in ~~our internal control over~~ financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~March 31,~~June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may, from time to time, be involved in various legal proceedings arising in the normal course of business. An unfavorable resolution of any such matter could materially affect the Company’s future financial position, results of operations or cash flows. For more information pertaining to legal proceedings, see Part I, Item 1, Note 7, “Commitments and Contingencies,” which is incorporated herein by reference.

Item 1A. Risk Factors.

~~We do not believe~~Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that ~~there have been any material changes~~affect our business. Please refer to the ~~risk factors previously disclosed in Part I, Item~~sections titled “Risk Factor Summary” and “Item 1A. ~~“Risk~~Risk Factors” of our 2022 Annual Report.

The risk factors set forth below represent new risk factors or those containing changes to the similarly titled risk factor included in “Item 1A. Risk Factors” of our 2022 Annual Report.

RISKS RELATED TO OUR LIMITED OPERATING HISTORY, FINANCIAL POSITION, AND NEED FOR ADDITIONAL CAPITAL

Raising additional capital may cause dilution to our stockholders, restrict our operations, require us to relinquish rights to our technologies or drug candidates, and divert management’s attention from our core business.

The terms of any financing we obtain may adversely affect the holdings or rights of our stockholders, and the issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our shares to decline. To the extent that we raise additional capital through the sale of Class A common stock or securities convertible or exchangeable into Class A common stock, our stockholders’ ownership interests will be diluted.

For example, in October 2022, we issued 15,336,734 shares of our Class A common stock for gross proceeds of approximately $150 million and in July 2023, we issued 7,706,363 shares of our Class A common stock for gross proceeds of approximately $50 million. Additionally, in August 2023, we entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC (the “Sales Agent”), to provide for the offering, issuance and sale of up to an aggregate amount of $300.0 million of our Class A common stock from time to time in “at-the-market” offerings. We will pay to the Sales Agent cash commissions of 3.0% of the gross proceeds of sales of our Class A common stock under the Sales Agreement. Sales of a substantial number of shares of our outstanding Class A common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of our Class A common stock intend to sell shares, could reduce the market price of our common stock.

Moreover, as a condition to providing additional funds to us, future investors may demand, and may be granted, favorable terms that may include liquidation, preferences, dividend payments, voting rights or other preferences that materially and adversely affect the rights of common stockholders. Debt financing, if available, would result in increased fixed payment obligations. In addition, we may be required to agree to certain restrictive covenants, which could adversely impact our ability to make capital expenditures, declare dividends, or otherwise conduct our business. We also may need to raise funds through additional strategic collaborations, partnerships, or licensing arrangements with third parties at an earlier stage than would be desirable. Such arrangements could require us to relinquish rights to some of our technologies or drug candidates, future revenue streams, or research programs, or otherwise agree to terms unfavorable to us. Fundraising efforts have the potential to divert our management’s attention from our core business or create competing priorities, which may adversely affect our ability to develop and commercialize our drug candidates and technologies.

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RISKS RELATED TO ACQUISITIONS

We may not realize all of the anticipated outcomes and benefits of our Acquisitions.

The benefits we expect to achieve as a result of our recent acquisitions of Cyclica Inc. (“Cyclica”) and Valence Discovery Inc. (“Valence”) in May 2023 and any future acquisitions will depend, in part, on our ability to realize anticipated growth opportunities and cost synergies. Our success in realizing these growth opportunities and cost synergies, and the timing of this realization, depends on the successful integration of Cyclica and Valence’s, and any future acquisition targets’, business and operations with our business and operations. Even if we are able to integrate our business with Cyclica’s and Valence’s business successfully, this integration may not result in the realization of the outcomes and benefits, growth opportunities and cost synergies we currently expect within the anticipated time frame or at all. Moreover, we anticipate that we will incur substantial expenses in connection with the integration of Cyclica’s and Valence’s business with our business. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately, and may exceed current estimates.

Accordingly, the outcomes and benefits from our acquisition of Cyclica and Valence may be offset by costs incurred or delays in integrating the companies, which could cause the outcomes and benefits we anticipate to be inaccurate or not realized.

Exchange rate fluctuations could result in significant foreign currency gains and losses and affect our business results.

Because the results of both Cyclica and Valence are reported in Canadian dollars, which we will then translate to U.S. dollars for inclusion in our consolidated financial statements, we will be exposed to more significant currency translation risk as a result of the acquisitions. As a result, changes between the foreign exchange rates, in particular the Canadian dollar and the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. We currently do not enter into hedging arrangements to minimize the impact of foreign currency fluctuations.

RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR CLASS A COMMON STOCK

Our amended and restated certificate of incorporation and amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America is the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware, is the exclusive forum for the following, except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court, and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination, which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction:

•any derivative action or proceeding brought on our behalf;

•any action asserting a claim of breach of fiduciary duty;

•any action asserting a claim against us arising under the Delaware General Corporation Law, our amended- and restated certificate of incorporation or our amended and restated bylaws; and

•any action asserting a claim against us that is governed by the internal-affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any other claim for which the U.S. federal courts have exclusive jurisdiction. Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

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These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, and may result in increased costs to stockholders of bringing a claim, each of which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find either exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Sales of Unregistered Securities

Acquisitions

In May 2023, the Company entered into an agreement to acquire Cyclica. The aggregate upfront consideration for the acquisition of Cyclica consisted of 5,706,089 shares of Recursion Class A common stock, cash payments, 1,000,873 shares issuable upon exercise of stock options held by Cyclica equity award holders and deferred liabilities. Approximately 753 thousand of the aforementioned Class A common stock consideration had not yet been issued as of June 30, 2023. A prospectus supplement to a registration statement (File No. 333-264845) was subsequently filed pursuant to Rule 424(b) on June 9, 2023, to register the resale of certain of such shares and the issuance of shares issuable upon exercise of certain such stock options. In addition, a registration statement on Form S-8 (File No. 333-272282) was filed on May 30, 2023 to register the issuance of shares issuable upon exercise of certain of such stock options.

Also in May 2023, the Company entered into an agreement to acquire Valence. The aggregate upfront consideration for the acquisition of Valence consisted of 2,168,020 shares of Recursion Class A common stock, 5,904,827 shares of a subsidiary of Recursion, exchangeable for shares of Recursion’s Class A common stock, 792,011 shares issuable upon the exercise of stock options held by Valence equity award holders and deferred liabilities. A registration statement on Form S-3ASR (File No. 333-272281) was subsequently filed on May 30, 2023, to register the resale of certain of such shares and to register the issuance of shares issuable upon exercise of certain of such stock options and of shares issuable upon exchange of exchangeable shares.In addition, a registration statement on Form S-8 (File No. 333-272027) was filed on May 18, 2023 to register the issuance of shares issuable upon exercise of certain of such stock options.

Stock Option Exercises

For the ~~three~~six months ended ~~March 31,~~June 30, 2023, we issued ~~8,000~~70,000 shares of our Class A common stock to our employees, directors, advisors and consultants upon the exercise of stock options under our Key Personnel Incentive Stock Plan for aggregate consideration of ~~less than one thousand dollars.~~approximately $20 thousand. The shares of Class A common stock issued upon the exercise of stock options were issued pursuant to written compensatory plans or arrangements with our employees, directors, advisors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act of 1933, as amended, or pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All recipients either received adequate information about our company or had access, through employment or other relationships, to such information.

Item 5. Other Information.

Effective August 8, 2023, we entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC (the “Sales Agent”), pursuant to which we may, from time to time, sell up to an aggregate amount of $300.0 million of our Class A common stock through our Sales Agent in an “at-the-market” offering (the “ATM Offering”). We are not required to sell shares under the Sales Agreement. We will pay the Sales Agent a commission of up to 3% of the aggregate gross proceeds we receive from all sales of our Class A common stock under the Sales Agreement. The Sales Agreement continues until the earlier of selling all shares available under the Sales Agreement or terminated by written notice from either of the parties. No sales have been made under the Sales Agreement.

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The ATM Offering is being made under a prospectus supplement dated August 8, 2023, and related prospectus to be filed with the Securities and Exchange Commission pursuant to our automatically effective shelf registration statement on Form S-3ASR (Registration No. 333-264845).

A copy of the Sales Agreement is attached as Exhibit 10.6 to this Quarterly Report. The foregoing description of the Sales Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.6. A copy of the opinion of Wilson Sonsini Goodrich & Rosati, P.C. relating to the validity of the securities issued in the ATM Offering is filed as Exhibit 5.1 to this Quarterly Report.

We are also filing a prospectus supplement dated August 8, 2023, and related prospectus with the Securities and Exchange Commission pursuant to our automatically effective shelf registration statement on Form S-3ASR (Registration No. 333-264845) to register for resale the shares of Class A common stock issued to NVIDIA Corporation in July 2023. See Note 14, “Subsequent Events” to the Condensed Consolidated Financial Statements for additional details. A copy of the opinion of Wilson Sonsini Goodrich & Rosati, P.C. relating to the validity of such shares is filed as Exhibit 5.2 to this Quarterly Report.

On June 21, 2023, Zavain Dar, a member of our Board of Directors, adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 20,141 shares of the Company’s Class A common stock until June 21, 2024.

The following information regarding executive compensation is provided supplementally:

Outstanding Equity Awards at 2022 Fiscal Year-End Table

The following table sets forth information concerning outstanding equity awards held by our named executive officers (NEOs) as of December 31, 2022.


			Option Awards				Stock Awards
Name	Grant Date	Vesting Commencement Date	Number of Securities Underlying Unexercised Options Exercisable (#)	Number of Securities Underlying Unexercised Options Unexercisable (#)	Option Exercise Price ($/share)	Option Expiration Date	Number of Shares or Units of Stock that Have Not Vested (#)	Market Value of Shares or Units of Stock that Have Not Vested ($)(1)
Christopher Gibson	12/31/2020(2)	12/31/2020	31,250	750,000	2.48	12/31/2030	—	—
	2/4/2022(3)	2/4/2022	86,737	329,613	11.40	2/4/2032	—	—
	2/4/2022(4)	2/4/2022	5,436	—	11.40	2/4/2032	—	—
	2/4/2022(5)	2/4/2022	—	—	—	—	169,143	1,304,093
Tina Marriott Larson	7/23/2018(6)	7/23/2018	562,000	—	1.06	7/23/2028	—	—
	12/31/2020(3)	12/31/2020	75,000	75,000	2.48	12/31/2030	—	—
	2/4/2022(3)	2/4/2022	33,170	126,056	11.40	2/4/2032	—	—
	2/4/2022(4)	2/4/2022	4,784	—	11.40	2/4/2032	—	—
	2/4/2022(5)	5/15/2022	—	—	—	—	64,688	498,744

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Michael Secora	3/4/2020(7)	3/4/2020	468,750	351,562	2.22	3/4/2030	—	—
	3/4/2020(8)	3/4/2020	900,000	600,000	2.22	3/4/2030	—	—
	2/4/2022(3)	2/4/2022	24,306	92,378	11.40	2/4/2032	—	—
	2/4/2022(4)	2/4/2022	3,914	—	11.40	2/4/2032	—	—
	2/4/2022(5)	5/15/2022	—	—	—	—	47,404	365,485
Shafique Virani	3/4/2020(7)	—	407,580	234,375	2.22	3/04/2020(7)	—	—
	2/4/2022(3)	2/4/2022	16,760	63,690	11.40	2/4/2032	—	—
	2/4/2022(4)	2/4/2022	5,436	—	11.40	2/4/2032	—	—
	2/4/2022(5)	5/15/2022	—	—	—	—	32,683	251,986
Ramona Doyle	—	—	—	—	—	—	—	—

1.The amount in this column is calculated by multiplying the number of RSUs by the closing price of our common stock on the Nasdaq Global Select Market on December 30, 2022 (the last business day of fiscal 2022), which was $7.71.

2.Represents an option to purchase shares of our Class A common stock which vests as to one forty-eighth (1/48th) of the shares subject to the award shall vest one month after the vesting commencement date, and one forty-eighth (1/48th) of the shares subject to the award shall vest each month thereafter. Under the Equity Exchange Agreement, Dr. Gibson has the right to exchange the shares of Class A common stock received upon exercise of this option for shares of Class B common stock in accordance with the terms of the Equity Exchange Agreement.

3.Represents an option to purchase shares of our Class A common stock which vests as to one forty-eighth (1/48th) of the shares subject to the award shall vest one month after the vesting commencement date, and one forty-eighth (1/48th) of the shares subject to the award shall vest each month thereafter.

4.Represents an option to purchase shares of our Class A common stock that is fully vested and exercisable on the vesting commencement date pursuant to our 2021 Short-Term Incentive plan.

5.Represents RSUs that vest as to one one-sixteenth (1/16th) of the units subject the RSU beginning May 15, 2022 and every three months thereafter.

6.Represents an option to purchase shares of our Class A common stock. Twenty-Five percent (25%) of the shares subject to the award vested on July 16, 2019, and one-forty-eighth (1/48th) of the shares subject to the award vest each month thereafter.

7.Represents an option to purchase shares of our Class A common stock. One forty-eighth (1/48th) of the shares subject to the award vested on April 1, 2020, and one forty-eighth (1/48th) of the shares subject to the award vest each month thereafter.

8.Represents an option to purchase 1,500,000 shares of our Class A common stock that vest becomes cumulatively vested as to the following number of shares subject to the option upon each occurrence of certain liquidity events, subject to Mr. Secora’s continued service through the date of such Liquidity Event:


Liquidity Event Value			Cumulative Vested Shares
Greater than $7.11			150,000
Greater than $9.24			300,000
Greater than $12.02			450,000
Greater than $15.63			600,000
Greater than $20.32			750,000
Greater than $29.46			900,000
Greater than $42.72			1,050,000
Greater than $61.95			1,200,000
Greater than $89.83			1,350,000
Greater than $103.26			1,500,000

Once a number of shares subject to the option have vested upon the occurrence of a liquidity event, the number of vested shares subject to the option will not be reduced if the Liquidity Event Value in a subsequent liquidity event is lower than the Liquidity Event Value in the prior liquidity event.

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Option Exercises and Stock Vested


	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)(1)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)(2)
Christopher Gibson	690,104	3,520,561	41,750	427,685
Tina Marriott Larson	150,500	1,280,277	17,317	178,957
Michael Secora	—	—	12,895	133,476
Shafique Virani	45,000	445,758	10,260	107,637
Ramona Doyle	265,625	2,146,210	4,798	40,911

1.The value realized when the stock options were exercised represents (i) the excess of the closing price of a share of our common stock as reported on the Nasdaq Global Market on the date of exercise over the per share exercise price of the stock option, multiplied by (ii) the number of option shares exercised.

2.The value realized upon vesting of RSUs is calculated by multiplying the number of restricted stock awards or RSUs vested by the closing price market price of a share of our common stock as reported on the Nasdaq Global Market on the vest date.

Estimated Payments Upon Termination or Change In Control

The following table provides an estimate of the payments and benefits that would be provided in the circumstances described in the Company’s 2023 Proxy Statement under the heading “Potential Payments Upon Termination or Change In Control—Executive Change In Control And Severance Plan” for each of the NEOs (other than Dr. Doyle), assuming the triggering event took place on December 30, 2022 (the last business day of fiscal 2022) and based on the closing of our common stock on the Nasdaq Global Select Market on that date, which was $7.71. With respect to our former NEO, Ramona Doyle, who ceased employment with us during 2022, the table below reflects the following severance benefits that Dr. Doyle received as a result of such separation: (i) a lump sum payment of $336,600, representing 9 months of her annual base salary, and (ii) a taxable lump sum payment of $10,858, which is an amount equal to the premium cost of continued health coverage under COBRA for a period of 9 months.

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	Potential Payable Upon Termination Without Cause, Resignation for Good Reason, or Death or Disability
Name	Without a Change in Control ($)	With a Change in Control ($)
Christopher Gibson
Salary	520,000	520,000
Annual Incentive	—	520,000
Value of Accelerated Vesting	—	5,390,030
Healthcare Benefits	21,145	21,145
Tina Marriott Larson
Salary	343,200	457,600
Annual Incentive	—	457,600
Value of Accelerated Vesting	—	907,338
Healthcare Benefits	13,942	18,589
Michael Secora
Salary	273,000	364,000
Annual Incentive	—	364,000
Value of Accelerated Vesting	—	5,589,560
Healthcare Benefits	15,859	21,145
Shafique Virani
Salary	382,500	510,000
Annual Incentive	—	510,000
Value of Accelerated Vesting	—	1,538,705
Healthcare Benefits	13,942	18,589
Ramona Doyle
Salary	336,600	—
Annual Incentive	—	—
Value of Accelerated Vesting	—	—
Healthcare Benefits	10,858	—

Item 6. Exhibits.

Exhibit Index:

Incorporated by Reference
Exhibit number Description Form File No. Exhibit No. Filing Date Filed / Furnished Herewith
3.1
Amended and Restated Certificate of Incorporation of Recursion Pharmaceuticals, Inc.
8-K 001-40323 3.1 April 21, 2021
3.2
Amended and Restated Bylaws of Recursion Pharmaceuticals, Inc.
8-K 001-40323 3.2 April 21, 2021
4.1
Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of its stockholders, dated September 1, 2020.
S-1/A 333-254576 4.1 April 15, 2021
4.2
Specimen Class A common stock certificate of the Registrant.
S-1/A 333-254576 4.2 April 15, 2021
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1*
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema Document X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB XBRL Taxonomy Extension Label Linkbase Document X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X
* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

Incorporated by Reference

Exhibit number

Description

Form

File No.

Exhibit No.

Filing Date

Filed / Furnished Herewith

3.1

Amended and Restated Certificate of Incorporation of Recursion Pharmaceuticals, Inc.

8-K

001-40323

3.1

April 21, 2021

3.2

Amended and Restated Bylaws of Recursion Pharmaceuticals, Inc.

8-K

001-40323

3.2

April 21, 2021

~~Certification~~

Table of ~~Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act~~Contents

4.1

Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of its stockholders, dated September 1, 2020.

S-1/A

333-254576

4.1

April 15, 2021

4.2

Specimen Class A common stock certificate of the Registrant.

S-1/A

333-254576

4.2

April 15, 2021

4.3

Exchangeable Share Support Agreement , dated May 8, 2023.

S-3ASR

333-272281

4.2

May 30, 2023

4.4

Registration Agreement , dated May 16, 2023 , by and among the Registrant, Valence Discovery, Inc., and certain shareholders of Valence Discovery, Inc.

S-3ASR

333-272281

4.3

May 30, 2023

4.5

Registration Agreement , dated May 25, 2023 , by and among the Registrant, Recursion Canada Inc., and certain shareholders of Cyclica Inc.

8-K

001-40323

4.1

June 9, 2023

5.1

Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation

5.2

Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation

10.1

Employment Offer Letter, dated May 19, 2023, between the Registrant and Dr. David Mauro, M.D., Ph.D.

10.2

Stock Purchase Agreement, dated July 11, 2023, by and among the Registrant and NVIDIA.

8-K

001-40323

10.1

July 12, 2023

10.3

Registration Rights Agreement, dated July 11, 2023, by and among the Registrant and NVIDIA.

8-K

001-40323

10.2

July 12, 2023

10.4

Cyclica Inc. Second Amended and Restated Stock Option Plan

S-8

333-272282

4.4

May 30, 2023

10.5

Valence Discovery Inc. Stock Option Plan dated April 17, 2018 as amended and restated on November 16, 2021

S-8

333-272027

4.4

May 18, 2023

10.6

Open Market Sales Agreement dated August 8, 2023 by and between the Registrant and Jefferies LLC

23.1

Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in the opinion filed as Exhibit 5.1)

23.2

Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in the opinion filed as Exhibit 5.2)

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Table of ~~1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~Contents

The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on ~~May~~August 8, 2023.


RECURSION PHARMACEUTICALS, INC.

By:						/s/ Christopher Gibson
						Christopher Gibson
						Chief Executive Officer
						(Principal Executive Officer)

By:						/s/ Michael Secora
						Michael Secora
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

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