Business condition attached to the margin of safety
Positive owner earnings on a sustained basis, meaning operating cash flow after stock compensation and equipment spending turns positive, for example from milestone or royalty income exceeding research spending.
Recursion Pharmaceuticals is a clinical-stage drug discovery company that uses automated laboratory experiments, large image datasets and machine learning to find and develop medicines. It has no approved products and has not generated product sales. Its revenue ($74.7 million in 2025, $58.8 million in 2024, $44.6 million in 2023) comes almost entirely from research and development agreements with partners, chiefly Roche and Genentech and Sanofi, which pay upfront and milestone amounts and are eligible to pay royalties if programs succeed. What the business earns for its owners: we measure owner earnings as operating cash flow, less the cash effect of working-capital swings, less stock-based compensation, less the equipment spending needed to stay in business. On that basis Recursion has consumed cash in every year we measured, 2021 through 2025. Per diluted share the figures were roughly -$1.64 (2021), -$1.30 (2022), -$1.47 (2023), -$1.53 (2024) and -$0.99 (2025). The 2025 improvement per share comes from a much larger share count (447 million diluted shares versus 274 million in 2024), not from lower spending: operating cash burn rose to $372 million from $359 million and the net loss widened to $645 million from $464 million. Stock compensation grew each year, to $111 million in 2025. In 2022 a large jump in customer prepayments ($110 million) flattered operating cash flow, which we strip out. One note on method: only accounts payable and customer-prepayment (contract liability) movements were tagged in the data we used for working capital, so other small working-capital lines are not separated. Bear, base and bull: we can point to no contracted, backlogged or repeatable stream of profit that turns these owner earnings positive, and the value of an unapproved drug pipeline or a partner milestone that has not yet been earned cannot be named and evidenced today. Partner agreements have delivered real money (the company reports more than $500 million in upfront and progress-based payments to date), but that income has been smaller than its cost base every year, and two customers represent substantially all operating revenue. Following our method, growth that depends on future drug successes, new partnerships or milestone payments not yet earned is left out, so all three cases come to $0 per share. This is not a claim that the shares can never be worth more; it is that the current evidence does not support a defensible value for that possibility. The company holds $753.9 million of cash and restricted cash at December 31, 2025, but our method values the earnings stream and does not add cash on top, so it is not counted; that cash is what funds continued losses. The company had raised $521.5 million from financing in 2025, which is how the burn has been funded, and shareholders have been diluted accordingly. What would make this wrong: a partnered program reaching a large milestone or approval, or a royalty stream beginning, that lifts collaboration income above the research cost base. If cash operating results turn positive on a sustained basis, the valuation would be revisited. The annual report contains no going-concern warning.