When Recursion Pharmaceuticals and Exscientia announced plans to merge in August, it marked the first major consolidation in the early AI-driven biotech field.
The all-stock deal, touted as an alliance between biology and chemistry, caught many in the industry by surprise. But new documents filed Thursday with the SEC show the deal had been in the works for a while, with executives first discussing the idea almost two years earlier.
Recursion CEO Chris Gibson first met with Exscientia founder and then-CEO Andrew Hopkins on Oct. 26, 2022. At that time, they discussed the idea of combining the companies, each of which had been trying to make the case that AI had a place in the future of drug R&D. Both companies had built clinical-stage pipelines and inked multiple pharma partnerships over the years.
Hopkins expressed “preliminary interest in a ‘merger of equals’” during that meeting, according to paperwork outlining the background of the merger.
A month later, Recursion submitted a non-binding proposal to merge with Exscientia, offering the UK-based startup 35% ownership of the combined entity. But Exscientia’s board argued the proposal undervalued the company, and Hopkins officially told Recursion they wouldn’t move forward with the proposal.
Two months later, Recursion came back with another all-stock proposal, this time offering Exscientia shareholders 37% ownership of the combined business. The company declined the proposal again, with management saying the proposal “would not significantly accelerate Exscientia’s growth or create a strategic advantage for Exscientia relative to the continued execution of its standalone plan.”
Recursion attempted to move on, considering other deals and partnerships through 2023 and early 2024. In May 2023, it bought AI drug discovery startups Cyclica and Valence, mostly in equity.
Then, in February, Exscientia unexpectedly fired Hopkins, its longstanding CEO, after allegations of inappropriate relationships with employees, and its chair resigned.
Three months later, the company laid off nearly one-quarter of its workforce amid plans to cut $40 million in costs. And, that same month, Recursion CFO Michael Secora called Exscientia CFO Ben Taylor and an undisclosed board member to reignite the combination talks after Recursion’s board told the company to “more aggressively” pursue strategic acquisitions.
Secora and Recursion board member Dean Li, Recursion’s co-founder and president of Merck Research Laboratories, met with Taylor to talk about combining companies. By July, Recursion again offered an all-stock deal in which Exscientia shareholders would get up to 25% ownership of the combined company — far lower than the initial offer.
The companies hashed out the details over the coming weeks and settled on 26% for Exscientia shareholders.
A month later, Recursion shared its first Phase 2 data in a “moment of truth” for the buzzy AI-driven field. The stock prices of Exscientia $EXAI and Recursion $RXRX have cratered 83% and 79%, respectively, since the companies went public.
The deal is expected to close early next year.