Companies whose breakthroughs revolutionize industries often end up being enormously successful. Think Netflixfrom DVDs to streaming or AppleThe innovative smartphone that killed blackberry‘s competing franchise.

Could Recursion Pharmaceuticals (RXRX 0.75%) experience similar success? After all, the biotech company is working hard to bring about a major paradigm shift in the industry. Let’s find out what exactly Recursion is working on and whether the company’s stock is worth buying.

Erooms Law and Artificial Intelligence

The process of developing new drugs is notoriously complicated, expensive and lengthy. Although one might think that it is getting faster and cheaper thanks to technological breakthroughs, the opposite is true. This phenomenon is known as Eroom’s Law (the inverse of Moore’s Law) and describes the observation that the process of drug discovery is getting slower and more expensive.

Any company that can reverse this process could become incredibly successful. That’s exactly what Recursion is working toward. The biotech company is both a technology company and a drug developer. Thanks to an artificial intelligence (AI)-based algorithm that constantly tests various clinical compounds against a virtual library of human biology, Recursion hopes to identify promising drug candidates that can then be tested in clinical trials.

Many early-stage compounds never make it to market. But let’s say Recursion can significantly increase the likelihood that a novel compound will prove effective in clinical trials and eventually gain regulatory approval. The company would then spend less on research and development than its competitors and still bring breakthrough therapies to market. The result (all else being equal) would be higher operating and net profits and margins than its competitors.

If its AI-powered platform proves as effective as hoped, Recursion may also license it to other drug manufacturers. In fact, this approach has caught the attention of some major players. Recursion has signed drug development agreements with leading drug manufacturers Bayer And Roche HoldingsThe company has also entered into a partnership with NVIDIAthat helped the biotech company build an AI-powered supercomputer, the largest in the pharmaceutical industry.

The interest of these well-known players at least suggests that Recursion is on to something.

Should you buy the stock?

Recursion Pharmaceuticals is still a clinical-stage company. None of its products are in Phase 3 trials, although the company expects to have more than half a dozen data results in the next 18 months. The company must first prove that its technology-centric approach to drug development works by gaining approval for one or (preferably) multiple candidates. The company has a much higher success rate than other pharmaceutical companies in identifying early-stage compounds that eventually reach the market.

Even clinical failures could help Recursion refine its algorithm to provide more accurate predictions. Unfortunately, the company is not there yet. Currently, it generates little revenue from collaboration agreements. Meanwhile, other pharmaceutical companies, including Novo Nordiskare working on similar AI-centered projects that could help change – or at least improve – the drug development process.

Where does that leave Recursion Pharmaceuticals? In my view, the company is currently in the proof of concept phase. Sure, the project looks incredibly exciting. If it is anywhere near as successful as the company hopes, we can expect generational returns in the long term.

However, the company’s downside potential is just as large, making it a risky biotech stock. If you’re a risk-averse investor, you might consider a small position. Perhaps the company will be worth much more consideration to other investors if it receives approvals for its products or if upcoming data is positive.