I think the unupgraded version is okay at 3
... The upgraded is still a little expensive.
The problem is that high cost
cards tend to overly favor rainbow based decks. If you mean this to be 'splashed' into non-bow decks, a cost of 5 is a little high.
The main reason for this is that, although you have a chance to get a dragon out of it, the mean / median cost of the creature you get is going to be less, especially if you factor in the effective +2
cost...
personally I wouldn't pay that much for a random creature in anything but a bow.
I think egg+sor and skeleton+RW are the fairest comparisons, mutate is a special case since you have a high chance to get an abomination out of it unupped and upped you have access to creatures and skill combinations that are not normally available, not to mention that the skill costs are often much lower than normal as well.
So to the point, the unupgraded giving 1 creature for 3
and 2 cards is okay, mainly since most decks will have permanents readily available throughout the game.
The upgraded version, however, is equally expensive (in non-bow decks) to the SoR egg combo and gives you only 1 card instead of 2. So this seems clearly UP.