EQRx, a startup with lofty ambitions to develop competitors to top-selling drugs at much reduced prices, will go public through a merger with a blank-check company backed by the biotech venture firm Casdin Capital and the hedge fund Corvex Management.
The deal, announced Friday by EQRx and the special-purpose acquisition company CM Life Sciences II, will give EQRx access to $1.8 billion in new funds, dramatically increasing the resources it has on hand to support a business plan that's drawn considerable skepticism as well as enthusiasm.
EQRx launched in early 2020 with an unorthodox pitch to bring to market rival, brand-name versions of blockbuster medicines, but sell them at "radically lower" prices. At the time, the startup aimed to launch 10 new drugs in a decade — an incredible (and to critics, unlikely) goal made possible, EQRx claimed, by pursuing well-understood disease targets and more efficiently developing drugs against them.
Its aspirations have grown grander since, as the company raised more than $800 million from venture capital investors and announced the first five drug candidates in its pipeline. In selling the SPAC merger to investors, EQRx now says it expects its pipeline to grow to more than 20 programs by 2022. The company also expects to be earning "significant revenue" sometime between 2023 and 2025.
"You cannot do what we're trying to do on a single molecule, a single asset," said Melanie Nallacheri, formerly EQRx's chief operating officer and now its CEO, in a recorded presentation. "It is absolutely essential to do it at scale, to be able to build a pipeline at scale that can have real impact on the various stakeholders in our ecosystem. But in order to do that, it's essential to mobilize significant amounts of capital."
The merger with CM Life Sciences II, a SPAC that went public in April, will give EQRx much of the $2 billion it estimates it will need to get to break-even cash flow by 2026. CM Life Sciences II has $552 million in cash on hand, and a large slate of investors, including Fidelity, Bain Capital, Andreessen Horowitz and Google's Verily, will invest another $1.2 billion at a price of $10 per share.
Alexis Borisy, the well-known biotech venture capitalist who until now has led EQRx, will become chairman of the company's board. The board also now includes the Verily executive and former Food and Drug Administration deputy commissioner Amy Abernethy.
EQRx's business plan remains unproven, however. While the company's first two drug candidates — licensed from China's Hansoh Pharmaceuticals and C-Stone Pharmaceuticals — have met their goals in Phase 3 clinical testing, it's unclear how well EQRx can deliver on its promise of cheaply developing dozens of other drugs as good as, or better than, established medicines.
In a hypothetical example included in the company's presentation, EQRx envisions spending $200 to $300 million per drug program, which it would sell at prices 50% to 70% lower than its competition if successfully developed and approved.
According to Nellacheri, the company is roughly on track with its first two drugs, would-be rivals of AstraZeneca's Tagrisso and Merck & Co.'s Keytruda, both of which it estimates will take a total investment of about $200 million through to launch.
But should those drugs reach market, it's also uncertain whether EQRx will be able to successfully convince insurers to cover them and doctors to prescribe them. In the U.S., a tangled web of rebates and discounts often can entrench a particular brand-name drug as an established option, even when lower cost alternatives exist. Sales of biosimilar drugs — copycat versions of biologic medicines — remain modest in the U.S., even as nearly two dozen have launched at discounts ranging from 10% to nearly 60% compared to their branded counterparts.
To that end, EQRx says it's putting together a "global buyers club" of insurers and health systems that it hopes will give its medicines a foothold in competitive markets. Success in this mission will be crucial to EQRx, particularly because part of company's plan is to spend less on commercialization than other drugmakers.
Nallicheri envisions a "pull" model, "rather than trying to push the medicine and spending lots of commercial dollars getting an EQRx medicine a docket."
"That is possible because we are pricing at a radically lower price than what is currently the practice," she added.
Yet, if EQRx's medicines aren't shown in clinical testing to be superior than existing drugs, the company might have a hard time convincing doctors to switch from treatments they already prefer to prescribe to their patients.