Early last year (in those retrospectively blissful pre-pandemic days) I wrote about a startup called EQRx, whose stated mission is to provide lower-cost alternatives to existing drugs. I did not find their business plans very convincing, since they seemed to me to involve some hand-waving steps about how much faster drug discovery these days, and I just didn’t (and don’t) see it. I was motivated enough to post this prediction on Longbets.org, for what it’s worth.
Now we have more news about the company. They are going public via a SPAC, a “special purpose acquisition company”. For those of you who don’t live in the stock market – not a bad choice, overall – SPACs have become very popular as of late, partly because there’s more investment money sluicing around than anyone quite knows what to do with. A SPAC itself is basically a pile of such money that has gone through an initial public offering, with the stated purpose being to acquire some other asset. But you don’t know what that asset is at the time of the IPO. SPACs generally have a two-year window to make such a move or return the money raised to investors, and the whole thing can be a bit reminiscent of the anecdote in Charles Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds“, with a purported handbill posted during the South Sea Bubble asking for funds for “a Company for carrying on an undertaking of Great Advantage but no one to know what it is“. Sadly, that one appears to be from a satire about the bubble published at the time (Mackay is not always a reliable source), but as usual, the satire and the reality are easy to confuse.
In this case, the SPAC is CM Life Sciences III, trading on the NASDAQ under the symbol CMLTU, that will fuse with EQRx in a deal that is expected to provide the company with up to 1.8 billion in capital. That’s what I mean about lots of investment money out there. I notice that the company’s original talk of screening and discovering new molecules seems to have faded out a bit – as detailed here, they now seem to be in the mood to acquire fast-follower compounds from other people, particularly companies in China. Is that going to work?
As that post correctly notes, that means that EQRx is taking lower-than-average scientific risk and offsetting that with higher-than-average commercial risk. The scientific risk is lower because they’re going into areas where their drug mechanisms are already proven to be useful, and because (at least for now) they’re not doing any of the fast-follower discovery work themselves, but rather letting someone else take care of that. But the commercial risk is higher, because they’re explicitly going to compete on price, and despite all the talk over the years about high drug prices, no one is sure if a company can make that work. Will these drugs truly be cheaper, and by how much? Will physicians prescribe them, and will insurance companies put pressure on people to do so? Right now, the two drugs that look to be the furthest along in this process are aumolertinib (an EGFR inhibitor from Hansoh Pharma that also shows up in the literature as almolertinib) and sugemalimab (a PD-L1 antibody from CStone).
The former is most likely to compete against AZ’s Tagrisso (osimertinib), as well it should, because it is an almost identical structure. Where the AZ compound has an N-methyl indole, EQRx’s compound has an N-cyclopropyl. This is not exactly a startling transformation. N-cyclopropyl for N-alkyl (particularly for N-methyl) is a classic medicinal chemistry move. What’s interesting is that AZ doesn’t seem to have covered this, and you’d think that everyone would after what happened 40 years ago with ciprofloxacin. That structure was covered generically by a SmithKline patent, but Bayer broke that in court by showing that the N-cyclopropyl was (1) unexpectedly more efficacious, that (2) SmithKline had not actually exemplified that analog nor “taught toward it” in the patent, and (3) that none of the chemical routes that they did disclose in the patent would actually produce it, either. This history prompted a former colleague of mine to say about aumolertinib that “If they get away with this, AZ’s lawyers should be shot“. I wouldn’t go that far, but if EQRx does actually take some real market share from AZ, they have only themselves to blame.
Meanwhile, sugemalimab will of course being going into the market that is dominated by Merck’s Keytruda (pembrolizumab), which is targeting PD-1 in the same general pathway. At the moment, there are four anti-PD-1 antibodies and three anti-PD-L1 antibodies approved in the US, and several more are on the way. Price competition will be a new factor, and no one’s sure how that will work out. Medicare, for example, operates under requirements to cover “all or substantially all” drugs in oncology, and is also legally prohibited from negotiating on price. It will be the large private insurance companies that drive things here. But as that Dawn Bell post points out, insurance companies don’t have as much leverage as you might imagine, and the existing anti-PD-L1 antibody drugs have wider labeling indications because their makers have put in the work in the clinic to extend these. Sugemalimab will have data on non-small-cell lung cancer, but it’ll cost more time and money to get more indications approved. Taken together, the real-world market for the drug may be smaller than it appears. We shall see. The two other compounds that EQRx has disclosed as being in their pipeline are leociclib (a CDK4/6 inhibitor) and EQ-176, formerly CS1003, an anti-PD-1 antibody also from CStone. The same considerations apply to both of these.
My earlier objections to the company’s plans were driven by all their hype around computation and outsourced synthesis, which seemed (and seems) rather crazy to me. Their CEO’s quote at the time was “The world has fundamentally changed. . .Today, you can do a virtual screen of a billion compounds, do on-demand synthesis of all of those, and you can do it overnight in the cloud. . .” and I wasn’t having it. Now that I see that the plan is to snarf up all the fifth-, sixth-, eighth- and tenth-to-market compounds that they can find from other small companies, it seems marginally more feasible, but only marginally. There are two more questions that have to come up. First, how many Chinese-sourced follow-on compounds are there waiting to be licensed in? I have no idea myself, but I would be surprised if there were enough of them for EQRx to fill out its aspirational pipeline that way. They are apparently saying that they will have 22 candidates in that pipeline by next year, and I will watch that with interest.
Second, now that they’re a public company, will the shareholders stay on board with the “low, low prices” strategy? The pitch will be that they’re trading price for market share, but the balance between those two is going to be pretty empirical, isn’t it? It seems to me that the management will have to make a strong case that they’re not leaving money on the table. For all their talk of changing the US healthcare market, I’m pretty sure that “EQRx: Making Less Money Than We Otherwise Could” could be a hard slogan to sell.
The post EQRx Goes Public first appeared on In the Pipeline.
