Meet EQRX, a startup that just raised $200 million to take on Big Pharma by making drugs cheaper

• Meet EQRX, a company that's developing new drugs it plans to charge less for that'll compete for some of the highest priced drugs on the market.
• The startup just raised $200 million from investors including GV, ARCH Venture Partners, and Andreessen Horowitz.
• CEO Alexis Borisy told Business Insider he's aiming to get the startup's first drug approved in 5 years, with the goal of having 10 approved in the company's first decade.
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A new startup just launched that plans to take an unusual approach to the pharmaceutical industry.

EQRX wants to develop new drugs that work similarly to pills and infusions that are already on the market.

In the past, drugmakers that have taken EQRX's approach have been derided for manufacturing "me-too" treatments at high costs. But EQRX wants to make drugs that rival Big Pharma's costliest offerings, and then sell them at lower prices.

On Monday, the company said it had raised $200 million in a massive Series A funding round from backers like GV, Andreessen Horowitz, and ARCH Venture Partners.

New kinds of drug companies have cropped up to take on the high cost of treatments. For instance, a group of hospitals created a nonprofit generic drugmaker called Civica Rx, which has the goal of making generic drugs that are in shortage or have artificially high prices. This month, California governor Gavin Newsom debuted a proposal that could make California the first state to sell its own prescription generic drugs.

EQRX's founders are big names in biotech: ex-Third Rock Ventures VC Alexis Borisy is serving as the company's CEO and chairman, and former Foundation Medicine chief business officer Melanie Nallicheri is coming in as EQRX's president and chief operating officer.

It's Borisy's first endeavor since leaving Third Rock this summer after a decade building and investing in biotech companies.

Dr. Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center and an outspoken critic of pharmaceutical drug prices is a cofounder and will serve as an advisor to the company.

Also advising is Dr. Sandra Horning, a former executive at Genentech who's also a cofounder.

The idea is to develop entirely new drugs that rival some of the highest-priced drugs in the world, get them approved, and charge much lower prices for them.

"I don't buy the argument that the pricing as we've seen it, that that needs to be the solution," Nallicheri told Business Insider.

The approach

Already, drugmakers develop their own drugs that work similarly to one another. For instance, there are six drugs that target the proteins PD-1 and PD-L1 in the treatment of certain kinds of cancer. Heart medicine Lipitor, which went on to be a blockbuster drug for Pfizer, was one of a number of drugs known as statins that worked in a similar way.

Typically, the drugs all come in around the same price as their competitors, drawing criticism for driving up the cost of healthcare.

Instead, EQRX's plan - if it gets its drug approved - is to charge a fraction of the price of rivals.

It still wants to make a profit, in part by keeping the price of developing the new drug much lower with the help of new technologies and processes.

"If we achieve that, we should be able to charge a small fraction and still be as profitable as the businesses out there today," Borisy said.

EQRX will look to compete with high-priced drugs that are on the market or are expected to hit the market within the next five years in areas like oncology, immuno-inflammation, and genetic diseases. As part of that, Borisy said, it plans to strike up partnerships with health systems and other organizations who ultimately pay for prescription drugs.

When first starting the company, Nallicheri and Borisy reflected on their own experiences working within the drug industry. Both had experienced instances in which patients who needed the therapies the two had worked on weren't able to get access to them without assistance programs.

"What we're saying is, take an innovative novel cancer therapy, can that be priced differently, still reward innovation, but therefore become so much more accessible for patients?" Nallicheri said.

Changing the drug industry's economics

As it stands now, drugmakers have no restrictions on how high they set the price of a given drug. Prices often increase over time, and even in markets where there are multiple drugs competing, prices only seem to go up and up.

So why wouldn't a company - and its investors - expect to charge as much as the market can bear when developing a rival new drug?

"What we're proposing is really good business," Borisy said. "I think at the scale of what we do with our products, we think we can build a highly profitable, high revenue, high growth business based on what we're doing."

From an investor perspective, Andreessen Horowitz general partner Jorge Conde likens it to how Amazon charges a lower price and can still make money.

"A better process will give you a better product," he said. Ideally, Conde said, investors stand to make more if EQRX can reimagine the pharmaceutical market.

The promise of shifting the market was also attractive to GV, and made EQRX stand out compared to other biotechs the team has looked at.

"We're really interested in changing this part of the market," GV's Krishna Yeshwant said.

Yeshwant said that when investing he committed to devote 20% of his time to working with EQRX, including making introductions to hospitals and health insurers who might buy its drugs.

"It's been one of the great joys of 2019 to take someone like [Borisy] who's developed tens of drugs and walk him into the door of a provider or payor he's never met before," Yeshwant said.

The timeline

To pull off the economics - getting to a place where drug discovery, development, and commercialization can happen much more efficiently than it does today so EQRX can justify charging a cheaper price for them - EQRX will have to move quickly.

Borisy said he's aiming to get the startup's first drug approved in 5 years, with the goal of having 10 approved in the company's first decade with a dozen more in development. In 15 years, ideally, EQRX will have dozens of drugs on the market, he said.

So far, Nallicheri said, the company has 16 employees. Their focus during the first year will be on identifying a half a dozen to a dozen targets to get started on.

It won't be easy, Conde said.

"It's a great example of a hallmark of good engineering," Conde said. "It's simple, but not easy, elegant but not obvious. That's what these guys are building."