EQRX - EQRx: Saving American Lives Made Possible By Low Cost Chinese Drugs

Summary

• EQRx's goal is to make drugs affordable; its strategy - get those drugs cheap from China.
• I don't see an innovation here, and that bothers me.
• The company has huge cash, which is a positive.

EQRx ( EQRX ) is a late-stage developer of medicines for oncology and immune-inflammatory diseases in the USA. Its stated business goal is to provide low-cost alternatives to existing life-saving but expensive medicines. In order to do this, the company's current strategy seems to be to acquire and then bring to the US medicines already approved in China.

The company's phase 3 programs include :

• Aumolertinib, an epidermal growth factor receptor (EGFR) inhibitor for the treatment of patients with EGFR-mutated non-small cell lung cancer (NSCLC);

• Sugemalimab, an anti-programmed death-ligand 1 antibody for the treatment of Stage III and Stage IV NSCLC.

• Nofazinlimab or EQ176, an anti-programmed death-1 antibody that is in Phase III trials for the treatment of patients with primary liver cancer

• Lerociclib, a small molecule cyclin-dependent kinase 4/6 inhibitor, which is in Phase II clinical trials in patients with metastatic breast cancer.

Aumolertinib is the lead program. It recently posted positive data at ASCO:

In a Chinese phase III trial (AENEAS) reported in the Journal of Clinical Oncology , Lu et al found that aumolertinib, a third-generation EGFR tyrosine kinase inhibitor approved in China, significantly improved progression-free survival vs gefitinib in the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) with an EGFR exon 19 deletion or L858R mutation.

Aumolertinib is a China-approved oral Tyrosine Kinase inhibitor or TKI which works similarly to AstraZeneca's ( AZN ) Tagrisso or Osimertinib. Tagrisso is the current standard of care in this genetic variant of NSCLC, and it has shown superb results compared to gefitinib, an earlier generation TKI. However, Aumolertinib can be used in certain situations :

…in countries where osimertinib may be unavailable or unaffordable. As a potential cost-disruptor, it may introduce tangible price competition and thereby decrease the overall cost of health care.

While Aumolertinib has not been directly compared to osimertinib, both have been compared to gefitinib. Data is as follows; OS data for aumolertinib is not mature at the time of writing, so only mPFS is provided:

Aumolertinib vs gefitinib - median progression-free survival 19.3 months v 9.9 months.

Osimertinib vs gefitinib - median progression-free survival 18.9 months vs. 10.2 months.

Clearly, aumolertinib compares very well to osimertinib. A phase 3b "US-led" trial is ongoing. An MAA has been applied for, and accepted in Europe.

Sugemalimab is the second program. This is an anti-PDL1 antibody targeting later stage NSCLC. This program has the following dataset (quote from Co Presentation):

Stave IV NSCLC - Data presented at ASCO from pre-specified OS analysis, showing 25.4 months of median OS, an estimated 8.5 month improvement over placebo + chemo

Stage III NSCLC - Final PFS data presented at WCLC from final median PFS analysis, showing 10.5 months of median PFS, an estimated 4.3 month improvement over placebo

ENKTL or Extranodal natural killer (NK)/T cell lymphoma - Data presented at ASCO showing 46.2% ORR and 37.2% CR, in a traditionally difficult to treat and aggressive type of NHL

Here's an interesting and somewhat skeptical take on EQRx - both its science and its business model - with respect to this particular molecule, that I think is worth reading:

Another thing I'm left wondering about, is the breadth of development for each molecule. That $200M investment to launch may not be enough to substantially reduce your commercial risk. Let's take sugemalimab for example-a PD-L1 being studied in Stage III and Stage IV NSCLC. It presumably will compete with Roche's atezolizumab (Tencentriq) and AZ's durvalumab (Imfinzi), both of which have a much broader indication profile. Oncologists are evidence-based practitioners. I don't think they would be comfortable extrapolating a class effect across multiple tumour types. EQRx will need a competitive data package to unseat these incumbents across a healthcare system.

EQRx has a system called the Global Buyer's Club where it onboards insurers around the world to cover their lower cost medicines.

Here's another quote from the blog just cited which gives an interesting perspective about this all:

Fundamental question-do insurance companies want lower priced drugs? What? That's a ridiculous question. Of course they do. Are you crazy? Hear me out. In my world, which tilts squarely towards non-oncology to be fair, insurance companies are not interested in lower priced drugs unless they are transformative (e.g. compel prescribing based on the strength of the data). And while EQRx may be on to something big here, they are not bringing transformative medicines to patients, they are bringing me-too products. And lower cost me-too products may not actually benefit the overall economics of a pharmacy benefit manager or insurance company that derives substantial revenue from rebates in a drug class. If we turn to the immunology market as an example, a high priced group of drugs EQRx has stated they want go after, the incentives really are irrational (I hope you're sitting down).

Now, there are two assumptions being made here that may or may not be true. The first is whether EQRx is bringing me-too products alone. The second is that insurers can make a clear-cut difference between transformative vis-a-vis me-too medicines in terms of their therapeutic effect, in every case, and even when their prices are substantially different. These are the two paradigms EQRx is planning to challenge, supported by a superlative management team and loads of cash.

Financials

EQRX has a market cap of $2.37bn and a cash balance of $1.55bn. The company is making about $80mn in quarterly operating expenses. At that rate, they expect to last their cash reserve till 2025.

Bottomline

Democrats have been trying to make life-saving drugs affordable for a long time, with the recent failed project of letting Medicare negotiate drug prices. However, Big Pharma with its powerful lobby has always swung back in the game. Besides that lobby, Big Pharma also has other tools at hand - price manipulation being one of them. So, the US government has failed in this otherwise noble effort. Ex-US, they just wait for generics.

So a bid to reduce drug prices and make it affordable to the "poor, unwashed masses" is a noble venture - made possible by drugs from China. I wonder if there's going to be a catch. I am all for the EQRX business goal, however the strategy of buying lower cost Chinese drugs and pushing them onto the US market does not seem viable to me. Why? Because if we know Chinese business right, if they have a great drug - a drug that, for example, Tagrisso prescribers will prescribe over Tagrisso irrespective of pricing considerations - then why would the Chinese company want to lower the price of that drug?

These are speculations, and I hope EQRX will prove them wrong. However, I will stay away from the stock until I see the first couple of approvals. Since the company claims to be here for the long haul, I am sure 1-2 approvals will not make a difference.

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