Biotech Startup Seeks to Make Money by Lowering Drug Prices

(Bloomberg) -- A new biotechnology company backed by some of Silicon Valley’s biggest investors thinks it can bring some relief from high drug prices.

The company, EQRx, is launching with the express purpose of developing medicines with prices as much as 66% lower than those of existing branded drugs. Led by a team of biotech insiders and backed by about $200 million in private funds, it has an ambitious agenda: to develop one drug in five years, and 10 in the next decade. It plans to work in costly areas like cancer and genetic disease.

Chief Executive Officer Alexis Borisy said he saw a disconnect between the innovative new medications that are now available and the financial hardships facing patients. About 24% of Americans report trouble affording their prescription drugs, according to the Kaiser Family Foundation, and financial stress is especially acute for those with diseases like cancer.

“We’re at this golden age, yet clearly something’s not right,” Borisy said. “We think we can create new drugs and bring them to people in need in a way that society can afford in a sustainable manner.”

Generic drugs can provide more affordable alternatives for some medications. But EQRx is focusing on the expensive brand-name market, where drugs typically have patent protection and face less price competition.

It won’t be easy. The startup will face challenges from the outset as it sets down the notoriously failure-ridden path of creating new drugs. It will also need to strike a balance between selling products at low prices and bringing in enough revenue and investment capital, while facing structural barriers in getting its drugs covered by health-insurance plans.

“These folks are going to have to come out hopefully rapidly with a number of drugs and grow pretty quickly” to survive financially, said Steven Pearson, founder and president of the Institute for Clinical and Economic Review, an independent nonprofit that assesses the cost-effectiveness of medications. “But I certainly hope that they succeed.”

EQRx launched on Monday at the start of the JPMorgan Chase & Co. Health Care Conference, the biggest event of the year for the biopharmaceutical industry. Investors include the venture capital firms ARCH Venture Partners; GV, formerly Google Ventures; and Andreessen Horowitz.

The company will be advised by outspoken drug-price critic Peter Bach, the director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, and Sandra Horning, a former executive at Roche Holding AG’s Genentech, who are both listed as co-founders.

‘Capitalist Impulses’

Borisy prides himself on having championed disruptive technology over his long career in the biopharmaceutical industry as an entrepreneur and investor. EQRx represents a different kind of disruption.

He intends to sidestep the philosophical debates about how much drugs should cost. Instead, EQRx will be “a market-based company driven by core, capitalist impulses,” he said. “We can make a really large company that can be really profitable. It just happens to be doing that by selling really good drugs at much lower prices.”

The company said that will be possible by making drugs that follow known ways of targeting disease, at least in the beginning, in an effort to improve its odds.

The startup plans to spend less on sales and marketing than typical drugmakers, savings that can then be passed along to patients, said Melanie Nallicheri, EQRX president and chief operating officer. Nallicheri formerly served as chief business officer and head of biopharma at cancer diagnostics company Foundation Medicine.

Should those early medications be successful, EQRx plans to price them at a third the level of similar therapies, the company said.

Capital Challenge

But it’s in research and development where the new company will need to make the most changes, said Bernard Munos, a veteran of drugmaker Eli Lilly & Co. who now serves as senior fellow at the Milken Institute’s FasterCures.

“There’s waste in marketing and sales, no question about it,” he said. “But I don’t think they’re going to be able to squeeze as much cash there to make the difference they need to make.”

EQRx will also likely need more capital: By Munos’s calculations, of 13 new drugs that biotechs had approved last year, R&D spending ranged from about $46 million to $1.4 billion per drug.

Even in an area of established science, research can be a messy and expensive process, said Craig Garthwaite, a health economist at Northwestern University’s Kellogg School of Management.

“Even if they do that, we tend to see people invest in companies because the first drug made a bunch of money,” Garthwaite said. “Here you’re asking people to invest because the first drug didn’t make a bunch of money.”

To contact the reporter on this story: Emma Court in New York at ecourt1@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Mark Schoifet, Timothy Annett

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