From $4.2B deal to a desperate search for buyers: How EQRx's low-cost drug dream unraveled

EQRx launched with a lofty mission to develop drugs at “radically lower prices,” assembling a group of potential buyers and hitting Wall Street via a massive SPAC deal. But in 2022, the FDA threw cold water on the idea of using interim data developed in China to secure approval for lead drug sugemalimab.

The dream crashed down, sending the Alexis Borisy biotech into a tailspin that culminated in a sale to Revolution Medicines in August. Now, in a regulatory filing (PDF), the behind-the-scenes unraveling has been revealed.

EQRx launched in January 2020 with the lofty goal of developing new, yet affordable medicines. The company went public via the special purpose acquisition company CM Life Sciences III for about $4.2 billion at the end of 2021. With cash in the bank, EQRx charged forward with five clinical-stage programs in oncology and immune-inflammatory diseases. The latest-stage projects were the EGFR inhibitor aumolertinib and the PD-L1 antibody sugemalimab.

At the same time, the company assembled a “Global Buyers Club,” made up of public and private payers, providers and health systems who wanted access to the resulting low-cost drugs—if approved.

In the fall of 2022, trouble began. The company had been meeting with the FDA periodically about the path to approval for its meds in the U.S. During discussions, the FDA made clear that EQRx would need to complete a second phase 3 trial in non-small cell lung cancer (NSCLC) comparing sugemalimab to an approved PD-L1 therapy with a representative, diverse U.S. population to show overall survival in order to gain the agency’s support for a new drug application.

An interim readout would not be enough, even though EQRx had conducted a similar trial called GEMSTONE-302 in China. This boosted the cost of developing sugemalimab in the U.S. and pushed a potential filing for aumolertinib into 2027.

In late October, EQRx’s senior management and board met to discuss where to go next. Ultimately, it was decided to engage a financial adviser and conduct a strategic review. The executives later considered a sale, merger of equals, partnership or licensing transaction or a take-private transaction.

For an acquisition, the board considered a list of 20 parties that may be interested, including large pharmaceutical companies; mid-cap, publicly traded biopharma companies; Asian biopharmas; and European biopharmas. They also considered four biopharmas that might be interested in a merger. The financial adviser was cleared to contact all 24 parties.

In November 2022, EQRx announced to the public during third-quarter earnings that “there was no commercially viable path for sugemalimab” in NSCLC in the U.S. But regulatory efforts would proceed outside of the U.S. using existing data. At the same time, the company said that the development of aumolertinib and CDK 4/6 inhibitor lerociclib would go forward in the U.S. at “market-based pricing” only.

Of the 28 parties ultimately contacted for a potential deal, just two engaged in further discussions. Those that declined provided a host of reasons for their disinterest, including a lack of clinical differentiation for EQRx’s candidates; prioritization of other oncology targets or indications; focus on investment in novel mechanisms; resource constraints to effect a large acquisition; and general lack of interest in a business combination with EQRx. Some were interested in specific assets, and discussions with a third party continued over one asset.

By the end of November, the first party had dropped out of the running, citing “other strategic priorities.” With low interest, EQRx began considering an out-licensing deal for ex-U.S. rights for some programs in December. Eighteen companies were contacted, with five expressing interest, but ultimately no deal was sealed.

The parties again cited many reasons for opting out: concerns regarding clinical differentiation and competitive positioning; it being outside their areas of core focus; a lack of fit with strategic timeline goals; the challenging regulatory environment; uncertainties with respect to pricing and reimbursement; and limited financial capacity for business development.

In January, one of the original 20 companies contacted for a potential deal signed a confidentiality agreement to learn more about a potential transaction. Later that month, another company did the same to explore a potential equity investment in EQRx. Both companies eventually opted out.

By March, EQRx decided to pause development of the Global Buyers Club after looking at partnering options. Throughout the spring, EQRx went back and forth with two other companies, even going so far as to propose acquiring one of them. That was rejected.

On April 28, the board decided that, without any willing buyers, EQRx should readjust its mission to focus on differentiated medicines, including a near-term focus on lerociclib. They also began sorting out layoffs and a portfolio prioritization to save at least $125 million annually and lower cash burn.

EQRx continued to consider ways to carve up the company in an effort to deliver value to shareholders. Options considered included spinning out the immune-inflammatory assets or finding a partner for lerociclib. None of these ideas came to fruition.

Finally, on May 16—eight months since EQRx’s desperate search for a savior began—Revolution Medicines entered the picture. CEO Mark Goldsmith, M.D., Ph.D., contacted EQRx’s CEO Melanie Nallicheri and other executives to request a conversation. Revolution had not been among the parties contacted in the earlier efforts, but it did share a commonality in serial biotech founder Borisy, who was a member of Revolution’s board and one-time CEO of EQRx.

Goldsmith told Nallicheri that Revolution was interested in taking on EQRx’s cash resource to fold into its mission to develop treatments for RAS-addicted cancers. His company had no interest in continuing EQRx’s portfolio. Nallicheri indicated that her company still wanted to pull off a reset, but she would listen to any proposal Revolution submitted.

At this time, Borisy, as well as another director, Clive Meanwell, M.D., recused themselves from any discussions about a potential Revolution-EQRx merger, given their association with Revolution.

On June 2, Revolution proposed an acquisition at $1.95 in value per share, with an implied value of $950 million and a goal of announcing the deal by June 20. The board rejected the proposal as “inadequate” because it would be less than the net cash that EQRx would bring to the table at closing—which was estimated to be around $1.05 billion. Goldsmith told Nallicheri during a call about the proposal that Revolution would not pay more than the net cash.

At this time, the board began to consider whether a liquidation would provide for a better return to shareholders. They also considered whether another company might be interested in a deal similar to what Revolution was offering.

A number of parties entered the fray throughout the summer, with at least one submitting a proposal for $1.85 per share, with a value of $900 million. But Revolution came back in late June with an offer of $2.17 per share, with an implied value of $1.075 billion in Revolution common stock. On the same day, another company pitched a reverse merger with a deal value of $923 million.

After many meetings, revisions, discussions and phone calls, the deal was finally done on the evening of July 31.

It was announced a day later, and EQRx’s reset turned into Revolution.