Not the sort of Revolution that EQRX had dreamt of

While Nasdaq remains a hostile place for small biotechs, many of these will continue to trade at valuations below their cash reserves. This could leave them open to opportunistic acquisitions, as TCR2 found out in March when it was acquired by Adaptimmune.

Last week, however, brought a deal of a completely different magnitude, as the failed US oncology pricing disrupter EQRX fell to Revolution Medicines in an all-stock transaction worth over $1bn. Why this happened, and its future implications, should provide food for thought, and for now it seems that undercutting the prices of established cancer drugs will remain a pipe dream.

This, of course, is precisely what EQRX had hoped to do when it burst onto the scene in 2021, promising to “radically lower drug prices” to the tune of 75%, and pinning initial hopes on the anti-PD-1 antibody sugemalimab and the Tagrisso follow-on aumolertinib. After the promise came a $1.8bn financing, the largest Spac (special-purpose acquisition company) deal for a pure-play drug developer.

Hopes dashed

But the dream crumbled rather fast. Within a year a US adcom slammed an approval filing for Lilly/Innovent’s PD-1 inhibitor sintilimab, saying this drug’s NSCLC trial, conducted in China, was not generalisable to a US population. EQRX had similarly planned to take on the US using clinical data generated in China, and so its business model was instantly threatened.

There had initially been hopes that Lilly/Innovent’s issues might be sintilimab-specific, and EQRX continued discussing the matter with the FDA while prioritising ex-US filings. But last November came the shocker, as EQRX accepted that the head-to-head trials necessary for US approval would be too expensive to run, formally abandoned the US cut-price oncology model, and refocused on two non-discounted small molecules.

Ultimately even that proved too big a stretch. For a price cutter to switch to a completely different business model proved unpalatable, so in the end EQRX must have decided that its best asset was whatever was left of the money its Spac had raised; at the end of the first quarter it had $1.3bn in the bank.

And Revolution managed to strike a deal where it could put to use a share price that had held up relatively well through the biotech downturn. The transaction with EQRX has a fairly complex structure, but it acts effectively as an equity fund raising, the difference versus a typical raise from new and existing investors being that the cash was already sitting in a listed entity.

Focus on cash

At least Revolution is clear about the deal’s aim, which is unambiguously stated as being “to gain more than $1bn in additional capital”. In contrast, the Adaptimmune takeover of TCR2 was pitched as the creation of a “pre-eminent cell therapy company for solid tumours”, though Adaptimmune was basically issuing $77m of stock to get its hands on $122m of TCR2’s cash.

Revolution’s Kras-focused pipeline now includes no fewer than five assets targeting various Kras mutations, in addition to projects with companion mechanisms including SHP2 and Sos1. As far as R&D goes, the Kras inhibitors look to be the main beneficiary of the expected cash injection.

And what of the US cancer drug discounting idea? One of the few companies continuing to pursue this in some form is the Fortress Biotech subsidiary Checkpoint Therapeutics, whose cosibelimab has a January 2024 Pdufa date for cutaneous squamous cell carcinoma, and which could become the ninth anti-PD-(L)1 MAb to secure US approval.

Notably, cosibelimab’s registrational trial was not conducted in China. Just as notably, however, Checkpoint is capitalised at just $40m, and ended the first quarter with only $4.8m in the bank.

Anti-PD-(L)1 MAbs yet to be approved in the US

Source: company statements & clinicaltrials.gov.