A startup drugmaker wants to disrupt the pharmaceutical industry and lower drug prices by changing long-held industry practices for developing, pricing, and selling slightly different versions of costly brand-name drugs.

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About the startup

The startup, EQRx, will focus on developing so-called "me too" drugs, which imitate the biological functions of existing drugs but use distinct molecular structures so they don't infringe on existing drugs' patents. "Me too" drugs are different from generics, which are copies their branded-counterparts.

Pharmaceutical companies for decades have created and sold "me too" drugs at prices similar to the original, brand-name drugs already on the market.

But EQRx, based in Cambridge, Massachusetts, will take a different approach. Alexis Borisy—the startup's founder, chair, and CEO—said the EQRx will sell the "me too" drugs at one-third to one-fifth of price of the original, brand-name drugs to insurers and health systems. Borisy said the company will be able to set lower prices for the drugs, while still making a notable profit, by taking advantage of technological advancements that have quickened the pace and lowered the cost of drug development, as well as drug-pricing inefficiencies in the pharmaceutical market.

Borisy, a venture capitalist and longtime executive in the health care industry, said EQRx aims to bring 10 "me too" drugs to the market over the next 10 years, including five drugs within the next five years. Borisy did not say which drugs the startup plans to develop, but he noted that the company will focus on treatments for autoimmune diseases, cancer, and inflammatory diseases. Treatments for those types of conditions currently can cost tens of thousands of dollars annually, according to the Wall Street Journal.

Borisy said he expects EQRx will spend $300 million to $400 million to develop each of the treatments. In comparison, the pharmaceutical industry on average spends between $1.4 billion and $2.9 billion to develop new drugs, according to a 2016 study by the Tufts Center for the Study of Drug Development.

Borisy, who also has co-founded founded the biotech companies Foundation Medicine and Blueprint Medicines, said, "We think we can create great equally-as-good or better new drugs. We can make them available to society in a radically more affordable way at a fraction of the cost of where drugs are priced in the industry today."

And it seems venture-capital firms are buying into Borisy's belief. Andreessen Horowitz, ARCH Venture Partners, GV (formerly Google Ventures), and other firms are backing EQRx, which boasts initial investments totaling $200 million.

EQRx's co-founders include Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, and former Genentech executive Sandra Horning, who will serve as advisers to the company. Melanie Nallicheri, a biopharma veteran who most recently served as Foundation Medicine's chief business officer, and Robert Forrester, former CEO of Verastem Oncology, also will be part of EQRx.

Will EQRx lower drug prices?

It's not just venture-capital firms that are confident EQRx can pull off Borisy's claims. Various industry stakeholders have cited Borisy's experience with developing drugs and working with drugmakers as a reason why he could succeed.

Steven Pearson—president and founder of the Institute for Clinical and Economic Review, a group that looks to determine whether new treatments are fairly priced—said, "People figure [Borisy] knows what he's doing. He's seen the landscape, he knows how to bring drugs from zero to 60."

And former FDA Commissioner Scott Gottlieb, who is now sits on the boards of and invests in pharmaceutical companies, said, "If anyone can do this, [Borisy] can do it."

But other observers and health care experts have said it's unclear whether the EQRx will have a substantial effect on drug pricing because of potential obstacles in the industry, the Journal reports.

For example, the startup will have to invest in costly studies to test its drugs in order to get FDA's approval. The company also will have to navigate the drug industry's complex payment system, which is increasingly controlled by insurers and pharmacy benefit managers that can play a role in how patients access drugs, the Journal reports. Observers have noted that there is no guarantee insurers will place the EQRx's drugs on their formulary lists or steer patients toward the company's drugs by offering lowering copayments even if the drugs have lower prices. Insurers in some cases direct patients toward higher-priced drugs because of agreements they have reached with drugmakers to receive retroactive discounts and rebates, the Journal reports.

Rena Conti, an associate professor at Boston University's Questrom School of Business, said, "There are a lot of players in the pharmaceutical market that don't necessarily face the incentive to use the cheapest option."

Bach, too, has expressed some skepticism. "If this could be done and you could enter the market with an equally good drug … with a meaningful discount, can … the current problems in the distribution system be tackled, can it be that this market can be made to function like a normal market?" Bach asked. He added, "Or are the obstacles and entrenched interests or whatever problematic incentives, et cetera, so sizable that they can't be reasonably overcome at scale on a reasonable time frame?"

EQRx also could have unintended consequences outside of drug pricing, one stakeholder said.

GV General Partner Krishna Yeshwant said, if EQRx successfully brings down prices through increased competition, the industry might become less profitable overall and investments in new treatment potentially could shrink. However, Yeshwant also noted that, if fewer investments go toward brand-name drugs, more funding could become available for innovative treatments developed by biotech firms.

Further, Yeshwant said the EQRx's business model might convince lawmakers that issues related to high drug prices can be addressed with market-based solutions instead of government regulations.

For his part, Borisy remains confident the industry is ready for—and able to—change. He explained, "I've spent the last 25 years creating breakthrough new medicines," and "[w]e've ratcheted up the prices on them ever higher, frankly, because we can." But he continued, "[T]he reality is we can create a lot of these great new medicines, and turn that into a viable business charging a lot less for them. This is not fantasy world. This is something that can be done" (Walker, Wall Street Journal, 1/12; Herper, STAT News, 1/12; Al Idrus, FierceBiotech, 1/12; Owens, "Vitals," Axios, 1/13).