EQRx to go public in $1.8 billion SPAC deal, with plan to make drugs cost less

EQRx’s Alexis Borisy and Melanie Nallicheri.Jessica Rinaldi/The Boston Globe

Cambridge startup EQRx announced Friday that it is raising $1.8 billion by merging with a special purpose acquisition company, to advance what it calls a “New Pharma” platform.

The SPAC deal comes less than two years after the company was founded on the bold premise that it could dramatically lower drug prices. To do that, EQRx plans to develop medicines for known disease targets and license programs from other companies, to decrease the cost of development and increase the odds of winning regulatory approval. It will also partner with health systems and insurers to understand the needs of the market.

The merger with CM Life Sciences III, a SPAC affiliated with Casdin Capital and Corvex Management, values EQRx at $3.65 billion.

New medicines come with exorbitant price tags because it takes years to discover, develop, and test them.

In a presentation for investors, EQRx said a “key assumption” about its business model is that its drugs will be 50 to 70 percent cheaper than alternatives. The company also expects to have fewer program failures, while spending less money on them than traditional pharma companies.

Most of what EQRx is working on remains under wraps, but it disclosed that some of its late-stage drug programs would address cancer and inflammatory conditions. The company said it has 10 clinical and preclinical programs, but for its business model to work, it needs to scale up. So its goal is to have more than 20 programs by the end of next year and more than 50 within 10 years — hence the flush of capital.

“We are moving rapidly toward the potential commercialization of our lead oncology programs while continuing to grow our pipeline to address the high-cost disease areas of today and in the future,” said Melanie Nallicheri, president and chief operating officer of EQRx, who will take over as CEO next month. She will replace Alexis Borisy, a former partner of the Boston venture capital firm Third Rock Ventures, who will become executive chairman of EQRx’s board of directors.

EQRx has raised $800 million from investors and it employs about 200 people. The merger is expected to close in the fourth quarter of this year.

Several local biotech companies in the Boston area are taking the SPAC route to the public market, such as Ginkgo Bioworks, Tango Therapeutics, and Gelesis. Others have pursued traditional IPOs this year, such as Adagio and TScan Therapeutics.

George Sommer, a Boston-based partner at Deloitte, said he doesn’t see evidence of a bubble in SPAC-company valuations, despite the presence of a lot of deals.

“Even if someone were to say the valuation is high or low... you are like any public company,” he said. “You can do an IPO or SPAC... you all get valued the same way once you are trading on the public market.”