EQRx, Inc. (NASDAQ:EQRX) Q1 2023 Earnings Call Transcript

EQRx, Inc. (NASDAQ:EQRX) Q1 2023 Earnings Call Transcript May 8, 2023

EQRx, Inc. misses on earnings expectations. Reported EPS is $-0.17 EPS, expectations were $-0.15.

Operator: Good afternoon and welcome to the EQRx First Quarter 2023 Financial Results Conference Call. Please be advised that this conference call is being recorded. I would now like to turn the call over to Michelle Greenblatt, Head of Investor Relations.

Michelle Greenblatt: Thank you, operator and good afternoon, everyone. Earlier this afternoon, we issued a press release providing an overview of our first quarter 2023 financial results and our recent corporate progress. A copy of this release and the presentation to accompany this call are available on the Investor Relations section of our website at investors.eqrx.com. Joining me on the call today are Melanie Nallicheri, President, Chief Executive Officer and Principal Financial Officer; and Dr. Eric Hedrick, Chief Physician Executive. Before we get started, I would like to remind everyone that some of the statements that we make on this call and information presented in the slide deck include forward-looking statements as outlined on Slide 2.

Actual events and results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties and other factors, including those set forth in our most recent filings with the SEC and any other future filings that we may make with the SEC. You are cautioned not to place any undue reliance on these forward-looking statements and EQRx disclaims any obligation to update such statements. I will now turn the call over to Melanie.

Melanie Nallicheri: Thank you, Michelle. Good afternoon, everyone and thank you for joining us for our first quarter conference call. For those of you following along on the slides, I will begin on Slide 3. Today, we announced a reset for EQRx. Going forward, we will focus on developing clinically differentiated high-value medicines. To do this, we will leverage our team of experienced drug hunters, strong execution skills and significant capital position of $1.3 billion, although is to make a meaningful impact to patients and build long-term value for shareholders. Our CDK4/6 inhibitor, lerociclib, with its compelling early clinical data and potential for strong financial return is an exciting starting point from which to build our pipeline, along with some of our early-stage oncology programs.

Lerociclib has an opportunity to expand CDK4/6 inhibition into new indications and additional combinations that could be first for this class of medicine. As you’ll hear from Eric shortly, we continue to make excellent progress on the development of lerociclib, including initiating our Phase III trial in first-line advanced metastatic or recurrent low-grade endometrial cancer which we believe is the first Phase III study with a CDK4/6 inhibitor in this indication. Additionally, we are nearing the completion of patient enrollment in our Phase II open-label trial in first- and second-line hormone receptor positive HER2-negative advanced breast cancer. With this reset, we plan to remove any programs from our existing portfolio that are inconsistent with our new strategy.

Specifically, we are taking the following actions as outlined on Slide 4. First, we are seeking commercialization partnerships for aumolertinib, our third-generation EGFR inhibitor. We believe a company with an existing commercial infrastructure is better positioned to effectively deliver aumolertinib to patients around the world. Marketing authorization applications for aumolertinib for use in the treatment of EGFR mutated non-small cell lung cancer remain under review by both the United Kingdom’s MHRA for a Great Britain license and the EMA for a European Union-wide license. Second, we are terminating our existing license agreements for our 2 checkpoint inhibitors, sugemalimab and nofazinlimab as well as for our JAK-1 inhibitor, EQ121. CStone Pharmaceuticals will regain rights for the research, development and commercialization of sugemalimab and nofazinlimab and Lynk Pharmaceuticals will regain rights for the research, development and commercialization of EQ121.

We’d like to thank CStone and Lynk for their partnership and support around our original mission and believe that these assets are well placed back in their capable hands. Third, in light of our new focus, we plan to 4-wall our potentially differentiated immune-inflammatory programs which we are excited about into a separate entity under EQRx. We intend to explore its path as an independent company and pursue additional funding options. Accordingly, we are aligning our organization to our new strategy and we’ll be reducing our workforce by approximately 170 positions. I would like to thank all of our team members for their commitment, passion and contributions since our founding. It has been a true privilege to work with all of you. Difficult but necessary, these changes are setting the stage for our go-forward build of the company, providing clarity and focus.

We expect that collectively, the actions I have outlined will generate annualized cash savings of at least $125 million, enabling us to significantly lower our go-forward spend. This allows us to amplify the capital we have and puts us in the best position to move forward. Before we move on, I’d like to take a moment to reflect on what our team has accomplished over the last 3 years. We built a global bias club and align stakeholders from across the health care ecosystem around a shared goal of improving patient access; showing that the system can change is something we are proud of. Importantly and critical for our go-forward strategy, we have demonstrated that we can pick targets and assets and advance them which along with our $1.3 billion in cash, puts us in a strong position for the future.

I will now turn the call over to Eric, who will talk about the current status of our development of lerociclib.

Eric Hedrick: Thanks, Melanie. Please turn to Slide 5. I would like to begin with a reminder of the clinical profile of lerociclib which has been defined in more than 400 patients treated in clinical trials. The data generated from these studies detailed on Slide 6, clearly demonstrate that lerociclib can be dosed continuously without scheduled interruption in contrast to palbociclib and ribociclib with comparatively low rates of neutropenia. In contrast to abemaciclib, lerociclib when administered without scheduled interruption is associated with acceptably low rates of GI toxicities, such as diarrhea. Thus, lerociclib appears to have possible ease of administration advantages within the CDK4/6 inhibitor class, potential tolerability advantages for patients and an adverse event profile that may afford best-in-class combinability potential with a variety of agents in hormone receptor expressing breast cancer and other CDK4/6 inhibition sensitive tumors.

Turning to Slide 7. We plan to continue further the development of lerociclib in a variety of ways. We plan to pursue late-stage studies in novel indications for CDK4/6 inhibitors, while pursuing earlier combinations with novel agents in hormone sensitive cancers. One example of an indication which has been established to be responsive to CDK4/6 inhibition but remains an area of unmet need is metastatic or advanced endometrial cancer. We have initiated a multiregional Phase III clinical trial to evaluate lerociclib in combination with letrozole compared to letrozole placebo for the first-line treatment of patients with advanced or metastatic low-grade endometrial cancer. In addition, we are nearing the completion of enrollment in our multiregional Phase II open-label trial with lerociclib in combination with standard endocrine therapy in first-and second-line hormone receptor positive advanced breast cancer.

This trial provides the foundation for future development of lerociclib in novel combinations enabled by its potentially differentiated safety profile. With that, I will turn the call back to Melanie for a financial update and closing remarks. Melanie?

Melanie Nallicheri: Thank you, Eric. Please turn to Slide 8. A summary of our first quarter 2023 financial results can be found in the press release that we issued this afternoon. More details will be included in our 10-Q which we will file later today. As I highlighted earlier, we ended the first quarter of 2023 with $1.3 billion in cash, cash equivalents and short-term investments. Total operating expenses were $102 million versus $86 million for the same period a year ago. R&D expenses accounted for approximately 70% of our spend this quarter as we continue to advance our portfolio. Our cash burn was $86 million for the first 3 months of this year. We expect cash used in operations to be $275 million or less for 2023, including nonrecurring costs of approximately $45 million to $55 million for wind down, termination and exit costs related to the announced portfolio decisions and reduction in workforce.

We estimate our 2023 year-end cash, cash equivalents and short-term investment position to be approximately $1.1 billion. As I stated earlier, we expect to significantly lower our spend and generate annualized cash savings of at least $125 million derived on a 2023 full year basis. Key savings will be driven by the collective actions we outlined today, including the removal of several programs from our pipeline. This provides capital and financial flexibility to support additional product acquisition costs and the pursuit of additional indications. Now before we open the call for your questions, I would like to conclude with the following on Slide 9. We are resetting EQRx. Our new focus is on developing clinically differentiated high-value medicines to make an impact for patients and build shareholder value.

We believe we have the drug hunting expertise, drug development and execution capabilities and scale of capital necessary to deliver on this strategy. Our go-forward organization will have a significantly lower expected cash burn which, when combined with our current cash position of $1.3 billion opens up degrees of freedom as we plan to grow our portfolio. We look forward to sharing more about our plans and progress in the future. Thank you all for listening. I would now like to turn the call back to the operator to start the Q&A.

Q&A Session

Operator: And our first question comes from the line of Chris Shibutani with Goldman Sachs.

Chris Shibutani: Obviously, as you framed very difficult but necessary decisions, 3 things, if I could ask. Can you give us a sense for time lines for regulatory possible kind of decisiveness for aumo over in the U.K. and Europe; just frame some of the time lines there. Number 2, as you contemplate thinking about a home for the immune assets there, is there anything that you can tell us about a process that may be ongoing? And number 3, in particular, you mentioned in your prepared remarks about additional potential product acquisitions. Can you characterize what that might be when you’re thinking about your capital allocation time lines and strategies there?

Eric Hedrick: Yes. This is Eric Hedrick. I’m going to tackle the first part of this and maybe hand off to Melanie for the second 2 parts. And in terms of regulatory time lines for aumolertinib in the U.K. and the European Union, we’re anticipating decisions on those applications in this year, this calendar year. So — and then let me hand off to Melanie for the rest of it.

Melanie Nallicheri: Yes. So on the I&I assets, I just want to reemphasize what I said a few minutes ago. These are very exciting opportunities. They are nearing the clinic and we believe that to maximize the potential of these assets it really requires focus and hence, we’re putting it into an entity which originally or initially we are going to wholly own. And then over time, we are going to identify capital for that entity. And so it’s — yes, if you want to call it a process, what we’re trying to do is we want to make sure that it’s best served by dedication to this field. And then, on your third question, so on the product acquisition side, I just want to highlight that with the scale of capital that we have with the $1.3 billion that we have as of the end of this quarter and with bringing our cash burn way down, this is a time when this scale of capital is extremely valuable.

Capital has become expensive and there are a lot of people out there that are trimming their portfolios. There are a lot of companies that are trading below cash. And so we believe that, that just puts us in an interesting position to put something together that is going to be an interesting portfolio. So that’s how we’re thinking about it. I would say more to come, Chris, on this in the future.

Operator: And our next question comes from the line of Chris Schott with JPMorgan.

Unidentified Analyst: This is Ekaterina on for Chris. So first question, so on the time lines for lerociclib, can you just remind us your latest thoughts on potential time lines and how quickly you can bring the asset to market? And a second question is kind of on the adjuvant opportunity. So given some of the additional financial flexibility you have doing some of this that you’ve announced today, does that change your thinking about the adjuvant opportunity and potentially running a study in that setting? And then maybe tied to that, does Novartis is not only study that recently read out change how you’re thinking about the development path more broadly for that asset.

Eric Hedrick: Yes. Ekaterina, this is Eric. In terms of lerociclib time lines for approval, again, with our program focused on endometrial cancer, that’s a Phase III study that has just initiated and it is possible with a positive result that we’ll be looking at and seeking approval sometime in the 2026 time frame. Your question about the adjuvant opportunity. I think we’re taking a realistic approach to evaluating additional indications for lerociclib. I don’t believe that the conventionally defined adjuvant setting is one where it would make sense for us to pursue that. But we do believe that there are some other opportunities in the breast cancer setting, the hormone receptor positive breast cancer setting that we may be able to pursue in lieu of adjuvant. And we’re planning on sort of having a bigger discussion of those opportunities, I think some time in the near future.

Melanie Nallicheri: Yes, Ekaterina, I want to emphasize what Eric just said. The core for today, because we’ve shared so much information is to keep in mind how we are thinking about lerociclib which is it has a profile that allows us to take it in first-in-indication opportunities like the one that we just talked about, metastatic endometrial cancer with its tolerability profile, the ability to continuously dose. It doesn’t have the liabilities that we have in that class generally, neither the new Trupanea liabilities nor the GI toxicities. And so it is a very good backbone for combinations, whether those are doublets or triplets in the future and that’s where we believe the future is really going to go. But I would just simply say, given the amount of information that we put out here today, we’ll come back to that and we’ll make sure that we have a more in-depth conversation, Ekaterina.

Operator: And our next question comes from the line of Stephen Scala with TD Cowen.

Stephen Scala: Apologies but I am not clear on the new strategy, since it sounds similar to the strategy the company had been following since its most recent pivot that is to develop differentiated drugs. EQRx previously pivoted away from the Buyers Club in U.S., so that’s not news today. The news today is that lerociclib has made some progress and you are no longer developing some other drugs which you previously had said were differentiated. And I guess you’re abandoning the Buyers Club OUS which appeared to be making some progress. So can you clarify and for me, what I’m missing in this new strategy versus the old one? And with all due respect, it’s hard to have high confidence given the path that the company has been on for the last year or so.

Melanie Nallicheri: Let me first just reiterate that we know that today is a really important moment for the company. And you’re right, after the feedback that we received from the FDA in November, we talked about our path forward or the letter of, especially for sugemalimab in the United States. I want to remind everybody that as a company, we have a lot going on. We just talked about multiple filings that we have under review, a number of late-stage trials. We have just under 10 different partnerships. And so Steve, we wanted to be thoughtful and execute such a reset as the one that we’re describing today well and that has brought us to today. With regards to the question around the focus going forward, I just want to reiterate what we are doing here today.

We’re essentially saying we’re trimming everything from our portfolio that does not fit the go-forward strategy. I think in the past, there’s been some confusion around still retaining some of the assets and starting to pivot 2 differentiated medicines. And today, we’re creating that clarity and the focus we were saying we are only going to focus on differentiated high-value medicines going forward. Perhaps last to your point around the original mission. I want to say the following, we tried something groundbreaking, something that we all knew was going to be hard. We’re actually proud of the fact that the part that everybody thought was going to be the hardest, the ability to assemble Global Buyers Club that we’ve actually done that. But ultimately, you need to have approved drugs for the Buyers Club to pull them through.

And we just need to realize that the world around us has changed and 2 long-tail risks that we saw might — perhaps one of them might happen but not both, they both happened. It’s very sad but I think we just need to realize where we are today and hence, the clarity around what the focus is going forward.

Operator: And our next question comes from the line of Akash Tewari with Jefferies. Q – Unidentified Analyst This is Alia on for Akash. We have 2 actually. The first is, given that you have $1.3 billion in cash, can you just give us a refreshed view on your BD strategy? The second is pretty related but it essentially, would you consider looking at rare disease assets which are less likely to be negotiated by the RA and whether FDA might be more and you can leverage our partnership.

Melanie Nallicheri: Let me start and then I’ll see if Eric wants to add to my comments. So today is a lot of information that we’ve put out there. So we will — we are looking forward to providing more updates and more detail in the future and really talk in detail what we’re adding. But I just want to reiterate that with the cash that we have and with having brought our spend way down, we have the ability to assemble something really interesting. We believe that lero is an exciting starting point. And so with that firepower, we are going to come back and we’re going to talk about how we’re going to develop lero in more detail. We’ll also come back and talk about how we’re seeing the evolution of the portfolio.

Eric Hedrick: Yes. And this is Eric. I would just add, as Melanie stated, we see lerociclib is really a starting point. We’re interested in its profile. And as the field evolves towards novel combinations, having a sort of cornerstone drug with that profile for combinations, we think is important. But we didn’t intend to say that we’re going to be a company exclusively centered around lerociclib. And we are in a fortunate cash position that Melanie have stated before. And I think in terms of what opportunities we might be afforded with that cash position. We’re not going to be exclusive, I believe, to certain indications or fields. And if there are rare disease assets that we believe are good assets worthy of development and we have the expertise to drive those forward. We would consider those opportunities.

Melanie Nallicheri: And sure, more to come later on this.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating and you may now disconnect.