EQRx, Inc. [EQRX] Filings

10-Q 1 eqrx-20230331x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 001-40312

EQRx, Inc.

(Exact name of registrant as specified in its charter)


Delaware	86-1691173
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
50 Hampshire Street, Cambridge, MA	02139
(Address of principal executive offices)	(Zip Code)

(617)315-2255

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common stock, par value $0.0001 per Share Warrants to purchase one share of common stock at an exercise price of $11.50	EQRX EQRXW	The Nasdaq Global Market The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2023, the registrant had 487,359,403 shares of common stock, $0.0001 par value, outstanding.

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TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	5
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	6
Condensed Consolidated Statements of Stockholders’ Equity	7
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3. Quantitative and Qualitative Disclosures About Market Risk	36

Item 4. Controls and Procedures	37

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	38

Item 1A. Risk Factors	38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3. Defaults Upon Senior Securities	39

Item 4. Mine Safety Disclosures	39

Item 5. Other Information	39

Item 6. Exhibits	39

Signatures	41

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “EQRx,” “the Company,” “we,” “us,” “our” and similar references refer to EQRx, Inc. together with its consolidated subsidiaries.

The EQRx logo and other trademarks or service marks of EQRx appearing in this Quarterly Report on Form 10-Q are the property of EQRx. This Quarterly Report on Form 10-Q may also contain registered marks, trademarks and trade names of other companies, all of which are the property of their respective holders.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of such terms or other similar expressions. All statements, other than statements of present or historical fact included in this Quarterly Report on Form 10-Q, that relate to our future financial performance, strategy, expansion plans, future operations, future operating results, estimated revenues, losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:

●

our strategic reset and building a pipeline of clinically differentiated, high-value medicines, including the potential benefits and clinical opportunity for our current pipeline candidates;

●

the timing of and costs or charges associated with our reductions in force and license agreement terminations, wind downs of partnerships and programs, and the savings benefits we expect to receive, and effects on our cash burn;

●

our plans to separate out our immune-inflammatory (I&I) assets, including formation of a new subsidiary and seeking capital therefor;

●

clinical trial timelines and plans for our pipeline candidates, including initiation and enrollment;

●

our ability to find a commercialization partner for aumolertinib;

●

the success, costs and timing of our product development activities;

●

our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations on any approved product;

●

our ability to locate and acquire products or product candidates and integrate those into our business;

●

our ability to maintain our existing or enter into additional license agreements, particularly in light of the termination of two of our previous license agreements, and the risk of delays or unforeseen costs in terminating such arrangements;

●

our ability to adapt our initial commercial and pricing models, plans and strategies following our strategic reset;

●

our ability to maintain our existing or enter into additional drug engineering collaborations, particularly in light of our plans to terminate the development of certain programs;

●

our ability to maintain our existing or enter into additional manufacturing agreements;

●

our ability to compete with other companies currently marketing or engaged in the development of innovative drug candidates, many of which have greater financial and marketing resources than we do;

●

the size and growth potential of the markets for our products, and our ability to serve those markets, either alone or in partnership with others;

●

changes in applicable laws or regulations;

●

our ability to raise capital in the future;

●

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

●

our financial performance;

●

our ability to compete effectively in a competitive industry;

●

our ability to protect and enhance our corporate reputation and brand;

●

expectations concerning our relationships and actions with third parties;

●

potential liquidity and trading of our securities;

●

our ability to attract and retain qualified directors, officers, employees and other key personnel;

●

our ability to grow and manage growth profitably and retain our key employees, particularly in light of

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the two reductions in force that we have announced this year; and

●

the impact of the ongoing COVID-19 pandemic, along with any other health pandemics or global events, such as the Russian invasion of Ukraine, or recent bank failures.

These forward-looking statements represent our plans, objectives, estimates, expectations and intentions only as of the date of this filing. You should read this report completely and with the understanding that our actual future results and the timing of events may be materially different from what we expect, and we cannot otherwise guarantee that any forward-looking statement will be realized. We hereby qualify all of our forward-looking statements by these cautionary statements.

Except as required by law, we undertake no obligation to update or supplement any forward-looking statements publicly, or to update or supplement the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You are advised, however, to consult any further disclosures we make on related subjects.

SUMMARY OF RISK FACTORS

Our business involves significant risks. Below is a summary of the material risks that our business faces, which makes an investment in our securities speculative and risky. This summary does not address all these risks. These risks are more fully described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on February 23, 2023 as supplemented by the risks described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Before making investment decisions regarding our securities, you should carefully consider these risks. The occurrence of any of the events or developments described below could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price. In such event, the market price of our securities could decline, and you could lose all or part of your investment. Further, there are additional risks not described below that are either not currently known to us or that we currently deem immaterial, and these additional risks could also materially impair our business, operations or market price of our securities.

●

We do not have any products approved for commercial sale and have not generated any revenue to date, and so may never become profitable.

●

We have provided notices to terminate our license agreements with CStone Pharmaceuticals (CStone) and Lynk Pharmaceutical (Hangzhou) Co., Ltd. (Lynk) and, accordingly, are no longer seeking regulatory approval for sugemalimab, nofazinlimab, or EQ121 in any jurisdiction, and we are also exploring commercialization partnerships for aumolertinib. We may make similar decisions for other pipeline candidates, indications, and/or markets, which will impact the revenues we may generate from our pipeline candidates when and if approved.

●

Our decision to separate our I&I programs into a new subsidiary may not provide the expected benefits, and we may not be successful in developing those programs as a separate business.

●

In jurisdictions in which regulators do not solely accept data from our licensing partners from other countries but instead require additional data generated from additional preclinical studies and clinical trials as a basis for regulatory approvals (such as the U.S. Food and Drug Administration (FDA)), we will incur additional costs and experience delays in completing, or ultimately may be unable to complete, the development of such product candidate; we may also choose not to pursue development for certain indications in that market given the potentially increased costs or delays, or impact on our ability to complete the development of such product candidate (such as our recent decision to terminate our license agreements with CStone for sugemalimab and nofazinlimab, and Lynk for EQ121 and our earlier decisions not to seek FDA approval of sugemalimab in Stage IV non-small cell lung cancer (NSCLC) or extranodal NK/T-cell lymphoma (ENKTL)).

●

Drug development is a lengthy, expensive and uncertain process. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of a product candidate. Even if we achieve positive clinical trial results, there is no guarantee that our product

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candidates will be approved. Our competitors may also obtain FDA or other regulatory approval for their products sooner than we may obtain approval for ours and for multiple indications in parallel, which could require us to undertake additional trials and also result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. If we experience delays in obtaining data from our licensing partners, their other licensees or other collaborators, or other relevant third parties, or we experience delays or difficulties in the initiation or enrollment of our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

●

We have never successfully completed the regulatory approval process for any of our product candidates, and we may be unable to do so for any product candidates. Even if we are successful in obtaining regulatory approval in one indication or jurisdiction for a product candidate, it does not guarantee that we will be able to obtain pricing or reimbursement approval in such jurisdiction, that our products will be broadly adopted in such jurisdiction, or that we will be able to obtain regulatory approval in any other indication or jurisdiction. Further, even if we receive regulatory approval for any of our current or future product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

●

We are now focused on building a pipeline of clinically differentiated, high-value medicines and may not be successful in adapting our mission and initial business model following our recent strategic reset.

●

We may be unsuccessful in achieving broad market awareness and acceptance or changing prescribing or purchasing habits of healthcare system participants or keeping up to date with recent developments in the medical field regarding treatment options.

●

We may be unable to continue to attract, acquire and retain third-party collaborators, particularly as we adapt our initial commercial and pricing models, plans and strategies, or we may fail to do so in an effective manner. Our collaborations with third parties are also subject to certain risks.

●

Our financial projections are subject to significant risks, assumptions, estimates and uncertainties, and our actual results may differ materially.

●

Our current or future product candidates may cause adverse or other undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

●

If we (or our collaboration and license partners, as applicable) are unable to obtain and maintain patent and other intellectual property protection for our technology and product candidates, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology and drugs may be impaired.

●

Our failure to manage growth effectively could cause our business to suffer and have an adverse effect on our ability to execute our business strategy, as well as on our operating results and financial condition.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EQRx, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share information)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	368,358	$	494,136
Short-term investments		957,584		905,150
Prepaid expenses and other current assets		29,036		28,800
Total current assets		1,354,978		1,428,086
Property and equipment, net		2,590		2,627
Restricted cash		633		633
Right-of-use asset		3,238		3,804
Other investments		4,000		4,000
Other non-current assets		18,516		15,866
Total assets	$	1,383,955	$	1,455,016
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	20,731	$	19,950
Accrued expenses		36,785		29,596
Lease liability, current		2,368		2,370
Total current liabilities		59,884		51,916
Non-current liabilities:
Contingent earn-out liability		5,231		7,160
Warrant liabilities		3,405		5,293
Lease liability, non-current		849		1,461
Restricted stock repurchase liability		275		324
Total liabilities		69,644		66,154
Commitments and contingencies (note 12)
Stockholders' equity:
Preferred stock, $0.0001 par value, 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022		—		—
Common stock, $0.0001 par value; 1,250,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 538,474,800 and 538,549,210 shares issued as of March 31, 2023 and December 31, 2022, respectively; and 480,829,944 and 478,674,305 shares outstanding at March 31, 2023 and December 31, 2022, respectively		49		49
Additional paid-in capital		1,924,318		1,916,550
Accumulated other comprehensive income (loss)		84		(148)
Accumulated deficit		(610,140)		(527,589)
Total stockholders’ equity		1,314,311		1,388,862
Total liabilities and stockholders’ equity	$	1,383,955	$	1,455,016

See accompanying notes to the condensed consolidated financial statements.

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EQRx, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands, except share and per share information)


	Three months ended
	March 31,
	2023		2022
Operating expenses:
Research and development	$	70,933	$	53,428
General and administrative		27,277		32,263
Restructuring (note 7)		3,588		—
Total operating expenses		101,798		85,691
Loss from operations		(101,798)		(85,691)
Other income (expense):
Change in fair value of contingent earn-out liability		1,929		101,774
Change in fair value of warrant liabilities		1,888		3,947
Interest income, net		15,442		182
Other income (expense), net		(12)		514
Total other income, net		19,247		106,417
Net income (loss)	$	(82,551)	$	20,726
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		5		7
Unrealized holding gains on short-term investments		227		—
Comprehensive income (loss), net of tax	$	(82,319)	$	20,733
Net income (loss) per share - basic	$	(0.17)	$	0.04
Net income (loss) per share - diluted	$	(0.17)	$	0.04
Weighted average common shares outstanding - basic	480,010,594		470,627,083
Weighted average common shares outstanding - diluted	480,010,594		491,792,152

See accompanying notes to the condensed consolidated financial statements.

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EQRx, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share information)


						Accumulated Other
	Common Stock			Additional Paid-in		Comprehensive		Accumulated		Total Stockholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balance at December 31, 2022	478,674,305	$	49	$	1,916,550	$	(148)	$	(527,589)	$	1,388,862
Vesting of restricted common stock	1,956,530		—		49		—		—		49
Common stock issued upon exercise of stock options	199,109		—		127		—		—		127
Foreign currency translation adjustment, net of tax of $0	—		—		—		5		—		5
Stock-based compensation	—		—		7,592		—		—		7,592
Unrealized holding gains on short-term investments, net of tax of $0	—		—		—		227		—		227
Net loss	—		—		—		—		(82,551)		(82,551)
Balance at March 31, 2023	480,829,944	$	49	$	1,924,318	$	84	$	(610,140)	$	1,314,311

Balance at December 31, 2021	469,369,433		49		1,873,289		1		(358,500)	$	1,514,839
Vesting of restricted common stock	1,992,005		—		59		—		—		59
Common stock issued upon exercise of stock options	18,286		—		40		—		—		40
Foreign currency translation adjustment, net of tax of $0	—		—		—		7		—		7
Stock-based compensation	—		—		12,906		—		—		12,906
Net income	—		—		—		—		20,726		20,726
Balance at March 31, 2022	471,379,724	$	49	$	1,886,294	$	8	$	(337,774)	$	1,548,577

See accompanying notes to the condensed consolidated financial statements.

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EQRx, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Three months ended
	March 31,
	2023		2022
Operating activities:
Net income (loss)	$	(82,551)	$	20,726
Reconciliation of net income (loss) to net cash used in operating activities:
Stock-based compensation		7,592		12,906
Depreciation expense		188		410
Net amortization of premiums and discounts on investments		(12,292)		—
Change in fair value of contingent earn-out liability		(1,929)		(101,774)
Change in fair value of warrant liabilities		(1,888)		(3,947)
Non-cash lease expense		(48)		(157)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(2,886)		(914)
Accounts payable		1,074		(162)
Accrued expenses		7,194		18,974
Net cash used in operating activities		(85,546)		(53,938)
Investing activities:
Purchases of property and equipment		(444)		(13)
Purchases of investments		(628,525)		—
Proceeds from maturities of investments		588,610		—
Net cash used in investing activities		(40,359)		(13)
Financing activities:
Transaction costs paid in connection with Business Combination and PIPE Financing		—		(1,363)
Proceeds from the exercise of stock options		127		40
Net cash provided by (used in) financing activities		127		(1,323)
Decrease in cash, cash equivalents and restricted cash		(125,778)		(55,274)
Cash, cash equivalents and restricted cash, beginning of period		494,769		1,679,175
Cash, cash equivalents and restricted cash, end of period	$	368,991	$	1,623,901
Supplemental disclosure of non-cash activities
Purchases of property and equipment in accounts payable	$	151	$	23

See accompanying notes to the condensed consolidated financial statements.

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EQRx, INC.

Notes to the Condensed Consolidated Financial Statements

1. NATURE OF BUSINESS

EQRx, Inc. (“EQRx” or the “Company”) is a biopharmaceutical company committed to developing and commercializing innovative medicines for some of the most prevalent disease areas.

The Company’s lead product candidate, lerociclib, is a novel, oral, and selective small molecule cyclin-dependent kinase (CDK) 4/6 inhibitor in development for use in combination with endocrine therapy. The lead indications being explored are hormone receptor positive (HR+)/human epidermal growth factor receptor 2 negative (HER2-) metastatic breast cancer (mBC) and first-line treatment of advanced/metastatic or recurrent low grade endometrioid endometrial cancer (mEC). In addition, EQRx continues to advance its early-stage research and development programs through collaborations with leading drug engineering companies, with a focus on assets with clear potential for market-leading differentiation.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to companies in the biotechnology industry, including, but not limited to, identification of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, establishment of relationships with strategic partners, and the ability to secure additional capital to fund operations. Product candidates in-licensed and to be in-licensed, discovered alone or in partnership, acquired or developed will require significant research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance and reporting capabilities.

There can be no assurance that the Company’s ability to identify product candidates and subsequently research and develop those product candidates will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained both inside and outside the United States, that any products developed will obtain necessary government regulatory approval, or that any approved products will be commercially viable. Even if the Company’s product identification and development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue, if any, from product sales, and the Company may be subject to significant competitive or litigation risks.

Liquidity

The Company has limited operating history and anticipates that it will incur losses for the foreseeable future as it builds its internal infrastructure, identifies and acquires product candidates, conducts the research and development of its product candidates, and seeks marketing approval for its late-stage programs. The Company incurred a net loss of $82.6 million for the three months ended March 31, 2023, which included non-cash income of $3.8 million resulting from the recognition of the contingent earn-out liability and warrant liabilities at fair value at March 31, 2023, as compared to a net income of $20.7 million for the three months ended March 31, 2022, which included non-cash income of $105.7 million resulting from the recognition of the contingent earn-out liability and warrant liabilities at fair value at March 31, 2022.

As of March 31, 2023, the Company had cash, cash equivalents, short-term investments and restricted cash of $1.3 billion and an accumulated deficit of $610.1 million. The Company expects that its cash, cash equivalents, short-term investments and restricted cash outstanding as of March 31, 2023 will be sufficient to fund its obligations for at least 12 months from the date of issuance of these condensed consolidated financial statements.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated interim financial statements and accompanying notes include the accounts of the Company and its wholly-owned subsidiaries EQRx International, Inc., EQRx Securities Holding Corporation and an immaterial wholly-owned foreign subsidiary. All intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ("ASC").

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2022 and the related notes, which provide a more complete discussion of the Company’s accounting policies and certain other information. The December 31, 2022 condensed consolidated balance sheet was derived from the Company’s audited financial statements. These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position as of March 31, 2023, its results of operations for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023 and 2022. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any other future annual or interim period.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates and assumptions reflected in these condensed consolidated financial statements include the accrual of research and development and manufacturing expenses, stock-based compensation expense, the valuation of the contingent earn-out liability, and the fair value of private warrants. Changes in estimates are recorded in the period in which they become known. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions and, given the subjective element of the estimates and assumptions made, actual results may differ from estimated results.

3. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents as of March 31, 2023 consisted of money market funds (see note 5).

Amounts included in restricted cash consist of cash held to collateralize a letter of credit issued as a security deposit in connection with the Company’s lease of its corporate facility located in Cambridge, MA.

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	March 31,
	2023		2022
Cash and cash equivalents	$	368,358	$	1,623,268
Restricted cash		633		633
Total cash, cash equivalents and restricted cash	$	368,991	$	1,623,901

4. BUSINESS COMBINATION

Summary of Business Combination

EQRx, Inc., formerly known as CM Life Sciences III Inc. (“CMLS III”), was incorporated in Delaware on January 25, 2021 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On December 17, 2021 (the “Closing Date”), the Company consummated the merger transaction contemplated pursuant to a definitive merger agreement dated August 5, 2021 (the “Merger Agreement”), by and among the former EQRx, Inc. (“Legacy EQRx”), CMLS III and Clover III Merger Sub, Inc. (“Merger Sub”). As contemplated by the Merger Agreement, Merger Sub merged with and into Legacy EQRx, with Legacy EQRx surviving the merger as a wholly-owned subsidiary of CMLS III (such transactions, the “Business Combination”). As a result of the Business Combination, CMLS III was renamed EQRx, Inc., and Legacy EQRx was renamed EQRx International, Inc.

The Company assumed 11,039,957 publicly-traded warrants (“Public Warrants”) and 8,693,333 private placement warrants issued in connection with CMLS III’s initial public offering (“Private Warrants” and, together with the Public Warrants, the “Warrants”). Each Warrant entitles the holder to purchase one share of the Company’s common stock, at an exercise price of $11.50 per share. As of the Closing Date, each of the issued and outstanding Private Warrants and Public Warrants automatically converted into warrants to acquire shares of common stock.

In connection with the Business Combination, CMLS III entered into agreements with existing and new investors to subscribe for and purchase an aggregate of 120.0 million shares of common stock (the “PIPE Financing”) that resulted in gross proceeds of $1.2 billion upon the closing of the PIPE Financing. The closing of the Business Combination was a precondition to the PIPE Financing.

Net Proceeds

In connection with the Business Combination, the Company received net proceeds of $1.3 billion from the merger and related PIPE Financing. The following table summarizes the elements of the net proceeds from the Business Combination and PIPE Financing transactions (in thousands):


	Recapitalization
Cash - CMLS III's trust account and cash (net of redemptions)	$	158,160
Cash - PIPE Financing		1,200,000
Less transaction costs and fees paid as of the Closing Date		(53,596)
Proceeds from the Business Combination, net of transaction costs paid as of the Closing Date		1,304,564
Less transaction costs paid following the Closing Date		(1,363)
Net proceeds from the Business Combination	$	1,303,201

Earn-Out Shares

Following the Closing Date, holders of Legacy EQRx securities and options (“Earn-Out Service Providers”) are entitled to receive as additional merger consideration up to 50,000,000 shares of common stock (the “Earn-out Shares”), comprised of two separate tranches, for no consideration upon the occurrence of certain triggering events. Earn-Out Service Providers may receive a pro rata share of up to 35,000,000 additional shares of

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common stock if at any time between the 12-month anniversary of the Closing Date and the 36-month anniversary of the Closing Date (the “Earn-Out Period”), the common stock price is greater than or equal to $12.50 for a period of at least 20 out of 30 consecutive trading days (“Tranche 1”), and up to 15,000,000 additional shares of common stock if at any time during the Earn-Out Period the common stock price is greater than or equal to $16.50 for a period of at least 20 out of 30 consecutive trading days (“Tranche 2”).

Earn-Out Shares allocated to Earn-Out Service Providers who held equity securities not subject to any vesting conditions or restrictions as of the Closing Date of the Business Combination are accounted for in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”), as the Earn-Out Shares are not indexed to the common stock. Pursuant to ASC 815, these Earn-Out Shares were accounted for as a liability at the Closing Date of the Business Combination and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive income (loss).

Earn-Out Shares allocated to Earn-Out Service Providers who held shares of common stock or options to purchase common stock that are subject to time-based vesting conditions or restrictions as of the Closing Date of the Business Combination are accounted for in accordance with ASC Topic 718, Share-Based Compensation (“ASC 718”), as the Earn-Out Shares are subject to forfeiture based on the satisfaction of certain service conditions. Pursuant to ASC 718, these Earn-Out Shares were measured at fair value at the grant date (the Closing Date) and will be recognized as expense over the time-based vesting period with a credit to additional paid-in-capital.

5. FAIR VALUE MEASUREMENTS

Items Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	366,282	$	—	$	—	$	366,282
Investments:
U.S. treasury bills (due within 1 year)		—		9,910		—		9,910
U.S. agency securities (due within 1 year)		—		207,491		—		207,491
Commercial paper (due within 1 year)		—		728,186		—		728,186
Corporate notes (due within 1 year)		—		11,997		—		11,997
Total financial assets	$	366,282	$	957,584	$	—	$	1,323,866
Liabilities
Contingent earn-out liability	$	—	$	—	$	5,231	$	5,231
Warrant liabilities		1,904		1,501		—		3,405
Total financial liabilities	$	1,904	$	1,501	$	5,231	$	8,636

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	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	200,677	$	—	$	—	$	200,677
Commercial paper (due within 90 days)		—		291,311		—		291,311
Investments:
U.S. treasury bills (due within 1 year)		—		63,807		—		63,807
U.S. agency securities (due within 1 year)		—		14,744		—		14,744
Commercial paper (due within 1 year)		—		814,732		—		814,732
Corporate notes (due within 1 year)		—		11,867		—		11,867
Total financial assets	$	200,677	$	1,196,461	$	—	$	1,397,138
Liabilities
Contingent earn-out liability	$	—	$	—	$	7,160	$	7,160
Warrant liabilities		2,961		2,332		—		5,293
Total financial liabilities	$	2,961	$	2,332	$	7,160	$	12,453

In determining the fair value of its cash equivalents at each date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data. There were no changes in valuation techniques or transfers between fair value measurement levels for the periods presented.

The fair value of the Public Warrants was based on observable listed prices for such warrants. The fair value of the Private Warrants is equivalent to that of the Public Warrants as they have substantially the same terms; however, they are not actively traded.

The carrying amounts of the Company’s prepaid and other current assets, accounts payable and accrued liabilities, approximate fair value due to their short maturities.

Level 3 Financial Instruments

The Earn-Out Shares accounted for under ASC 815 are categorized as Level 3 fair value measurements within the fair value hierarchy because the Company estimates projections utilizing unobservable inputs. Contingent earn-out payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

In determining the fair value of the contingent earn-out liabilities, the Company uses a Monte Carlo simulation model using a distribution of potential outcomes on a monthly basis prioritizing the more reliable information available. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones, including the Company’s stock price at each reporting period, expected volatility, risk-free rate, expected term and expected dividend yield.

The Earn-Out Shares subject to liability accounting were valued using the following assumptions under the Monte Carlo simulation model:


	March 31,		December 31,
	2023		2022
Market price of public stock	$	1.94	$	2.46
Expected share price volatility		83.4%		58.5%
Risk-free interest rate		4.23%		4.42%
Estimated dividend yield		0.0%		0.0%

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The change in the fair value of the contingent earn-out liabilities during the three months ended March 31, 2023 was as follows (in thousands):


	Fair Value
Fair value as of December 31, 2022	$	7,160
Change in fair value of earn-out liability		(1,929)
Fair value as of March 31, 2023	$	5,231

6. SHORT-TERM INVESTMENTS

The following tables summarize the amortized cost, gross unrealized gains, gross unrealized losses and fair value of available-for-sale investments by type of security (in thousands):


	March 31, 2023
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Available-for-sale securities:
U.S. treasury bills (due within 1 year)	$	9,904	$	6	$	—	$	9,910
U.S. agency securities (due within 1 year)		207,370		121		—		207,491
Commercial paper (due within 1 year)		728,286		46		(146)		728,186
Corporate notes (due within 1 year)		11,994		3		—		11,997
Total available-for-sale securities	$	957,554	$	176	$	(146)	$	957,584


	December 31, 2022
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Available-for-sale securities:
U.S. treasury bills (due within 1 year)	$	63,971	$	—	$	(164)	$	63,807
U.S. agency securities (due within 1 year)		14,733		11		—		14,744
Commercial paper (due within 1 year)		814,772		247		(287)		814,732
Corporate notes (due within 1 year)		11,870		—		(3)		11,867
Total available-for-sale securities	$	905,346	$	258	$	(454)	$	905,150

There were no realized gains or losses on investments for the three months ended March 31, 2023. There were 17 and 12 investments in an unrealized loss position as of March 31, 2023 and December 31, 2022, respectively. None of these investments was in an unrealized loss position for greater than 12 months as of March 31, 2023 or December 31, 2022. The unrealized losses on the Company's available-for-sale securities were caused by the impact of central bank and market interest rates on the investments held. The Company does not intend to sell the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. The Company did not record an allowance for credit losses as of March 31, 2023 or December 31, 2022.

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7. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):


	March 31,		December 31,
	2023		2022
External research and development	$	26,910	$	25,494
Accrued compensation		4,740		1,251
Accrued professional services		1,270		975
Accrued consulting		487		967
Restructuring		2,798		—
Other		580		909
Total accrued expenses	$	36,785	$	29,596

In February 2023, the Company announced a reduction in force to further increase operational efficiencies and streamline expenses. As a result, the Company recognized a charge for employee-related termination costs in the first quarter of 2023 of $3.6 million, comprised of $3.7 million of severance and other personnel costs and $0.1 million of stock-based compensation modification gain. The severance and other personnel costs will be paid by the end of 2023. The charge is reflected in the restructuring line in the Company’s condensed consolidated statements of operations and comprehensive income (loss). In May 2023, the Company announced an additional reduction in force, as further disclosed in note 15.

8. WARRANTS

CMLS III issued the Public Warrants and Private Warrants, which have an exercise price of $11.50 and were deemed assumed by the Company in connection with the Business Combination. In accordance with the warrant agreements, the Warrants became exercisable on January 16, 2022. The Warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.

Subsequent to the Business Combination, the Public Warrants and Private Warrants met liability classification requirements because the Warrants contain provisions whereby adjustments to the settlement amount of the Warrants are based on a variable that is not an input to the fair value of a “fix-for-fixed” option and the existence of the potential for net cash settlement for the Warrant holders in the event of a tender offer. In addition, the Private Warrants are potentially subject to a different settlement amount depending upon the holder of the Private Warrants, which precludes them from being considered indexed to the entity’s own stock. Therefore, the Warrants were classified as liabilities on the Company’s condensed consolidated balance sheets at March 31, 2023 and December 31, 2022. As of March 31, 2023, no Warrants have been exercised or redeemed.

As of March 31, 2023, the following Warrants were outstanding:


Warrant Type	Shares	Exercise Price
Public Warrants	11,039,957	$	11.50
Private Warrants	8,693,333	$	11.50
Total Warrants	19,733,290

Public Warrants

Redemption of Warrants When the Price per Share of Common Stock Equals or Exceeds $18.00

The Company may redeem the outstanding Warrants:

●

in whole and not in part;

●

at a price of $0.01 per Warrant;

●

upon not less than 30 days’ prior written notice of redemption to each warrant holder; and

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●

if, and only if, the last reported sale price of the common stock for any 20 trading days within a 30-trading-day period ending three business days before the Company sends the notice of redemption to the warrant holders (“Reference Value”) equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations, and the like).

Redemption of Warrants When the Price per Share of Common Stock Equals or Exceeds $10.00

The Company may redeem the outstanding Warrants:

●

in whole and not in part;

●

at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption, provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the “fair market value” of the Company’s common stock as described below;

●

if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted per share sub-divisions, share dividends, reorganizations, reclassifications, recapitalizations, and the like); and

●

if the Reference Value is less than $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations, and the like), the Private Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above.

The “fair market value” of the common stock shall mean the volume weighted average price of the common stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of Warrants. The Company will provide its Warrant holders with the final fair market value no later than one business day after the 10-trading day period described above ends. In no event will the Warrants be exercisable in connection with this redemption feature for more than 0.361 shares of common stock per Warrant (subject to adjustment).

No fractional shares will be issued upon exercise of the Warrants.

Private Warrants

The Private Warrants are identical to the Public Warrants, except that the Private Warrants and the common stock issuable upon the exercise of the Private Warrants were not transferable, assignable or saleable until 30 days after the Closing Date, subject to certain limited exceptions. Additionally, except as described above in the discussion of the redemption of Warrants, when the price per share of common stock equals or exceeds $10.00, the Private Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

The Private Warrants and the Public Warrants contain provisions that require them to be classified as derivative liabilities in accordance with ASC 815. Accordingly, at the end of each reporting period, changes in fair value during the period are recognized as a change in fair value of warrant liabilities within the condensed consolidated statements of operations and comprehensive income (loss). The Company adjusts the warrant liability for changes in the fair value until the earlier of (a) the exercise or expiration of the Warrants or (b) the redemption of the Warrants, at which time the Warrants will be reclassified to additional paid-in capital.

Derivative Warrant liabilities are classified as non-current liabilities, as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.

The Warrants were valued on March 31, 2023 and December 31, 2022 using the listed trading price of $0.17 and $0.27, respectively.

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9. STOCKHOLDERS’ EQUITY

Preferred Stock

Upon closing of the Business Combination, pursuant to the terms of its Amended and Restated Certificate of Incorporation, the Company became authorized to issue 2,000,000 shares of preferred stock with a par value $0.0001 per share. The Company’s board of directors has the authority, without further action by the stockholders, to issue such shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the dividend, voting, and other rights, preferences and privileges of the shares. There were no issued and outstanding shares of preferred stock as of March 31, 2023.

Common Stock

Upon the closing of the Business Combination, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, the Company became authorized to issue 1,250,000,000 shares of common stock with a par value of $0.0001 per share.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the Company’s preferred stock.

As of March 31, 2023, 538,474,800 shares of common stock were issued, including 40,334,420 shares sold to Legacy EQRx’s founders, employees and advisors under restricted stock agreements (see note 10) that were exchanged in the Business Combination for common stock, and 50,000,000 Earn-Out Shares.

10. STOCK-BASED COMPENSATION

In January 2020, Legacy EQRx’s board of directors and stockholders adopted the 2019 Stock Option and Grant Plan (the “2019 Plan”), which was assumed in the Business Combination. On December 16, 2021, the Company’s board of directors and its stockholders adopted the 2021 Option Grant and Incentive Plan (the “2021 Plan”), which became effective upon the closing of the Business Combination. The 2021 Plan provides for the issuance of incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards, restricted stock units, or any combination of the foregoing to employees, board members, consultants and advisors.

Upon completion of the Business Combination, the Company ceased issuing awards under the 2019 Plan. The total number of shares of common stock that may be issued under the 2021 Plan was 59,353,357 at plan adoption (“Share Reserve”). The 2021 Plan provides that the Share Reserve will automatically increase on January 1, 2022 and each January 1 thereafter, by 5% of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Compensation and Talent Development Committee (the “Annual Increase”). Share limits under the 2021 Plan are subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under each of the 2021 Plan and the 2019 Plan will be added back to the Share Reserve. As of March 31, 2023, 88,945,914 shares remain available for future grant under the 2021 Plan.

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Stock-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive income (loss) was as follows (in thousands):


	Three months ended March 31,
	2023		2022
Stock options, restricted stock units and restricted common stock	$	6,643	$	4,784
Earn-Out Shares		949		8,122
Total stock-based compensation	$	7,592	$	12,906

Research and development	$	2,750	$	3,841
General and administrative		4,905		9,065
Restructuring		(63)		—
Total stock-based compensation	$	7,592	$	12,906

Stock Options

A summary of stock option activity for employee and nonemployee awards during the three months ended March 31, 2023 is presented below:


				Weighted
				Average	Aggregate
		Weighted-		Remaining	Intrinsic
		Average		Contractual	Value
		Exercise		Term	(in
	Options	Price		(years)	thousands)
Outstanding at December 31, 2022	43,380,290	$	3.52
Granted	—		—
Exercised	(199,109)		0.64
Cancelled/forfeited	(2,917,884)		3.63
Outstanding at March 31, 2023	40,263,297	$	3.53	8.57	$

EQRx, Inc. [EQRX] Filings
10-Q	[2023-05-08]
10-K	[2023-02-23]
10-Q	[2022-11-10]
10-Q	[2022-08-11]
10-Q	[2022-05-13]
10-K	[2022-03-23]
S-1	[2021-12-21]
10-Q	[2021-11-15]
10-Q	[2021-08-16]
10-Q	[2021-05-26]
S-1	[2021-02-25]