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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 September 30, 2023

or

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 (§232.405 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 October 27, 2023, the registrant had 487,696,181 shares of common stock, $0.0001 par value, outstanding.

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 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

37

Item 4. Controls and Procedures

37

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

39

Item 1A. Risk Factors

39

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

46

Item 3. Defaults Upon Senior Securities

47

Item 4. Mine Safety Disclosures

47

Item 5. Other Information

47

Item 6. Exhibits

47

Signatures

48

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.

1

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 plans and expectations regarding the proposed acquisition of our company (the Merger) by Revolution Medicines, Inc. (Revolution Medicines) in an all-stock transaction pursuant to that certain Agreement and Plan of Merger dated July 31, 2023 by and among our company, Revolution Medicines and the merger subsidiary parties thereto (the Merger Agreement);
our undertakings with respect to our product portfolio and collaboration arrangements in the Merger Agreement, including the timing of and costs or charges associated with our reductions in force and license agreement terminations, and wind-downs of partnerships and programs, including terminating or opting out of our research and development (R&D) programs, as well as the associated effects on our cash burn; and
our ability to continue as a stand-alone business if the proposed Merger is not successful, including the need to rebuild our business, pursue an alternative transaction or the potential dissolution and liquidation of our company.

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 in 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

2

that we currently deem immaterial, and these additional risks could also materially impair our business, operations or the market price of our securities.

The announcement and pendency of the Merger could adversely affect our business, prospects, financial condition, and results of operations.  
While the Merger Agreement is in effect, we are subject to restrictions on our business activities, including an obligation to use reasonable best efforts to conduct our business consistent with a mutually agreed operating and capital expenditure budget. Moreover, as required pursuant to the Merger Agreement, we have taken steps to wind down and terminate our current product pipeline and other R&D activities, which will have consequences for our business, financial condition and results of operations should the proposed Merger not be consummated.
The Merger Agreement contains provisions that could discourage a potential competing acquirer of our company or could result in any competing proposal being at a lower price than it might otherwise be.
Litigation against us, Revolution Medicines, or the members of our respective boards or management teams, could prevent or delay the completion of the Merger.
The Merger may not be completed within the expected timeframe, or at all, and significant delay or the failure to complete the Merger could adversely affect our business and the market price of our common stock.
If the Merger is not consummated by 12:00 a.m. Eastern Time on January 31, 2024, either we or Revolution Medicines may terminate the Merger Agreement, subject to certain exceptions.
If the Merger is not consummated, our board of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.
If the Merger is not consummated, and we attempt to rebuild our drug development business activities, we may be unable to attract, acquire and retain third-party collaborators, particularly as we have recently terminated or opted-out of our existing collaborations, or we may fail to do so in an effective manner.
We have terminated our license agreements with CStone Pharmaceuticals (CStone), Lynk Pharmaceutical (Hangzhou) Co., Ltd. (Lynk), G1 Therapeutics, Inc. (G1), and Hansoh (Shangai) Healthtech Co. Ltd. and Jiangsu Hansoh Pharmaceutical Group Company Ltd. (collectively, Hansoh) and we have also terminated or opted-out of our discovery collaboration agreements; accordingly, we are no longer seeking regulatory approval nor actively developing any pipeline candidates as we pursue the Merger.
We do not have any products approved for commercial sale and have not generated any revenue to date. Given the wind-down of our programs as described herein, if the Merger is consummated, we do not expect that we will ever become profitable as a stand-alone business. If the Merger is not consummated and we determine whether to rebuild our portfolio or pursue an alternative transaction, there is no guarantee we will succeed in such efforts.
Drug development is a lengthy, expensive and uncertain process. If the Merger is not consummated, and we attempt to rebuild a product pipeline, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of a product candidate. Additionally, as noted above, we may have difficulty entering into new relationships and agreements with licensing partners, other collaborators, and other relevant third parties following the termination of our existing relationships. Even if we are successful in establishing such new relationships and achieve positive clinical trial results, there is no guarantee that any product candidates will be approved. Our competitors may also obtain U.S. Food and Drug Administration (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

3

candidates. Even if we rebuild our product pipeline and are successful in obtaining regulatory approval in one indication or jurisdiction for a product candidate, it would 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.
Our financial projections are subject to significant risks, assumptions, estimates and uncertainties, and our actual results may differ materially.
Any 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 attempt to rebuild a development pipeline, and we (or our future collaboration and license partners, as applicable) are unable to obtain and maintain patent and other intellectual property protection for our technology and any 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 rebuild a development pipeline of and/or successfully commercialize our future technology and drugs may be impaired.

4

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EQRx, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share information)

September 30, 

December 31, 

  

2023

  

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

 

$

315,676

$

494,136

Short-term investments

896,624

905,150

Prepaid expenses and other current assets

 

22,206

 

28,800

Restricted cash

633

Total current assets

 

1,235,139

 

1,428,086

Property and equipment, net

 

 

2,627

Restricted cash

 

 

633

Right-of-use asset

 

 

3,804

Other investments

 

4,000

 

4,000

Other non-current assets

 

1,151

 

15,866

Total assets

$

1,240,290

$

1,455,016

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

8,103

$

19,950

Accrued expenses

 

55,623

 

29,596

Lease liability, current

 

2,060

 

2,370

Total current liabilities

 

65,786

 

51,916

Non-current liabilities:

 

  

 

  

Contingent earn-out liability

 

2,604

 

7,160

Warrant liabilities

 

792

 

5,293

Lease liability, non-current

 

 

1,461

Restricted stock repurchase liability

 

188

 

324

Total liabilities

 

69,370

 

66,154

Commitments and contingencies (note 13)

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred stock, $0.0001 par value, 2,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022

Common stock, $0.0001 par value; 1,250,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 537,540,806 and 538,549,210 shares issued as of September 30, 2023 and December 31, 2022, respectively; and 484,965,759 and 478,674,305 shares outstanding at September 30, 2023 and December 31, 2022, respectively

 

49

 

49

Additional paid-in capital

 

1,936,346

 

1,916,550

Accumulated other comprehensive income (loss)

 

252

 

(148)

Accumulated deficit

 

(765,727)

 

(527,589)

Total stockholders’ equity

 

1,170,920

 

1,388,862

Total liabilities and stockholders’ equity

$

1,240,290

$

1,455,016

See accompanying notes to the condensed consolidated financial statements.

5

EQRx, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except share and per share information)

    

Three months ended

Nine months ended

September 30, 

September 30, 

  

2023

  

2022

  

2023

  

2022

Operating expenses:

 

Research and development

$

19,729

$

56,271

$

134,236

$

156,997

General and administrative

23,404

34,095

72,157

98,150

Restructuring

58,415

88,789

Total operating expenses

101,548

90,366

295,182

255,147

Loss from operations

(101,548)

(90,366)

(295,182)

(255,147)

Other income (expense):

Change in fair value of contingent earn-out liability

(110)

(2,706)

4,556

90,863

Change in fair value of warrant liabilities

2,530

(197)

4,501

4,934

Interest income, net

16,485

8,209

47,995

12,482

Other expense, net

12

(32)

(8)

(44)

Total other income (expense), net

18,917

5,274

57,044

108,235

Net loss

$

(82,631)

$

(85,092)

$

(238,138)

$

(146,912)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

(14)

33

(3)

49

Unrealized holding gains (losses) on short-term investments

132

370

403

(1,672)

Comprehensive loss, net of tax

$

(82,513)

$

(84,689)

$

(237,738)

$

(148,535)

Net loss attributable to common stockholders - basic and diluted

$

(82,631)

$

(85,092)

$

(238,138)

$

(146,912)

Net loss per share - basic and diluted

$

(0.17)

$

(0.18)

$

(0.49)

$

(0.31)

Weighted average common shares outstanding - basic and diluted

484,229,709

475,565,990

482,135,388

473,101,935

See accompanying notes to the condensed consolidated financial statements.

6

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

Vesting of restricted common stock

1,965,437

49

49

Common stock issued upon exercise of stock options

 

167,528

 

74

 

 

74

Foreign currency translation adjustment, net of tax of $0

 

 

 

 

6

 

6

Stock-based compensation

 

 

 

6,790

 

 

6,790

Unrealized holding gains on short-term investments, net of tax of $0

44

44

Net loss

 

 

 

 

(72,956)

 

(72,956)

Balance at June 30, 2023

482,962,909

$

49

$

1,931,231

$

134

$

(683,096)

$

1,248,318

Vesting of restricted common stock

1,763,943

37

37

Common stock issued upon exercise of stock options

238,907

209

209

Foreign currency translation adjustment, net of tax of $0

(14)

(14)

Stock-based compensation

4,869

4,869

Unrealized holding gains on short-term investments, net of tax of $0

132

132

Net loss

(82,631)

(82,631)

Balance at September 30, 2023

 

484,965,759

$

49

$

1,936,346

$

252

$

(765,727)

$

1,170,920

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

Vesting of restricted common stock

 

2,343,703

 

 

49

 

 

 

49

Common stock issued upon exercise of stock options

 

353,999

 

466

 

 

 

466

Foreign currency translation adjustment, net of tax of $0

 

 

 

 

9

 

 

9

Stock-based compensation

 

 

 

9,988

 

 

 

9,988

Unrealized holding losses on short-term investments, net of tax of $0

(2,042)

(2,042)

Net loss

 

 

 

 

 

(82,546)

 

(82,546)

Balance at June 30, 2022

474,077,426

$

49

$

1,896,797

$

(2,025)

$

(420,320)

$

1,474,501

Vesting of restricted common stock

1,998,859

49

49

Common stock issued upon exercise of stock options

423,282

669

669

Foreign currency translation adjustment, net of tax of $0

33

33

Stock-based compensation

9,432

9,432

Unrealized holding losses on short-term investments, net of tax of $0

370

370

Net loss

(85,092)

(85,092)

Balance at September 30, 2022

 

476,499,567

$

49

$

1,906,947

$

(1,622)

$

(505,412)

$

1,399,962

See accompanying notes to the condensed consolidated financial statements.

7

EQRx, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

    

Nine months ended

September 30, 

2023

    

2022

Operating activities:

 

  

 

  

Net loss

$

(238,138)

$

(146,912)

Reconciliation of net loss to net cash used in operating activities:

 

 

  

Stock-based compensation

19,251

 

32,326

Depreciation expense

686

 

787

Non-cash restructuring expense (excluding stock-based compensation)

17,776

Net amortization of premiums and discounts on investments

(37,138)

(4,314)

Change in fair value of contingent earn-out liability

(4,556)

 

(90,863)

Change in fair value of warrant liabilities

(4,501)

 

(4,934)

Non-cash lease expense

(36)

 

(503)

Changes in operating assets and liabilities:

Prepaid expenses and other assets

21,309

 

8,331

Accounts payable

(11,404)

 

6,181

Accrued expenses

12,407

 

18,429

Net cash used in operating activities

 

(224,344)

 

(181,472)

Investing activities:

 

 

  

Purchases of property and equipment

(594)

 

(176)

Purchases of investments

(1,794,497)

(693,614)

Proceeds from maturities of investments

1,840,565

194,930

Net cash provided by (used in) investing activities

 

45,474

 

(498,860)

Financing activities:

 

  

 

  

Transaction costs paid in connection with December 2021 Business Combination and PIPE Financing

 

(1,363)

Proceeds from the exercise of stock options

410

 

1,175

Net cash provided by (used in) financing activities

410

 

(188)

Decrease in cash, cash equivalents and restricted cash

(178,460)

 

(680,520)

Cash, cash equivalents and restricted cash, beginning of period

 

494,769

 

1,679,175

Cash, cash equivalents and restricted cash, end of period

$

316,309

$

998,655

Purchases of property and equipment in accounts payable

$

$

420

See accompanying notes to the condensed consolidated financial statements.

8

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. In July 2023, the Company entered into the Merger Agreement (as defined below) and accordingly, has taken steps to wind down its product portfolio and research and development activities pursuant to the Merger Agreement. Accordingly, it is no longer pursuing any product candidates in active clinical development.

Proposed Acquisition by Revolution Medicines

On July 31, 2023, EQRx, Revolution Medicines, Inc., (“Revolution Medicines”), Equinox Merger Sub I, Inc., a direct, wholly owned subsidiary of Revolution Medicines (“Merger Sub I”), and Equinox Merger Sub II LLC, a direct, wholly owned subsidiary of Revolution Medicines (“Merger Sub II”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of certain conditions, Merger Sub I will be merged with and into EQRx (the “First Merger”), with EQRx surviving the First Merger as a direct, wholly owned subsidiary of Revolution Medicines (the “Surviving Corporation”), and as soon as practicable following the First Merger, the Surviving Corporation will be merged with and into Merger Sub II, with Merger Sub II surviving as a direct, wholly owned subsidiary of Revolution Medicines (together with the First Merger, the “Mergers” or the “Merger”).

The boards of directors of each of EQRx and Revolution Medicines have approved the Merger Agreement and the transactions contemplated thereby. The EQRx board of directors’ approval was made upon the recommendation of a committee of independent directors. A member of the Company’s board of directors is also a member of the board of directors of Revolution Medicines.

At the effective time of the First Merger (the “Effective Time”), each share of common stock, par value $0.0001 per share, of EQRx (“EQRx Common Stock”) issued and outstanding immediately prior to the Effective Time (other than the shares that are held by EQRx in treasury or owned by Revolution Medicines, Merger Sub I, Merger Sub II or any wholly owned subsidiary of EQRx or Revolution Medicines) will be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of common stock, par value $0.0001 per share, of Revolution Medicines (the “Parent Common Stock”) equal to the Exchange Ratio (as defined below) (such shares of Parent Common Stock, the “Merger Consideration”). The Merger Consideration will consist of a number of shares of Parent Common Stock to be issued (including in respect of converted EQRx in-the-money stock options, EQRx RSU awards and EQRx restricted stock awards) determined as follows: (i) 7,692,308 shares of Parent Common Stock, which was determined based on $200.0 million of the aggregate purchase price divided by $26.00 per share of Parent Common Stock; plus (ii) an additional number of shares of Parent Common Stock, which will be determined prior to the special meeting of stockholders of EQRx (the “EQRx Special Meeting”) and will represent $870.0 million of the aggregate purchase price divided by the five trading day volume-weighted average price per share of Parent Common Stock ending on the sixth business day prior to the scheduled EQRx Special Meeting (the “Pre-Meeting VWAP”), applying a six percent discount.

The “Exchange Ratio” will be determined by dividing the aggregate number of shares of Parent Common Stock to be issued as Merger Consideration by the number of shares of EQRx Common Stock outstanding immediately prior to the Effective Time, determined in accordance with the Merger Agreement. The number of shares of EQRx Common Stock outstanding for purposes of determining the Exchange Ratio will (i) take into account the number of shares of EQRx Common Stock subject to EQRx in-the-money stock options, EQRx RSU awards and EQRx restricted stock awards that will convert into shares of Parent Common Stock in the Merger, (ii) include 10% of the shares of EQRx Common Stock subject to Warrants (as defined in note 4) and (iii) include 10% of the shares of EQRx Common Stock subject to the Earn-Out Shares (as defined in note 4) (to the extent not waived by the applicable Earn-Out Service Provider (as defined in note 4)).

 

9

EQRx, Revolution Medicines, Merger Sub I and Merger Sub II each made certain representations, warranties and covenants in the Merger Agreement, including, among other things, covenants by EQRx to use reasonable best efforts to conduct its business consistent with a mutually agreed operating and capital expenditure budget and to use commercially reasonable efforts to wind down certain mutually agreed programs, and to refrain from taking certain actions specified in the Merger Agreement.

The parties expect that the Merger will be completed in November 2023, subject to satisfaction of customary closing conditions, including approval by each of Revolution Medicines’ and EQRx’s stockholders.

Risks and Uncertainties

In addition to risks and uncertainties related to the Merger, including the risk that the Merger is not consummated, 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.

Liquidity

The Company has limited operating history and anticipates that it will incur losses for the foreseeable future, particularly if the proposed Merger is not successful and it attempts to rebuild its internal infrastructure, identify and acquire product candidates, conduct the research and development of its product candidates, and seek marketing approval therefor. The Company incurred a net loss of $238.1 million for the nine months ended September 30, 2023, which included non-cash income of $9.1 million resulting from the recognition of the contingent earn-out liability and warrant liabilities at fair value at September 30, 2023, as compared to a net loss of $146.9 million for the nine months ended September 30, 2022, which included non-cash income of $95.8 million resulting from the recognition of the contingent earn-out liability and warrant liabilities at fair value at September 30, 2022.

As of September 30, 2023, the Company had cash, cash equivalents, short-term investments and restricted cash of $1.2 billion and an accumulated deficit of $765.7 million. The Company expects that its cash, cash equivalents, short-term investments and restricted cash as of September 30, 2023 will be sufficient to fund its obligations for at least 12 months from the date of issuance of these condensed consolidated financial statements.

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 two immaterial wholly owned subsidiaries, one of which is a 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

10

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 September 30, 2023, its results of operations for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 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 for research and development and manufacturing expenses, stock-based compensation expense, restructuring costs, 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 September 30, 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.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the applicable condensed consolidated balance sheet that sums to the total of the same such amounts shown in the condensed consolidated statement of cash flows (in thousands):

September 30, 

    

2023

    

2022

Cash and cash equivalents

$

315,676

$

998,022

Restricted cash

 

633

 

633

Total cash, cash equivalents and restricted cash

$

316,309

$

998,655

4. BUSINESS COMBINATION

Summary of December 2021 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 merger agreement dated August 5, 2021 (the “DeSPAC Merger Agreement”), by and among the former EQRx, Inc. (“Legacy EQRx”), CMLS III and Clover III Merger Sub, Inc. (“SPAC Merger Sub”). As contemplated by the

11

DeSPAC Merger Agreement, SPAC 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 “December 2021 Business Combination”). As a result of the December 2021 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 December 2021 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 December 2021 Business Combination was a precondition to the PIPE Financing.

Net Proceeds

In connection with the December 2021 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 December 2021 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 December 2021 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 December 2021 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 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 December 2021 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 December 2021 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 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

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of the December 2021 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):

    

September 30, 2023

Level 1

    

Level 2

    

Level 3

    

Total

Assets

 

  

 

  

 

  

 

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

 

$

236,230

 

$

 

$

 

$

236,230

U.S. treasury bills (due within 90 days)

 

 

39,895

 

 

39,895

Commercial paper (due within 90 days)

37,384

37,384

Investments:

U.S. treasury bills (due within 1 year)

34,600

34,600

U.S. agency securities (due within 1 year)

265,160

265,160

Commercial paper (due within 1 year)

596,864

596,864

Total financial assets

$

236,230

$

973,903

$

$

1,210,133

Liabilities

 

  

 

  

 

  

 

  

Contingent earn-out liability

$

$

$

2,604

$

2,604

Warrant liabilities

 

443

 

349

 

 

792

Total financial liabilities

$

443

$

349

$

2,604

$

3,396

    

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