EQRx 10Q 2023 Q3 Quarterly report

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

☐	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.

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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 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.

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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 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

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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

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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.

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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)


	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.

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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.

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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
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.

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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.

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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. 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)).

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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

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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

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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		—		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

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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:


	September 30,		December 31,
	2023		2022
Market price of public stock	$	2.22	$	2.46
Expected share price volatility		69.4%		58.5%
Risk-free interest rate		5.37%		4.42%
Estimated dividend yield		0.0%		0.0%

The change in the fair value of the contingent earn-out liabilities during the nine months ended September 30, 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		(4,556)
Fair value as of September 30, 2023	$	2,604

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):


	September 30, 2023
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Available-for-sale securities:
U.S. treasury bills (due within 1 year)	$	34,595	$	5	$	—	$	34,600
U.S. agency securities (due within 1 year)		264,973		187		—		265,160
Commercial paper (due within 1 year)		596,849		60		(45)		596,864
Total available-for-sale securities	$	896,417	$	252	$	(45)	$	896,624

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	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 or nine months ended September 30, 2023 and 2022. There were 8 and 12 investments in an unrealized loss position as of September 30, 2023 and December 31, 2022, respectively. None of these investments was in an unrealized loss position for greater than 12 months as of September 30, 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 September 30, 2023 or December 31, 2022.

7. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
External research and development	$	1,203	$	25,494
Accrued compensation		6,025		1,251
Accrued professional services		3,055		975
Accrued consulting		131		967
Restructuring		44,113		—
Other		1,096		909
Total accrued expenses	$	55,623	$	29,596

8. RESTRUCTURING

Under ASC 420, Exit or Disposal Cost Obligations, the Company records liabilities for costs associated with exit or disposal activities in the period in which the liability is incurred. Under ASC 712, Nonretirement Postemployment Benefits, and in accordance with existing benefit arrangements, future employee termination costs to be incurred in conjunction with involuntary separations are accrued when such separations are probable and estimable. When accruing these costs, the Company will recognize the amount within a range of costs that is the best estimate within the range.

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 result in cash outlays and will be paid by the end of 2023. The Company does not expect to record further costs associated with the February 2023 restructuring.

In May 2023, the Company announced a reset of its business, including a further decrease in headcount, as well as the termination of certain license agreements, as further disclosed in note 12. As a result, from the start of the May restructuring actions in the second quarter of 2023 through September 30, 2023, the Company incurred costs of $26.8 million. The Company estimates that substantially all of the cumulative pre-tax costs

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will result in cash outlays, primarily related to employee separation costs and contract termination costs and will be mostly paid by the end of 2023. The Company does not expect to record further material costs associated with the May 2023 restructuring.

On July 31, 2023, the Company entered into the Merger Agreement with Revolution Medicines, as disclosed in note 1. Revolution Medicines does not intend to advance EQRx’s research and development portfolio following closing of the Merger. Pursuant to the Merger Agreement, the Company has taken steps to wind down and terminate its current product pipeline and other research and development activities. As a result, in August 2023, the Company provided notices to terminate its license agreements with G1 and Hansoh and has provided notice to terminate or opt-out of its Collaboration Agreements, as further disclosed in note 12. In light of the wind-down of its product pipeline, the Company has also terminated or expects to terminate the majority of its other contracts. Further, the Company initiated a phased company-wide reduction in force. In relation to these actions, the Company incurred costs of $58.4 million in the third quarter of 2023 which represent substantially all of the costs expected to be incurred. The Company estimates that substantially all of the cumulative pre-tax costs will result in cash outlays, primarily related to employee separation costs and contract termination costs and will be mostly paid by the end of 2023.

The following table summarizes the charges related to the 2023 restructuring activities by type of cost recorded in restructuring in the Company’s condensed consolidated statements of operations and comprehensive loss:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Separation costs	$	14,953	$	—	$	31,359	$	—
Contract termination costs, net		27,562		—		38,518		—
Other		15,900		—		18,912		—
Total restructuring costs	$	58,415	$	—	$	88,789	$	—

Separation costs are associated with actual or planned headcount reductions and are cash-based expenses related to employee severance, benefits and other employee separation costs.

Contract termination costs, net are associated with the termination of certain license and collaboration agreements, as further disclosed in note 12, costs to wind down various activities related to the terminations of these license and collaboration agreements, and other contract termination costs, net of any non-cash benefits resulting from contract termination negotiations.

Other costs are primarily associated with non-cash costs and include write-offs of prepaids and other assets, the full impairment of the Company’s fixed assets and right-of-use asset for its Cambridge, Massachusetts leased space, as well as employee-related costs such as share-based compensation plan costs.

The following table summarizes the charges and spending relating to the 2023 restructuring activities:


	Separation costs		Contract termination costs		Other		Total
Restructuring reserves January 1, 2023	$	—	$	—	$	—	$	—
Expenses		31,359		38,518		18,912		88,789
Reversals		—		(212)		—		(212)
Payments		(20,563)		(10,225)		—		(30,788)
Non-cash activity		(105)		5,341		(18,912)		(13,676)
Restructuring reserves September 30, 2023	$	10,691	$	33,422	$	—	$	44,113

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9. 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 December 2021 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 December 2021 Business Combination, or earlier upon redemption or liquidation.

Subsequent to the December 2021 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 September 30, 2023 and December 31, 2022. As of September 30, 2023, no Warrants have been exercised or redeemed.

As of September 30, 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

●

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

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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 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 September 30, 2023 and December 31, 2022 using the listed trading price of $0.04 and $0.27, respectively.

10. STOCKHOLDERS’ EQUITY

Preferred Stock

Upon the closing of the December 2021 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 September 30, 2023.

Common Stock

Upon the closing of the December 2021 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.

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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 September 30, 2023, 537,540,806 shares of common stock were issued, including 38,994,055 shares sold to Legacy EQRx’s founders, employees and advisors under restricted stock agreements (see note 11) that were exchanged in the December 2021 Business Combination for common stock, and 50,000,000 Earn-Out Shares.

11. 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 December 2021 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 December 2021 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 December 2021 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 September 30, 2023, 93,723,829 shares remained available for future grant under the 2021 Plan, subject to the terms of the Merger Agreement.

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


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Stock options, restricted stock units and restricted common stock	$	5,598	$	6,014	$	18,304	$	16,079
Earn-Out Shares		(729)		3,418		947		16,247
Total stock-based compensation	$	4,869	$	9,432	$	19,251	$	32,326

Research and development	$	1,326	$	3,056	$	6,501	$	10,529
General and administrative		3,470		6,376		12,484		21,797
Restructuring		73		—		266		—
Total stock-based compensation	$	4,869	$	9,432	$	19,251	$	32,326

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Stock Options

Stock options granted under the 2021 Plan generally vest over four years and expire after ten years, although options have been granted with vesting terms less than four years.

A summary of stock option activity for employee and nonemployee awards during the nine months ended September 30, 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	148,004		1.86
Exercised	(605,544)		0.68
Cancelled/forfeited	(11,511,220)		3.80
Outstanding at September 30, 2023	31,411,530	$	3.47	8.04	$	3,536
Vested at September 30, 2023	18,684,645	$	3.37	7.91	$	2,666
Vested and expected to vest at September 30, 2023	31,411,530	$	3.47	8.04	$	3,536

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2023 and 2022 was $1.14 and $2.12 per share, respectively. The fair value of options that vested during the nine months ended September 30, 2023 and 2022 was $20.4 million and $14.8 million, respectively. The aggregate intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by employees to exercise the option) during the nine months ended September 30, 2023 and 2022 was $0.8 million and $2.6 million, respectively.

In relation to the reductions in force announced in February 2023 and May 2023, the Company’s board of directors modified the terms of 676,543 and 4,111,607 stock options, respectively, that were granted to certain employees during the period from May 2020 to December 2022. Pursuant to the modified terms, the period to exercise vested options was extended from 90 days to 12 months from the date of termination. Further, the vesting of 79,454 and 210,389 of the modified stock options, respectively, was accelerated on a pro-rata basis to the option holders’ service with the Company. The incremental stock-based compensation expense recognized as a result of the modification of the awards during the nine months ended September 30, 2023 was $0.3 million.

As of September 30, 2023, there was $27.0 million of total unrecognized compensation expense related to unvested stock options that the Company expects to recognize over a remaining weighted-average period of 2.2 years.

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Restricted Stock Units

A summary of the Company’s restricted stock unit activity for employee awards during the nine months ended September 30, 2023 is presented below:


		Weighted-
		Average
	Number of	Grant Date
	Units	Fair Value
Outstanding at December 31, 2022	825,707	$	2.15
Granted	3,785,000		1.84
Vested	—		—
Forfeited	(117,583)		2.15
Outstanding at September 30, 2023	4,493,124	$	1.89

As of September 30, 2023, there was $7.0 million of total unrecognized compensation expense related to unvested restricted stock units that the Company expects to recognize over a remaining weighted-average period of 1.7 years.

Restricted Common Stock

As of September 30, 2023, the Company had issued a total of: (i) 5,603,522 shares of restricted common stock to employees and advisors of the Company under the 2019 Plan; (ii) 627,000 shares of restricted common stock to a strategic partner outside of the 2019 Plan as partial compensation for future services; and (iii) 34,865,902 shares of restricted common stock to its founders, employees and advisors outside of the 2019 Plan.

All shares of restricted common stock were issued subject to restricted stock purchase agreements between the Company and each purchaser. Pursuant to the restricted stock purchase agreements, the Company, at its discretion, has the right to repurchase unvested shares if the holder’s relationship with the Company is terminated at the lesser of the original purchase price of the shares, or the fair value of the shares at the time of repurchase. The restricted shares are not deemed to be issued for accounting purposes until they vest and are therefore excluded from shares outstanding until the repurchase right lapses and the shares are no longer subject to the repurchase feature.

A summary of the Company’s restricted common stock activity and related information during the nine months ended September 30, 2023 is as follows:


		Weighted-
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested restricted common stock at December 31, 2022	9,827,819	$	0.15
Granted	—		—
Forfeited	(1,566,862)		0.82
Vested	(5,685,910)		0.03
Unvested restricted common stock at September 30, 2023	2,575,047	$	0.04

As of September 30, 2023, there was $0.1 million of total unrecognized compensation expense related to unvested restricted common stock that the Company expects to recognize over a remaining weighted-average period of 1.0 years.

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Earn-Out Shares

The following table summarizes the activity associated with Earn-Out Shares accounted for pursuant to ASC 718 during the nine months ended September 30, 2023:


		Weighted-
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at December 31, 2022	7,377,888	$	5.67
Granted	38,220		0.17
Forfeited	(822,529)		5.67
Outstanding at September 30, 2023	6,593,579	$	5.64

Shares granted in the nine months ended September 30, 2023 were to reallocate previously forfeited Earn-Out Shares in accordance with the DeSPAC Merger Agreement. As of September 30, 2023, there was $0.9 million of total unrecognized compensation expense related to the Earn-Out Shares that the Company expects to recognize over a weighted-average period of 1.0 years.

12. LICENSE AGREEMENTS AND DISCOVERY COLLABORATIONS

License Agreements

Lerociclib – G1

In July 2020, the Company entered into a license agreement with G1 Therapeutics (“G1”), under which it acquired an exclusive license for the research, development, and commercialization of lerociclib for the treatment, using an oral-only dosage administration by continuous administration, for any and all indications in humans through the inhibition of CDK4/6 worldwide, with the exception of Australia, Bangladesh, Hong Kong Special Administration Region, India, Indonesia, Macau Special Administration Region, Malaysia, Myanmar, New Zealand, Pakistan, mainland China, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam (the “G1 Territory”). The license agreement also provided the Company with a non-exclusive license in the G1 Territory to manufacture lerociclib for purposes of obtaining regulatory approval for, and commercialization of lerociclib for the treatment, using an oral-only dosage administration, by continuous administration for any and all indications in humans through the inhibition of CDK4/6 outside of the G1 Territory. The Company had the right to terminate the license agreement with G1 for any or no reason upon at least 90 days prior written notice to G1, which it did on August 1, 2023. The Company has estimated and recorded contract termination costs in the restructuring line in the Company’s condensed consolidated statements of operations and comprehensive loss, refer to note 8.

Aumolertinib — Hansoh

In July 2020, the Company entered into a collaboration and license agreement with Hansoh (Shanghai) Healthtech Co., LTD. and Jiangsu Hansoh Pharmaceutical Group Company LTD. (“Hansoh”) (as amended on December 14, 2021) under which it acquired an exclusive license for the research, development, and commercialization of aumolertinib, a third-generation, irreversible epidermal growth factor receptor (EGFR) tyrosine kinase inhibitor (TKI), worldwide, with the exception of mainland China, Hong Kong, Macau and Taiwan (the “Hansoh Territory”). The license agreement also provided the Company with a non-exclusive license in the Hansoh Territory to research, develop and export aumolertinib for purposes of obtaining regulatory approval for, and commercialization of aumolertinib for use outside of the Hansoh Territory. The Company had the right to terminate the license agreement with Hansoh for any or no reason upon at least 180 days prior written notice to Hansoh, which it did on August 1, 2023, following which the parties mutually agreed to terminate the license agreement as of September 27, 2023. The Company has estimated and recorded contract termination costs in the restructuring line in the Company’s condensed consolidated statements of operations and comprehensive loss, refer to note 8.

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Sugemalimab/Nofazinlimab — CStone

In October 2020, the Company entered into a license agreement with CStone Pharmaceuticals (“CStone”) (as amended on August 15, 2022) under which it acquired an exclusive license for the research, development, and commercialization of CStone’s sugemalimab, an anti-PD-L-1 monoclonal antibody, and nofazinlimab, an anti-PD-1 monoclonal antibody, worldwide, with the exception of mainland China, Taiwan, Hong Kong and Macau (the “CStone Territory”). The Company had the right to terminate the license agreement with CStone for any or no reason upon providing prior written notice to CStone, which it did on May 8, 2023, following which the parties mutually agreed to terminate the license agreement as of June 5, 2023. The Company has estimated and recorded contract termination costs in the restructuring line in the Company’s condensed consolidated statements of operations and comprehensive loss, refer to note 8.

Other Licenses

Prior to the three months ended June 30, 2023, the Company had two other license agreements under which it had acquired exclusive licenses for the research, development and commercialization of preclinical and clinical compounds from pharmaceutical and/or biotechnology companies. During the three months ended June 30, 2023, the Company terminated the two other license agreements. The Company has estimated and recorded contract termination costs in the restructuring line in the Company’s condensed consolidated statements of operations and comprehensive loss, refer to note 8.

Discovery Collaboration Agreements

The Company entered into a number of discovery collaboration agreements with leading drug engineering companies pursuant to which the Company agreed to collaborate with certain collaboration partners (the “Partners”) to identify, discover and develop innovative therapeutics for agreed upon targets, with the goal of expanding the Company’s pipeline of therapies (the “Collaboration Agreements”). Pursuant to the Merger Agreement, the Company has taken steps to terminate or opt-out of all of its existing Collaboration Agreements.

Pursuant to the Collaboration Agreements, as between the parties, the Partners generally performed the discovery, profiling, preclinical and investigational new drug application (“IND”) enabling studies (the “Research Activities”) for all potential candidates. Once a candidate was identified and selected for further development (the “Collaboration Product”), the Company would have been generally responsible for all activities required to develop and commercialize the Collaboration Product. In general, the Company and the Partners would have equally shared costs (including research, development, and commercialization) and profits (losses) with respect to each Collaboration Product.

All activities performed under the Collaboration Agreements were overseen by joint steering committees established under each Collaboration Agreement and made up of an equal number of participants from the Partner and the Company. Decisions by the joint steering committee were generally made by consensus.

Pursuant to each Collaboration Agreement, the term generally continued throughout the development and commercialization of the Collaboration Products, on a product-by-product basis, until the expiration of the last payment obligation by one of the parties to the other or their earlier termination.

The Collaboration Agreements were considered to be within the scope of ASC 808, Collaborative Arrangements, as the agreements represented a joint operating activity and both the Partners and the Company were active participants and exposed to the risks and rewards. The Company recognized approximately $0.5 million and $6.9 million of research and development expenses associated with Collaboration Agreements in its condensed consolidated statements of operations and comprehensive loss during the three months ended September 30, 2023 and 2022, respectively, and $14.3 million and $18.3 million, during the nine months ended September 30, 2023 and 2022, respectively. Additionally, the Company recognized approximately $7.5 million of restructuring costs associated with Collaboration Agreements in its condensed consolidated statements of operations and comprehensive loss during the three months ended September 30, 2023.

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The Company had a Collaboration Agreement with Relay Therapeutics, Inc. (“Relay”), an entity affiliated with one of the Company’s directors. The Company incurred approximately $7.3 million and $2.7 million pursuant to the Collaboration Agreement with Relay during the nine months ended September 30, 2023, and 2022 respectively.

13. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company’s leases relate to operating leases of rented office properties. As of September 30, 2023, the Company had office space lease agreements in place for real properties in Cambridge, Massachusetts and London, United Kingdom.

In December 2019, the Company entered into a non-cancellable operating lease with Surface Oncology, Inc. (“Surface”) for 33,529 square feet of office space in Cambridge, Massachusetts (the “Sublease Agreement”). The term of the Sublease Agreement originally commenced on January 1, 2020, and was set to expire on January 31, 2023 (the “Original Term Date”), with no renewal option. On May 11, 2022, the Company entered into an amendment to the Sublease Agreement (the Sublease Agreement as so amended, the “Amended Sublease Agreement”) that extended the lease expiration date to July 31, 2024, and provided the Company with an option to further extend the lease expiration date to January 31, 2025 if Surface does not provide written notice on or before September 30, 2023 that it will retake possession of the premises on July 31, 2024. On June 15, 2023, Surface entered into a Lease Termination Agreement (the “Surface Termination Agreement”) with BMR-Hampshire LLC (the “Landlord”) pursuant to which the parties agreed to terminate that certain lease by and between the Landlord and Surface as of September 15, 2023. Pursuant to the Amended Sublease Agreement, and as a result of the Surface Termination Agreement, the Company entered into a direct lease with the Landlord as of the Surface Termination Date, on the same terms as the Amended Sublease Agreement.

Pursuant to the Sublease Agreement, the Company paid an initial annual base rent of $2.5 million, which base rent would increase after every twelve-month period during the lease term to $2.7 million for the last twelve-month period (the “Base Rent”). Pursuant to the Amended Sublease Agreement, the Base Rent decreased subsequent to the Original Term Date to an equivalent of an annual base rent of approximately $2.5 million. The Company has also agreed to pay its proportionate share of operating expenses and property taxes for the building in which the leased space is located.

The following table summarizes the effect of lease costs in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):


		Three months ended September 30,				Nine months ended September 30,
	Classification	2023		2022		2023		2022
Operating lease costs	Research and development	$	423	$	334	$	1,240	$	1,005
	General and administrative		281		308		865		934
Variable lease costs⁽¹⁾	Research and development		124		103		379		302
	General and administrative		96		94		309		279
Total lease costs		$	924	$	839	$	2,793	$	2,520

(1)	Variable lease costs include the Company’s proportionate share of operating expenses, property taxes, utilities and parking for the buildings in which the leased spaces are located.

The Company made cash payments of $0.8 million and $1.0 million under lease agreements during the three months ended September 30, 2023 and 2022, respectively, and $2.7 million and $3.0 million during the nine months ended September 30, 2023 and 2022, respectively.

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Legal Proceedings

From time to time, the Company may become subject to legal proceedings and claims which arise in the ordinary course of its business. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable, and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.

As of September 30, 2023, the Company was not party to any litigation.

14. INCOME TAXES

There has historically been no federal or state provision for income taxes because the Company has incurred operating losses and maintains a full valuation allowance against its net deferred tax assets and liabilities in the United States. For the three and nine months ended September 30, 2023 and 2022, the Company recognized no provision for income taxes in the United States. The foreign provision for income taxes was immaterial for the three and nine months ended September 30, 2023 and 2022.

Utilization of net operating loss carryforwards, tax credits and other attributes may be subject to future annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions.

15. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Net loss	$	(82,631)	$	(85,092)	$	(238,138)	$	(146,912)
Weighted average common shares outstanding, basic and diluted		484,229,709		475,565,990		482,135,388		473,101,935
Net loss per share, basic and diluted	$	(0.17)	$	(0.18)	$	(0.49)	$	(0.31)

The Company’s potentially dilutive securities, which include Warrants, Earn-Out Shares, options to purchase common stock, unvested restricted stock units and unvested restricted common stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:


	Three months ended September 30,		Nine months ended September 30,
	2023	2022	2023	2022
Outstanding Warrants	19,733,290	19,733,290	19,733,290	19,733,290
Outstanding stock options	31,411,530	41,525,885	31,411,530	41,525,885
Unvested restricted stock units	4,493,124	—	4,493,124	—
Earn-Out Shares	50,000,000	50,000,000	50,000,000	50,000,000
Unvested restricted stock	2,575,047	11,861,934	2,575,047	11,861,934

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16. SUBSEQUENT EVENTS

In connection with the Merger Agreement, two complaints have been filed as individual actions in the United States District Court for the District of Delaware and are captioned Moore v. EQRx, Inc., et al., 1:23-cv-01179 (filed October 19, 2023) and Welsh v. EQRx, Inc., et al., 1:23-cv-01184 (filed October 20, 2023) (the “Merger Actions”).

The Merger Actions generally allege that the Company’s definitive proxy statement filed on September 29, 2023 with respect to the EQRx Special Meeting (the “Proxy Statement”) misrepresents and/or omits certain purportedly material information relating to financial projections, the analyses performed by the financial advisors to the Company’s board of directors in connection with the proposed transaction, potential conflicts of interest advisors to the board of directors and the events that led to the signing of the Merger Agreement. The Merger Actions assert violations of Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9 promulgated thereunder against all defendants (the Company and its board of directors) and violations of Section 20(a) of the Exchange Act against the Company’s directors. The Merger Actions seek, among other things, an injunction enjoining the consummation of the mergers, declaratory judgment that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act, costs of the action—including plaintiffs’ attorneys’ fees and experts’ fees—and other relief the court may deem just and proper.

The Company believes that the disclosures set forth in the Proxy Statement comply fully with all applicable law and denies all allegations in the pending Merger Actions described above. The Company cannot predict the outcome of the Merger Actions. The Company and the individual defendants intend to vigorously defend against the Merger Actions and any subsequently filed similar actions. While the Company cannot predict the outcome of the Merger Actions, it believes that a loss is not probable at this time. If additional similar complaints are filed, absent new or significantly different allegations, the Company will not necessarily disclose such additional filings.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout this section, unless otherwise noted, “we,” “us,” “EQRx” and the “company” refer to EQRx, Inc. and its consolidated subsidiaries.

The following discussion contains forward-looking statements that involve risks and uncertainties. See the section under the heading “Cautionary Note Regarding Forward-Looking Statements.” Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed under the heading “Summary of Risk Factors” and below in Part II, Item 1A, “Risk Factors” included in this Quarterly Report on Form 10-Q and as set forth under “Risk Factors” in Part I, Item 1A of our Annual Report for the year ended December 31, 2022 as filed with the SEC on February 23, 2023, or the 2022 Annual Report. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, as well as our consolidated financial statements and accompanying notes thereto included in the 2022 Annual Report.

Overview

We are a biopharmaceutical company committed to developing and commercializing innovative medicines for some of the most prevalent disease areas. In July 2023, we entered into the Merger Agreement and accordingly, have taken steps to wind down our product portfolio, pursuant to the Merger Agreement. Accordingly, we are no longer pursuing any product candidates in active clinical development.

Proposed Acquisition by Revolution Medicines

On July 31, 2023, we, 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 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. Our board of directors’ approval was made upon the recommendation of a committee of independent directors.

We made certain representations, warranties and covenants in the Merger Agreement, including, among other things, covenants by us to use reasonable best efforts to conduct our 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.

We 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 our stockholders.

We do not currently have, and may never have, any product candidates approved for sale and have not generated any revenue to date. If the Merger is not consummated and we determine to rebuild a pipeline of product candidates for development, we will not generate revenue from product sales unless and until we complete clinical development for any such product candidates and successfully obtain regulatory approval therefor. We may never generate revenues that are sufficient to achieve profitability. Additionally, our pipeline and areas of focus would change if we decide to rebuild our portfolio and engage in development activities, and we will need to identify new programs and identify new targets that meet the criteria for inclusion in any future

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portfolio, as we have recently terminated or are taking steps to terminate our license agreements and other research and development collaborations and agreements. Further, if we obtain regulatory approval for any product candidates, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, manufacturing and distribution activities. We would need substantial additional funding to pursue active product development activities. If the Merger is not consummated and we determine to rebuild active development of product candidates, we would expect to finance our operations through a combination of cash on hand, equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a negative effect on our business, results of operations and financial condition.

Since inception and prior to entering into the Merger Agreement, we had focused primarily on organizing and staffing, business planning, raising capital, acquiring product candidates, conducting research and development activities for our programs, securing related intellectual property, and establishing strategic collaborations with payers and health systems.

Since inception, we have incurred significant operating losses. Our operating losses were $101.5 million and $90.4 million for the three months ended September 30, 2023 and 2022, respectively, and $295.2 million and $255.1 million for the nine months ended September 30, 2023 and 2022, respectively. We had an accumulated deficit of $765.7 million as of September 30, 2023. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we wind down our product portfolio pursuant to the Merger Agreement or if the Merger is not consummated and we determine to rebuild active development of product candidates, as well as ensure we have adequate personnel, pay for accounting, audit, legal, regulatory and consulting services, and pay costs associated with maintaining compliance with Nasdaq listing rules and the requirements of the U.S. Securities and Exchange Commission (SEC), director and officer liability insurance, investor and public relations activities and other expenses associated with operating as a public company.

Restructuring

In February 2023, we announced a reduction in force to further increase operational efficiencies and streamline expenses. As a result, we 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 of $3.7 million will result in cash outlays and will be paid by the end of 2023. We do not expect to record further costs associated with the February 2023 restructuring.

In relation to our May 2023 announcement to reset our business, including the May 2023 reduction in force, as well as the termination of certain license agreements, as further disclosed in note 12 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we incurred restructuring costs of $26.8 million from the start of the May restructuring actions in the second quarter of 2023 through September 30, 2023. We estimate that substantially all of the cumulative pre-tax costs will result in cash outlays, primarily related to employee separation costs and contract termination costs and will be mostly paid by the end of 2023. We do not expect to record further material costs associated with the May 2023 restructuring.

In connection with our undertakings in the Merger Agreement, in August 2023 we commenced a process to wind down and terminate our current product pipeline and other research and development activities. As a result, we provided notices to terminate our license agreements with G1 and Hansoh as well as notices to terminate or opt-out of our collaboration agreements, as further disclosed in note 12. In light of the wind-down of our product pipeline, we have also terminated or expect to terminate the majority of our other contracts. Further, we initiated a phased company-wide reduction in force. In relation to these actions, we incurred costs of $58.4 million in the third quarter of 2023 which represent substantially all of the costs expected to be

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incurred. We estimate that substantially all of the cumulative pre-tax costs will result in cash outlays, primarily related to employee separation costs and contract termination costs and will be mostly paid by the end of 2023.

Financial Overview

Revenue

To date, we have not recognized any revenue, including from product sales. If we rebuild a pipeline of product candidates and our development efforts are successful and result in regulatory approval, or we out-license (including sublicense) any future product candidates through agreements with third parties, we may generate revenue in the future. However, there can be no assurance as to when we will generate such revenue, if at all.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our product candidates, salaries and benefits, and third-party licensing fees. We expense research and development costs as incurred, which include:

●

employee-related expenses, including salaries, bonuses, benefits, stock-based compensation, and other related costs for those employees involved in our research and development efforts;

●

external research and development expenses incurred under agreements with contract research organizations as well as consultants that conduct our preclinical studies and development services;

●

costs incurred under our collaboration agreements;

●

costs related to manufacturing material for our preclinical and clinical studies;

●

costs related to compliance with regulatory requirements; and

●

facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, utilities and insurance.

We track external research and development costs on a program-by-program basis once we have identified a product candidate. We do not allocate employee costs, facilities costs, including depreciation, or other indirect costs, to specific programs because these costs are, in many cases, deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research activities as well as for managing our preclinical development, clinical development and manufacturing activities.

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The following table summarizes our research and development expenses (in thousands):


	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Lerociclib	$	4,827	$	3,070	$	19,171	$	6,916
Aumolertinib		2,545		3,852		25,749		11,580
Sugemalimab		—		10,749		12,881		26,309
Nofazinlimab		—		375		514		2,687
EQ121		—		2,478		1,108		10,819
Preclinical assets		487		6,545		14,406		21,412
Unallocated other research and development expenses		3,805		13,642		23,863		32,154
Unallocated compensation expense		8,065		15,560		36,544		45,120
Total research and development expenses	$	19,729	$	56,271	$	134,236	$	156,997

We expect research and development expenses will decrease in 2023 as we have ceased active clinical development of our product candidates and are winding down our portfolio pursuant to the Merger Agreement. If we are not successful in completing the proposed acquisition by Revolution Medicines, and we determine to rebuild a product candidate pipeline and engage in clinical development of any biopharmaceutical candidates, our research and development expenses would be affected. We cannot determine with certainty the timing of initiation, the duration or the completion costs of any future preclinical studies and clinical trials of any product candidates due to the inherently unpredictable nature of preclinical and clinical development combined with the uncertain nature of the proposed Merger. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. If we decide to rebuild a product candidate portfolio, we anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each such product candidate’s commercial potential. We expect that our expenses for indications we decide to pursue, if any, would increase substantially, particularly due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

●

the scope, rate of progress, and expenses of resuming research activities as well as any preclinical studies, clinical trials and other research and development activities;

●

establishing an appropriate safety profile with investigational new drug (IND) enabling studies;

●

successful enrollment in and completion of any future clinical trials;

●

whether any such future product candidates show safety and efficacy in clinical trials;

●

receipt of marketing approvals from applicable regulatory authorities;

●

the progress of any future discovery collaborations with strategic partners;

●

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

●

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for any product candidates;

●

commercializing product candidates, if and when approved, whether alone or in collaboration with others; and

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●

continued acceptable safety and efficacy profile of products following any regulatory approval.

Any changes in the outcome of any of these variables with respect to the development of any future product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of any product candidates. We may never succeed in achieving regulatory approval for any product candidates. We may obtain unexpected results from clinical trials. We may elect to further discontinue, delay or modify clinical trials of some product candidates or focus on other product candidates. See Item 1A, "Risk Factors" in the 2022 Annual Report as supplemented by this quarterly report on Form 10-Q for additional information on risk factors that could impact the discovery, development and regulatory approval of product candidates should we determine to rebuild a product candidate pipeline and resume development activities.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs for our executive and administrative functions. General and administrative expenses also include professional services, including legal, accounting and audit services and other consulting fees, as well as facility costs not otherwise included in research and development expenses, insurance and other general administrative expenses. In addition, if and when we obtain regulatory approval for any product candidates, we expect to incur additional expenses related to the building of a team to support product sales and distribution activities. However, at this time, we are not pursuing active clinical development of any product candidates. Overall, we anticipate that our general and administrative expenses will decrease due to the cost reduction measures included in the restructuring implemented in the first and second quarters of 2023, as well as in the third quarter following our reductions in force, license agreement terminations and wind-downs of programs pursuant to the Merger Agreement.

Restructuring Expenses

Restructuring expenses consist of separation costs, contract termination costs, net, and other costs associated with our 2023 restructuring activities through September 30, 2023. Separation costs incurred are associated with actual and planned headcount reductions and are cash-based expenses related to employee severance, benefits and other employee separation cost. Contract termination costs, net are associated with the termination of certain license and collaboration agreements, costs to wind down various activities related to the terminations of these license and collaboration agreements, and other contract termination costs, net of any non-cash benefits resulting from contract termination negotiations. Other costs include write-offs of prepaids and other assets, as well as employee-related costs such as share-based compensation plan costs.

Other Income (Expense), Net

Change in Fair Value of Contingent Earn-Out Liability

Change in fair value of contingent earn-out liability includes the changes in fair value of the Earn-Out Shares, which were classified as liabilities as part of the consideration for the business combination with CM Life Sciences III, Inc. (CMLS III) pursuant to the merger agreement dated August 5, 2021 by and among the former EQRx, Inc. (Legacy EQRx), CMLS III and Clover III Merger Sub, Inc. that closed on December 17, 2021 (the December 2021 Business Combination).

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities includes the changes in fair value of the warrants issued by CMLS III, which are classified as liabilities, and were assumed as part of the December 2021 Business Combination.

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Interest Income, Net

Interest income, net primarily consists of income earned on our cash, cash equivalents and short-term investments.

Other Expense, Net

Other expense, net consists of miscellaneous income and expense unrelated to our core operations.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022


	Three months ended September 30,
	2023		2022		Change
Operating expenses:
Research and development	$	19,729	$	56,271	$	(36,542)
General and administrative		23,404		34,095		(10,691)
Restructuring		58,415		—		58,415
Total operating expenses		101,548		90,366		11,182
Loss from operations		(101,548)		(90,366)		(11,182)
Other income (expense):
Change in fair value of contingent earn-out liability		(110)		(2,706)		2,596
Change in fair value of warrant liabilities		2,530		(197)		2,727
Interest income, net		16,485		8,209		8,276
Other expense, net		12		(32)		44
Total other income, net		18,917		5,274		13,643
Net loss	$	(82,631)	$	(85,092)	$	2,461

Research and Development Expenses

Research and development expenses were $19.7 million for the three months ended September 30, 2023, compared to $56.3 million for the three months ended September 30, 2022. The decrease of $36.5 million was primarily driven by a $21.9 million decrease in discovery, preclinical and clinical development costs, resulting from the steps taken to wind down and terminate our current product pipeline and other research and development activities, a $7.5 million decrease in employee-related expenses as a result of the 2023 reductions in force, a $3.3 million decrease in information technology, facilities and other allocated expenses which were driven by the 2023 cost reduction measures, and a $3.8 million decrease in consulting and professional fees.

General and Administrative Expenses

General and administrative expenses were $23.4 million for the three months ended September 30, 2023, compared to $34.1 million for the three months ended September 30, 2022. The decrease of $10.7 million was primarily driven by a $9.7 million decrease in employee-related expenses as a result of the 2023 reductions in force.

Restructuring Expenses

Restructuring expenses were $58.4 million for the three months ended September 30, 2023, comprised of $15.0 million of separation costs, $27.5 million of contract termination costs, net and $15.9 million of other restructuring expenses. We did not incur restructuring expenses in 2022.

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Other Income (Expense), Net

Total other income, net was $18.9 million for the three months ended September 30, 2023, compared to total other income, net of $5.3 million for the three months ended September 30, 2022. The increase of $13.6 million was primarily due to an increase of $8.3 million related to interest income from our cash, cash equivalents and short-term investments and an increase of $5.3 million in non-cash gain related to the remeasurement of the contingent earn-out liability as of September 30, 2023, primarily reflecting the overall decrease in our stock price.

Comparison of the Nine months Ended September 30, 2023 and 2022


	Nine months ended
	September 30,
	2023		2022		Change
Operating expenses:
Research and development	$	134,236	$	156,997	$	(22,761)
General and administrative		72,157		98,150		(25,993)
Restructuring		88,789		—		88,789
Total operating expenses		295,182		255,147		40,035
Loss from operations		(295,182)		(255,147)		(40,035)
Other income (expense):
Change in fair value of contingent earn-out liability		4,556		90,863		(86,307)
Change in fair value of warrant liabilities		4,501		4,934		(433)
Interest income, net		47,995		12,482		35,513
Other expense, net		(8)		(44)		36
Total other income, net		57,044		108,235		(51,191)
Net loss	$	(238,138)	$	(146,912)	$	(91,226)

Research and Development Expenses

Research and development expenses were $134.2 million for the nine months ended September 30, 2023, compared to $157.0 million for the nine months ended September 30, 2022. The decrease of $22.8 million was primarily driven by a $11.0 million decrease in discovery, preclinical and clinical development costs, resulting from the steps taken to wind down and terminate our current product pipeline and other research and development activities, a $8.6 million decrease in employee-related expenses as a result of the 2023 reductions in force, a $3.7 million decrease in information technology, facilities and other allocated expenses which were driven by the 2023 cost reduction measures, and a $4.5 million decrease in license and milestone fees, as the first nine months of 2022 included $5.0 million of milestone fees for achieving certain developmental milestones under the license agreement with Lynk, partially offset by a $5.0 million increase in consulting and professional fees, primarily related to MAA preparation and inspection readiness associated with the regulatory filing and review processes in Europe.

General and Administrative Expenses

General and administrative expenses were $72.2 million for the nine months ended September 30, 2023, compared to $98.2 million for the nine months ended September 30, 2022. The decrease of $26.0 million was primarily driven by a $17.4 million decrease in employee related expenses, resulting from the 2023 reductions in force, a $4.1 million decrease in consulting and professional fees, a $2.3 million decrease in costs associated with the partnership contracts we used to have in place with certain payers and health systems, and a $2.2 million decrease in information technology, facilities and other allocated expenses which were driven by the 2023 cost reduction measures.

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Restructuring Expenses

Restructuring expenses were $88.8 million for the nine months ended September 30, 2023, comprised of $31.4 million of separation costs, $38.5 million of contract termination costs, net and $18.9 million of other restructuring expenses. We did not incur restructuring expenses in 2022.

Other Income, Net

Total other income, net was $57.0 million for the nine months ended September 30, 2023, compared to $108.2 million for the nine months ended September 30, 2022. The decrease of $51.2 million was primarily due to a $86.7 million change in non-cash gain related to the remeasurement of the contingent earn-out liability and warrant liabilities as of September 30, 2023, partially offset by a $35.5 million increase in interest income from our cash, cash equivalents and short-term investments.

Liquidity and Capital Resources

The following table summarizes our cash, cash equivalents, short-term investments and working capital as of September 30, 2023 and December 31, 2022 (in millions):


	September 30,		December 31,
	2023		2022
Cash, cash equivalents and short-term investments	$	1,212	$	1,399
Working capital		1,169		1,376

Our cash, cash equivalents and short-term investments are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Cash, cash equivalents and short-term investments as of September 30, 2023 decreased by $187.0 million, or 13%, compared to December 31, 2022, primarily due to a net cash outflow from operating activities of $224.3 million, partially offset by net amortization of premiums and discounts on investments of $37.1 million.

Working capital, which is current assets less current liabilities, as of September 30, 2023 decreased by $206.8 million, or 15%, compared to December 31, 2022, primarily due to a net decrease in cash, cash equivalents and short-term investments of $187.0 million, primarily to fund our operating activities, a $6.6 million decrease in prepaid expenses, and a $14.2 million net increase in accounts payable and accrued expenses.

Sources of Liquidity

Since our inception, we have generated recurring net operating losses and we have not yet commercialized any products. Since our inception, we have funded our operations primarily through proceeds from the issuance of preferred stock and common stock. To date, we have raised an aggregate of approximately $2.2 billion of gross proceeds from the sale of convertible preferred shares, convertible preferred notes that were issued in 2019 and subsequently converted into shares of Legacy EQRx Series A convertible preferred stock, the December 2021 Business Combination and the concurrent private placement completed in 2021. As of September 30, 2023, we had cash, cash equivalents, short-term investments and restricted cash of $1.2 billion.

Funding Requirements

We believe that our existing cash, cash equivalents and short-term investments on hand as of September 30, 2023 of $1.2 billion will enable us to fund our ongoing operations for a period of at least 12 months from the date of the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

If the proposed Merger is not successful, and we determine to rebuild a product candidate pipeline and resume research and development efforts, we expect that we would incur significant expenses and operating losses for

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the foreseeable future. In addition, we expect that we would continue to incur additional costs associated with operating as a public company. Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including:

●

the consummation of the proposed Merger, including the timing thereof;

●

our headcount size and associated costs if we determine to rebuild a product candidate pipeline and resume research and development efforts and potentially establish a commercial infrastructure;

●

the progress of any future efforts to acquire, in-license or sub-license rights to, or otherwise discover (alone or in partnership) product candidates, should we resume such activities in an effort to rebuild a product candidate pipeline;

●

the scope, progress, results and costs of any future research programs and development of any product candidates that we may pursue;

●

if we rebuild a pipeline of product candidates, the outcome, timing and costs of meeting regulatory requirements established by the FDA, the European Medicines Agency, the United Kingdom’s Medicines and Healthcare products Regulatory Agency and other regulatory authorities;

●

the costs and timing of any future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of product candidates for which we receive marketing approval;

●

the costs and timing of establishing commercial-scale manufacturing activities;

●

the timing and amount of milestone and royalty payments that we could be required to make or be eligible to receive under future collaboration and license agreements, and the revenue, if any, received from commercial sales of any other product candidates for which we receive marketing approval;

●

the costs of expanding, maintaining and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

●

the costs of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our product candidates;

●

the effect of competing technological and market developments; and

●

the costs of operating as a public company.

Until such time, if ever, as we generate substantial product revenues to support our cost structure, and if we do not consummate the proposed Merger, we expect that we may finance our cash needs through a combination of cash on hand, equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock and other securities. Market volatility resulting from global economic and financial markets uncertainty, such as high

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inflation or the recent bank failures or other factors could also adversely impact our ability to access capital as and when needed. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our future product development or commercialization efforts, if any, or grant third parties rights to develop and market our product candidates, if any, even for product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

The following table sets forth the major sources and uses of cash for each of the periods (in thousands):


	Nine months ended
	September 30,
	2023		2022
Net cash used in operating activities	$	(224,344)	$	(181,472)
Net cash provided by (used in) investing activities		45,474		(498,860)
Net cash provided by (used in) financing activities		410		(188)
Net decrease in cash, cash equivalents and restricted cash	$	(178,460)	$	(680,520)

Operating Activities

Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for non-cash operating items such as gain (loss) from change in fair value of contingent earn-out and warrant liabilities, net amortization of investment premiums and discounts, and stock-based compensation, as well as changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.

Cash used in operating activities for the nine months ended September 30, 2023, was $224.3 million and consisted of net loss of $238.1 million plus non-cash adjustments of $8.5 million, partially offset by a net change in our operating assets and liabilities of $22.3 million. Non-cash items primarily included $37.1 million of net amortization of premiums and discounts on investments, $9.1 million of gain from change in fair value of contingent earn-out and warrant liabilities, partially offset by $19.3 million of stock-based compensation expense. The net cash provided by changes in our operating assets and liabilities of $22.3 million was primarily due to a $21.3 million decrease in prepaid expenses and other assets and a $1 million increase in accounts payable and accrued expenses.

Cash used in operating activities for the nine months ended September 30, 2022, was $181.5 million and consisted of net loss of $146.9 million plus non-cash adjustments of $67.5 million, partially offset by changes in our operating assets and liabilities of $32.9 million. Non-cash items primarily included $95.8 million of gains from change in fair value of contingent earn-out and warrant liabilities, $4.3 million of net amortization of premiums and discounts on investments partially offset by $32.3 million of stock-based compensation expense. The net cash provided by changes in our operating assets and liabilities of $32.9 million was primarily due to a $18.4 million increase in accrued expenses, $6.2 million increase in accounts payable, and a $8.3 million decrease in prepaid expense and other assets.

Investing Activities

Cash provided by investing activities for the nine months ended September 30, 2023 of $45.5 million consisted primarily of proceeds of $1,840.6 million from maturities of investments, partially offset by $1,794.5 million of purchases of short-term available-for-sale securities.

Cash used in investing activities for the nine months ended September 30, 2022 of $498.9 million consisted primarily of $693.6 million of purchases of short-term available-for-sale securities, partially offset by proceeds of $194.9 million from maturities of investments.

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Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2023 was $0.4 million and consisted of proceeds from the issuance of common stock upon the exercise of stock options.

Cash used in financing activities for the nine months ended September 30, 2022 was $0.2 million, and consisted primarily of $1.4 million of offering costs paid in connection with the December 2021 Business Combination and PIPE Financing, partially offset by $1.2 million of proceeds from the issuance of common stock upon the exercise of stock options.

Critical Accounting Policies and Significant Judgments and Estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and notes to the financial statements in the 2022 Annual Report. There have been no material changes to these critical accounting policies and estimates through September 30, 2023 from those discussed in the 2022 Annual Report, other than as set forth below.

Restructuring

In connection with our 2023 restructuring activities through September 30, 2023, we recorded restructuring costs. The determination of these restructuring costs requires our management to make estimates and judgments regarding our future plans, including future termination benefits to be incurred in conjunction with involuntary separations, as well as when such separations are probable and estimable and contract termination costs. In connection with these actions, management also assesses the recoverability of assets employed in the business. If our estimations and assumptions prove to be inaccurate, we may be required to record additional restructuring costs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our assessment of our market risks or to our management of such risks since their presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls

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and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our management, with the participation of our Chief Executive Officer, who serves as our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are probable to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on our business, financial condition, results of operations and prospects because of defense and settlement costs, diversion of management resources and other factors.

The Merger Actions generally allege that our definitive proxy statement filed on September 29, 2023 with respect to the special meeting of our stockholders (the Special Meeting) to be held on November 8, 2023 (the Proxy Statement) misrepresents and/or omits certain purportedly material information relating to financial projections, the analyses performed by the financial advisors to our board of directors in connection with the proposed transaction, potential conflicts of interest advisors to the board of directors and the events that led to the signing of the Merger Agreement. The Merger Actions assert violations of Section 14(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder against all defendants (us and our board of directors) and violations of Section 20(a) of the Exchange Act against our directors. The Merger Actions seek, among other things, an injunction enjoining the consummation of the mergers, declaratory judgment that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act, costs of the action—including plaintiffs’ attorneys’ fees and experts’ fees—and other relief the court may deem just and proper.

We believe that the disclosures set forth in the Proxy Statement comply fully with all applicable law and deny all allegations in the pending Merger Actions described above. We cannot predict the outcome of the Merger Actions. We and the individual defendants intend to vigorously defend against the Merger Actions and any subsequently filed similar actions. If additional similar complaints are filed, absent new or significantly different allegations, we will not necessarily disclose such additional filings.

ITEM 1A. RISK FACTORS

Information regarding risk and uncertainties related to our business appears in Part I, Item 1A. “Risk Factors” of our 2022 Form 10-K. There have been no material changes from the risk factors previously disclosed in the 2022 Form 10-K other than as set forth below.

Risks Related to the Proposed Mergers

Because the exchange ratio depends on the price of Revolution Medicines common stock as well as the number of shares of our common stock outstanding immediately prior to the completion of the First Merger, which can fluctuate, the value of the merger consideration that our equityholders will receive in the mergers is uncertain.

Upon completion of the First Merger, each share of our common stock that is issued and outstanding immediately prior to the effective time (other than (i) any shares of our common stock owned by any wholly owned subsidiary of our company immediately prior to the effective time (or held in our treasury) or (ii) any shares of our common stock owned by Revolution Medicines, Merger Sub I, Merger Sub II or any other wholly owned subsidiary of Revolution Medicines immediately prior to the effective time) will be converted automatically into the right to receive a number of shares of Revolution Medicines common stock equal to the exchange ratio as set forth in the Merger Agreement. The aggregate merger consideration will consist of a number of shares of Revolution Medicines common stock (including in respect of our converted in-the-money options, our RSUs and our restricted stock) determined as follows: 7,692,308 shares of Revolution Medicines

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common stock; plus an additional number of shares of Revolution Medicines common stock, which will be determined prior to the Special Meeting and will represent $870.0 million of the aggregate purchase price divided by the daily volume weighted average closing price of one share of Revolution Medicines common stock on the Nasdaq, as such daily volume weighted average closing price is reported by Bloomberg L.P., calculated to four decimal places and determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours, for each of the five consecutive trading days ending on and including the date that is the sixth business day prior to the date of the Special Meeting (the pre-Special Meeting VWAP), applying a 6% discount. The exchange ratio will be determined by dividing the aggregate number of shares of Revolution Medicines common stock to be issued as merger consideration by the number of shares of our common stock outstanding immediately prior to the effective time, determined in accordance with the Merger Agreement (which number of shares is not known at this time).

The value of the 7,692,308 shares of Revolution Medicines common stock already determined to be included in the merger consideration will depend upon the market price of Revolution Medicines common stock at the time the mergers are completed and the shares of Revolution Medicines common stock are delivered to our equityholders. The number of additional shares of Revolution Medicines common stock to be included in the merger consideration will not be determined until closer proximity to the Special Meeting and, therefore, will depend upon the price of Revolution Medicines common stock during the five-day trading period used to determine the pre-Special Meeting VWAP.

As of the date of this Quarterly Report filed on Form 10-Q, it is impossible to accurately predict the pre-Special Meeting VWAP or the number of shares of our common stock, determined in accordance with the Merger Agreement, that will be outstanding as of immediately prior to the effective time and, therefore, impossible to accurately predict the exchange ratio and, thus, the total number or value of the shares of Revolution Medicines common stock that our equityholders will receive in the mergers. The market price for Revolution Medicines common stock may fluctuate both prior to completion of the mergers and thereafter for a variety of reasons, including, among others, general market and economic conditions, changes in laws and regulations, other changes in Revolution Medicines’ business, financial condition, results of operations and prospects, developments in Revolution Medicines’ clinical programs and product candidates, market assessments of the likelihood that the mergers will be completed, and the expected timing of the mergers.

The mergers may be delayed or may not be completed and the Merger Agreement may be terminated in accordance with its terms, which could negatively impact Revolution Medicines and/or our company.

The mergers are subject to a number of conditions that must be satisfied, some of which are beyond the control of Revolution Medicines and our company, may not be satisfied or waived in a timely manner or at all, and, accordingly, the mergers may be delayed or not completed. These conditions include:

●

the approval by Revolution Medicines stockholders of the issuance of shares of the Revolution Medicines common stock in the mergers and approval by our stockholders of the merger;

●

approval for listing on the Nasdaq of the shares of Revolution Medicines common stock (including those to be issued pursuant to the Merger Agreement) (subject to official notice of issuance);

●

the expiration or earlier termination of any applicable waiting period under U.S. antitrust and competition laws, if applicable;

●

the absence of governmental restraints or prohibitions preventing the consummation of the mergers; and

●

the effectiveness of the registration statement on Form S-4 registering the Revolution Medicines common stock issuable pursuant to the Merger Agreement and the absence of any stop order by the SEC with respect to such registration statement.

The obligation of each of Revolution Medicines and our company to consummate the mergers is also conditioned on, among other things, the absence of a material adverse effect on the other party, the truth and correctness of the representations and warranties made by the other party on the date of the Merger Agreement and on the closing date (subject to certain materiality qualifiers), and the performance by the other party in all material respects of its obligations under the Merger Agreement. No assurance can be given that the required

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consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the mergers could cause Revolution Medicines not to realize, or to be delayed in realizing, some or all of the benefits that Revolution Medicines expects to achieve if the mergers are successfully completed within the expected timeframe. See also the Merger Agreement, which is filed as Exhibit 2.2 to this Quarterly Report on Form 10-Q.

Additionally, either Revolution Medicines or our company may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the First Merger has not been consummated prior to 12:00 a.m., Eastern Time, on January 31, 2024. In addition, if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, Revolution Medicines would be required to pay us a termination fee of $65,000,000, or we would be required to pay Revolution Medicines a termination fee of $25,000,000. Additionally, if the Merger Agreement is terminated because of failure of one party to obtain the required stockholder approval, and no termination fee is payable, the party that did not receive approval would be required to reimburse the other party’s reasonable, documented expenses, up to $10,000,000.

If the mergers are not completed for any reason, including as a result of a failure to obtain the required stockholder votes, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the mergers, we would be subject to a number of risks, including the following:

●

we may experience negative reactions from the financial markets, including negative impacts on our stock price;

●

we may experience negative reactions from our partners, suppliers, employees and others;

●

we will be required to pay our merger-related costs, such as financial advisory, legal and accounting costs and associated fees and expenses, including, if applicable, a termination fee (with certain exceptions), whether or not the mergers are completed; and

●

matters relating to the mergers (including winddown planning for our company) will require substantial commitments of time and resources by our management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to us as an independent company.

Further, we have commenced a process to wind-down and terminate our current product pipeline and other research and development activities and, thus, if the mergers are not completed, we will not have any product candidates in active clinical development nor any material research and development collaborations. Further, we have streamlined our operations through reductions in force in contemplation of the merger and would need to grow our operations to support operating as a biopharmaceutical company. There is no guarantee that we would be able to attract employees to support any such operations. Accordingly, our future business prospects as a biopharmaceutical company will be extremely limited unless we are able to take steps to hire key personnel and rebuild a pipeline of product candidates through licenses, acquisitions or both, or through consummation of an alternative transaction. There is substantial uncertainty about our ability to undertake such efforts. Our board of directors may determine to liquidate or dissolve our company. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation or dissolution, as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

In addition, if the mergers are not completed, we could be subject to litigation related to any failure to complete the mergers or to perform our obligations under the Merger Agreement. If the mergers are not completed, our company cannot assure you that these risks will not materialize and will not materially affect our business, financial condition, results of operation and stock price.

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The market price for shares of Revolution Medicines common stock following the completion of the mergers may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market prices of shares of Revolution Medicines common stock and our common stock.

Upon consummation of the mergers, our stockholders will become Revolution Medicines stockholders. Revolution Medicines’ business differs from ours in certain respects, and, accordingly, the financial condition and results of operations of Revolution Medicines after completion of the mergers, as well as the market price of shares of Revolution Medicines common stock, may be affected by factors that are different from those currently or historically affecting the financial condition and results of operations of Revolution Medicines or our company. In addition, the stock market has experienced significant price and volume fluctuations in recent times, which, if they continue to occur, could adversely affect the market for, or liquidity of, Revolution Medicines common stock, regardless of Revolution Medicines’ actual results of operations.

The shares of Revolution Medicines common stock to be received by our stockholders as a result of the First Merger will have rights different from the shares of our common stock.

Upon consummation of the First Merger, the rights of our stockholders, who will become Revolution Medicines stockholders, will be governed by the governing corporate documents of Revolution Medicines in effect at the effective time, including the amended and restated certificate of incorporation and amended and restated bylaws of Revolution Medicines. The rights associated with our common stock are different from the rights which will be associated with Revolution Medicines common stock.

After the mergers, our stockholders will have a significantly lower ownership and voting interest in Revolution Medicines than they currently have in our company and will exercise less influence over management and policies of Revolution Medicines after completion of the mergers.

After completion of the mergers, the current securityholders of our company will own a smaller percentage of Revolution Medicines than their current ownership of our company prior to the mergers. The actual number of shares of Revolution Medicines common stock to be issued and reserved for issuance in connection with the mergers will be determined at completion of the mergers based on the terms of the Merger Agreement and the exchange ratio. Based on the number of shares of common stock of each of Revolution Medicines and our company outstanding on September 15, 2023, the latest practicable date prior to the date of the definitive joint proxy statement/prospectus dated September 29, 2023, and assuming that the exchange ratio is 0.0734, as determined by the volume-weighted average closing price per share of Revolution Medicines common stock for the five trading days ending on and including September 15, 2023, upon completion of the mergers, our stockholders are expected to own approximately 23.8% of the outstanding shares of Revolution Medicines common stock and Revolution Medicines stockholders immediately prior to the mergers are expected to own approximately 76.2% of the outstanding shares of Revolution Medicines common stock. Consequently, our stockholders will have less influence over the management and policies of Revolution Medicines after completion of the mergers than they currently have over the management and policies of our company.

Until the completion of the mergers or the termination of the Merger Agreement in accordance with its terms, Revolution Medicines and we are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Revolution Medicines or our company and our respective stockholders.

From and after the date of the Merger Agreement and prior to completion of the mergers, the Merger Agreement:

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restricts Revolution Medicines and us from taking specified actions without the consent of the other party;

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requires Revolution Medicines and its subsidiaries to use commercially reasonable efforts to conduct their business and operations in the ordinary course of business in all material respects; and

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requires our company and our subsidiaries to use reasonable best efforts to conduct our business and operations consistent with a mutually agreed operating and capital expenditure budget and commercially reasonable efforts to wind down our certain research and development programs.

These restrictions may prevent Revolution Medicines or us from making certain changes to our respective businesses or organizational structures or from pursuing attractive business opportunities that may arise prior to the completion of the mergers, and could have the effect of delaying or preventing other strategic transactions. Adverse effects arising from the pendency of the mergers could be exacerbated by any delays in consummation of the mergers or termination of the Merger Agreement.

The mergers, and uncertainty regarding the mergers, may cause current or future distributors, suppliers or strategic partners to delay or defer decisions concerning Revolution Medicines and us and adversely affect each company’s ability to effectively manage our respective businesses.

The mergers will happen only if the stated conditions are met, including the relevant stockholder approvals, among other conditions. Many of the conditions are outside the control of Revolution Medicines and our company, and both parties also have certain rights to terminate the Merger Agreement. Accordingly, there may be uncertainty regarding the completion of the mergers. This uncertainty may cause current or future distributors, suppliers, vendors, strategic partners or others that deal with Revolution Medicines or us to delay or defer entering into contracts with Revolution Medicines or us or making other decisions concerning Revolution Medicines or us or could cause such distributors, suppliers, vendors, strategic partners or others to seek to change or cancel existing business relationships with Revolution Medicines or us, which could negatively affect their respective businesses. Any delay or deferral of those decisions or changes in existing agreements could have an adverse impact on the respective businesses of Revolution Medicines and our company, regardless of whether the mergers are ultimately completed.

Whether or not the mergers are completed, the announcement and pendency of the mergers will divert significant management resources to complete the mergers, which could have an adverse effect on Revolution Medicines’ and our company’s respective businesses, results of operations and/or market prices.

Whether or not the mergers are completed, the announcement and pendency of the mergers could cause disruptions in the businesses of Revolution Medicines and our company by directing the attention of management of each of Revolution Medicines and our company toward the completion of the mergers and, with respect to us, the wind-down of our current product pipeline and other research and development activities. Revolution Medicines and our company have each diverted significant management resources in an effort to complete the mergers and are each subject to restrictions contained in the Merger Agreement on the conduct of our respective businesses in the period prior to the completion of the mergers. If the mergers are not completed, Revolution Medicines and our company will have incurred significant costs, including the diversion of management resources, for which each company will have received little or no benefit.

Our directors and executive officers have interests and arrangements that may be different from, or in addition to, those of Revolution Medicines and our stockholders generally.

Our stockholders should be aware that our directors and executive officers have interests in the mergers that are different from, or in addition to, those of our stockholders generally. These interests include the treatment in the mergers of outstanding equity, equity-based and incentive awards, severance arrangements, and other compensation and benefit arrangements and the right to continued indemnification of our former directors and officers by Revolution Medicines.

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Revolution Medicines or our company may waive one or more of the closing conditions without re-soliciting stockholder approval.

To the extent permitted by law, Revolution Medicines or our company may determine to waive, in whole or part, one or more of the conditions to its obligations to consummate the mergers. Revolution Medicines and our company currently expect to evaluate the materiality of any waiver and its effect on Revolution Medicines and our stockholders, as applicable, in light of the facts and circumstances at the time to determine whether any amendment of the definitive joint proxy statement/prospectus dated September 29, 2023 or any re-solicitation of proxies or voting cards is required in light of such waiver. Any determination whether to waive any condition to the mergers or as to re-soliciting stockholder approval or amending the definitive joint proxy statement/prospectus as a result of a waiver will be made by Revolution Medicines and our company, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.

Each of Revolution Medicines and our company will incur significant transaction and merger-related costs in connection with the mergers.

Revolution Medicines and our company have each incurred and expect to incur a number of non-recurring costs associated with Revolution Medicines’ acquisition of our company, as well as transaction fees and other costs related to the mergers. These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, filing fees, printing expenses and other related charges. Some of these costs are payable by Revolution Medicines or us regardless of whether the mergers are completed. While both Revolution Medicines and we have assumed that certain expenses would be incurred in connection with the mergers and the other transactions contemplated by the Merger Agreement, there are many factors beyond Revolution Medicines and our control that could affect the total amount or the timing of any transaction and merger-related costs.

Our stockholders will not be entitled to appraisal rights in the mergers.

Appraisal rights are statutory rights that, if applicable under law, enable stockholders of a corporation to dissent from an extraordinary transaction, such as a merger, and to demand that such corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to such stockholders in connection with the transaction. Under the Delaware General Corporation Law, stockholders do not have appraisal rights if the shares of stock they hold are either listed on a national securities exchange or held of record by more than 2,000 holders. Notwithstanding the foregoing, appraisal rights are available if stockholders are required by the terms of the Merger Agreement to accept for their shares anything other than (a) shares of stock of the surviving corporation, (b) shares of stock of another corporation that will either be listed on a national securities exchange or held of record by more than 2,000 holders, (c) cash in lieu of fractional shares or (d) any combination of the foregoing.

Because shares of Revolution Medicines common stock are listed on the Nasdaq, a national securities exchange, and because our stockholders are not required by the terms of the Merger Agreement to accept for their shares anything other than shares of Revolution Medicines common stock and cash in lieu of fractional shares, holders of our common stock will not be entitled to appraisal rights in the mergers.

Our warrants could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

As of September 30, 2023, we had outstanding warrants exercisable for 19,733,290 shares of our common stock with an exercise price of $11.50 per share. At the effective time, each warrant that is outstanding and unexercised immediately prior to the effective time will, in accordance with its terms, automatically cease to represent a warrant exercisable for our common stock and will become a warrant exercisable for the merger consideration that such holder would have received if the warrant had been exercised immediately prior to the effective time. For the avoidance of doubt, no holder of a warrant will be entitled to receive any merger consideration in exchange for such warrant.

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To the extent the trading price of Revolution Medicines common stock multiplied by the exchange ratio exceeds the applicable exercise price for the warrants, the shares of Revolution Medicines common stock issued upon exercise of any of the warrants will result in dilution to the then existing holders of Revolution Medicines common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of the Revolution Medicines common stock.

The Merger Agreement contains provisions that could discourage a potential competing acquirer that might be willing to pay more to acquire or merge with our company.

Our company is subject to certain restrictions on our ability to solicit alternative acquisition proposals from third parties, to provide information to third parties and to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions. In addition, if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, we would be required to pay Revolution Medicines a termination fee of $25,000,000. These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our company from considering or proposing such an acquisition.

The opinion rendered to our board of directors does not and will not reflect changes in circumstances between the signing of the Merger Agreement and the closing of the mergers.

Our board of directors has not obtained an opinion from our financial advisor since the opinion provided on July 31, 2023, nor do we expect to receive an updated, revised or reaffirmed opinion prior to the completion of the mergers. Changes in the business, operations and prospects of our company or Revolution Medicines, general market and economic conditions and other factors that may be beyond the control of our company and Revolution Medicines, and on which such opinion was based, may significantly alter the value of our company or Revolution Medicines or the prices of our common stock or Revolution Medicines common stock by the time the mergers are completed. The opinion of our financial advisor does not speak as of the time the mergers will be completed or as of any date other than the date of such opinion. Because our financial advisor will not be updating its opinion, such opinion will not address the fairness of the exchange ratio from a financial point of view at the time the mergers are completed.

If the mergers, taken together, do not qualify as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended, (the Code) , U.S. holders of our common stock may be required to pay additional U.S. federal income taxes. There are significant factual and legal uncertainties as to whether the mergers will qualify as a “reorganization.”

For U.S. federal income tax purposes, the mergers, taken together, are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. However, there are significant factual and legal uncertainties as to whether the mergers will qualify as a reorganization, particularly given the wind-down of our research and development programs and operations. If the mergers do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of our common stock generally would recognize gain or loss for U.S. federal income tax purposes on each share of our common stock surrendered in the First Merger in an amount equal to the difference between the fair market value, at the time of the First Merger, of the Revolution Medicines common stock received in the First Merger (including any cash received in lieu of a fractional share of Revolution Medicines common stock) and such holder’s adjusted tax basis in our common stock surrendered in the First Merger. Gain or loss must be calculated separately for each block of our common stock exchanged by such U.S. holder if such blocks were acquired at different times or for different prices. Any gain or loss recognized generally would be capital gain or loss, and generally would be long-term capital gain or loss if the U.S. holder’s holding period in a particular block of our common stock is more than one year at the effective time of the First Merger. Long-term capital gain of certain non-corporate taxpayers, including individuals, generally is taxed at reduced U.S. federal income tax rates. The deductibility of capital losses is subject to limitations. A U.S. holder’s tax basis in shares of Revolution Medicines common stock received in the First

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Merger would be equal to the fair market value thereof as of the effective time of the First Merger, and such U.S. holder’s holding period in such shares would begin on the day following the closing of the First Merger.

Other Risks

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and financial condition and results of operations.

Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. In March 2023, a number of banks (e.g., Silicon Valley Bank (SVB), Signature Bank and Silvergate Capital Corp.) were placed into receivership, followed by First Republic Bank in May 2023. Although the Federal Deposit Insurance Corporation (FDIC) and others have taken steps to reduce risk to uninsured depositors, borrowers under credit agreements, letters of credit and certain other financial instruments with such banks or any other financial institutions that are placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. Even though we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors affecting the financial services industry or economy in general, such as these recent bank failures. These factors could also include, among others, liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry and the supervision thereof. In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws, which could have a material adverse effect on our liquidity and on our business, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer or Affiliated Purchasers

The following table provides information with respect to the shares of common stock repurchased by us during the three months ended September 30, 2023:


				Total Number of	Maximum Number (or
				Shares (or Units)	Approximate Dollar Value) of
	Total Number			Purchased as part of	Shares (or Units) that May Yet
	of Shares (or Units)	Average Price		Publicly Announced	Be Purchased Under the Plans
Period	Purchased⁽¹⁾	Paid Per Share (or Unit)		Plans or Programs	or Programs
July 1 - July 31, 2023	133,236	$	0.0002	—	$	—
August 1 - August 31, 2023	—		—	—		—
September 1 - September 30, 2023	35,920		0.0002	—		—

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⁽¹⁾ Pursuant to restricted stock purchase agreements that are further disclosed in note 11 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we, at our discretion, have the right to repurchase unvested shares if the holder’s relationship with our company is terminated at the lesser of the original purchase price of the shares, or the fair value of the shares at repurchase. During the quarter ended September 30, 2023, we repurchased 169,156 shares under this authority.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

ITEM 6. EXHIBITS


Exhibit		Description
2.1 ¥		Merger Agreement (incorporated by reference to Exhibit 2.1 to the Form 8-K filed August 1, 2023.
3.1		Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed December 20, 2021).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Form 8-K filed December 20, 2021).
31.1*		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e).
32.1+		Certification of Principal Executive Officer and Principal Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

____________

¥ Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. EQRx hereby undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the SEC; provided, however, that EQRx may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any exhibits or schedules so furnished.

* Filed herewith.

+ Furnished herewith.

The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: November 6, 2023
	By:	/s/ Melanie Nallicheri
		Melanie Nallicheri
		President and Chief Executive Officer
		(Principal Executive Officer and Principal Financial Officer)

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EQRx (EQRX) 10-Q2023 Q3 Quarterly report

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