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PROSPECTUS SUPPLEMENT NO.2

Filed Pursuant to Rule 424(B)(3)

(to Prospectus dated March 28, 2022)

Registration No. 333-261786

Logo

Description automatically generated

Up to 209,267,414 Shares of Common Stock

Up to 19,733,333 Shares of Common Stock Issuable Upon Exercise of Warrants

Up to 8,693,333 Warrants

This prospectus supplement updates and supplements the prospectus dated March 28, 2022 (the prospectus), which forms a part of our registration statement on Form S-1, as amended (No. 333-261786). This prospectus supplement is being filed to update and supplement the information in the prospectus with the information contained in our Quarterly Report on Form 10-Q for the three months ended June 30, 2022, filed with the Securities and Exchange Commission on August 11, 2022 (the Form 10-Q). Accordingly, we have attached the Form 10-Q to this prospectus supplement.

The prospectus and this prospectus supplement relate to the issuance by us of an aggregate of up to 19,733,333 shares of our common stock, $0.0001 par value per share (Common Stock), which consists of (i) up to 8,693,333 shares of Common Stock that are issuable upon the exercise of 8,693,333 warrants (the Placement Warrants) originally issued in a private placement in connection with the initial public offering of CM Life Sciences III Inc. (CMLS) by the holders thereof and (ii) up to 11,040,000 shares of Common Stock that are issuable upon the exercise of 11,040,000 warrants (the Public Warrants and, together with the Placement Warrants, the Warrants) originally issued in the initial public offering of CMLS by the holders thereof. We will receive the proceeds from any exercise of any Warrants for cash.

The prospectus and this prospectus supplement also relate to the offer and sale from time to time by the selling securityholders named in the prospectus (the Selling Securityholders) of (i) up to 209,267,414 shares of Common Stock (including up to 8,693,333 shares of Common Stock that may be issued upon exercise of the Placement Warrants) and (ii) up to 8,693,333 Placement Warrants. We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to the prospectus. However, we will pay the expenses, other than underwriting discounts and commissions and expenses incurred by the Selling Securityholders for brokerage, accounting, tax or legal services or any other expenses incurred by the Selling Securityholders in disposing of the securities, associated with the sale of securities pursuant to the prospectus.

This prospectus supplement should be read in conjunction with the prospectus, including any amendments or supplements thereto. This prospectus supplement updates and supplements the information in the prospectus. If there is any inconsistency between in the information in the prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

The Common Stock and Public Warrants are listed on The Nasdaq Global Market (Nasdaq) under the symbols “EQRX” and “EQRXW,” respectively. On August 10, 2022, the closing price of the Common Stock was $5.99 and the closing price for the Public Warrants was $1.32.

See the section entitled “Risk Factors” beginning on page 8 of the prospectus and under similar headings in any amendments or supplements to the prospectus to read about factors you should consider before buying our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is August 11, 2022.


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

or

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

For the transition period fromto

Commission File Number: 001-40312

EQRx, Inc.

(Exact name of registrant as specified in its charter)

Delaware

86-1691173

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

50 Hampshire Street, Cambridge, MA

02139

(Address of principal executive offices)

(Zip Code)

(617)315-2255

(Registrant's telephone number, including area code)

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

    

    

Name of each exchange

Title of each class

Trading Symbol(s)

on which registered

Common stock, par value $0.0001 per Share
Warrants to purchase one share of common stock at an exercise price of $11.50

EQRX
EQRXW

The Nasdaq Global Market
The Nasdaq Global Market

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

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

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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

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

As of August 5, 2022, the registrant had 448,141,108 shares of common stock, $0.0001 par value, outstanding.


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Page

PART I FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

Condensed Consolidated Statements of Stockholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

4

Notes to Condensed Consolidated Financial Statements

5

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

25

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

39

Item 3. Defaults Upon Senior Securities

39

Item 4. Mine Safety Disclosures

39

Item 5. Other Information

39

Item 6. Exhibits

40

Signatures

41

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “EQRx,” “the Company,” “we,” “us,” “our” and similar references refer to EQRx, Inc. together with its consolidated subsidiaries. The trademarks of EQRx appearing in this Quarterly Report on Form 10-Q are the property of EQRx. This Quarterly Report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing herein 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,” “intends,” “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, 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 ability to realize the anticipated benefits from the Business Combination (as defined below), which may be affected by, among other things, the costs of the Business Combination, competition and our ability to grow and manage growth profitably and retain our key employees;
the success, cost and timing of our product development activities;
our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations of any approved product;
our ability to locate and acquire complementary products or product candidates and integrate those into our business;
our ability to maintain our existing or enter into additional license agreements;
our ability to maintain our existing or enter into additional drug engineering collaborations;
our ability to maintain our existing or enter into additional manufacturing agreements;
our ability to compete with other companies currently marketing or engaged in the development of innovative drug candidates, many of which have greater financial and marketing resources than we do;
our ability to develop and maintain our Global Buyers Club;
the size and growth potential of the markets for our products, and the ability of each to serve those markets, either alone or in partnership with others;
changes in applicable laws or regulations;
our ability to raise capital in the future;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance;
our ability to compete effectively in a competitive industry;
our ability to protect and enhance our corporate reputation and brand;
expectations concerning our relationships and actions with third parties;
potential liquidity and trading of our securities;
our ability to attract and retain qualified directors, officers, employees and key personnel; and
the impact of the ongoing COVID-19 pandemic on us.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including without limitation:

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

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Our business and pricing model are untested and may never be successful or generate sufficient revenue to lead to profitability.
Our business model requires us to scale our pipeline through increasing our number of product candidates (by in-license, discovery alone or in partnership, or acquisition), and developing such product candidates, which we may be unable to successfully achieve or maintain.
Our failure to manage growth effectively could cause our business to suffer and have an adverse effect on our ability to execute our business strategy, as well as operating results and financial condition.
We may be unsuccessful in achieving broad market awareness and acceptance or changing prescribing or purchasing habits of healthcare system participants or keeping up to date with recent developments in the medical field regarding treatment options.
We may be unable to continue to attract, acquire and retain third-party collaborators, including payers, collaboration partners and licensors, or may fail to do so in an effective manner. Our collaborations with third-parties are also subject to certain risks.
Our financial projections are subject to significant risks, assumptions, estimates and uncertainties, and our actual results may differ materially.
If our preclinical studies and clinical trials are not sufficient to support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate.
We have never successfully completed the regulatory approval process for any of our product candidates, and we may be unable to do so for any product candidates.
If regulators do not accept data from our license partners generated in other jurisdictions as a basis for regulatory approvals in our target markets, or we experience delays in obtaining data from our license partners, 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.
Our current or future product candidates may cause adverse or other undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Even if we are successful in obtaining regulatory approval in one indication or jurisdiction for a product candidate, it does not guarantee that we will be able to obtain regulatory approval in any other indication or jurisdiction.
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.
If we are unable to obtain and maintain patent and other intellectual property protection for our technology and product candidates, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology and drugs may be impaired.

Additional discussion of the risks, uncertainties and other factors described above, as well as other risks and uncertainties material to our business, can be found under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 23, 2021, and we encourage you to refer to that additional discussion. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.

Also, 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

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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.

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PART I – FINANCIAL INFORMATION

EQRx, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share information)

June 30, 

December 31, 

2022

    

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

 

$

864,436

$

1,678,542

Short-term investments

692,911

Prepaid expenses and other current assets

 

30,944

 

27,660

Total current assets

 

1,588,291

 

1,706,202

Property and equipment, net

 

1,516

 

1,985

Restricted cash

 

633

 

633

Right-of-use asset

 

4,889

 

2,672

Other investments

 

4,000

 

4,000

Other non-current assets

 

8,950

 

13,950

Total assets

$

1,608,279

$

1,729,442

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

13,019

$

7,640

Accrued expenses

 

39,617

 

28,904

Lease liability, current

 

2,619

 

3,102

Total current liabilities

 

55,255

 

39,646

Non-current liabilities:

 

  

 

  

Contingent earn-out liability

 

59,472

 

153,041

Warrant liabilities

 

15,984

 

21,115

Lease liability, non-current

 

2,645

 

272

Restricted stock repurchase liability

 

422

 

529

Total liabilities

 

133,778

 

214,603

Commitments and contingencies (note 14)

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred Stock, $0.0001 par value, 2,000,000 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common Stock, $0.0001 par value; 1,250,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 538,004,900 and 537,632,615 shares issued as of June 30, 2022 and December 31, 2021, respectively; and 474,077,426 and 469,369,433 shares outstanding at June 30, 2022 and December 31, 2021, respectively

 

49

 

49

Additional paid-in capital

 

1,896,797

 

1,873,289

Accumulated other comprehensive (expense) income

 

(2,025)

 

1

Accumulated deficit

 

(420,320)

 

(358,500)

Total stockholders’ equity

 

1,474,501

 

1,514,839

Total liabilities and stockholders’ equity

$

1,608,279

$

1,729,442

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

Six months ended

June 30, 

June 30, 

2022

 

2021

 

2022

 

2021

Operating expenses:

 

Research and development

$

47,298

$

21,416

$

100,726

$

38,093

General and administrative

31,792

13,223

64,055

23,505

Total operating expenses

79,090

34,639

164,781

61,598

Loss from operations

(79,090)

(34,639)

(164,781)

(61,598)

Other (expense) income:

Change in fair value of contingent earn-out liability

(8,205)

93,569

Change in fair value of warrant liabilities

1,184

5,131

Interest income, net

4,091

19

4,273

163

Other (expense) income, net

(526)

94

(12)

92

Total other (expense) income, net

(3,456)

113

102,961

255

Net loss

$

(82,546)

$

(34,526)

$

(61,820)

$

(61,343)

Other comprehensive loss:

Foreign currency translation adjustments

9

16

Unrealized holding losses on short-term investments

(2,042)

(2,042)

Comprehensive loss

$

(84,579)

$

(34,526)

$

(63,846)

$

(61,343)

Net loss per share - basic

$

(0.17)

$

(0.11)

$

(0.13)

$

(0.19)

Net loss per share - diluted

$

(0.17)

$

(0.11)

$

(0.13)

$

(0.19)

Weighted average common shares outstanding - basic

473,058,458

318,272,186

471,849,487

314,903,264

Weighted average common shares outstanding - diluted

473,058,458

318,272,186

471,849,487

314,903,264

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

Series A Convertible Preferred Stock

Series B Convertible Preferred Stock

Common Stock

Additional Paid-in

Comprehensive

Accumulated

Total Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

 Capital

    

  Income (Loss)

    

 Deficit

    

Equity

Balance at December 31, 2020

$

$

298,295,250

$

31

$

740,542

$

$

(258,491)

$

482,082

Issuance of Series B convertible preferred stock, net of issuance costs of $169

 

 

 

26,133,332

 

71,256

 

 

 

 

 

 

Retroactive application of recapitalization

 

 

(26,133,332)

 

(71,256)

 

16,385,591

 

2

 

71,254

 

 

 

71,256

Vesting of restricted common stock

 

 

 

 

 

2,280,370

 

 

26

 

 

 

26

Stock-based compensation

 

 

 

 

 

 

 

784

 

 

 

784

Net loss

 

 

 

 

 

 

 

 

 

(26,817)

 

(26,817)

Balance at March 31, 2021

 

$

 

$

 

316,961,211

$

33

$

812,606

$

$

(285,308)

$

527,331

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

Vesting of restricted common stock

 

 

 

 

 

2,135,105

 

 

27

 

 

 

27

Stock-based compensation

 

 

 

 

 

 

 

1,016

 

 

 

1,016

Net loss

 

 

 

 

 

 

 

 

 

(34,526)

 

(34,526)

Balance at June 30, 2021

 

$

 

$

 

319,096,316

$

33

$

813,649

$

$

(319,834)

$

493,848

Accumulated Other

Series A Convertible Preferred Stock

Series B Convertible Preferred Stock

Common Stock

Additional Paid-in

 Comprehensive

Accumulated

Total Stockholders'

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

 Capital

    

 Income (Loss)

    

 Deficit

Equity

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

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

9

 

 

9

Stock-based compensation

 

 

 

 

 

 

 

9,988

 

 

 

9,988

Unrealized loss on available for sale securities

(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

See accompanying notes to the condensed consolidated financial statements.

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EQRx, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

    

Six months ended

June 30, 

2022

    

2021

Operating activities:

 

  

 

  

Net loss

$

(61,820)

$

(61,343)

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

 

 

  

Stock-based compensation

22,894

 

1,800

Depreciation expense

639

 

579

Net amortization of premiums and discounts on investments

(1,339)

Change in fair value of contingent earn-out liability

(93,569)

 

Change in fair value of warrant liabilities

(5,131)

 

Non-cash lease expense

(327)

 

767

Changes in operating assets and liabilities:

Prepaid expense and other assets

1,821

 

(11,395)

Accounts payable

5,550

 

6,504

Accrued expenses

11,914

 

2,258

Net cash used in operating activities

 

(119,368)

 

(60,830)

Investing activities:

 

 

  

Purchases of property and equipment

(162)

 

(295)

Purchases of investments

(693,614)

Net cash used in investing activities

 

(693,776)

 

(295)

Financing activities:

 

  

 

  

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

71,256

Offering cost paid in connection with Business Combination and PIPE Financing

(1,363)

 

Proceeds from issuance of common stock

401

 

345

Net cash (used in) provided by financing activities

(962)

 

71,601

(Decrease) increase in cash, cash equivalents and restricted cash

(814,106)

 

10,476

Cash and restricted cash, beginning of period

 

1,679,175

 

490,315

Cash and restricted cash, end of period

$

865,069

$

500,791

Supplemental disclosure of non-cash activities

 

  

 

  

Receivable due from stock option exercises

$

105

$

Purchases of property and equipment in accounts payable

$

8

$

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

Legacy EQRx was formed on August 26, 2019 and launched in January 2020 as a new type of pharmaceutical company committed to developing and delivering innovative medicines to patients at radically lower prices.

The Company’s mission is to improve health for all with great, innovative, affordable medicines so that people with life-changing or chronic conditions can gain access to the medicines they need, physicians can treat patients without barriers to prescribing, and health systems can afford to make those medicines available, without restrictions, to the populations they serve in a financially sustainable manner. This approach starts with assembling a catalog of medicines at significant scale, targeting some of the most innovative clinical opportunities and highest drug cost categories of today and tomorrow, with an initial focus on oncology and immune-inflammatory diseases.

Assuming it is successful in obtaining regulatory approval, the Company plans to offer its catalog of innovative medicines to payers and health systems at radically lower prices, through a simple and transparent pricing model without surprise price increases. The Company is assembling a Global Buyers Club by entering into strategic partnerships with private and public payers and health systems so they and the patients they serve can gain access to its future medicines, if approved, at radically lower prices. The Company will offer simple and transparent pricing models to provide an opportunity for dramatic savings in these high-cost drug areas. The Company’s current pipeline of product candidates includes two late-stage programs each in-licensed in 2020: aumolertinib (EQ143), a third-generation epidermal growth factor receptor (EGFR) inhibitor, and sugemalimab (EQ165, also known as CS1001), an anti-programmed death-ligand 1 (PD-L1) antibody.

The Business Combination was accounted for as a reverse recapitalization with Legacy EQRx being the accounting acquirer and CMLS III as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the condensed consolidated financial statements and accompanying notes represents the accounts of Legacy EQRx and its wholly-owned subsidiaries. The shares and net loss per common share prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. For additional information on the Business Combination, refer to note 4 to these condensed consolidated financial statements.

Risks and Uncertainties

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

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significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance and reporting capabilities.

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

The full extent to which the ongoing COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, additional strains of COVID-19 and where outbreaks occur, and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. These situations, or others associated with COVID-19, could cause delays in the Company’s clinical trial plans and could increase expected costs, all of which could have a material adverse effect on the Company’s business and its financial condition. The Company has implemented work-from-home and other policies, and is continuing to adapt to evolving federal, state and local health regulations. COVID-19 has not had a significant impact on the operations or financial results of the Company to date.

Liquidity

The Company has limited operating history and anticipates that it will incur losses for the foreseeable future as it builds its internal infrastructure, identifies and acquires product candidates, conducts the research and development of its product candidates, and seeks marketing approval for its late-stage programs. The Company had a net loss of $61.8 million for the six months ended June 30, 2022, which included non-cash income of $98.7 million resulting from the recognition of the contingent earn-out liability and warrant liabilities at fair value at June 30, 2022, as compared to a net loss of $61.3 million for the six months ended June 30, 2021. Prior to the Business Combination, the Company funded its operations with its initial public offering, and its subsidiary, EQRx International, Inc., funded its operations with borrowings under the convertible promissory notes it issued in October 2019 and from the sale of convertible preferred stock.

As of June 30, 2022, the Company had cash, cash equivalents, short-term investments and restricted cash of $1.6 billion and an accumulated deficit of $420.3 million. The Company expects that its cash, cash equivalents, short-term investments and restricted cash outstanding as of June 30, 2022 will be sufficient to fund its obligations for at least twelve 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 an immaterial wholly-owned foreign subsidiary. All intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ("ASC").

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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, 2021 and the related notes, which provide a more complete discussion of the Company’s accounting policies and certain other information. The December 31, 2021 condensed consolidated balance sheet was derived from the Company’s audited financial statements. These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position as of June 30, 2022, its results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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 consolidated financial statements include, but are not limited to, the valuation of the Company’s common stock, the accrual of research and development and manufacturing expenses, stock-based compensation expense, the valuation of the contingent earn-out liability, and the fair value of 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 June 30, 2022 and December 31, 2021 consist of U.S. government money market funds and commercial paper (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):

June 30, 

    

2022

    

2021

Cash and cash equivalents

$

864,436

$

500,158

Restricted cash

 

633

 

633

Total cash, cash equivalents and restricted cash

$

865,069

$

500,791

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4. BUSINESS COMBINATION

Summary of Business Combination

On December 17, 2021, Merger Sub, a wholly-owned subsidiary of CMLS III, merged with Legacy EQRx, with Legacy EQRx surviving as a wholly-owned subsidiary of CMLS III, a related party. Pursuant to the terms of the Merger Agreement, on the Closing Date, each outstanding share of issued and outstanding common stock and preferred stock of Legacy EQRx was converted into the right to receive 0.627 shares (the “Exchange Ratio”) of the combined entity’s common stock, par value $0.0001 per share (“Common Stock”), resulting in the issuance of a total of 343,060,309 shares of Common Stock. Additionally, on the Closing Date, each option to purchase common stock of Legacy EQRx became an option to purchase shares of Common Stock of the combined company, subject to adjustment in accordance with the Exchange Ratio.

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, par value $0.0001, at an exercise price of $11.50 per share.

As of the Closing Date, each of the issued and outstanding shares of Class A common stock and Class B common stock (“Founders Stock”) of CMLS III automatically converted, on a one-for-one basis, into shares of Common Stock, and each of the issued and outstanding Private Warrants and Public Warrants automatically converted into warrants to acquire shares of Common Stock.

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

The number of shares of Common Stock outstanding immediately following the consummation of the Business Combination was as follows:

    

Shares

Common stock of CMLS III outstanding prior to Business Combination

 

69,000,000

Less redemption of CMLS III shares

 

(39,587,066)

Less Founders Stock forfeited

 

(4,840,628)

Common stock of CMLS III as of the Business Combination

 

24,572,306

Common Stock issued pursuant to PIPE Financing

 

120,000,000

Business Combination and PIPE Financing shares

 

144,572,306

Common stock issued in Business Combination to Legacy EQRx stockholders

 

343,060,309

Total shares of common stock issued immediately after Business Combination

 

487,632,615

The Business Combination has been accounted for as a “reverse recapitalization” in accordance with GAAP. Under the reverse recapitalization model, the Business Combination was treated as Legacy EQRx issuing equity for the net assets of CMLS III, with no goodwill or intangible assets recorded. Under this method of accounting, CMLS III was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the fact that subsequent to the merger, Legacy EQRx stockholders held a majority of the voting power of the combined company, Legacy EQRx comprised all of the ongoing operations of the combined entity, Legacy EQRx comprised a majority of the governing body of the combined company, and Legacy EQRx senior management comprised all of the senior management of the combined company.

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Net Proceeds

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

Recapitalization

Cash - CMLS III's Trust account and cash (net of redemptions)

$

158,160

Cash - PIPE Financing

 

1,200,000

Less transaction costs and fees paid as of the Closing Date

 

(53,596)

Proceeds from the Business Combination, net of transaction costs paid as of the Closing Date

 

1,304,564

Less transaction costs paid following the Closing Date

 

(1,363)

Net proceeds from the Business Combination

$

1,303,201

Earn-Out Shares

Following the Closing Date, holders of Legacy EQRx securities and options (“Earn-Out Service Providers”) are entitled to receive as additional merger consideration up to 50,000,000 shares of Common Stock (the “Earn-out Shares”), comprised of two separate tranches, for no consideration upon the occurrence of certain triggering events. Earn-Out Service Providers may receive a pro rata share of up to 35,000,000 additional shares of Common Stock if at any time between the 12-month anniversary of the Closing Date and the 36-month anniversary of the Closing Date (the “Earn-Out Period”), the Common Stock price is greater than or equal to $12.50 for a period of at least 20 out of 30 consecutive trading days (“Tranche 1”), and up to 15,000,000 additional shares of common stock if at any time during the Earn-Out Period the Common Stock price is greater than or equal to $16.50 for a period of at least 20 out of 30 consecutive trading days (“Tranche 2”).

Earn-Out Shares allocated to Earn-Out Service Providers who held equity securities not subject to any vesting conditions or restrictions as of the Closing Date of the Business Combination are accounted for in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”), as the Earn-Out Shares are not indexed to the  Common Stock. Pursuant to ASC 815, these Earn-Out Shares were accounted for as a liability at the Closing Date of the Business Combination and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. The fair value of the Earn-Out Shares accounted for under ASC 815 was $240.1 million at the Closing Date and was recognized as a liability in the condensed consolidated balance sheet.

Earn-Out Shares allocated to Earn-Out Service Providers who held shares of common stock or options to purchase common stock that are subject to time-based vesting conditions or restrictions as of the Closing Date of the Business Combination are accounted for in accordance with ASC Topic 718, Share-Based Compensation (“ASC 718”), as the Earn-Out Shares are subject to forfeiture based on the satisfaction of certain service conditions. Pursuant to ASC 718, these Earn-Out Shares were measured at fair value at the grant date (the Closing Date) and will be recognized as expense over the time-based vesting period with a credit to additional paid-in-capital. The fair value of the Earn-Out Shares accounted for under ASC 718 was $43.4 million at the Closing Date.

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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):

    

June 30, 2022

Level 1

    

Level 2

    

Level 3

    

Total

Assets

 

  

 

  

 

  

 

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

 

$

181,964

 

$

 

$

 

$

181,964

Commercial paper (due within 90 days)

 

 

680,470

 

 

680,470

Investments:

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

63,576

63,576

Commercial paper (due within 1 year)

629,335

629,335

Total financial assets

$

181,964

$

1,373,381

$

$

1,555,345

Liabilities

 

  

 

  

 

  

 

  

Contingent earn-out liability

$

$

$

59,472

$

59,472

Warrant liabilities

 

8,942

 

7,042

 

 

15,984

Total financial liabilities

$

8,942

$

7,042

$

59,472

$

75,456

    

December 31, 2021

Level 1

    

Level 2

    

Level 3

    

Total

Assets

 

  

 

  

 

  

 

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

 

$

1,345,174

 

$

 

$

 

$

1,345,174

Commercial paper (due within 90 days)

 

 

329,345

 

 

329,345

Total financial assets

$

1,345,174

$

329,345

$

$

1,674,519

Liabilities

 

  

 

  

 

  

 

  

Contingent earn-out liability

$

$

$

153,041

$

153,041

Warrant liabilities

 

11,813

 

9,302

 

 

21,115

Total financial liabilities

$

11,813

$

9,302

$

153,041

$

174,156

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

The fair value of the Public Warrants was based on observable listed prices for such warrants. The fair value of the Private Warrants is equivalent to that of the Public Warrants as they have substantially the same terms; however, they are not actively traded. The change in the fair value of the Warrants during the six months ended June 30, 2022 was as follows (in thousands):

    

Fair Value

Fair value as of December 31, 2021

 

$

21,115

Change in fair value of warrant liabilities

 

(5,131)

Fair value as of June 30, 2022

$

15,984

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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 earnout 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 valuation model:

    

June 30, 

    

December 31, 

2022

2021

Market price of public stock

 

$

4.69

 

$

6.82

Expected share price volatility

 

54.7%

 

54.0%

Risk-free interest rate

 

2.95%

 

0.96%

Estimated dividend yield

 

0.0%

 

0.0%

The change in the fair value of the contingent earn-out liabilities during the six months ended June 30, 2022 was as follows (in thousands):

    

Fair Value

Fair value as of December 31, 2021

 

$

153,041

Change in fair value of earn-out liability

 

(93,569)

Fair value as of June 30, 2022

$

59,472

6.  SHORT-TERM INVESTMENTS

Short-term investments consist of investments in U.S. Treasury bills and commercial paper of publicly traded companies that are classified as available-for-sale pursuant to ASC Topic 320, Investments—Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its condensed consolidated balance sheets. Investments are carried at fair value with unrealized gains and losses included as a component of accumulated other comprehensive loss, which is a separate component of stockholders’ equity, until such gains and losses are realized. The fair value of these securities is based on quoted prices for identical or similar assets. The Company estimates the expected credit losses on its securities only when the fair value of an available-for-sale debt security is below its amortized cost basis, and credit losses are limited to the amount by which the security’s amortized cost basis exceeds its fair value. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. The Company adjusts the cost of available-for-sale securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion in interest income.

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The fair value of available-for-sale investments by type of security was as follows (in thousands):

    

June 30, 2022

Amortized Cost Basis

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

Available-for-sale securities:

  

  

  

  

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

$

63,856

$

$

(280)

$

63,576

Commercial paper (due within 1 year)

631,097

(1,762)

629,335

Total available-for-sale securities

$

694,953

$

$

(2,042)

$

692,911

There were no realized gains or losses on investments for the three and six months ended June 30, 2022. There were 27 investments in an unrealized loss position as of June 30, 2022. None of these investments was in an unrealized loss position for greater than 12 months as of June 30, 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 June 30, 2022. The Company did not hold any available-for-sale securities as of December 31, 2021.

7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following (in thousands):

June 30, 

December 31,

Estimated Useful Life

2022

2021

Property and equipment:

    

  

    

  

    

  

Leasehold improvements

 

Lesser of useful life or life of lease

 

$

1,632

$

1,492

Furniture and fixtures

 

5 years

 

1,215

 

1,215

Capitalized website development

 

1-3 years

 

233

 

577

Computer equipment

 

3 years

 

251

 

222

Work-in-progress

 

n.a.

 

 

 

3,331

 

3,506

Less: Accumulated depreciation

 

  

 

(1,815)

 

(1,521)

Property and equipment, net

 

  

$

1,516

$

1,985

During the three and six months ended June 30, 2022, the Company recorded approximately $0.2 million and $0.6 million, respectively, in depreciation expense. During the three and six months ended June 30, 2021, the Company recorded approximately $0.3 million and $0.6 million, respectively, in depreciation expense.

8. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

June 30, 

December 31, 

2022

2021

External research and development

    

$

26,294

    

$

23,282

Accrued compensation

 

7,017

 

417

Accrued professional services

 

4,981

 

4,075

Accrued consulting

 

593

 

811

Other

 

732

 

319

Total accrued expenses

$

39,617

$

28,904

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9. CONVERTIBLE PREFERRED STOCK

Series A Convertible Preferred Stock

On January 10, 2020, Legacy EQRx entered into a Series A Preferred Stock Purchase Agreement (“Series A Purchase Agreement”), pursuant to which it could raise up to approximately $218.0 million through the issuance of up to 234,257,469 Series A shares, excluding the issuance of shares of Series A upon conversion of the October 2019 Notes, par value $0.0001 per share, for $0.9306 per share (“Series A Original Issue Price”).

During 2020, Legacy EQRx sold a total of 234,257,469 shares of its Series A for gross proceeds of $218.0 million, excluding the shares of Series A issued upon conversion of the October 2019 Notes.

Series B Convertible Preferred Stock

On November 2, 2020 (the “Series B Original Issue Date”), Legacy EQRx entered into a Preferred Stock Purchase Agreement, as amended on November 18, 2020 (“Series B Purchase Agreement”), pursuant to which it immediately issued 98,654,203 shares of Series B convertible preferred stock (“Series B”) (the “Series B Initial Closing”) at a purchase price of $2.7419 per share (the “Series B Original Issue Price”).

Under the Series B Purchase Agreement, after the Series B Initial Closing, Legacy EQRx could sell, in one or more additional closings, 191,473,066 additional shares of Series B to one or more purchasers who were existing stockholders of Legacy EQRx or are mutually acceptable to the Company and its board of directors, provided that (a) such subsequent closings were consummated prior to March 31, 2021, (b) each such additional purchaser became a party to the Series B transaction agreements, and (c) Legacy EQRx did not sell and issue more than 191,473,066 shares in aggregate in all closings under the Series B Purchase Agreement (“Series B Additional Closings”). During the year ended December 31, 2020, Legacy EQRx issued a total of 181,261,150 shares of Series B for aggregate proceeds of $497.0 million in the Series B Initial Closing and through Series B Additional Closings.

On January 28, 2021, Legacy EQRx further amended the Series B Purchase Agreement to increase the number of shares of Series B that could be issued under the agreement from 191,473,066 to 207,885,043. In January and February 2021, Legacy EQRx issued an additional 26,133,332 shares of Series B at the Series B Original Issued Price for aggregate proceeds of $71.7 million.

Conversion of Convertible Preferred Stock

Pursuant to the terms of the Merger Agreement, upon the Closing Date, each share of Legacy EQRx convertible preferred stock issued and outstanding immediately prior to the Closing Date was converted into shares of the combined company’s common stock using an exchange ratio of 0.627. A retroactive adjustment has been applied to all periods presented to reflect the Business Combination and reverse recapitalization as discussed further in note 4 and note 11.

10. WARRANTS

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

Subsequent to the Business Combination, the Public Warrants and Private Warrants meet 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

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Private Warrants, which precludes them from being considered indexed to the entity’s own stock. Therefore, the Warrants are classified as liabilities on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021. As of June 30, 2022, no Warrants have been exercised or redeemed.

As of June 30, 2022, 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

The Public Warrants became exercisable for shares of Common Stock commencing on January 16, 2022. The Public Warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.

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 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.

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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 completion of a Business Combination, 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 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 June 30, 2022 and December 31, 2021 using the listed trading price of $0.81 and $1.07, respectively.

11. STOCKHOLDERS’ EQUITY

The consolidated statement of stockholders’ equity for the six months ended June 30, 2021 has been retroactively adjusted to reflect the Business Combination and reverse recapitalization (see note 4).

Preferred Stock

Upon closing of the Business Combination, pursuant to the terms of its Amended and Restated Certificate of Incorporation, the Company became authorized to issue 2,000,000 shares of preferred stock with a par value $0.0001 per share. The Company’s board of directors has the authority, without further action by the stockholders to issue such shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the dividend, voting, and other rights, preferences and privileges of the shares. There were no issued and outstanding shares of preferred stock as of June 30, 2022.

Common Stock

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

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

As of June 30, 2022, 538,004,900 shares of Common Stock were issued, including 40,674,556 shares sold to Legacy EQRx’s founders, employees and advisors under restricted stock agreements (see note 12) that were exchanged in the Business Combination for Company Common Stock, and 50,000,000 Earn-Out Shares.

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12. STOCK-BASED COMPENSATION

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

Upon completion of the Business Combination, the Company ceased issuing awards under the 2019 Plan. The total number of shares of Common Stock that may be issued under the 2021 Plan was 59,353,357 at plan adoption (“Share Reserve”). The 2021 Plan provides that the Share Reserve will automatically increase on January 1, 2022 and each January 1 thereafter, by 5% of the outstanding number of shares of Common Stock on the immediately preceding December 31 or such lesser number of shares as determined by the Compensation and Talent Development Committee (the “Annual Increase”). Share limits under the 2021 Plan are subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The shares of Common Stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under each of the 2021 Plan and the 2019 Plan will be added back to the Share Reserve. As of June 30, 2022, 64,743,156 shares remain available for future grant under the 2021 Plan.

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 June 30, 

Six months ended June 30, 

2022

    

2021

 

2022

    

2021

Research and development

$

3,632

 

$

319

$

7,473

 

$

541

General and administrative

 

6,356

 

697

 

15,421

 

1,259

Total stock-based compensation

$

9,988

$

1,016

$

22,894

$

1,800

Stock Options

A summary of stock option activity for employee and nonemployee awards during the six months ended June 30, 2022 is presented below:

Weighted

Average

Aggregate

Weighted-

Remaining

Intrinsic

Average

Contractual

Value

Exercise

Term

(in

    

Options

    

    Price

    

(years)

    

    thousands)

Outstanding at December 31, 2021

21,624,447

$

3.39

9.22

$

82,038

Granted

21,548,533

Exercised

(372,285)

Cancelled/forfeited

(2,399,951)

Outstanding at June 30, 2022

 

40,400,744

$

3.35

 

9.22

$

70,663

Vested at June 30, 2022

 

6,896,016

$

2.35

 

8.76

$

17,028

Vested and expected to vest at June 30, 2022

 

40,400,744

$

3.35

 

9.22

$

70,663

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The fair value of each stock option was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:

Six months ended
June 30,

    

2022

    

2021

 

Risk-free interest rate