EQRX, INC. Throughout this section, unless otherwise noted, "we," "us," "EQRx" and the
"company" refer to
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 1.A. of our Annual Report for the year ended
Overview
We are a biopharmaceutical company committed to developing and commercializing innovative medicines for some of the most prevalent disease areas.
Our lead product candidate, lerociclib, is a novel, oral, and selective small molecule cyclin-dependent kinase (CDK) 4/6 inhibitor in development for use in combination with endocrine therapy. The lead indications being explored are hormone receptor positive (HR+)/human epidermal growth factor receptor 2 negative (HER2-) metastatic breast cancer (mBC) and first-line treatment of advanced/metastatic or recurrent low grade endometrioid endometrial cancer (mEC).
Lerociclib has been studied clinically in patients with metastatic breast cancer
and shown to be highly active with an encouraging tolerability profile in
combination with endocrine therapy. In
In addition, we continue to advance our early-stage research and development (R&D) programs through collaborations with leading drug engineering companies, with a focus on assets with clear potential for market-leading differentiation.
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In
Seeking commercialization partnerships for aumolertinib (third-generation
epidermal growth factor receptor (EGFR) tyrosine kinase inhibitor), outside
applications (MAAs) for aumolertinib for use in the treatment of EGFR-mutated
non-small cell lung cancer (NSCLC) are under review by both the United
? Kingdom's Medicines and Healthcare products Regulatory Agency (MHRA) for a
clinical trial (TREBLE), evaluating the safety and efficacy of aumolertinib in
combination with chemotherapy versus aumolertinib and osimertinib reference
arms for the first-line treatment of EGFR-mutated NSCLC, is ongoing.
We provided notice to CStone Pharmaceuticals (CStone) of our termination of the
license agreement for sugemalimab and nofazinlimab. CStone will regain rights
? for the research, development and commercialization of sugemalimab and
nofazinlimab outside of
regarding our respective transition obligations.
We provided notice to
? termination of the license agreement for EQ121 (JAK-1 inhibitor). Lynk will
regain rights for the research, development and commercialization of EQ121
outside of
We continue to advance our early-stage research and development programs
through collaborations with leading drug engineering companies, with a focus on
? assets with clear potential for market-leading differentiation. Consistent with
the portfolio reset, we plan to terminate those that do not have the clear
potential for differentiation.
We plan to separate our early-stage, potentially differentiated
? immune-inflammatory research and development programs from our oncology
business into a new wholly-owned subsidiary and intend to explore its path as
an independent company and pursue additional funding options.
? We are decreasing our headcount by approximately 170 positions, resulting from
a reduction in force and not filling positions following previous departures.
We do not currently have, and may never have, any product candidates approved for sale and have not generated any revenue to date. We will not generate revenue from product sales unless and until we complete clinical development for our 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 may change as we further the development of our current programs and identify new targets that meet the criteria for inclusion in our portfolio. Further, if we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, manufacturing and distribution activities. We will need substantial additional funding to pursue our longer-term business goals. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of 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, we have 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.
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Since inception, we have incurred significant operating losses. Our operating
losses were
Restructuring
In
In relation to our
Financial Overview Revenue
To date, we have not recognized any revenue, including from product sales. If our development efforts for our product candidates are successful and result in regulatory approval, or we out-license (including sublicense) our 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;
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? 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.
The following table summarizes our research and development expenses (in
thousands):
Three months ended
March 31,
2023 2022
Lerociclib $ 6,145 $ 1,931
Aumolertinib 14,545 5,085
Sugemalimab 11,963 7,794
Nofazinlimab 514 717
EQ121 870 7,278
Preclinical assets 7,558 8,755Unallocated other research and development expenses 13,259 7,891 Unallocated compensation expense
16,079 13,977
Total research and development expenses $ 70,933 $ 53,428 The successful development of our product candidates is highly uncertain. For
example, in
the scope, rate of progress, and expenses of our ongoing 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;
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? successful enrollment in and completion of clinical trials;
? whether our product candidates show safety and efficacy in our clinical trials;
? receipt of marketing approvals from applicable regulatory authorities;
? the progress of our 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 our product candidates;
? commercializing product candidates, if and when approved, whether alone or in
collaboration with others; and
? 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 our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our 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 Part II, Item 1A. "Risk Factors" herein as well as those risk factors under the caption "Summary of Risk Factors" for additional information on risk factors that could impact the discovery, development and regulatory approval of our product candidates.
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.
We expect that we will incur additional accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. In addition, if and when we obtain regulatory approval for our product candidates, we expect to incur additional expenses related to the building of our team to support product sales and distribution activities. 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.
Restructuring Expenses
Restructuring expenses consist of employee termination costs related to the
Other Income (Expense)
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
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Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities includes the changes in fair value of the Private Warrants and the Public Warrants, which are classified as liabilities, and were assumed as part of the Business Combination.
Interest Income (Expense), Net
Interest income (expense), net primarily consists of income earned on our cash, cash equivalents and short-term investments.
Other Income (Expense), Net
Other income (expense), net consists of miscellaneous income and expense unrelated to our core operations.
Results of Operations
Comparison of the Three Months Ended
Three months ended
March 31,
2023 2022 Change
Operating expenses:
Research and development $ 70,933 $ 53,428 $ 17,505
General and administrative 27,277 32,263 (4,986)
Restructuring 3,588 - 3,588
Total operating expenses 101,798 85,691 16,107
Loss from operations (101,798) (85,691) (16,107)
Other income (expense):
Change in fair value of contingent
earn-out liability 1,929 101,774 (99,845)
Change in fair value of warrant
liabilities 1,888 3,947 (2,059)
Interest income, net 15,442 182 15,260
Other income (expense), net (12) 514 (526)
Total other income, net 19,247 106,417 (87,170)
Net income (loss) $ (82,551) $ 20,726 $ (103,277) Research and Development Expenses
Research and development expenses were
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General and Administrative Expenses
General and administrative expenses were
Restructuring Expenses
Restructuring expenses were
Other Income, Net
Total other income, net was
Liquidity and Capital Resources
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
Funding Requirements
We believe that our existing cash, cash equivalents and short-term investments
on hand as of
We expect to incur significant expenses and operating losses for the foreseeable future as we seek regulatory approvals, advance our product candidates, pursue commercialization of any approved product candidates and advance other candidates in our pipeline through preclinical and clinical development. In addition, we expect 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 our 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 outcome, timing and costs of meeting regulatory requirements established by
the FDA, the EMA, the MHRA and other regulatory authorities;
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? the progress of our efforts to acquire, in-license or sub-license rights to, or
otherwise discover (alone or in partnership) additional product candidates;
the timing and amount of milestone and royalty payments that we are required to
? make or are eligible to receive under our current or future collaboration and
license agreements;
the costs and timing of future commercialization activities, including product
? manufacturing, marketing, sales and distribution, for any of our product
candidates for which we receive marketing approval;
? the costs and timing of completion of commercial-scale manufacturing
activities;
? efforts to develop and maintain our commercialization strategy;
? the scope, progress, results and costs of our research programs and development
of any additional product candidates that we may pursue;
? our headcount size and associated costs as we continue our research and
development efforts and potentially establish our commercial infrastructure;
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;
the revenue, if any, received from commercial sales of aumolertinib and
? lerociclib (subject to receipt of marketing approvals therefor) and any other
product candidates for which we receive marketing approval; 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, we expect to finance our cash needs through a combination of 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 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 product development or future commercialization efforts or grant third parties rights to develop and market our product candidates even for product candidates that we would otherwise prefer to develop and market ourselves.
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Cash Flows
The following table sets forth the major sources and uses of cash for each of
the periods (in thousands):
Three months ended
March 31,
2023 2022
Net cash used in operating activities $ (85,546) $ (53,938)
Net cash used in investing activities (40,359) (13)
Net cash provided by (used in) financing activities 127 (1,323)
Net decrease in cash, cash equivalents and restricted cash
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 income (loss) for non-cash operating items such as gain (loss) from change in fair value of contingent earn-out and warrant liabilities, 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 three months ended
Cash used in operating activities for the three months ended
Investing Activities
Cash used in investing activities for the three months ended
Cash used in investing activities for the three months ended
Financing Activities
Cash provided by financing activities for the three months ended
Cash used in financing activities for the three months ended
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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, revenues and 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
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