EQRX - Early stage biotech with upcoming lockup expiry

This DD brought to you by your very own FUCK_CCIV. Was browsing r/spacs when I came across her comment. I double checked some of the claims made.


Reasons why I’m short EQRX:
-Company is currently trading at a 2B market cap w/ no path to profitability and no potential entry into the US market
-They did their clinical trials in China, and their drug "has no visible path to market with China-only data"Source: https://endpts.com/asco2022-roundup-cg-oncology-builds-on-head-turning-combo-data-eqrx-doesnt-have-a-way-into-us-markets/
-Insider unlock ends tomorrow 6/14, unlocking 278m of insider shares.Source: https://pbs.twimg.com/media/FU6G6SCWUAEpBv0?format=jpg&name=medium
(Not the best source, also in SEC filings but not linking those here)
-The main institutional holder of EQRX stock SB Management LTD appears to potentially be liquidating their fund, or definitely downsizing/deleveraging.
Source: https://www.nasdaq.com/market-activity/institutional-portfolio/sb-management-ltd-1134620
-Similar despac SMFR by the same sponsor (which frankly I think is also a better business) is trading had 1/4 the market cap of EQRX and $1.45 per share.
Potential bull cases:
-They have a ton of cash on hand (think book value is like $3/share) so a large move to the downside on insider unlock would result in trading below book value. However, this isn’t uncommon for despacs.
-Given their huge cash reserves, they could potentially acquire another company that could get them cash flow positive or provide a catalyst for a reversal.
-XBI in general has been so oversold for weeks, if the sector have a reversal could be a “rising tide lifts all boats” scenario.

Not a ton of meat left on the bone for this one.
Regarding claims of lock-up expiry on the 6/14 I believe this is accurate. From their 8-K on December 17th (Merger date was December 16th):

In connection with the execution of the Merger Agreement, CMLS III entered into a Stockholder Lock-Up Agreement from several Legacy EQRx stockholders. Pursuant to such Stockholder Lock-Up Agreement, each stockholder has agreed, from the Closing Date until the earliest of (a) the date that is 180 calendar days from the Closing Date, and (b) the date following the Closing Date on which we complete a liquidation,
merger, stock exchange or other similar transaction that results in all of our stockholders having the right to exchange their shares of our capital stock for cash, securities or other property; not to (i) sell, offer to sell, contract or agree to sell, hypothecate pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, with respect to Common Stock issued to such stockholder pursuant to the Merger Agreement (such shares of Common Stock, the “Lock-up Shares”), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii).

180 days would put us at June 14th for the lockup expiry.

Regarding cash on hand:
They have $1.62 billion cash on hand and 471,379,724 shares outstanding so that gives us
a cash per share value of ~$3.44.
Source - 10-Q

Doesn’t seem to be too enticing of a trade given that they are basically trading at cash value. What are your thoughts on this?

Their burn rate is $55 million for the last 3 months which projects to around $220 million per year. Obviously this is subject to change as Eqrx might do clinical trials in the U.S. to meet the FDA’s standards. Still, it seems like they have a few years of cash runway left. :thinking:

It’s up about 40% since lockup expiry. This turned out to be even worse than CVT :kekw: If you took a position blame FUCK_CCIV.