UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2020

OR

For the transition period from                  to                 

Commission File Number: 001-39385

RELAY THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

(617) 370-8837

Registrant’s telephone number, including area code

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 November 10, 2020, the registrant had 89,984,775 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

i

SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

ii

iii

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

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In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed above under “Summary of the Material Risks Associated with Our Business” and under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Relay Therapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

See accompanying notes.

1

Relay Therapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

See accompanying notes.

2

Relay Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share and per share data)

(Unaudited)

3

See accompanying notes.

4

Relay Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share and per share data)

(Unaudited)

See accompanying notes.

5

Relay Therapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Reconciliation of Cash, Cash Equivalents and Restricted Cash from Balance Sheets to Statement of Cash Flows

See accompanying notes.

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Relay Therapeutics, Inc.

Notes to Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

1. Nature of Business and Basis of Presentation

Relay Therapeutics, Inc. (the “Company”) was incorporated in Delaware on May 4, 2015 and is headquartered in Cambridge, Massachusetts. The Company is a clinical-stage precision medicines company transforming the drug discovery process with an initial focus on enhancing small molecule therapeutic discovery in targeted oncology. The Company is built upon unparalleled insights into protein motion and how this dynamic behavior relates to protein function. The Company’s Dynamo platform integrates an array of leading edge experimental and computational approaches, which allows the Company to apply the understanding of protein structure and motion to drug discovery. The Company is advancing its lead product candidates, RLY-4008 and RLY-1971, and a development candidate selection for a PI3Kα selective mutant program, known as the RLY-PI3K1047 program, for the treatment of patients with advanced solid tumors. The Company initiated a Phase 1 clinical trial for RLY-1971 in patients with advanced solid tumors in the first quarter of 2020 and a first-in-human clinical trial of RLY-4008 enriched for patients with advanced solid tumors having oncogenic FGFR2 alterations in September 2020.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, 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 development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

The Company has devoted substantially all of its resources to developing its product candidates, including RLY-1971 and RLY-4008, and the RLY-PI3K1047 program by developing its innovative experimental and computational approaches on protein motion, building its intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.

The Company has incurred net operating losses since inception and had an accumulated deficit of $439,504 as of September 30, 2020. The Company expects that its existing cash, cash equivalents and investments as of September 30, 2020 will enable it to fund its planned operating expenses and capital expenditure requirements for at least one year from the date of the issuance of these condensed consolidated financial statements. The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a material adverse effect on its financial condition and ability to pursue its business strategies. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaboration arrangements or obtain government grants. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects. In the event the Company requires additional funding, there can be no assurance that it will be successful in obtaining sufficient funding on terms acceptable to the Company to fund its continuing operations, if at all.

Initial Public Offering

On July 20, 2020, the Company closed its initial public offering (“IPO”) and issued 23,000,000 shares of its common stock at a price of $20.00 per share for net proceeds of $425,293, after deducting underwriting discounts and commissions of $32,200 and expenses of $2,507. In connection with the IPO, all shares of Series A, Series B and Series C convertible preferred stock converted into 61,992,534 shares of common stock.

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Reverse Stock Split

On July 8, 2020, the Company’s stockholders approved a decrease in the number of authorized shares of common stock from 260,000,000 to 150,000,000. The Company also effected a one-for-3.55092 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

2. Significant Accounting Policies

Basis of presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. The Company’s consolidated financial statements include the accounts of Relay Therapeutics, Inc. and its wholly-owned subsidiary, Relay Therapeutics Securities Corporation. All intercompany balances and transactions have been eliminated.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of September 30, 2020, the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019, and the consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited. The unaudited consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position as of September 30, 2020 and the consolidated results of its operations and cash flows for the three and nine months ended September 30, 2020 and 2019. The consolidated financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are unaudited. The consolidated results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of research and development and manufacturing expenses, the valuation of equity instruments, the probability of achieving milestones for performance-based vesting of equity awards, and the incremental borrowing rate for determining the operating lease asset and liability. Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

The full extent to which the 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 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. Actual results could differ from the Company’s estimates.

Recently Adopted Accounting Pronouncements

The Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2020. This standard modifies certain disclosure requirements on fair value measurements. The adoption of this standard did not have a material impact on the Company’s disclosures.

8

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and it establishes additional disclosure requirements related to credit risks. For available-for-sale debt securities with expected credit losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This guidance was originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption was permitted. In November 2019, the FASB subsequently issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, whereby the effective date of this standard for smaller reporting companies was deferred to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is still permitted.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This standard amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and amends the related earnings per share (“EPS”) guidance. The ASU will be effective for smaller reporting companies for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is assessing the impact of ASU 2020-06 on the condensed consolidated financial statements and does not expect it to have a material impact.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends certain aspects of the existing guidance to improve consistent application. The new standard will be effective for public business entities for fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact ASU 2019-12 may have on its financial position and results of operations upon adoption.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to use the extended transition period related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different effective dates for public and nonpublic companies, the Company can adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

3. Fair Value of Financial Assets

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

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In determining the fair value of its investments 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. The Company did not have any financial assets or liabilities that required Level 3 inputs during any of the periods presented in the accompanying consolidated financial statements.

4. Investments

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

All available-for-sale securities have contractual maturities of less than one year.

5. Convertible Preferred Stock

The Company issued Series A, Series B and Series C convertible preferred stock (collectively, “Convertible Preferred Stock”). Upon issuance of each class of Convertible Preferred Stock, the Company assessed the embedded conversion and liquidity features of the shares and determined that such features did not require the Company to separately account for these features. The Company also concluded that no beneficial conversion feature existed on the issuance date of each class of Convertible Preferred Stock. The Company’s Convertible Preferred Stock was classified outside of stockholders’ equity (deficit) on the consolidated balance sheet prior to the Company’s IPO because the holders of such shares had liquidation rights in the event of a deemed liquidation that, in certain situations, were not solely within the control of the Company and would require the redemption of the then-outstanding Convertible Preferred Stock. The Convertible Preferred Stock was not redeemable, except in the event of a deemed liquidation. Because the

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occurrence of a deemed liquidation event was not currently probable, the carrying values of the Convertible Preferred Stock were not accreted to their redemption values. The rights and preferences for Convertible Preferred Stock are detailed in audited financial statements included in the Company’s final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on July 16, 2020.

On July 8, 2020, the Company’s board of directors and its Series C preferred stockholders approved a reduction in the conversion price of the Series C preferred stock from $3.21 to $3.027603 and the Series C preferred stockholders relinquished their protective right with respect to the approval of an automatic conversion of preferred stock in a firm commitment underwritten public offering if the per share price is less than $22.80. As a result of the change in the conversion price, the outstanding shares of Series C preferred stock were convertible into 37,206,604 shares of common stock. The changes to the conversion feature are considered to be a significant change to the substantive contractual terms of the Series C preferred stock, and, therefore, the Company accounted for the changes as an extinguishment and reissuance of the Series C preferred stock, which requires the difference between the fair value of the modified Series C preferred stock and its carrying amount to be treated in a manner similar to the treatment of dividends paid on preferred stock.

Upon the closing of the Company’s IPO in July 2020, all outstanding Convertible Preferred Stock automatically converted into 61,992,534 shares of common stock. No Convertible Preferred Stock was outstanding as of September 30, 2020.

6. Common Stock

The Company has issued restricted shares of common stock to its founders and non-employees. In addition, the Company has issued restricted shares of common stock upon the early exercise of stock options under the Company’s 2016 Stock Option and Grant Plan (the “2016 Stock Plan”). The restrictions on the common shares generally lapse over four years. The Company has included the proceeds from the sale of the restricted shares of common stock as a restricted stock liability in the accompanying consolidated balance sheets. Amounts are reclassified to additional paid-in capital as the restrictions lapse. The Company has the right to repurchase any unvested shares of restricted common stock at the original cost in the event of termination.

The following table summarizes the restricted stock activity for the nine months ended September 30, 2020:

Employee Stock Purchase Plan

On July 8, 2020, the Company’s shareholders approved the 2020 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on the date immediately prior to the effectiveness of Company’s registration statement on Form S-1 for its IPO. The ESPP provides for the issuance of up to 1,092,532 of share-based awards. As of September 30, 2020, no shares have been issued under the ESPP.

7. Share-Based Payments

In 2016, the Company adopted the 2016 Stock Plan. On July 8, 2020, the Company’s shareholders approved the 2020 Stock Option and Incentive Plan (the “2020 Stock Plan”), which became effective on the date immediately prior to the effectiveness of the Company’s registration statement on Form S-1 for its IPO. The 2020 Stock Plan provides for the issuance of up to 8,376,080 of share-based awards. All of the Company’s employees, officers, directors and consultants are eligible to be granted options, restricted stock units (“RSUs”) and other stock-based awards under the terms of the 2020 Stock Plan. There were 8,275,722 share-based awards available for grant at September 30, 2020.

Subsequent to July 20, 2020, no further awards will be made under the 2016 Stock Plan and all future equity-based awards will be granted under the 2020 Stock Plan. To the extent outstanding options granted under the 2016 Plan are cancelled, forfeited or otherwise terminated without being exercised and would otherwise have been returned to the share reserve under the 2016 Plan, the number of shares underlying such awards will be available for future grant under the 2020 Stock Plan.

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The following table summarizes the stock option activity under the 2016 Stock Plan and the 2020 Stock Plan for the nine months ended September 30, 2020:

In the first quarter of 2020, the Company’s board of directors approved the issuance of options with performance-based vesting conditions to purchase 1,960,547 shares of common stock. The commencement of vesting is based on the achievement of certain scientific and operational milestones during a two-year period, for which the achievement is discretionary and subject to the approval of the Company’s board of directors. Accordingly, the Company is applying variable accounting for these awards until the board of directors approves the commencement of vesting of the options. The service inception date precedes the grant date for these awards as the awards have been authorized, the recipients are providing service prior to the grant date, and there are performance conditions that, if not met by the accounting grant date, would result in the forfeiture of the award. Therefore, the stock-based compensation expense to be recognized for the options is based on the fair value of the awards on the accounting grant date. The Company’s board of directors, in its discretion, determined that a portion of the performance conditions had been achieved during the second quarter of 2020. The Company has made a probability assessment of the likelihood for achievement of the remaining conditions as of September 30, 2020. The Company recognized stock-based compensation expense associated with the options for which the board of directors approved the commencement of vesting and for awards where achievement of the performance conditions is considered probable in the amount of $10,324 and $12,947 in the statement of operations for the three and nine month periods ended September 30, 2020, respectively.

Stock-based compensation expense included in the Company’s consolidated statements of operations and comprehensive loss is as follows:

As of September 30, 2020, total unrecognized compensation cost related to the unvested stock-based awards was $55,762, which is expected to be recognized over a weighted average period of 2.64 years.

8. Net Loss Per Share

The following table summarizes the computation of basic and diluted net loss per share of the Company:

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As discussed in Note 5, on July 8, 2020, the Company’s board of directors and its Series C preferred stockholders approved an amendment to the conversion preferences and rights of the Series C preferred stock which, among other changes, resulted in a reduction in the conversion price of the Series C preferred stock from $3.21 to $3.027603. The changes to the conversion feature are considered to be a significant change to the substantive contractual terms of the Series C preferred stock, and, therefore, the Company accounted for the changes as an extinguishment and reissuance of the Series C preferred stock. In accordance with SEC staff guidance codified in ASC 260-10-S99-2, when equity classified preferred shares are extinguished, the difference between (1) the fair value of the consideration transferred to the holders of the preferred shares and (2) the carrying amount of the preferred shares, net of issuance costs, is subtracted from (or added back to) net income to arrive at income available to common stockholders in the calculation of EPS. This difference between fair value of consideration transferred and carrying amount of the preferred shares, also referred to as a “deemed dividend”, has therefore been added back to net loss above to derive net loss attributable to common shareholders.

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

9. Commitments and Contingencies

Intellectual Property License

The Company has a Collaboration and License Agreement with D. E. Shaw Research, LLC (“D. E. Shaw Research”). The agreement provides that the parties will jointly conduct research efforts with the goal of identifying and developing product candidates. The original term of the agreement was three years and required the Company to pay an annual fee of $1,000. On June 15, 2020, the Company and D. E. Shaw Research agreed to amend the Collaboration and License Agreement (the “Amended and Restated Collaboration and License Agreement”). The Amended and Restated Collaboration and License Agreement extended the term of the agreement to August 16, 2025 and increased the annual fee from $1,000 to $7,900. The Amended and Restated Collaboration and License Agreement automatically renews for successive one year periods unless either party provides at least one year notice of non-renewal, and the annual fee during each of the one year renewal terms is subject to the mutual agreement of the Company and D. E. Shaw Research.

The Company is obligated to pay potential development milestone payments under the terms of the agreement up to $7,300 per target, plus sales milestones and royalties, upon the achievement of certain specified contingent events. The Company assessed the milestone and royalty events at September 30, 2020 and December 31, 2019, respectively, and concluded no such payments were due. The Company recorded research and development expense of $1,845 and $250 under this agreement for the three months ended September 30, 2020 and 2019, respectively, and $3,069 and $750 for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020 and December 31, 2019, the Company had an accrued expense balance to D. E. Shaw Research of approximately $2,941 and $372, respectively.

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Other Research Arrangements

The Company has certain other research and license arrangements with third parties, which provide the Company with research services with the goal of identifying and developing product candidates. The Company is obligated to pay development milestone payments for up to four targets, each in the range of $4,000 to $7,000, upon the achievement of certain specified contingent events. The Company assessed the milestones at September 30, 2020 and December 31, 2019, respectively, and concluded no such milestone payments were due. The Company incurred approximately $235 and $245 of research and development expense under these agreements for the three months ended September 30, 2020 and 2019, respectively, and $1,665 and $871 for the nine months ended September 30, 2020 and 2019, respectively.

Other Commitments

In September 2020, the Company entered into an amendment to its existing facility lease agreement dated January 2018 to expand the leased area by approximately 1,824 square feet of office space at 399 Binney Street, Cambridge, Massachusetts. The amendment is effective as of October 2020 and expires in April 2029, subject to certain renewal options. As the Company did not control the space as of September 30, 2020, no right of use asset or lease liability was recorded as of the balance sheet date. In connection with the lease amendment, the Company has committed to making $1.3 million in rental payments for the expansion space over the lease term.

10. Related Party Transactions

From inception to December 31, 2019, the Company received consulting and management services from Third Rock Ventures LLP (“TRV”), an entity affiliated with certain of the Company’s investors. There were no amounts incurred for these services in the three and nine months ended September 30, 2020 and no amount was due for these services as of September 30, 2020. The Company incurred approximately $121 for these services during the three months ended September 30, 2019 and $171 for the nine months ended September 30, 2019. At December 31, 2019, $80 was due to TRV for these services.

11. Subsequent Events

In preparing the consolidated interim financial statements as of September 30, 2020 and for the three and nine month periods then ended (unaudited), the Company evaluated subsequent events for recognition and measurement purposes through the filing date of this Quarterly Report on Form 10-Q. The Company concluded that no events or transactions have occurred that require disclosure in the accompanying consolidated financial statements.

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You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage precision medicines company transforming the drug discovery process with an initial focus on enhancing small molecule therapeutic discovery in targeted oncology. Our company is built upon unparalleled insights into protein motion and how this dynamic behavior relates to protein function. We built our Dynamo platform to integrate an array of leading edge experimental and computational approaches, which allows us to apply our understanding of protein structure and motion to drug discovery.

We are advancing our lead product candidates, RLY-1971 and RLY-4008, and a development candidate selection for a PI3Kα selective mutant program, or the RLY-PI3K1047 program, for the treatment of patients with advanced solid tumors. We initiated a Phase 1 clinical trial of RLY-1971, our inhibitor of Src homology region 2 domain-containing phosphatase-2, or SHP2, in patients with advanced solid tumors in the first quarter of 2020. We initiated a first-in-human clinical trial for RLY-4008, our inhibitor of fibroblast growth factor receptor 2, or FGFR2, enriched for patients with advanced solid tumors having oncogenic FGFR2 alterations in September 2020. We anticipate the RLY-PI3K1047 program to be in Investigational New Drug, or IND, enabling studies in 2021. While our initial focus is on precision oncology, we believe our Dynamo platform may also be broadly applied to other areas of precision medicine, such as genetic disease. Across both precision oncology and genetic disease, we have five additional discovery stage programs. We are focused on using the novel insights derived from our approach to transform the lives of patients suffering from debilitating and life-threatening diseases through the discovery, development and commercialization of our therapies.

We were incorporated in May 2015. We have devoted substantially all of our resources to developing our lead product candidates, developing our innovative experimental and computational approaches on protein motion, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.

On July 20, 2020, we closed our initial public offering, or IPO, and issued 23,000,000 shares of our common stock at a price of $20.00 per share for net proceeds of $425.3 million, after deducting underwriting discounts and commissions of $32.2 million and expenses of $2.5 million. In connection with the IPO, all shares of Series A, Series B and Series C convertible preferred stock converted into 61,992,534 shares of common stock. Prior to our IPO, we had received gross proceeds of approximately $520.0 million from sales of our preferred stock and our issuance of convertible debt.

Since it was reported to have surfaced in December 2019, COVID-19 has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements and stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.

While we are currently continuing the clinical trials we have underway, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials. To date, we have been able to continue to enroll our patients in the first-in-human clinical trials for RLY-1971 and RLY-4008, and we currently do not anticipate any interruptions of clinical enrollment. However, we are continuing to assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system.

Since our inception, we have incurred significant operating losses on an aggregate basis. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $87.7 million and $51.4 million for the nine month periods ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $439.5 million. These losses have resulted primarily from costs incurred in connection with research and development activities, licensing and patent investment, and general and administrative costs associated with our operations. We expect to continue to incur significant expenses, including the costs of operating as a public company, and generate increasing operating losses for at least the next several years.

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We believe our cash, cash equivalents and investments of $713.5 million as of September 30, 2020 will enable us to fund our operating expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We will need to raise additional capital in the future to continue developing the drugs in our pipeline and to commercialize any approved drug. We may seek to obtain additional financing in the future through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan.

Components of our Results of Operations

Operating Expenses

Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.

Research and Development Expenses. Research and development expenses include:

We expense research and development costs as the services are performed or the goods are received. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.

We began tracking external development costs by program on January 1, 2020 for programs that have entered clinical trials. We do not allocate internal costs, facilities costs, or other overhead costs to specific programs. The following summarizes our costs by program based on their status in development:

Our most advanced development programs, RLY-1971 and RLY-4008, are enrolling patients in first-in-human clinical trials. Programs in discovery and pre-clinical stages include our RLY-P13K1047 program as well as other earlier stage programs. Costs incurred for these programs include costs incurred to support our discovery research and translational science efforts up to the initiation of first-in-human clinical development. Platform research and other research and development activities include costs that are not specifically allocated to active product candidates, including facilities costs, depreciation expense, and other costs. Employee related expenses includes salary, wages, stock-based compensation, and other costs related to our personnel, which are not allocated to specific programs or activities.

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We cannot determine with certainty the duration and costs of future clinical trials of RLY-1971 and RLY-4008 and future development costs of our RLY-P13K1047 program, if, when or to what extent we will generate revenue from the commercialization and sale of any our product candidates for which we obtain marketing approval or our other research and development costs. We may never succeed in obtaining marketing approval for any of our product candidates.

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical trials of RLY-1971 and RLY-4008, the development of our RLY-PI3K1047 program and to identify and develop additional product candidates.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel expenses, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our product candidates. We also expect to incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs.

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Other Income, Net

Other income, net consists of interest income, primarily interest earned on our cash, cash equivalents and investments.

Income Taxes

Since our inception in 2015, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items.

Results of Operations

Comparison of the three months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:

Research and Development Expenses

Research and development expenses were $24.4 million for the three months ended September 30, 2020, compared to $18.3 million for the three months ended September 30, 2019. The increase of $6.1 million was primarily due to $5.7 million of additional employee related costs, including an increase in stock-based compensation of $4.6 million, and $2.1 million for clinical trial expenses associated with RLY-1971 and RLY-4008, which both commenced in 2020, offset in part by a decrease of $1.6 million in outside and consulting services for our pre-clinical candidates.

General and Administrative Expenses

General and administrative expenses were $12.2 million for the three months ended September 30, 2020, compared to $3.7 million for the three months ended September 30, 2019. The increase of $8.5 million was primarily due to $7.0 million of increased personnel costs, including increased stock-based compensation of $6.0 million, to support our infrastructure and $1.5 million of other general and administrative expenses primarily attributed to an increase in insurance expense.

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Other Income, Net

Other income, net, decreased to $0.5 million for the three months ended September 30, 2020 from $2.2 million for the three months ended September 30, 2019 primarily as a result of lower interest rates.

Comparison of the nine months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019: